Our financial activities are scattered because we’re trying to find the perfect solution to each financial challenge. If your financial plan looks more like a checklist, it’s possible that you’re undermining the effectiveness of your whole financial program:
Taken by themselves, many of these situation and strategies can make perfect sense. But if there’s not strategy behind these decisions, simply adding another item each time something new arises usually doesn’t work well. Stretching or dividing up money into various accounts can feel defeating and also result in an inefficient lifestyle.
Here’s why:
The best laid plans change. If you think back 5-10 years ago, was your life different? If we don’t approach having flexibility in our financial situation it can cost us dearly through surrender charges, penalty taxes and fees. Imagine if your income is suddenly interrupted, or you’re in need of a new vehicle or your child is not wanting to attend college. There are so many financial options to us that it’s easy to look at each one individually. But over time there becomes a tipping point when we start asking how and if all these things makes sense.
Are you spreading yourself too thin financially? We get overwhelmed with all these items and put at risk getting rid of something that could prove to be advantageous to our financial future. Thinking about ‘what happens if’ is an important step to consider.
What happens if…the education account isn’t enough to pay for the degree but is enough to disqualify a student from receiving financial aid?
What happens if….a job change doesn’t provide disability coverage but the person is older and unable to find reasonable coverage?
What is it costing you? There’s a surge in employees borrowing from retirement accounts such as the 401(k) plans. Retirement accounts work best when they aren’t accessed until retirement. But if the financial approach is looking at each item without a strategy, it can be costly. There are career changes, health problems, or financial emergencies that occur on a regular basis. The event doesn’t have to be a bad situation.
What happens if…the decision is to maximize a 401(k)s fund yet a person find themselves tapping the account and paying the penalties. Using a 401(k) before retirement is not only costly and can result in another debt that must be added to the monthly budget.
But what happens if… that same individual would minimize their 401(k) contributions, and instead establish an account to accumulate money that is flexible? It allows for the realities of change and limited resources, and gives you options to better respond to whatever comes up.
— You can learn more about strategy in our Precision Strategy Learning Section —
Is your money making money? Did you know that the wealthy people have multiple streams of income? There are more and more ways to bring in extra income or to build wealth that provides additional income.
What happens if…there is a plan to consciously build more than one income stream through side businesses or investment vehicles?
Are your actions adding to your checklist?
Adding to mortgage payments. A bank loves this because it provides them with more money to use while there’s a possibility that you’re losing money. Instead of opting to pay off your home loan with a 15-year mortgage or additional payments, have you (or a financial specialist) calculated if it’s in your benefit to choose a 30-year term and accumulate the difference?
Retirement account contributions above the employer match. When maximizing the amount to a 401(k) deposit from each paycheck, this money is now being frozen until a retirement age. Learn with that saving can go elsewhere to diversify your assets as well as ensure access to your assets.
“Education expenses only” or ‘long term care’ specific accounts. Any accounts for a specific reason can put your money in a hostage situation. Be curious about learning if there are other options that provide you’re the flexibility to address these situations but don’t force certain situations to happen to have access to YOUR MONEY!
FSA accounts funded over and above basic healthcare expenses. As FSAs are “use it or lose it” accounts, over-saving simply leads to overspending at the end of the year.
Disability and long-term care. As the baby boomers are entering the retirement age, these items are making an appearance. If there are exposures to your income and a group disability plan, this should be reviewed. It also may make sense to utilize “living benefits” from a substantial permanent life insurance policy that can function as a multi-purpose flexible accumulation account, rather than risk underfunding life insurance, disability, and long-term care.
Insurance premiums. Most consumers come out ahead by reducing premiums, raising deductibles, and saving the difference. We see this in auto/home insurance quite often. But what about life insurance. The solution is to save money in accounts that can be used for unlimited purposes.
What’s the best way to save money? There are many possibilities. By leveraging cash value accounts there are benefits and flexibility to savings:
tax-advantaged
liquid
easily collateralized
safe from market fluctuations
not controlled by employer or government rules, and
earn reliable rates of return
By taking a step back and assessing all the types and reasons behind your financial tools can provide you flexibility with your money as well as the confidence in your strategy. Controlling how your money is being used for your wealth is a key to enjoying life now into retirement.
— You can learn more about strategy in our Precision Strategy Learning Section —
