I was recently asked, “If I want to keep more money, what 3 financial blunders should I avoid?”
Or as Will Rogers said, ”I’m not so much concerned with the return ON my money as I am with the return OF my money.”
The financial pop-culture says…
Open most magazines. Listen to most gurus on television or radio. Read most blogs. They’ll all share similar personal finance messages (answers) on money mistakes:
- No Financial Plan (90% of Americans do not have a written financial plan)
- No Diversification (Investors are not diversified among asset classes, investment strategies, money managers, or financial institutions)
- No Retirement Account (60% or workers do not have a retirement account of any kind)
Pop-culture’s above ideas are technically correct. You should follow them!
Financial Plans: You should have a financial plan that looks out 1, 3 and 5 years. Our 1 year financial plan is focuses income & cash flow. Our 3 year financial plan focuses on income & debt. Our 5 year financial plan focuses on lifestyle. And each plan is built and reviewed using simple tools: blank paper, a calculator, and a pen (along with open conversations).
Diversification: You should spread your financial life around. For instance, Our income, insurances, savings, debt, & investments are with various providers. Except for income, we are not dependent on one company in protecting and building our wealth. Instead, we are partnered with the best providers for each financial need; the best life / auto / home insurer, the best banks for protecting our money, the best debt institutions for minimizing excess interest and fees, and the best investment companies for managing our funds. By best, I mean the most value for the cost, as I see it. When that value isn’t there, we consider new opportunities and partners.
Retirement Accounts: You should have retirement accounts. And, you should consider funding them, too. When my wife was working, she saved vigorously into her employers’s 403(b), the non-profit enterprise’s version of a 401(k) and her own IRA. I’veI also invested in my company’s 401(k) and my own IRA.
But, the financial reality is…
However, there are 3 real-world financial blunders that you often don’t hear about. Yet, they are more important. Miss these mistakes and your likelihood of keeping more money increases:
- Not Understanding Money Math (yes, ledgers and formulas lead to wealth)
- Not Using Strategy (strategy is different than a financial plan)
- Not Partnering with Financial Experts (experts are different from salespeople)
Money Math: Financial pop culture spins one secret to secure finances. That secret is this: if you want a happy money plan, you’ll need to apply simple math in three areas; cash flow, debt, investments. The money media wants you to believe you’ll need professionals to do this math for you. And, professionals can add lots of value to your financial life (I rely on a CPA for instance). But, the truth is you CAN do 95% of the math yourself. Here’s how.
I begin with blank ledgers (find them at any office supply store or online). Then, I add data. Finally, I apply arithmetic to that data on that ledger to help me understand two things: current status and trends. Knowing my current financial status in cash flow, debt, and investments helps me verify my past trends. Knowing my financial trends helps me plan my money management strategies for my 1, 3, and 5 years financial plans.
Strategy: Financial pop culture skips over this step. Instead, they tell us to save, save, and save some more. And, they’re right. Saving money is important. But, what if you were driving across the country and someone told you, “just drive west” (just save money)? Sure, if you started in the east, and just drove west, you would make it across the country. However, what if you applied strategy to your drive: what if you drove the right vehicle, took the right roads, and avoided the traffic jams? THAT drive would be more comfortable (the right vehicle), take less time (taking the right roads), and be less frustrating (avoiding the traffic jams). Strategy is HOW you apply your financial plan. And the gurus do you a disservice when they step over strategy.
Partnering With Experts: If you take one point from this post, imprint this fact deep into your future money memory:
Financial experts and financial salespeople are different people.
Salespeople provide products (sometimes needed, sometimes not needed). Experts partner with you long-term and put your interests first.
Clearly. Unmistakably.
How else do you tell the difference between experts and salespeople? Experts ask questions. Salespeople talk a lot. See, in talking with people about money for years, I’ve noticed something. The financially less fortunate had almost always dealt with a financial salesperson who sold them an unsuitable product or service. And, the financially fortunate had almost always dealt with a financial expert(s) who had helped them achieve success. This means, if you want to avoid money mistakes, partner with financial experts (I lean on a CPA for tax advice and financial second opinions).
The bottom line is…
To avoid money mistakes, financial pop culture recommends having a financial plan, diversifying your money, and having retirement accounts. Good advice.
But you’ll need more if you want to really master your money, build your wealth, and change your life. You’ll need to understand money math. You’ll need to utilize financial strategy. You’ll need to partner with experts.
How do you apply money math?
What financial strategies do you depend on?
Are their experts in your financial life?
Let me know by commenting below. I’ll personally reply!
