What are smart financial decisions? You might say they are financial moves that take you closer to a goal or place of financial security. You probably have a good picture of BAD financial decisions. They cause stress, keep you up at night, and cause an overall lack of peace in your life. In thinking of a child, friend, or family member to whom you would like to give advice, here is a concise list of ten things that could help you queue up that discussion:

#1 Know that retirement is the only financial goal that really matters

You will have a multitude of financial goals over your lifetime. This often begins with the purchase of your first car or home. However, unless you have a trust fund, odds are high that you will need to be responsible for your own food, clothing, shelter, and medical expenses (as well as other needs) for a period of 20-40 years beyond the time you can earn a normal paycheck. 

#2 Know your annual spending pattern

(Include monthly financial needs and non-monthly spending) You can figure out your monthly spending quickly. However, do not forget to include vacations, holidays, auto replacement, and major maintenance on your home. Those expenses are happening routinely as well, but you may forget to consider them when allocating your monthly paycheck. 

#3 Know the best financial advice ever given was “pay yourself first”

Most people spend money unconsciously, and then consciously try to save whatever is remains from their paychecks. (Which there never is anything leftover). We recommend that your reverse that system. A company retirement plan is the perfect example of saving unconsciously. Once you start putting funds into a 401k or 403b plan, you will never notice it is missing from your checking account. In a similar vein, you may have heard us talk about a “savings-to-spend” system. The idea here is that the expenses mentioned in #2 above (the annual expenses or non-monthly) are going to happen. To the extent you can save monthly for upcoming expenses (in the next year or two, but sometimes longer), you benefit in many ways. First, you have the joy of paying cash for a major purchase. Second, you create an emergency fund to help if you have an unusual financial need. Third, over time, you reduce your overall lifestyle in a way that will help sustain you in retirement, when you are beyond your working years.

#4 Know where you are starting

You may want to put together a net worth statement, which includes a list of all your assets, minus your liabilities. Consider carefully how you title your assets. Do you know for sure which asset are joint? Individual? Or in a trust? Include information about life insurance and beneficiary information.

#5 Know what your risk areas are

Risk areas will vary based on your stage of life. For example, most people need life insurance when they are in the early years of raising a family. Disability coverage is even more important. However, risks later in life need to be considered along with ways to mitigate them (if possible).

#6 Know at least a little bit about investing

Modern portfolio theory (also know as asset allocation) is by far superior in the long run to day trading, picking individual stocks, and get rich quick schemes. For anyone who does not have a financial advisor, most 401k and 403b plans offer decent options where you can select a mix of stocks and bonds. (Big hint:  the riskier the investment, the higher the expected rate of return.) They also have enough education tools to help someone starting out and get familiar with financial terms and other basic information. Knowing the stock market goes up and down daily may be a good place to start.

#7 Know what the end looks like

Most people do not worry too much about who will inherit their property. But do you know who will take care of you if you cannot care for yourself? If you are counting on a spouse, consider if that spouse is not around. Who will you rely on then? 

#8 Know who to be friends with

In additional to knowing a fantastic financial advisor, it also helps to know a CPA, banker, and attorney—especially one that specializes in estate planning, real estate transactions, or small business. A friend in the real estate business can also be a reliable source of information.

#9 Know why most financial plans fail

Most people do not have a solid goal. We recommend you know the exact number you need for retirement (goal #1). When you have the number you are working towards, including breaking it down into achievable, short-term increments, you have increased your odds for success.

#10 Know about the “curse of the dream house”

The dream house is that home you would love to have, and your banker friend will gladly help you make it happen. Before you buy that dream house, I recommend you watch an old Tom Hanks movie The Money Pit (Benjamin, Richard (Director) 1986, produced by Steven Spielberg). This classic tale will send shivers up your spine. Dream houses cause all kinds of financial and marital stress, so beware. Most people that make smart financial decisions live in a house that is very affordable, with a mortgage paid off well before retirement. 

We hope this list of ten things to know has been helpful for you. Financial discussions with the people we care about can be the most difficult. Hopefully, this list offers you with thoughts to trigger thoughtful discussion.

Kristina Bolhouse, CPA/PFS, CFP®

Vice President/Shareholder

© 2022 The Arkansas Financial Group, Inc. & Kristina Bolhouse,
All rights reserved.

The Arkansas Financial Group, Inc. is a Fee-Only Financial Planning Firm located in Little Rock, AR serving clients in Arkansas and throughout the country.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Arkansas Financial Group, Inc. [“AFG]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from AFG. AFG is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the AFG’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.arfinancial.com.

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