05 Jul Win the Money Game by Answering These 5 Questions
In 1900 the average life expectancy in the USA was about 47 years of age; 46 for men and 48 for women. Now, just a little over 100 years down the road, the average life expectancy is 79. Advances in medical technology, improvements in living conditions, organ replacements, pharmaceuticals, etc. have all had a profound impact on what used to be very rare: living past 55. So if we crunched these numbers a bit, we can mathematically estimate that the average life span will increase by 8 months for each passing year. By 2045, the average life expectancy will have hit and quite possibly even exceed 100 years of age. If you are reading this article and under the age of 45, you are barely halfway done. The federal tax code used to stop at age 88, but now continues through 121. The IRS knows a child born today will live to be 120 years of age, and the IRS has immortality on its side. So, in light of today’s (and more importantly, tomorrow’s) interesting financial times, how can we possibly win the money game and hopefully not outlive our wealth?
There are 5 questions you must absolutely be able to respond in order to win the money game (and for most people the goal is simply to NOT outlive their money). If you don’t have the answers to these questions, and if you do not teach your children how to find those answers when the time comes, yours and your children’s chances of financial success are just a scratch-off ticket, left to luck. YES! What you don’t know CAN hurt you.
FROM THE BLOG: Shopping for a Financial Advisor? 8 Things You Need to Know
“HOW MUCH DO I NEED TO CARRY ME THROUGH?”
OR, how do I make what I have accumulated to this point last as long as possible? There are things that WILL occur over time that are simply out of our control, HOWEVER, you may be able to control how much of an impact some of those things will have on your future. It’s going to take more money in the future to live like you do today, and even more so for your kids.
“HOW DO I PROTECT MYSELF?”
First you have to identify the risks. Premature death could be one. Remember, you may be barely halfway through the race and your children have just scratched the surface. How do you protect those you care about? Life insurance for one, but how much is ENOUGH life insurance? There are also annuities, pensions, etc. Do you have a will? If you do not have a will in place, the State of Texas has one for you, but you probably won’t like it much. Wait, I should rephrase: your HEIRS probably won’t like it much.
“HOW MUCH DO I NEED TODAY?”
If you have an emergency, or things suddenly don’t quite roll on as planned, what amount of cash money should you have set aside to handle life’s emergencies? What amount will that be for your children?
RECOMMENDED: Thumbs Down on Financial Rules of Thumb
“SHOULD I INVEST, AND WHERE?”
Yes and in a good spot. We all know investments have risk. If you’re in the market, what does the market do? The market goes UP and the market goes DOWN. There are 3 things to do to be good at growing money: 1) Put it in a really good spot, 2) Watch it VERY closely, and 3) ABSOLUTELY understand how it’s impacted by taxes, both today but more importantly, in the future. You’re hoping your little seed is going to grow, but let me ask you, if you were a farmer, would you prefer to be taxed on the small cup of seeds or the BUSHELS of crops it produces later on?
“HOW DO I PAY OFF DEBT?”
I have a very cool and intricate system for accomplishing this called the PIO method. It stands for Pay It Off! That’s it, really simple, just pay off your bills. When it comes to specific financial advice and what each person or family should do, there is no cookie cutter magic mold or formula, and to make specific recommendations in an article such as this would quite literally be a bit irresponsible. To spout numbers and projections on specific products without first understanding an individual’s wants, needs and desires is risky at best. The best advice is to contact a financial professional and sit down and have a discussion about your vision, your current financial situation and what you want to accomplish for the future. After putting all the puzzle pieces on the table, work on devising a plan to accomplish that goal with regular reviews and checkups along the way, not unlike a physical fitness or diet plan with a doctor or dietitian. Remember, not everyone’s prescription is the same and neither is financial advice. Schedule a time for a financial physical and get on track to winning the money game and accomplishing your dream, not outliving it.
This article was originally published in the August 2014 Issue of VETTA Magazine.