From a young age we are taught skills and lessons that should stay with us throughout our entire lives. Simple tutorials that are most often hands-on and that entail a few small mistakes. All of this is to ensure that the most complete comprehension is gained, in a knowledge sense and in respect of consequence. The physics in riding a bike seem all so uncertain in the beginning, while we start to understand about equilibrium and momentum, rudimentary conservation of energy and, of course, impact forces. There are many things that we add to our scope of understanding in life because it will greatly alter our ability to meet goals and find footing in this world, knowing what to do with your hard-earned income is the same. Why should personal finance be any different than riding a bike, learning to make pancakes or mastering the rules of the road? Besides being basic knowledge that we should all have, not having this understanding can lead to even more precipitous falterings in life.
Having a solid grasp on our individual finances is key to keeping our reality in check and our futures in our controls. Long term goals do not mean that your life must be planned out and that we are locked into all decision we make at an early age. Instead it is about learning how to initially balance and manage the wages, salaries and incomes that come our way, with our ability to spend money and live life. The first time you overdraw an account without having overdraft protection it is like that first fall off of the bike. Luckily the sting is usually only to the tune of $35 or so, but when you start equating that dollar value to what it could have been, we quickly begin to understand the prospect of loss. Speaking for myself, I would prefer to have those bottles of wine or other accouterments to daily existence that it could have been. A lesson such as overdraft, for good fortune, is one of the easier ones that we learn before heading into the lands of retirement benefits, group insurance policies, qualified plans and non-FDIC insured securities that could lose us as much as they gain for us.
For the ease of the conversation, let’s assume that most people understand good basic financial behavior. That we always know approximately what our bank balances are, know that our expenses must be less than our net income and, perhaps, have already begun to put funds aside for future income or whatever need will arise. There is a laundry list of investment vehicles sold by knowledgeable and trustworthy individuals who operate, according to their commitments and licensure, to find the best-fit products for their clients, while staying prudent and accurate for the benefit of the companies harboring the bulk of the risk that provides the guaranteed returns on our investments.
The initial wading into financial waters begins with one key step: identifying your financial needs and wants. Maybe you want a home or to retire early? Perhaps you want to not burden your family with any expenses you have chosen to take on in your lifetime? Or it could be as simple as wanting to grow a nest-egg for the future for an undecided purpose, like a child’s education, a real-estate investment, a horse or supplemental income to balance out any funds that might be received from social security. The important thing to keep in mind as we realize these goals is that they need not be permanent goals, as many investment products that are qualified plans have laws that allow them to become other investments for minor service charges, without losing the advantage of tax-free growth or access to the aggregated cash value.
If you have already taken on large obligation in life that have long-term financial implications, like a mortgage or other liability, you may want to limit the risk exposure to your family if something were to happen in the long run. Starting at low initial investments, there are manners to transfer the highest level of pure risk to companies that use the statistics based off of the averages of large groups of your peers to evaluate your risk. Upon evaluation of your personal health, your occupation and the amount of funds you ultimately want to ensure are present in case of an untimely accident, an offer is made to you by the company that will buy your risk and hope that you life a long and healthy life. In this manner you are protected from financial ruin in case of life-altering accidents and a company will gain from your fruitful life and use what you paid for protection to fill the void in the unlucky individual who has walked the same path as yourself and not arrived as healthy.
Once you start looking into the profile you create for yourself, it will become easier to realize how malleable this experience and situation can be. Many investment vehicles allow you to use the tax-free grown savings for large purchases, like homes, or to turn cash value from your risk-protection (insurance) into an income stream that you will never be able to outlive. The flexibility is reality limited to how well you communicate your needs and how you want to go about establishing them. A producer, broker or financial planner is just a guide through the complicated variety of products and laws to get you the best solution to your needs and wants.
Investments are as simple as riding a bicycle, when you know where you want to go. For a simple roll down the street, a basic self-tutoring would probably be enough, but with a more extended journey do the potentials for hazards increase. Just as you would consult experts before riding bicycles down mountains or in touring foreign landscapes, you should consult financial experts as a means of making yourself more aware of your options in life and what is required to minimize the risk in all of the the endeavors in which we choose to engage.