There was a lot of doubt when I planted this seed. News of a global outbreak had just started to circle social media, winter clouds blocked out the sun most days, and the seed even came from a store-bought lemon, the odds where not in our favor. Yet, this morning, after two months of caring for an old dirt filled wine bottle, there stood the little stem of a lemon tree sprouting from the soil. I was pretty happy to see the little guy. Sure, he's a long way off from bearing any fruit (or lemonade ingredients), but the fact the he's standing out and growing is a pretty satisfying feeling.
As an investment professional I get to feel this way more often than most. I'm not working with seeds and dirt, but I get the chance to help plant or steward a legacy for the families and individuals that work with me. Like in caring for this seed, the actual work I do does not cause the growth but neglecting to care for it certainly can be detrimental. Reading Neglected Finances might help uncover ways to better care for your financial future, and like planting a lemon seed in the winter, you may still get to see the financial fruit of your care.
Continuing from the post A Glance at Finance, a good principle to add between step two and step three, is to ask "what am I neglecting to care for?" (that might be a good principle to live by in a variety of other areas too.) Whether you meet with a professional at this point or work on your own, it’s always a good idea to stop and think about what is being missed in the planning process. A suggestion for the DIY financial manager, ask a friend for help or at least google ways to maximize finances. As with any decision, it is usually beneficial to have some variety of thought in discerning the right financial strategy. There are thousands of different ways a person can create value for themselves, and it’s important to find out which ones maximally benefit what you value.
If you are a person who has extended your resources as far as friends and google can help, it may be time to talk to financial professional. There are plenty of them out there and hopefully you find one that gives you peace of mind regarding finance. Every professional should ask you how you consider three neglected areas of personal finance as part of the financial "sketch" we worked on in step one and two.
The first is healthcare. Between 2018 and 2019 the federal reserve found that 20% of adults, (i.e. 1 in 5 adults) experienced unexpected medical expenses between $1000 and $4999. A financial professional should certainly know this stat and try to prepare people for potential medical expenses by means of a tax advantages medical savings account or as part of future expense planning. Even if you have great insurance or your employer funds one of these accounts, talking to a financial professional can help clarify some of the best ways to use these funds. No matter how you approach this category it should definitely make it on your values list and become part of your financial strategy.
Another common area would be retirement. A very general rule of thumb for retirement savings would be to have about ten times your current salary by the time you retire. Yet sometimes that's not the right amount, depending on how early you retire or how long you live that amount may be saving more than you will need or not saving enough. A good financial professional ought to help you understand what you are saving for and give genuine advice on how to maximize your resources now for what you value in the future.
Unfortunately, 42% of adults between the ages 18 and 29 years old have not started saving, and still 26% of adults from 30 to 44 years old have no retirement savings at all. Retirement expenses will likely be the largest cost of living during your later years of life, even if you expect to work past the official retirement age. Every financial professional should be prepared to talk about strategies to save for this cost.
Financial professionals should not only help you identify these values but should also be equipped with the right tools to get the job done. This final neglected area of personal finance is often the most powerful tool available in maximizing our finances. Even Albert Einstein was quoted saying it is the "strongest force in the universe." So, what is it?
Compound Interest.
By using this force, Investment Professionals help prepare for the costs of healthcare, retirement and a multitude of different categories. As costs of living rise and our economy grows, investing in financial markets can be the most efficient way to maximize compound interest for your benefit. A few common ways investors utilize compound interest are by purchasing debt, such as bonds or treasuries, investing in real estate, or purchasing stock in a public company. Each type of investment has different risks and potential benefits, but they can also be better suited for different investment goals. Looking at the values and goals established in steps one and two will help identify the kind of investments best suited for your goals.
I would be lying if I said you can't do this on your own. Today, it is even easier to invest without using an actual person and is often much cheaper. It’s still important to ask yourself at what point are you ready to hire a professional, who will not only get to know your values, but also work to give you piece of mind and confidence about your finances. As stated before the primary discipline of finance has been built around maximizing financial instruments for a purpose. Investments don't just exist to make everyone more money, they exist to serve the companies, municipalities and ultimately the people.
So, take some time, ask around, and maybe talk to a profession. Then when you are ready to put it all together, reading Strategic Finances may offer some helpful insights in the application of financial principles.
Research statistics provided by the Federal Reserve. Report on the Economic Well-Being of U.S. Households in 2018, May 2019 https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf