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Your Money In The Balance: Financial ‘Knowns’ vs. Assumptions

How can we manage the 'now, Now, NOW!' day-to-day demands of life, and still effectively plan for a secure financial future?

The only way to deal with the future is to put yourself in a space where you are dealing effectively now.

Life is a continuous succession of now, now, now.  Dealing effectively in the ‘now’ can accrue positive consequences for our future self. 

How does this observation apply to financial planning? Part of the financial planning process involves simulating or projecting our financial circumstances out 20, 30 or 40 years into the future. The calculations are based upon two sets of inputs: the ‘here and now’ knowns, and our ‘what might be’ assumptions about the future.

Example ‘here and now’ knowns:

  • Earned income
  • Tax bracket
  • Retirement fund value
  • Savings rate
  • Spending behavior
  • Amount of debt

Example ‘what might be’ assumptions:

  • Future living expenses
  • Future healthcare costs
  • Future returns for stocks and bonds
  • Future inflation and tax rates
  • Our date of death.

Why is the distinction between the two lists important?  Well, the ‘here and now’ list can be apprehended and dealt with. The ‘what will be’ list is reasoned guesswork that can only be prepared for. The only way to deal with the future is to put yourself in a space where you are dealing effectively now.

What you can deal with effectively now:

  • Develop a budget with an emphasis on managing your debt. Identify your essential expenses e.g., mortgage or rent payment, car loans or lease payments, property and car insurance, utilities, health insurance, etc. Carrying excessive debt forward will have a negative impact on your future net income.
  • Evaluate and control your discretionary spending. Discretionary spending is too often rationalized as necessary, ‘must-have’ or ‘must-do’ spending. Is that $5 cup of coffee every day of the week a ‘must have’? Rediscover the smell of fresh-brewed coffee at home and save the tricked-out java from your favorite coffee shop for a special, earned treat. Have the same conversation with yourself about your cable service package, cell phone plan, beauty treatments, memberships, entertainment budget, etc.
  • Save aggressively rather than invest aggressively. Consistently positive and moderate rates of returns are a more effective way of building your net worth over the long term than aggressive, ‘swing-for-the-fences’ tactics.
  • Periodically evaluate your investments. Know what you own, why you own it, how it’s doing and compared to what. (If you’re wondering, “compared to what ‘what?’” don’t worry, a future blog post will discuss this in detail.)
  • Be aware and informed on geopolitical events, macroeconomic developments, domestic politics and legislation, market and interest rate trends. Gather your news and information from diverse sources, including those with whom you disagree!

Tune in next week for more great Your Money In The Balance insights.

Additional information may be obtained by emailing The Careful Capitalist at investoreducationinfo@gmail.com.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

francene sanak February 25, 2012 at 03:23 PM
He gave an excellent presentation at the Trenton Veterans Memorial Library. The fincancial series goes through April. The next one is Mar. 14 on retirement at 6:30 p.m. Francene Sanak
Mark B. Robinson February 25, 2012 at 07:01 PM
Mark Robinson's robust money management and investor education workshop series includes 7 different courses, available at no cost, at local libraries. Free to attend and free from sales pitches, these educational opportunities are robust and non-commercial. The week of 2/27, these Investor Education In Your Community sessions are taking place at the Royal Oak Library (Monday, The Debt/Investing Balancing Act), at the Oxford Public Library (Tuesday, The Debt/Investing Balancing Act), and the Orion Township Library (Wednesday, Investing Fundamentals: It's As Easy As 1-2-3). The following week, various workshops come to Howell's Carnegie District Library, the Clinton-Macomb Public Library, Orion Twp., and the Sterling Heights Public Library. Contact your library of choice for time and topic details. Royal Oak: 248.246.3715. Oxford: 248.628.3034. Orion Twp: 248.693.3001. Howell/Carnegie: 517.546.0720. Clinton-Macomb: 586.226.5013. Sterling Hgts: 586.446.2668.
Mark B. Robinson February 25, 2012 at 07:05 PM
Royal Oak Library hosts 'How to Manage Your Debt While Investing In Your Future' on Monday, 2/27. Details on Patch, here -- http://royaloak.patch.com/events/royal-oak-library-hosts-investor-education-in-your-community-52640fab.
Mark B. Robinson February 27, 2012 at 02:04 AM
Hello, Mike ~ Thank you for such a considered and 'real-life' response to my post. People would be well-served to read your commentary and find a way to handle your good advice in their own personal circumstances. It's a privilege to have comments from folks like you! Mark
Mark B. Robinson February 27, 2012 at 02:08 AM
Hello Francene ~ Thank you for promoting the Investor Education In Your Community initiative. As the director of the Veterans Memorial Library in Trenton, your evaluation of the program is held in high regard. I enjoy helping patrons of Michigan libraries. Thanks again, Mark

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