Personal Finance and saving money aren’t all about the numbers. Sometimes it’s hard to see that when you read all the personal finance blogs, look at your asset allocation, receive your credit card statement, open your checking account or log in to your 401k. In fact, it almost always feels like it’s about the numbers. It’s only when you have a significant event in your life that you start to realize it’s less about the numbers and more about what is important to you in your life. What constitutes a significant event is different for each of us. For me, it was a long 5-10 year process as I watched my parents struggle to pay all the bills from our family business. It was at that point that I realized I wanted to manage my money in such a way that I was free to pursue the other things that are important in my life. In the early years, I didn’t know what was important to me, but since getting married and having a child, I realize that if everything was gone tomorrow, or a massive earthquake hit, the ONLY thing I would be concerned with is my family.
I think the first thing that someone who is embarking on improving their net worth, or cash flow needs to do is to identify what is truly important in their life. For some it may be to get rid of the stress and anguish they face every month when the bills are due. People that are stuck in that cycle don’t realize how much you can improve your life by simply making many of those financial burdens go away. Paying off debt and moving to a cash only lifestyle is incredibly life changing. By taking control of your money, you may find that it improves your life in many unanticipated ways. Your marriage may improve drastically. Money is a top marriage stresser and has destroyed many marriages. When you are worried about your financial situation, you tend not to think about the more intimate parts of marriage. By moving to a “no debt” lifestyle, you may find your health improves significantly. Stress is a real health condition. People who are under constant stress about money may drink more, smoke, eat the wrong kinds of food and fail to exercise.
Let’s say you don’t have any debt but you just aren’t saving for your future. Wouldn’t it be nice to get to a point in your life where you decide what you want to do each day? For me, it would mean waking up and getting to spend as much time with my family as I want. I wouldn’t be constrained by going to work every day to make someone else rich. Instead, I could focus my efforts on being a good father and husband. To me, that is my tropical island.
The number one argument I hear when talking about personal finance and good money management is that some people don’t want to save for a day that may never come. I’m not sure if they truly believe this, or whether it’s just an easy way to explain away the situation they are in. These people aren’t all wrong though. Certainly we can all think of someone we know that passed away long before they ever got to retirement. Maybe it was a car accident, or a health condition that caused their death. It really doesn’t matter. Either way, they were taken way too early. If these people subscribed to the “don’t plan for a day that may never come” approach you may think they called it right. If they were single, maybe that’s the case. If they were married, or had children, I would argue that they didn’t really help their family much by dying without having anything for the family to fall back on. Anyway, statistically you aren’t likely to end up dying early and so I wouldn’t recommend planning for it.
The fact of the matter is, we just don’t know what life has in store for us. Either we are going to live a long life, or we are going to die before our time. Why not plan for both? It is possible to live for today and plan for tommorrow. In fact, it’s really quite easy. This is where personal finance is about the numbers. I run all kinds of scenarios to figure out whether I’m on track to be able to make the decision to check out of a 9-5 by the time I’m 50. What I really want at 50 is the ability to DECIDE. I may not choose to leave the work force at that time, but at least I’ll have the choice. That’s what I use as a basis for whether I’m on track or not. At the same time, I have to be conscious of the fact that I don’t want to save it all for another time of my life. These are my most active years. I’m young and want to have as many good times with my family as possible. Having good times with my family doesn’t necessarily require lots of money, but there are things that we want to do that do require money. As an example, we are going to Disneyland in June. My daughter is 4 and is so excited about going. The trick to going on activities like this is to plan for them and pay cash. I would never dream of paying for a vacation with borrowed money because if I can’t save the money for it and pay cash, it must not be important enough. I could list all kinds of other things that we do to “live for today” but I think you get the idea.
Personal finance is really more about having a plan and executing on that plan than anything. By simply developing a plan like so many other people have done and following that plan, you can break the vicious cycle of debt and begin to take control of your destiny. Here are just a few examples of people that have made the commitment to take control:
http://www.bloggingawaydebt.com/