Planning is bringing the future into the present so you can do something about it. Explore these five financial concepts and questions.
Focus on Five Concepts of Life and Money
1. What are the issues of your future?
- Expected: Education (yours or your children’s), job change (your decision), home purchase, vehicles, retirement (in good health)
- Unexpected: Death, illness, disability for you, your immediate family, your parents; job change/downsizing (not your decision)
2. How do you acquire the needed funds?
- Earn it (job or self-employment).
- Build it (own/invest in a business).
- Invest it (stocks, bonds, etc).
- Through family (inherit it, marry it).
3. How do you use the funds to address your issues?
- Buy other people’s money….insurance
- Save your own money…reserves
- Have your money work for you…investing
4. What/Who keeps you focused, on track, and accountable?
- How to save money?…methodical, process-oriented
- How to invest?…methodical, process-oriented
- How to solve unexpected, unfamiliar problem…methodical, process-oriented
5. Where do you really get your financial education?
- You don’t.
- Books, web sites, magazines, seminars/classes.
- You hire professionals such as financial planner, accountant, etc.
Focus on Five Questions About Life and Money
There are five easy questions about your financial behaviors might give you insight to your long term financial stability, regardless of your household income. The higher your score, the more likely you make other decisions that lead to wealth accumulation.
The questions were developed by William Emmons and Bran Noeth of the Federal Reserve Bank of St Louis, who said, “We’re not saying that these behaviors are the magic route to being rich. We looked at the ability to handle what life throws at you without being knocked off course.” The higher your score, the stronger the relationship between the measure of financial health and actual wealth. (See second Source below.)
- Did you spend more than you earned last year? Yes=0, No=1
- Were you late on any payments last year? Yes=0, No=1
- Did you carry a balance on your credit card? Yes=0, No=1
- Was more than 10 percent of your portfolio in Liquid assets? Yes=1, No=0
- Are your total debt payments, including your mortgage, less than 40 percent of your yearly income? Yes=1, No=0.
Financial Health and Wealth Resources
Source: More Magazine, June 2015, pg 38.
Source: “Five Simple Questions That Reveal Your Financial Health and Wealth,” William Emmons and Bryan J. Noeth, Federal Reserve Bank of St Louis, 2014