It’s all too easy to get caught up in making the biggest salary we can. It’s one of the ways many of us define success by having a fat paycheck. But all too often, we focus on just one area of our financial lives. This could be the aforementioned big paycheck, or it could be the hoarding of money so that we can put a down payment on a house.
While anything you do to get yourself ahead financially is good, you will never get as far as you can if you don’t look at your entire financial picture. Here is why you need to look at everything in your financial life if you want to be financially successful.
Today, Tomorrow, Next Week
It’s important to look at the short-term, mid-term and long-term when it comes to finances. You need to be able to meet your obligations today ñ pay your rent or mortgage, buy food, get to work, etc. ñ which is obvious, but you also need to take into account the future.
When I say future, most will think about the long-term, retirement. The long-term does include retirement, but you also have to think about other things in the long-term as well. Are you planning on helping your kids with college? Do you plan on even having kids? What do you want your retirement to look like? When do you want to retire?
Asking yourself these questions will better help you to prioritize your goals and better save your money. For example, my wife and I are planning to have children in the near future. It shouldn’t be a surprise to anyone that kids cost money, something like $20,000 per year now. Ideally, my wife and I would like to keep as close to our current lifestyle as possible and still have one of us stay home to raise the kids.
Because of this, we are saving money today. The more cushion we have when the kids do come, the greater the likelihood that we can afford to have one of us stay at home. But what if we find we can’t afford to do this? No worries, as having the money still provides us with options. Maybe we use the money for something else, like college tuition or just as an added rainy day fund.
The point is, if we didn’t take into account how we wanted to live when we had kids, we could not plan for it financially. By thinking things out ahead of time, we take into account our entire financial picture and can greatly improve our chances of reaching those goals. After all, it would be difficult to realize we wanted one of us to stay home to raise our kid when my wife was 6 months pregnant!
By looking at your entire financial life, you can allow your money to work for you more efficiently. You will know your short-term, mid-term and long-term goals and can invest and save for those goals accordingly. You can also see how those goals intertwine and how reaching one might make another goal easier or possibly more difficult to attain.
Regardless of the level of difficulty, by recognizing your goals, you put yourself in a better place overall financially. As I mentioned above, sometimes a goal might not work out, both my wife and I may have to work when we have kids, but we will be able to find a use for the money we saved in the meantime to help out with other goals we may have.