Pay Your (Future) Self First
Attaining financial health requires a complex balance of spending some, saving more, being satisfied with less, and mitigating risks.
"Where is it?” I asked frantically, searching under my desk, opening and closing drawers, and shuffling and reshuffling paperwork. A confused, bemused look came over my client’s face. “What on earth are you looking for?” she asked. “Your money! The money you should be accumulating each month based on your income and what you said you spend!” I responded. “I can’t find it anywhere.”
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Silence filled the room, and then she burst out laughing—we both did. It was a moment of truth: She was spending too much money and, as a result, having trouble reaching her goals. After a minute of hearty laughter, she grew quiet and reflective. “I get it now,” she said, “and you’re absolutely right. I say I want to get out of debt, save more for my retirement and get myself on track, but I choose to spend on myself before anything else.”
Fortunately, we worked together to design a comprehensive strategy that aligned her budget with her goals and implemented a multifaceted savings strategy. After a year, she was in good financial shape. Sadly, though, this is not the case with all my clients. Destructive financial habits can cause irreparable damage to retirement income, and there isn’t always enough time to rectify the mistakes. As human capital—the ability to work and generate income—wanes over the course of a career, it will ideally be replaced with financial capital—growth from years of consistent savings—to enjoy a successful retirement. With proper strategies, future financial goals and dreams can be realized.
Financial Success Requires Discipline
Saving money is comparable to physical fitness. Most people understand that losing weight or getting in shape is the result of eating a balanced diet and getting regular exercise. There’s really no mystery to it, yet many people struggle to manage their weight. It comes down to discipline, and human nature does not often tend toward discipline; people generally seek instant gratification. I like to think of financial health in the same way.
Getting into excellent financial shape is about discipline, and aside from the complexities of the financial road map, saving is just that simple. It is a choice.
Most people are familiar with the phrase “pay yourself first,” but it can be misleading. It’s intended to mean save first, yet people don’t adhere to it, or worse, they justify that it means spending on themselves first. Whether the challenge is spending too much or saving in the wrong way, I often come across clients who have not made saving a priority. Perhaps “pay your future self first” would inspire people to recognize that saving is not deprivation; it’s simply deferred spending.
In my experience, spending blindly or haphazardly is the main culprit of financial struggle. People simply don’t track their spending, so they don’t know where most of their income goes.
Beyond overspending, there are a host of other reasons people don’t save. I have met many veterinary practice owners who aren’t overspending, at least not on themselves, but they are still not on track to meet their long-term financial goals. They work very hard, but because of poor practice management, their income drains away inefficiently and their practice is not as profitable as they’d like.
Sometimes healthy paychecks do come home, and people believe they are saving first, but they’re not necessarily saving in the right place, using the right strategy or talking to the right financial adviser. I’ve pored over countless investment portfolios with ill-fitted investments that resulted from poorly educated clients or bad advice.
It’s also not uncommon for parents to crush themselves financially to pay their children’s college tuition when multiple alternatives could have been implemented earlier to ensure this was not the case. Most often, when financial goals seem elusive, it’s due to a combination of reasons, which underscores the importance of working with an adviser who is trained to design a comprehensive financial blueprint.
Establishing Your Unique Approach
There is no consistent rule of thumb when it comes to how much to save, how to save it, or where to save it. Each person’s situation is unique, and these decisions should be made in concert with the holistic picture, not unlike in veterinary medicine.
Early in their career, veterinarians may warrant only simple financial tips and guidance. As time goes on, however, it is wise to find an adviser who can offer comprehensive advice. Too many people allow dollars to steer their lives instead of becoming the drivers behind their own saving strategies. While saving and focusing on financial matters might not make the top 100 list of fun things to do, neither does cutting back on meal portions or jogging for the first time in years. Still, both require consistent discipline and effort—and pay off in the long run.
Consider writing your past self a letter detailing your concerns, advice, and lessons learned about financial choices that you could have changed but didn’t. Next, imagine what your future self would write to you. Your future will absolutely depend on the sum of your individual financial decisions today.
North Star Resource Group, 2701 University Ave SE, Minneapolis, MN 55414. Darby is a registered representative and investment advisor representative of CRI Securities, LLC (CRI) and Securian Financial Services, Inc. (Securian). North Star Consultants, Inc., Insurance Products and Services. CRI - Securities and Investments. Securian — Variable Products and Securities. North Star Resource Group (NSRG) offers securities and investments through CRI and Securian, Members FINRA/SIPC. CRI is affiliated with Securian and NSRG. NSRG is not affiliated with Securian. NSRG is independently owned and operated. 2114402/05-2018