If I were to ask you to recite your ABCs right now, you’d probably look at me like I was crazy but would be able to remember the building blocks of the English language. However, there was a time when the ABCs were a foreign language to you. But with time and patience and guidance, you were able to master the once very complex topic at hand. Your finances are not that far off from your ABCs: it’s all about following three simple steps:
- The first step is about following a process for making better financial choices.
- Second, cash-flow management decisions should be made like a well-run business.
- The third and final step is to find ways to achieve the financial life you wish to lead now and in the future. But what do all of these steps mean?
In order to understand what better financial decisions actually means, first, one has to examine how people make financial choices. Often they don’t do so as well as they need to, largely because they’re poorly informed about the impact of the choices they’re making. It’s not surprising considering that financial education in our country is nearly nonexistent. You’re not taught finance in high school. You’re taught history, math, and languages, but there’s no course in which it’s mandatory for you to understand how to balance your checkbook, how to apply for a car loan or a credit card, or how to save money, much less how to plan for your retirement.
But how does one make a better financial decision? Unfortunately, that’s a little more complicated. The answer to that question begins with another question: What kind of lifestyle do you wish to live now? There is a certain amount of cash flow that, if you had it coming in right now and for the rest of your life, inflation adjusted, would allow you to live the lifestyle you wanted to now and would make you financially independent. Discovering that number is the first thing to focus on. This will lead to discovering the amount of wealth you need to accumulate or to preserve and manage.
The second reason is to find a successfully run company to emulate. Take Apple, for instance. Apple has well defined goals. Its leaders know what profit they’re aiming for this year. They know the earnings per share, return on equity, and other benchmarks they have to achieve. Their goals are clear and defined in absolute numbers and percentages. A good financial plan will have well-defined goals and numbers attached to it and check in on those numbers often, as should you with your own personal finances.
For more information about finding your own path for the wisest financial decisions for your life, visit tswealth.com.
