Here’s a fun fact: Only 4 states require financial education in secondary schools, but everybody– everybody— deals with money on a daily basis. You buy groceries. You pay off bills. You write a check or cash one. You get bank statements, credit card statements, investment reports… And while most of us understand what all those cards and papers and accounts and numbers mean on the surface, we’re never taught how to use them to create and secure our financial futures. If we could dig a little deeper into the financial mire that we wade through every day, we’d realize that we’re actually sitting on a crystal ball. Look into it, and you’ll see a vision of your financial future. It’s just a matter of knowing how to conjure it.
As a financial advisor, I talk to people every day about how to do exactly that. Most people put money into savings almost as an afterthought; they pay their taxes, they pay their bills, and if they have a little left over, they might save it. But moderate savings plus dwindling Social Security benefits plus the vague assumption that it will all work itself out is no longer enough to retire on. You need financial planning. And contrary to what you may think, financial planning isn’t just for the wealthy. Regardless of your income level or how much you have in the bank at this very moment, there are four cornerstones of sound financial reasoning that you can start to consider right now in order to secure your tomorrow.
- Growth. The interest you are paid on the money you save is considered growth, and there are a couple of important numbers to take into account when evaluating how your wealth is growing. First, interest rate. If your money is in the bank, your interest rate is pretty low, probably around a percent. Higher is better, of course, but the real benchmark is the rate of inflation, which hovers around 3% annually. If your money is making less than 3% interest, when you draw on it to retire in 20 or 30 years, it will actually be worth less than when you put it in.
- Safety. It’s all well and good to talk about high interest rates, but often the price of those high rewards is high risk tied to the fluctuating market. In an ideal situation, the money you invest in the market would be actively managed, meaning that someone who knows what they’re doing is taking your money in and out of the market as it ebbs and flows. Again, this isn’t a service for the super rich; some companies will actively manage investments of as little as $5,000.
- Taxes. Let’s say you’re a farmer. If you have a bunch of seeds that you know will eventually become a large crop, would you rather pay taxes on the seeds or on the harvest? You money can be the same way. Deferred tax savings options may be attractive short-term, but in the long run you will pay more and end up with less. Explore no tax options like Roth IRAs to avoid feeling the pain of taxes when you need the money most.
- Protection. I mention it last, but it’s first in importance. Think of homeowners and car insurance. Your house and your car are big, important, expensive items that are worth insuring against the unexpected. A car accident or storm damage would otherwise be financially devastating. But you know what loss is even more devastating? You. You are your biggest asset, and you should treat yourself like one. If something happens to your car, you may have to pay for it. But if something happens to you and you can no longer work, you can’t pay for anything. Life insurance policies are part of savvy financial planning and can ensure not only your future, but your family’s as well.
The four points above are broad but vital. I encourage everyone to take some time, do a little research, and evaluate each of these aspects in your own financial lives. You might be surprised at what you find, and how accessible help might be in improving your tomorrow.
To learn more about how to make a secure tomorrow for you and your family, feel free to attend Fradel Barber’s FREE workshop, “Money Matters” on June 6th in Brooklyn. For more details and to get better acquainted with Fradel and World Financial Group, go to http://moneymattersnyc.eventbrite.com/