Is Your Money Supporting Your Financial Goals?
Your money isn’t static, it’s always moving somewhere. Is your money going where you want? Are you sure?
Money and financial information today moves faster than ever. Digital accounts, instantaneous money transfers, and consolidated real time account balances are all normal. It’s easy for this availability of data to stimulate you to “do something.”
It’s not uncommon for your long-term aspirations to sometimes conflict with short-term priorities. This dissonance can move your money into places that don’t support your overall financial plan. In my experience, this can be a substantial roadblock to making progress toward your lifetime goals.
Balancing Spending, Saving, and Investing
If your near-term money choices soak up all available resources, there’s nothing left for saving and investing. It’s difficult to build a sustainable financial future if you don’t invest specifically for that purpose. On purpose, for a purpose.
To paraphrase the familiar Bible verse from Matthew, your treasure follows your heart. How you spend, save, and invest reveals what really matters to you. If you stop and look at where your money is going now and where it went last month or last year, you might be surprised.
How Life Changes Affect Your Personal Finances
Changes are part of life. Modifications to your personal finances often accompany life changes. These changes can be either positive or negative. A new job, a new addition to your family, or an inheritance likely fall on the plus side. On the other hand, a divorce, death of a spouse, or a job loss present you with potentially adverse money issues.
The way money moves is analogous to how water flows in a river. There are usually twists and turns, deep parts and shallow parts. What gives the river, (and your money), energy is the firmness of its banks. Without well defined banks, the river can become lazy and meandering. The same is true for your money. You need purposeful direction.
Understanding Your Cash Flow and Financial Priorities
When you think about it, lots of economic terms refer to money moving. Words like cash flow and liquidity are examples. Basically, your money can be spent on current needs/wants, saved for some short-term purpose, or invested for your long-term goals. Your money isn’t standing still.
Like a river, your financial life is dynamic. Things are always changing. To successfully navigate these changes you need flexibility and adaptability. Your financial life may at times threaten to overrun its banks or dry up and you need to adjust. Remember, responding is different than reacting.
How Personal Financial Planning Provides Direction
One of the foundational objectives of personal financial planning is to help you “ firm up the banks of your river” so that your financial resources are efficiently deployed without unnecessary complications. Since your money is finite, priorities help with moving your resources toward what matters most.
Like most things in life, you need to find a balance or cadence for making money decisions. Many clients find it helpful to think of money being held in imaginary ‘buckets’ with each ‘bucket’ having a particular purpose. When the inevitable financial itch arrives to react to something or otherwise move you off course, you can see how much (or how little) money is available in the dedicated ‘bucket.’
To paraphrase the line from The Avett Brothers song February Seven, you want to avoid trading what you know for how you feel. Start there.
Related: The Emotions That Can Make Investors Their Own Worst Enemy
