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5 Critical Personal Finance Questions

Written by John D. Buerger, CFP®.

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John Buerger

When it comes to personal finances - especially being in a position to make the best, most informed financial decisions for your family - you are at a distinct disadvantage.

They don't teach money basics in school. What you do "know" you learned from your parents or life in general - not necessarily the best or most qualified teachers. Your brain isn't wired to make good financial choices ... and the media and financial services industry have huge incentives to provide bad information and/or focus your attention on the wrong things.

I do my best, but I am one lone voice speaking out against very deep pockets with an overwhelmingly loud megaphone so if this resonates at all, please share.

FIVE QUESTIONS

Business Insider published an article on 4 Personal Finance Questions Everyone Should Be Able To Answer last week. At first, I thought this was great. It was short and simple and it warned against product sales and conflicts of interest.

Start

But the four questions were ALL about investments and investing advice. There was nothing about cash flow, improving income sources, goals, planning or protecting what you already have. This was a list of investing questions, not personal finance questions.

There ARE only a few personal finance questions that every person should be able to answer, but those questions are, it seems, a secret ... and there was nothing this article did to shed a light on them.

So here are my Five Questions That Everyone Should Be Able to Answer. Tell me how you do on these:

Q1 - WHERE AM I?

In order to do anything about your personal financial situation, you must understand what you already have. What tools do you have at your disposal (Income potential, bank accounts, debts, etc.)? How are those tools working right now? Is cash flow positive or negative? By how much?

You don't need to know all these numbers off the top of your head, but it is important to have some kind of tool or reference where you can get this information quickly. Think of yout car's dashboard showing fuel, speed, engine, brakes, turn signals and GPS. You don't need to know the science of how the engine works, but what type it is (gas, electric, hydbrid) and generally how much it can handle (acceleration, payload, etc.) is critical.

Q2 - WHERE DO I WANT TO BE?

Odds are that no matter how good (or bad) things are today, they could be better. If you could have everything just the way you want it, what would that look like? What are your goals? aspirations? dreams?

Essentially, where is it that you want your financial "car" to take you. Flesh these out as completely as possible. The clearer you are about where you are headed, the more likely you will be to get there as opposed to someplace else.

Q3 - WHAT'S MY STRATEGY?

How are you going to get from Where You Are to Where You Want to Be?

There are plenty of paths you can follow to get to your destination. Some are better than others. In general, you want to take advantage of opportunities and avoid the threats. Work with your strengths as much as possible and let others cover for your weaknesses.

Q4 - WHAT'S MY NEXT STEP?

Having a long range strategy is important, but of even greater importance is to be crystal clear about your very next step in that plan. When it comes to personal finances, you are the one who gets to make all the day-to-day decisions. Nobody else can tell you what to do. It wouldn't be feasible and you wouldn't like it if they tried.

The journey of a thousand miles begins with a single step. Is what you're doing right now helping you get where you want to go? or is it working against your goals. It's also a lot easier to be fully engaged on a short-term task than it is on something that will hopefully happen in the far-flung future. There is energy and motivation in being able to check something smaller off your list today than combining it with dozens of other things that have to be done over the next several months or years.

Q5 - WHO ELSE IS INVOLVED?

Don't go it alone. You will use outside advice. 

There should be an expert on taxes, a lawyer addressing legal issues (like your estate plan), an insurance expert and a personal finance coach to help design the plan and provide accountability and resources as you work your way through each step. These professionals should all be paid for their time and expertise just as you would pay a good mechanic to keep your car operating in tip top shape.

They each also come with their own incentives and built in conflicts of interest. It is important to know about and understand these variables. The good advisor will offer you a transparent means by which you can monitor for and identify any issues before they become a major problem. The ones to avoid are the ones who act as if those conflicts don't exist.

John

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Learn more. Schedule a Free, no-obligation 20-minute consult today!

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Gain Without Pain

Written by John D. Buerger, CFP®.

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John Buerger

I am so tired of the "No Pain, No Gain!" mantra and the wrong-headed implication that people should seek "more pain" in order to guarantee "more/better gain."

When it comes to your spending decisions, you really can have your cake and eat it, too (with some important caveats)!

A recent article from the MintLife Blog ("The American Family Budget - A Partner's Point of View") is an example of the WRONG way. While I appreciate that it is important to have BOTH partners working together on family spending, I disagree with the assumption that the process has to be painful or that one partner can/should abdicate to the other any sense of control about their financial choices.

If THIS is what the American Family Budget is really all about - it should be taken out back and shot.

THE SACRIFICE FALLACY

I don't like the word, "budget." A "budget" is like a "diet." It's a six-letter-long four letter word. To most people, a budget means pain, sacrifice and self discipline. 

Budget Police

It shouldn't be that way, but it is. That is what I call "The Sacrifice Fallacy" and because of it, most budgets fail (and fail miserably).

While budgets have a bad rap, making better spending decisions is GOOD and desirable. Developing that "control" doesn't have to mean your quality of life is diminished. In fact, when it is done correctly, making good money choices means improving your quality of life both now and in the future.

THE PARTNER'S PERSPECTIVE

Traditional budgets imply that one person "keeps" the budget and their partner should follow along and toe the line. The MintLife blog article tries to address how this partner feels about that kind of arrangement.

