I'd just respond, 'I passed the ‘Mom test’'. (Note: My husband said there was no test to be a dad!)
As adults, it's easy to answer our children's questions when they are young. You’ve been there, and done that. But what happens when they come to you with a question on a subject that you’re not familiar with or you don’t have enough experience to give an appropriate response? Do you just ignore them and act like the question was never asked? Do you get overwhelmed and frustrated because you don’t know what you don’t know?
Hold that thought.
When it comes to our finances, there are a lot of parallels between managing our money and passing the ‘Mom test'. In both instances, it’s not the easy questions that stump us, it’s the unknown that creates a sense of fear and uncertainty.
But rather than simply back away when things get tough, I encourage you use that trepidation as a catalyst to help you learn the skills necessary to win with money, no matter what state of affairs your finances are in.
To get you started, here are 4 fundamental truths that will help jump start your success.
The Retirement Exam
There are two reasons that we seek to learn anything new: either we have to or we want to -- and unfortunately managing our finances falls into the ‘have to’ category. This is because successful management of our money often lacks an immediate feedback component, particularly when we are saving for long term goals. We generally don’t know how well we’ve done until we reach retirement age and sit for the ‘retirement exam’. You know, the one that tells us how well we saved, and if we’re going to have enough money to live a full life and travel or if we’ll barely squeak by.
By this time, it’s too late! In order to pass your retirement exam, you have to start ‘studying’ now. This means you must start minding the little things like beginning to save, learning more about how your money is invested and how your company 401(k) works, if you plan to pass perhaps the most important exam you’ll ever face.
When you study for a test, the best way to do it is to study a little each day, instead of cramming all in one night. Retirement saving works the same way.
Face the Facts
It’s not uncommon to avoid facing your financial reality. In fact, many people have no idea how much debt they actually have -- let alone whether they have a positive or negative net worth.
Ever heard the phrase “you can’t tell where you’re going, until you know where you’ve been”?
This old adage rings true with knowing where you are financially. If you have a goal to retire having saved $1 million, your approach to saving is going to be quite different if you have no debt and $500,000 in an IRA, than it would if you had no retirement savings and $100,000 in student loan debt. As difficult as it may seem, it’s important to face the facts and figure out where you are financially -- just to grasp the full scope of your financial picture.
There is power in knowing where you stand financially, because only then can you map your financial future!
Don’t Be Afraid to Ask for Help
When you get that scratchy feeling in your throat, who’s the first person you call? The doctor, right? What about when you were in school and had a question about a particular subject? You’d probably schedule time with your professor.
When it comes to making sense of your money, sometimes you need to ask for help. Maybe that person is financial advisor that can provide guidance on long-term financial planning, or perhaps an accountant to assist with tax questions.
In some cases, you may just need someone to hold you accountable. No matter where you fall on the spectrum, don’t let your pride get in the way of asking for help. The reality is everyone needs help (even financial advisors from time-to-time), but wise people get help when they recognize the need.
Plan, Plan, and Plan some more
To gain control of your money, you need to have a plan. That doesn’t mean you need to have an overly complex, 15-page spreadsheet to get your finances on track, but rather something simple, and tailored to fit your unique needs.
Just keep in mind that your plan should include detailed strategies for income, spending, saving, investing, and giving.
Once you have a plan in place that works for you, put all of the energy you can muster into seeing it through to fruition. Don’t worry so much about the numbers and focus more on creating positive habits. If you stay on track with your plan, the numbers will take care of themselves.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.