Contributed by Lewis J. Walker, CFP®
A survey from HomeServe USA cited by MarketWatch and New York Post, April 5, 2017, painted a grim financial picture for many Americans. About 19% of those surveyed had zero dollars set aside for emergencies; 31% had less than $500 available to cover unexpected expenses.
Debt is one factor. While fewer borrowers have housing debt, student and auto loan debt has jumped. Car loans totaled nearly $1.2 trillion at yearend 2016, up 9% from 2015 and 13% above the pre-crisis peak in 2005. Some cite this as an indicator of consumer confidence, however, the delinquent loan rate is rising, reflecting strained budgets.
As financial advisors, we have the pleasure of working with clients who diligently achieved financial independence. We define "financial independence" as the ability to live the life you wish with meaning and purpose. That doesn’t mean you have to be rich, but that money and cash flow is sufficient to run your life with confidence.
There’s no secret to financial security, just common sense basics. First, stay in school and get training and education. Don't marry too young or have children out of wedlock. We have helped unmarried mothers and they struggle. Develop good written and verbal skills. Make a good appearance. Attention classes of 2017-2023: those who make hiring decisions may be from a generation older than yours. What you think is cool may not be in the mind of a decision maker. You may think that’s not fair, but it’s life!
Develop sound money habits early. I did not come from money. My mother and stepdad worked hard, but mom joked about “too much month at the end of the money.” I had multiple chores but no allowance. If I was to have money, I had to earn and save it. Well before age 10 I was an entrepreneur, doing chores for neighbors, collecting items to sell to the junkman, etc. Some of the most successful people I know are entrepreneurs, professionals, and just plain creative people. A side gig can be rewarding.
Avoid the debt trap. I was raised by grandparents until age 10. Grandpa worked diligently and eschewed most debt. If he and grandma did not have the cash, they did not buy. I still remember the celebration when the mortgage was paid off on the house.
Credit cards are best used for convenience, to establish credit for when needed, and for accumulating travel points or cash back. Pay the balance due each month. Avoid expensive consumer and credit card debt. Yes, “stuff happens,” and sometimes borrowing makes sense. Use debt wisely, go for the lowest rate possible, and endeavor to be debt free by retirement at the very least.
Establish a “what if?” emergency fund early in your career and marriage. What if you had one year’s worth of living expenses in an FDIC-insured fund? Wouldn’t that give you confidence and peace of mind? How many people are trapped in a job they hate, but they stick it out because they are two weeks from financial disaster and cannot afford to miss a paycheck? A rainy day cash fund gives you options and keeps you out of expensive short-term debt.
If you are not engaged in your job, that’s a formula for mental, physical, and paycheck stagnation. Gallup says that 22% of workers are not engaged in their work; 51% of the employees in the average company are looking to make a change or are open to solicitation. Employers take note!
The key to success, says Gallup, is to “find out what you do well, and do more of it!” Buy the book, StrenthsFinder 2.0 by Tom Rath, and take the assessment. The assessment will reveal your top strengths. If you are operating from strength, you will enjoy higher levels of satisfaction and achievement. There’s a 100% correlation between engagement, using your strengths, and financial and mental success!
Maintain adequate levels of health, disability, life, and liability insurance. As noted, stuff happens. Have a valid will and powers of attorney for assets and healthcare. Your wellbeing and that of loved ones depends on advanced planning and adequate protection.
You want to reach retirement, whatever that is, fiscally and physically fit. What does “retirement” really look like? You may be vibrant, looking good on the veranda of a sleek cruise ship, but what else will keep you engaged, living with purpose? Money isn’t meaning or purpose, merely a tool to aid self-actualization, to cite Abraham Maslow.
When your child or grandchild asks for something, a motivational response may be, “Sure, you can have that, if you buy it with your own money.” That will kick start good financial habits early!
Lewis Walker is a financial planning and investment strategist at Capital Insight Group; 770-441-2603. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Capital Insight Group. Lewis Walker is a Gallup Certified Strengths Coach.