One of the savviest business-people on the planet, Warren Buffett, once said “In business, the rearview is always clearer than the windshield.” In business, it’s common to look back to see where the money was spent, i.e., how much was used for payroll, taxes, marketing, R&D, operations, etc. But knowing where the business is headed and where future monies will be spent is an entirely different story. Successful businesses have learned how to have a clear financial windshield.
This same set of circumstances is completely true for your personal finances. Looking back on how much you spent on your house, car(s), groceries, clothing, recreation, taxes, loan payments, etc., can be readily understood. However, looking forward is where things get cloudy!
If your financial windshield is clear, you will have a much better chance of being in great financial condition next week, next month, next year, when you want to buy a home, when you want to go on vacation, when your kids go to college, and ultimately when you retire. Thus, the question for you is “How do you get a clear financial windshield?”
Wiping the smudge off your financial windshield revolves around a few key elements, including knowing your current financial situation, deciding what you want, and coming up with a plan.
Know your current financial situation
Know where your money is being spent: Even though is it is relatively easy to look back and see where your money has been spent, many people don’t! It’s so easy to think, “Oh, I’d say we spend $300 a month on movies, going out to eat, and other fun activities,” but when you sit down and add it all up, it ends up being a monthly average of $488! This same thing can be said for all spending in areas like clothing, groceries, fuel, etc. Guestimates don’t cut it – know the numbers!
Know how much you are paying in interest: If you have loans, you are probably well acquainted with the loan payments. However, do you know how much of your payments are going to principal versus how much goes to interest? You might be shocked to see how much faster you can pay off a loan just by paying a little more each time!
Know how much you are paying in taxes: It’s easy to look at your W-2 at the end of the year and see how much you paid in federal taxes, state taxes and social security. However, do you know if you are taking advantage of all the tax advantaged accounts that might be offered through your employer? Many employers offer “Pre-Tax” products like Health Savings Accounts, Flexible Spending Accounts, Commuter, Dependent Care FSA, Limited Purpose FSA and even gym reimbursement. Find out if your employer is offering any of these tax advantaged accounts!
Decide what you want
Do you want to pay off loans? Servicing loan debt can be one of the most frustrating and challenging things you might face related to your finances. Wondering why the balances are staying so high? Wondering if the loan(s) will ever get paid off? Stressing over those consistent and never-ending payments that are always due on the same day EVERY month?
Do you want to go on a vacation, buy some new furniture or buy that new mountain bike? You work hard, so reward yourself! But don’t go out and hike-up your credit card debt to make it happen. There are much better ways to get the money you need for vacations, furniture and nice toys. Buying these kinds of things can be very rewarding when you buy them the right way!
Do you want to buy a house or condo? Sure, you can live in your parent’s basement, rent a small apartment or move from friend to friend’s house, but there is a better way! Real estate ownership has many rewards that are both fulfilling and financially wise. You should take advantage of these opportunities!
Do you want to save for your kid’s college experience? If you want to help your kid(s) pay for their college experience, start early! Waiting until your child is 14 is not ideal. If you start early and take advantage of the right type of account and investment vehicle, you will be surprised at how quickly these college savings funds will grow! But you should make sure that saving for your kid’s college does not come at the cost of your own retirement.
Do you want to live a wonderful retirement? Just like saving for college, the earlier you begin to save for retirement the better. However, it isn’t just about starting early. You have many options to choose from, including a 401(k), ROTH IRA, Health Savings Account, etc. Make sure you fully understand the differences between each of these accounts. For example, very few people understand that a Health Savings Account is one of the most powerful retirement savings vehicles.
Come up with a plan
Find the right technology to help you map out all the above. You could start with a wealth advisor, banker or insurance specialist to help you map out your financial plan, but it is often easier to begin with an unbiased technology platform that can give you “just the facts” and help get the ball rolling.
After you get your financial situation mapped out and you understand your goals and objectives, you can then start working with various professionals, advisors and financial vehicles. Doing things in the right order will be very helpful to get you well on your way to a bright financial future.
Get started today! Stop looking in the rearview only. Know where you stand, decide what you want, come up with a plan, and then take action. Don’t wait any longer to start cleaning off your financial windshield. You will be surprised at how beautiful your financial future will look!
Your financial future starts today
Savology has helped tens of thousands of households across the United States improve their financial well-being by providing comprehensive digital financial planning. Users can get started with our free financial planning or premium monthly planning memberships, allowing them to build a personalized financial plan, holistic report card, personalized action items, and more. In addition to our consumer-facing platform, we’re helping employers across the country provide their employees with effective financial wellness benefits.