(Financial Check-Up - Part 2)

Does this sound familiar?  "It doesn't matter how hard I work - the bills just keep piling up; the cost of living and the stock market are killing me; the politicians are ruining everything."

If you've ever had these or similar thoughts, then you must feel  powerless over your financial well-being.  This is sad, for it is unnecessary to feel like you have no control.

Our information culture offers a range of financial data and "advice", ostensibly to help you take control of your financial life.  Perhaps you listen to the daily (or maybe even hourly) market reports.  Perhaps you are concerned that the Fed is changing interest rates.  Perhaps you care about the pundits' predictions as to what the economy will do over the next quarter, or year, as if what they think matters.  Perhaps you even read books on investing, and there certainly are enough of those to keep one busy.

If we take seriously the notion that we can do something about our own financial health, and if we acknowledge that money is but a "tool" that we can learn to master, then we are ready to look at what things we CAN control in our financial lives.

In his book, Facing Financial Dysfunction, Bert Whitehead (who happens to be my financial advisor) offers a self-test intended to determine how much you are in control of your own financial life. Which of the following do you think will most impact your financial future?

1. Interest rates      or       Taxes
   
2. Specific investments you choose    or    Diversification of your investments
   
3. Inflation    or     Being a wise shopper
   
4. Technology    or     How much you earn
   
5. The political climate     or     The stability of your relationships
   
6. Globalization     or     The house that you purchase
   
7. Rate of return on your investments     or     How much you save in permanent savings
   

If you selected any of the first choices, then you are not yet in control of your financial health, because the correct answer in each instance is the second choice. 

Why would this be?  Simply put, because in each instance you should be concerned with matters you can control, and not hope that external factors assure your financial health. What can you do about interest rates or inflation or globalization anyway?  Nothing at all.

However, you CAN do something about how much you pay in taxes and how wisely you shop and how much you save for retirement.  If you tend to those matters you can influence, then you will acquire financial peace of mind.

More importantly, if you take the larger issues to heart, then you have decided that you are at the whim of external forces and that there is nothing you can do to improve or take control of your financial life. However, ,since those larger issues affect everybody, why not set up your financial life so that they simply affect you less dramatically?  

So, what can you do?  If you take control of how much you pay in taxes (any financial planner who does not help you save on taxes is cheating you), and if you save from every dollar you make, and if you purchase your home wisely, and if you work hard to maintain the best relationship possible with your family, and if you invest your savings in a properly diversified manner, then you will always know that you have done precisely what you can do to assure financial health. 

This signifies that you are living within your means, that you are insulated against market swings, and that you have a firm understanding of what is truly important.  All of this is much, much more important than what interest rates are doing.

Next:  Part 3 ~ Debt – The Good, The Bad and The Ugly