4 Tips for Your Financial Self-Assessment

4 Tips for Your Financial Self-Assessment

If life were only as simple and fun as a BuzzFeed quiz, we’d be awarding ourselves with lavish titles of “hero”, “artist” or “divine spirit”. But alas, self-assessment, when it comes to your personal finances, acumen can be deeply challenging. We tend to believe we are champions of knowledge and experience, but the reality might lead us to disappointment. Remember, your beliefs inform your attitude and your attitude informs your decisions. In other words, what you believe becomes your reality; sometimes in direct opposition to reality.

Personal financial planning not only deals with where you allocate your 401(k) plan, but spans areas like cash flow management, risk management (more than just investment risk), college cost planning, retirement planning, investment planning, tax planning, estate planning, social security and health care planning. All areas that determine your future.

Let’s examine 4 topics that might provide you with a basis for self-knowledge and a platform to make choices that really work to better your life.

  1. Your beliefs: If you flip a coin, and during the first 7 flips the coin lands on heads each time, do you believe the next time the coin will come up tails? If you believe that, you are asserting that the coin has decision-making ability and will try to equalize the binary nature of coin flips, and subsequently, will want to come up tails. After 7 heads in a row, it has to land on tails, right? Of course, we are aware that the coin has no ability or even desire to land on a certain side. When it comes to your attitude towards money and issues of financial concern, consider what you believe and whether those beliefs are grounded in objective information or if they’re tinged by bias. Think about areas like buying a stock: You believe the stock price will rise—but what you might not consider is that you are buying the stock from someone who decided that it was time to sell. What knowledge did they have that you lack?
  2. Acknowledging lack of knowledge and experience: I don’t know about you, but if my furnace breaks, my hand is reaching for the phone—not a wrench. The same holds true when it comes to my health. While WebMD contains a lot of information, I am confident that I can get better answers from my physician. Somehow, when it comes to financial issues, men (especially) seem to feel that they are, by genetic disposition, able to handle what can be extremely complex, and contain far reaching consequences. When it comes to making money decisions, are you more or less likely to ask for help or rely on your feelings of what you believe is correct?
  3. Frequency of review: How often do you review, or believe that reviewing all your financial matters is necessary and important? If you believe that financial planning is a “set it and forget it” check box, or that items only need to be revisited when there is an occurrence like a recession or change in employment status, marital change, death or a noteworthy event, you might be surprised that a reactive stature when it comes to your financial plan can place you in a very problematic position.
  4. Change-ability: Even for the most self-aware, change can be difficult. Consider the last significant change you’ve experienced and what process you endured to create a successful change. Whether it’s a change in job, housing, health insurance carrier or CPA, there’s typically a level of pain in starting afresh. Shifting strategies, even something as seemingly simple as cutting discretionary spending, can be rife with pain. Consider how well you navigate change and how you’ve been successful in the past. Use this knowledge to better your financial path for the future.

Your ability to successfully meet the challenges of your complex life are best supported by having a clear understanding of your knowledge, beliefs, biases, and ability to insert objectivity into your preset thinking. Move away from biases and towards objectivity. Take some time to really consider these four items and where you stand. The security and the well-being of you and your family depend on it.

Michael Kay
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I founded Financial Life Focus because I wanted to work with people who put your success at the forefront of everything they do; people who understand that finding balance is ... Click for full bio

Retirement Planning Has Its Limits: How to Prepare

Retirement Planning Has Its Limits: How to Prepare

Retirement planning is one of the issues that commonly leads clients to consult financial advisers. One of its essential aspects is creating a plan to save and invest in order to provide a comfortable retirement income. Ideally, this starts many years ahead of retirement, even as early as your first paycheck.

As retirement comes closer, planning for it expands to take in a host of other considerations, such as deciding when to retire, where to live, and what kind of lifestyle you hope to have. When retirement becomes a reality, the focus shifts to carrying out the plan.

All of this planning is crucial. Yet, for both financial advisers and clients, it's good to keep in mind that planning has its limits. In the post-retirement years, it may be helpful to think in terms of preparing for old age rather than planning for it.

The older we get, the more important this distinction between planning and preparing becomes. Too many life-changing things can happen without regard to our best-laid plans. Often they occur unexpectedly, resulting in emergency situations where urgent decisions have to be made. A stroke or a fall, a diagnosis of terminal illness, a broken hip that leaves someone unable to go back to independent living—and suddenly, right now, the family needs to find an assisted living facility, arrange for live-in help, or sell a home.

What are some of the ways to prepare for these contingencies?

  • Explore housing options well ahead of time. Find out what assisted living, home care, and nursing home services and facilities are available where you live and whether they have waiting lists. Have family conversations about possibilities like relocating or sharing households.
  • Research the financial side of these options. Investigate the cost of hiring help at home, assisted living facilities, and nursing care centers. Find out what is and is not covered by Medicare and long-term care insurance. For example, people are sometimes surprised to learn that Medicare does not pay for nursing home care other than short-term medical stays.
  • Designate someone to take over decision-making, and do the paperwork. Execute documents like a living will, medical power of attorney, and contingent power of attorney. Update them as necessary, and give copies to your doctors, your financial planner, and appropriate family members.  
  • Start relatively early to downsize. Well before you're ready to let go of possessions or move into smaller housing, start considering what to do with your "stuff." Focus on the decisions rather than the distribution. There's no need to get rid of possessions prematurely, but decide what you want to do with them—and put in writing. Do this while it's still your choice, rather than something your family members do while you're in the hospital or nursing home
  • Do your best to practice flexibility and acceptance. No matter how strongly you want to live in your own home until the end of your life, for example, it may not be possible. The physical limitations of aging can limit our choices, and even the best options available may not be what we would like them to be. It is a profound gift to yourself and your family members to accept these realities with as much grace as you can muster.

Finally, please don't underestimate the importance of planning financially for retirement. Because the bottom line is that you can't plan for all the things that might happen as you age, but you can prepare to deal with them. One of the most useful tools to cope with those contingencies is having enough money.

Rick Kahler
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Rick Kahler, MSFP, ChFC, CFP is a fee-only financial planner, speaker, educator, author, and columnist.  Rick is a pioneer in integrating financial planning and psycholog ... Click for full bio