You want to send your kids to college—but on the other hand, you struggled to pay for your own tuition.
You want to retire with financial security—but on the other hand, you don't want to wait until you're 70 to have fun and travel.
You don't want to have credit card balances hanging over your head—but on the other hand you want to go on vacation, decorate your home and not scrimp and save for every purchase. You're constantly dealing with choices and decisions that impact your life today and out into the future. Visualizing that new Apple Watch on your wrist or that Caribbean vacation is a no-brainer, but it's a lot tougher to think decades into the future.
The internal war between want and should is a constant battle. You can intellectually reason the whys of saving for retirement or college or not overspending your cash flow. But the electric connection in your brain—the one that rationalizes all the reasons why tomorrow will take care of itself—overtakes rational thought.
And therein lies the problem.
That all-or-nothing mentality is a recipe for dissatisfaction. If you live only for today, the financial ramification in the future is disaster. If you live only for the future, your happiness today suffers. The right answer? Try a little balance.
- Begin with a list of your unmovable MUSTS. What is non-negotiable when it comes to your financial goals? It might be education, retirement, living debt-free or something else that touches the core of your beliefs.
- Understand what those goals mean in terms of time, available dollars and the amount of risk you are willing to take. Without quantifying the end number, you're pretty much in the dark (and don't forget to take the effects of inflation into account).
- Know that there are various types of risk. In terms of your life goals, there's the risk of something not happening and the risk associated with the growth of your assets to meet your objective. You need to address both.
- Know your cash flow—what comes in and what goes out. If you don't know your numbers, you're pretty much finished before you start.
- Create a list of "now" or short-term goals that would increase your life satisfaction, along with their financial cost.
- Recognize that without creating more income to cover your wants and needs, your only option is to reduce your expenses. Consider whether you can shift your spending without feeling miserable.
- Start. Nothing happens to increase your happiness unless you take action. Getting stuck on all the variables does you no good. Start now and refine as you move forward. For example, if saving for retirement is vital—make sure you are contributing to a retirement plan. It might not be the "right" number, but it's a start until you get a better handle on what it's going to take.
- Get help if you need it. If you lack the financial knowledge, get help. Work with a qualified fee-only planner who can help you define and refine your thinking in terms of your life and your money.