Meeting Financial Objectives

Financial Objectives and Approaches for Stability

Since marrying my wife more than fifteen years ago, we share the same thoughts on money and financial matters.  Even though we divided the work and roles both of us think similarly.  She saves nearly half of my income.  I take a portion of that savings for investments.  Together we build our future through those two activities.  Our financial objectives combine our individual emphasis into a cohesive strategy.

She saves half of my income.  You may say that’s well and good, but how does she save that much.  You may wonder if we lead boring lives huddled around the radio playing card games.  She watches the discounts and purchases household staples when she has coupons and they are on sale.  Effectively, she purchases most items for pennies on the dollar.  Most personal hygiene items cost nothing or just a few cents per unit.  For soap, toothpaste, shampoo and deodorant shores discount them heavily and the manufacturer issues coupons.  That combination reduces the cost to nearly zero.

I control the investment and long-term side of our finances.  This includes retirement, college savings, health savings and most insurance.  You may wonder why insurance was included in a discussion about long term investments.  Insurance provides the protection necessary to secure financial security.  Retirement accounts present the most active portion of our savings.  Retirement accounts provide an excellent way to take advantage of the tax code.  Roth IRA’s provide a post-tax method to save $6,000 per year, which is a tremendous benefit.  Many employers offer 401K programs which offer even greater savings potential.

Combining the Two

With the personal story, you see a couple different approaches.  Short-term and long-term financial objectives focus on the time frame.  Also, offensive and defensive objectives emphasize the direction of our focus.  Each approach helps establish the four legs to a stable financial life.

Short-Term Financial Objectives

Short-term financial objectives, as the name implies, focus on the immediate financial needs.  Those goals include income and expenses.  Income consists of the offensive objective, and expenses consist of the defensive objective for short-term financial goals.  Control over both income and expenses in the short-term provide stability to your financial life.

Income for Short-Term Offense

Income provides the money needed for the month.  A career provides the most common source of income but side hustles, government assistance and passive income should also be included.  In most cases, the proper selection of a career will determine how strong the monthly finances start.  If the career does not provide enough income, then extra jobs and passive income becomes an option.  Side hustles are covered here.  Passive income usually starts as an investment but can become a substantial contributor. 

Expenses are Short-Term Defense

Expenses constitute the defensive side of short-term finances.  The ability to reduce expenses leverages the purchasing power of the income.  That leverage comes from purchasing items at a discount.  A larger discount leverages more purchasing power.  Mark Cuban talked about saving on toothpaste because tat is one of the few products that instantly get a 50% return instantly.

Long-Term Financial Objectives

Long-term financial objectives focus on financial stability and security.  Investments and insurance provide the stability and security.  Investments provide a way to reduce the financial burdens of life.  Insurance reduce financial risk for various issues.  Long-term goals supplement the short-term goals.

Investments for Long-Term Offense

Investments come in a wide variety of sizes and purposes.  An emergency funds prevents an overreaction to a disruption to daily life. The emergency fund should consist of three to six months of expenses.  Several types of retirement accounts make savings for retirement very easy and within the reach of anyone.  College savings account provide a way to ensure college does not overburden the future student.  Those demonstrate a small sample of the types of savings accounts. 

Insurance for Long-Term Defense

Insurance provides the defensive long-term financial objectives.  All insurance mitigates risk of financial loss.  Auto, health, disability and homeowner’s insurance reduce the financial impact of events covered by the policy.  The financial hedge against loss protects against losses that could devastate security.

The short-term and long-term approach with the offensive and defensive outlook provides a comprehensive view of our financial life.  That approach has helped our family, and it may help your family as well.