Let’s talk about choices today, choices baby! It always comes down to choices, even if you think you don’t have any choices, trust me, you do.
My husband and I went to test drive some cars the other day. I need a new car since a car seat is not going to fit in the backseat of my teeny tiny convertible. Before we left for the dealership, I ran some numbers to get a better idea of how much we’d like to spend. If we went $5,000 over our budget, it would cost us about $100-$150 more a month depending on the interest rate. An extra $1,200 a year isn’t going to drastically change our life, but what if we put that extra $100 each month into a 529 plan for our child? What about if we spend an extra $10,000? That would be about $200 more each month, so we could spend it on a car or put $2,400 away each year for our child’s college. Again it won’t really change our life now, but what an impact it would be for us as we get closer to college. I’m sure we would have a lot less stress trying to figure out how we will budget college costs.
When you come up to a big decision like we are, it is really important to think about how it will affect you NOT today, but in 15 years and 20 years. I always get asked by women if they should increase their retirement plan contributions. I explained that while an extra $50 or $100 each paycheck won’t really affect their life now, it will drastically affect their life as they get closure to retirement. A little bit extra each month over 20, 30, or even 40 years, makes a HUGE different. So each year when you salary goes up a little, (hopefully) increase your retirement plan contributions. You won’t even feel it, trust me!
Some people explained they have no choice, they have $3,000 a month in housing expenses so there isn’t enough money left to save. Wait a second, I didn’t realize you were chained to your house and can never sell it. Try downsizing or renting for a little, and lower your monthly mortgage payments to $2,000 a month. You’ll have a whopping $12,000 more each year, which means more confidence and control for you, fewer years to work, and a whole lot less stress. One couple came in and they were faced with a very similar situation. They were barely getting by each month, and some months depending on their credit cards so their debt kept climbing up.
We met with them for a strategy session, and found a way to save an extra $1,000 each month, pay off all of their debt, and put aside $75,000 to invest. How on earth did we get so much progress in one session? We went through their choices! They had no idea they even had choices, and thought they were stuck in this situation forever, but as you know by now, that is NOT true. In the end, it made the most sense for them to rent for a few years until they retire. And it will allow them to save more money, pay off debt (and not go back to debt), and invest more money. They felt so good after our meeting, when I asked their time frame for the move, they said in 2 months! What a difference it makes to know your choices.
They didn’t realize it while they were younger, but they were making choices constantly. They put their time and focus on their child. They spent extra money on the kid’s sports and spent a little too much on her college too. They didn’t know it at the time, but these choices were why they are in the predicament they are in now. All of us are where we are today because of the choices we made in the past. No one forced us here, and now it is our choice to see how we want to live going forward.
You can choose to invest your money or keep it in the bank and probably lose money to inflation each year. You can choose to spend your money on frivolous things now or invest it for your future. You can buy the higher end car, or put money away for your kids. It is very tempting to spend it now, it gives us very good BUT quick satisfaction. It is why it is so important to remember your end goals during your major life decisions.
Ask yourself will this get me closure or farther away from my goals?
Happy Decision Making!
Jessica Weaver, CFP®, CDFA™, CFS®
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