One of my favorite ways to describe how to make the best financial choices is through a quote by Albert Camus: “Life is the sum of all your choices.” Even the smallest choice can impact a person’s life, and often times consumers are ill-informed not about the choices themselves but about how those choices influence other factors in their lives.
Much of the lack of understanding about how poor financial decisions can snowball into major problems comes from the scarcity of quality financial education. In high school, we’re taught the basics of math and science, history and literature, but basic finances is, more often than not, left untouched. Are your kids taught how to balance a checkbook or apply for loans? Do they have a basic understanding of interest rates? If these basics aren’t taught, then retirement planning most certainly isn’t. But it’s not just students and young adults who don’t know about the basics of financial planning or banking. I once was asked by a physician, someone who spent 12 years in higher education, what a “CD” was. He could perform a complex, life-saving procedure but had no idea what a certificate of deposit was. But it’s not his fault. The education he needed was not readily available to him.
What shocks many people is that retirement planning starts much earlier than one realizes. And it’s not just deciding to contribute to a 401(K) plan, but understanding how many of a person’s early working financial decisions impact one’s future. Think about your first job—did you sign up for a 401(k) without really thinking about it? Many times these questions are asked on the first day after hours of orientation at a new job. A person is excited and nervous, quite possibly overwhelmed with everything that is happening around him or her that he goes along with it without questioning if it’s the best decision for him. Would an IRA (individual retirement account) be a better option? But now it’s 12 years down the line, and that person still has the same 401(k) they signed up for on their first day of the job. What it they didn’t match their company’s investment? Or didn’t know how to compound interest to determine the best fit for their life plans?
These people are highly skilled at their jobs, but they are not necessarily skilled at their finances. They could have bought into the idea that they needed the fanciest car and lots of credit cards when they first graduated school to reward themselves, despite being in debt or not making a lot of money. Those decisions can haunt them. They add to the sum of their whole financial history and future. But it’s not too late to right the course. One just needs to understand how to master their cash and finances, which may sound daunting but it’s not. To become a master of cash flow, one must understand some basics of finance and to learn to make better financial choices. Just how they became a master in their field, they need to find mentors and teachers to show them how to succeed in their financial life.
For more information on how to Master Your Cash Flow®, visit tswealth.com.