The natural conclusion of the traditional budget approach is that spending decisions are made based on whether or not "it's in the budget." Since the dominant partner created that budget in the first place, they dictate through the budget how their partner must act.

I've been married 22+ years and that "command and control" approach would seem like a recipe for disaster. Nobody likes being told what to do - especially from their spouse.

WORKING TOGETHER

If a cash flow system is going to work, it has to keep the playing field level and leave all participants working together toward a mutually agreeable and positive end result. Both factors are important.

When each partner feels empowered and in control, they stay positively engaged. They also support each other through the process which makes their relationship stronger and more productive.

SUBSTITUTION

When cash flow management is done correctly, money choices are made based on the Substitution and Value Question, not the Sacrifice Fallacy:

"I can only spend this money once - so am I/we getting good value here or could I/we do better by using this money someplace else?"

That is the question every family member should be asking themselves as they swipe their credit card, write a check or even pull cash out of their wallet.

It's not about whether it's in the budget. That's a question of sacrifice - I have to give up something I want because of an arbitrarily defined limitation. It IS all about using limited resources to have as much of what's really important to me/us as possible.

NO BUDGET

It's time to decomission the budget police and embrace Cash Flow Management instead.

"No pain, no gain" may work when you're at the gym, but pain, sacrifice and self discipline have no place in personal finances. That will lead to animosity, impulsive and wasteful spending and possibly a marital dissolution (after all, money is the primary cause of divorce), not to a better quality of life.

The next time you see an article talking about a "budget," know that when it comes to family matters (government and business are different) there is a better way. You CAN have your cake and eat it, too. You can make better financial decisions AND enjoy a better quality of life - no pain, sacrifice or self-discipline required.

That's something I think your partner can embrace.

John

We can help you prioritize your goals and scope your focus.
Learn more. Schedule a Free, no-obligation 20-minute consult today!

Call 805-476-0333 or use the "Book Appointment Now" tab on the bottom right of your screen.

Wealth Health Basics

Written by John D. Buerger, CFP®.

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John Buerger

There are a lot of moving parts to your personal finances, but that doesn't mean it has to be complicated or overwhelming to keep track of or improve upon them. Thanks to modern technology, there are online tools to take care of the tracking. All you need to focus on are some BASICS.

BASICS is an acronym for the six primary principles of good Wealth Health. Accept and embrace these and you can't help but make great choices with your money and enjoy a better Quality of Life:

BE MINDFUL

This first part drives everything. When you are Mindful and Aware of your current situation "As Is" - warts and all - you are in the best place to make it better. You can only fix what you realize is broken.

This is also probably the toughest for most people because it means being willing to see your present situation as it is, not as you wish or hope it could be. Fortunately, the next element of good Wealth Health will make this one a LOT easier.

Basics

ACCEPTING 

Be honest with yourself ... but also be accepting. Remember the phrase, "It is what it is!" There is plenty you can do to make things better, but there will be no improvement if you are starting from a place that isn't real ... and you WILL lie to yourself if that reality is viewed as some form of punishment.

Most of us are trained to be critical of things when they aren't what they could be so you'll want to be careful with this tendency, especially in the early going.

Rather than the glass being "half empty" or "half full," it simply has 50% of capacity and you want it to be something different. 

STRATEGIC

I know I'm biased on this one, but I believe that everything works out better when you have a plan. The strategic approach means you are paying attention to the opportunties and obstacles between where you are (that was the first part) and where you want to be.

If the glass is at 50% of capacity and you want it to be at 60%, what steps do you have to take to make that happen? Answer that question and you're being strategic.

INTENTIONAL

Pay attention to your strategy and work on it every day. The plan is worthless if you go through life letting it hit you in the face. Think about the strategy. Take action that is in alignment with your plan. 

CONSISTENT

Whether we are talking about managing the cash flow slipping through your fingers or how you deal with your investments, consistency is critical to getting great results.

If you were in a workout program to get stronger, which do you think would get better results: one workout of 200 pushups and then nothing for a month ... or 10 pushups a day, every day for a month? Which do you think would be less painful?

The power of good Wealth Health comes in the consistent application of simple, sound principles over a long period of time. The daily effort is miniscule - it's easy to do - but the end result is vastly greater than the sum of those daily parts.

SINGULAR

This one borrows mostly from the personal development world - humans are at their best and most effective when they are focused on one thing at a time. If you are working at one objective and are strategic, intentional and consistent about it, you have a very good chance (greater than 80%) that you will achieve your goal.

If you choose to have two goals at once, the chances of success with either of them is less than 40%. With three goals, that probability drops to around 10% for any of your dreams coming true.

SUMMARY

Those are the BASICS - Be mindful, Accepting, Strategic, Intentional, Consistent and Singular in focus and you can accomplish just about anything you want.

This is especially true when it comes to your personal finances and Wealth Health. I've worked with hundreds of people as a Wealth Coach and following these BASICS is the always the difference between a great outcome (improving their Quality of Life) and an experience that didn't work out very well.

John

We can help you prioritize your goals and scope your focus.
Learn more. Schedule a Free, no-obligation 20-minute consult today!

Call 805-476-0333 or use the "Book Appointment Now" tab on the bottom right of your screen.

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