Saturday, March 16, 2019

Financial Friday | Your Future Self


I am starting a new blog series called Financial Friday, where I will write about various personal finance topics.  It won’t be every single Friday, but it will be regular.  I will try to explain personal finance in plain language with some everyday examples so that it’s easier to understand.  I think personal finance is a topic that everyone should learn, yet nobody teaches you.  I think this should be part of the high school curriculum because I think it’s vitally important to start financial knowledge when you are young. 

Why would I be qualified to talk about financial topics?  First of all, I am really speaking from my personal experience, which is unique to me.  But also, I have a background where I have an accounting degree, an MBA with a finance concentration, and have worked in corporate finance for 25 years.  I resigned from my full-time job last year because I’ve managed our money well for 25 years.  I’ve always believed that the world would be a better place if we knew more about money and how to manage it.  It would alleviate a lot of stress & uncertainty for a lot of people.  I want to talk about financial topics in an accessible way so that it’s not scary or intimidating, but helpful and interesting.

Today we’ll begin lightly with talking about your Future Self. 

For me, I’m a person who plans ahead.  So even early on in my adult life, in my 20’s, I became keenly aware that I need to invest in my Future Self.  What does that even mean?  It means that when I was in my 20’s, I knew that at some point in my life, possibly in my 60’s, but hopefully in my 50’s, I would be able to retire from full-time employment.  I also am really good at imagining worst case scenarios (which is both a blessing and a curse).  So I thought to myself back then… what if I lost my job and couldn’t find another job for a while?  What if I lost my job in my 50’s and couldn’t find another job?  People always assume they can work when they’re older, as long as they wanted to, in order to have money and live.  But what would be a worst case scenario for that?  You could end up old, sick, disabled, unable to work, and poor.  You may be planning to work until you’re old, but circumstances may change and you could NOT be able to work.  Then what?  My fear for my Future Self was being old, sick, and poor and living on the streets.

So you say, “Yea, but isn’t that what social security, Medicare, Medicaid, etc. is for?”  And I’m here to say, I have NEVER relied on getting social security in my financial planning.  Even in my 20’s I knew that social security was close to running out of funds and it was possible that I would never see a penny that I put into it.  Or they could keeping upping the age of eligibility for people to receive social security in order to fund it.  OR they could put income requirements in such that if you made over a certain amount of money during your working life, then you get LESS social security.  All of these scenarios are possible when social security is so underfunded!  So IF I get social security payouts when I reach 67 years old?  It would just be a bonus.  And if all you have is social security checks when you reach old age, that means you are on a fixed income without much inflationary adjustments.  Which can be very difficult if your rent goes up or if gas and food goes up by a lot each year.  I didn’t want to rely on the fact that the government would have money to give back to me when I became old, so I never relied on it when I planned for my Future Self.

So how do you take care of your Future Self with your Current Self?  By valuing your Future Self just as much as your Current Self.  Part of each and every one of your paycheck needs to go to paying your Future Self.  And it needs to be automatic.  If it’s not automatic, then you won’t do it.  If it’s automatic, you’ll never see it, and you won’t be tempted to spend it.  And the money to your Future Self needs to go to an account where you can’t really touch it, such as your company’s 401k, a self-directed retirement account such as an IRA (Individual Retirement Account), or another investment account that’s separate from your bank so that it’s not easy for you to get the money out.  Set up the automatic deduction from your paycheck to these places where your Future Self will be happy to get the money.  Your Future Self will really appreciate the sacrifices that your Current Self is making.  Your Future Self will enjoy the freedom of not having to worry about money in their older age.  Money doesn’t really buy happiness, but it does buy freedom.  I truly believe that.  I am an example of that.

More topics and more specific financial examples to come in future installments of Financial Friday!  I hope I didn’t scare you, but rather inspired you to invest into your Future Self.  It’s SO important.

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