Most people will fail. It doesn't matter what the subject matter is. Most people seem just destined to miss the mark they were aiming for. It's oxymoronic really because nothing excites us more than watching people overcome seemingly insurmountable challenges. Movies have been making billions from this base premise of human nature for longer than I've been alive. Peel into your own favorite film archive and ask yourself which flicks will stop your channel surfing dead in their tracks? Having conducted an informal poll over the years, some of the movies I hear most often are The Shawshank Redemption and Rudy; two of the biggest come from behind to win movies ever made! So why, if we're so enamored with success, do we find it so elusive? The answer is that we don't have our priorities straight.
I know it sounds damning and accusatory to assume that you don't have your priorities together so allow me to hone in on the theme a little better before you leave my blog angry. Most people aren't successful. If you already are it means you're meeting or exceeding your goals. As a financial planner, it would seem obvious that I'm here to discuss financial goals right? Wrong. Of all the people I've had the discussion with about goals, including myself, I've never had anyone seriously say that they hoped to have a lot of money when they die. If anything, I've heard people comment that they'd like to have nothing left when they die. Money isn't the goal, but instead it's what you can do with money that matters. To each goal there is generally some type of financial component so it makes sense to discuss the currency that will help you achieve your goal, but it's not even the first step.
First, you need to figure out why you exist. Now there's the great question of "Why are we here?" and then there's the question of why do you, as an individual, exist? What do you want to do with your time here? Is it to raise kids? Is your purpose to drive awareness to the hungry among us? Maybe you aspire to sit on your couch and watch every chick flick ever made. This part is completely subjective, but at the root of getting your priorities straight. If you know where your passions are, then you can ask yourself the follow up question. What do I get out of it? You have to know yourself and why you do things. You have to understand what makes you tick. Most importantly you have to be honest with yourself.
Do you crave the unconditional love of children or are you intent on making up for your own lost childhood through them? Are you the type of person who needs to be needed? Do you crave respect from your peers or admiration? Maybe you just want to be left alone. Whatever your reason for having the goals that you do, understand the emotional reasons behind them. Your motivation to achieve your goals will come from these honest answers. This is one of the reasons financial planning is such a personal and individualized process. Two people can have the same goals but completely different motivations.
Once you've focused in on the factors that fuel the passion for your goals, you'll need to start making real priorities. Maslow's hierarchy of needs is a good place to start. Out of instinct, we breathe and seek out basic physiological needs as noted in the base of the diagram. Once you've achieved these basics, you will naturally seek to move up to the next level of Safety. It's this level that requires some basic financial priorities that most people fail to provide for themselves. Create an emergency fund. You've heard it before and you know you need to have a cushion, but do you have enough? It should be equal to at least three months of what you need to pay for your physiological needs. Most emergency funds are grossly understated. That means that most people don't save as much as they really need. They're trying to skip ahead, but ask any contractor that builds homes if taking shortcuts when creating the foundation for your home is a wise idea.
With the safety phase we need to make sure we are adequately insured. Insurance is our way of protecting our chips as we stack them from being knocked down. If something costly and unexpected happens, such as a home fire, we can place the burden of payment onto an insurance company in exchange for premium payments. By paying a little as you go, you keep from being completely wiped out if a casualty occurs. This strategy not only protects you in the present, but can protect your future earnings as well. Every time you withdraw from your savings to pay for something, you have less money earning compounding interest and the longer it will take for you to reach your ultimate goals.
When you have afforded all your insurance and protected yourself against as many of the potential risks that you can, then you're ready to begin investing. Remember that during this stage, you should be staying away from loans of any sort unless you need one to buy a house. Try hard to pay for things with cash. There will always be people who tell you that low interest rate loans are a great way to leverage yourself into making more of a return on your money. What you're really doing is leveraging yourself into debt and distancing yourself from attaining your goals. Large purchases such as pools and cars should be paid for with cash having first saved the money. You should also not lend money, even to friends and family. If you truly want to protect these relationships, don't involve money. As Shakespeare once wrote, "Neither a borrower, nor a lender be."
Create a systematic monthly investment plan and don't falter from it. If you attempt to invest all your savings on a single day each year, you're gambling that day will been the lowest priced day of the year to invest in the market. If you consistently invest each week then you have 52 chances to invest through the year as the market goes up and down. This concept is known as dollar cost averaging. The average of your overall stock prices should be lower with this system than with fewer investment days resulting in more shares purchased for an equal investment sum.
Now that you're executing your plan, you'll have moved into the Esteem category of Maslow's Needs chart. You should be feeling more confident and satisfied with your progress and as you near the goals you've set. You'll want to start looking toward the pinnacle of financial priorities once you've achieved this status. You'll want to start thinking about the legacy you'll leave behind and charitable giving. Once your own needs have been completely satisfied, you can begin taking care of others. I know it may sound selfish and out of line with what many religions teach, but it's not. There's a reason that when the cabin becomes depressurized during flight, you are instructed to place the oxygen mask on yourself before you do so for others. It's because you can't be of any value to others if you haven't first taken care of yourself. What good does it do to give away your assets and end up putting yourself in a place where you then need to ask for financial help?
Once you have amassed what you need to reach your goals, you will look back over your life and realize that you've not only been successful about saving money, but you've succeeded in fulfilling your life's passions. You can start today by merely changing the way you think. Imagine the kind of world it would be if we all raised the bar on our priorities a bit. Instead of living for the instant satisfaction of what money can give you today, seek out the immensely greater thrill that comes with satisfying your innermost motives.