I am assuming you have seen the commercial that shows people walking around carrying a “number”. This number represents the amount of money someone wants or needs in order to “retire.”
I haven’t written about finances or money in a long while but today I am.
Many people think about and have a specific number, a financial goal that they are trying to achieve in savings. Some people’s numbers are more realistic than others. Some are just a number that they randomly came up with or pulled out of the air, i.e. “I want to be a millionaire.” Some people don’t have a “number”.
I am a financial planner so we often look at and analyze our clients many numbers. First off, your “number” depends on MANY things:
- How long will you live?
- What will inflation be?
- At what rate will your investments grow?
- How much will you spend each year?
- Where will you be living?
- How will your life change?
All of these variables can vary and WILL vary. The longer the time frame, the more even a small difference in an assumed variable will be amplified in trying to figure out your number, remember the power of compounding interest.
I love to say, if you can tell me when you are going to die, I can better tell you if you have enough money saved. Although knowing how long you will live is just one of the important and unknown numbers in the equation.
Financial Planners can be very specific and give you lots of numbers. The one thing I can promise you is that the numbers used in any analysis WILL be WRONG. They will change. Your life will not be exactly what was predicted or what you expect. The numbers can give a false sense of certainty. There is no certainty.
So should you not do an analysis? No, that is not what I am saying. I am trying to say that the numbers can give you information but it is not as exact or precise as it may seem. Figuring out your number is not quite as simple as most people think.
The longer I have done this work as a financial planner / advisor the more I want to get away from only looking at the numbers. It is not all about the numbers! The numbers can give you a general idea for where you are and if you are headed in the right direction.
I think the numbers are more for giving you an idea for where to come from and the direction you want to go – do you need to be saving more and be more careful about your spending? Are you limiting yourself and the things you want to do too much or unnecessarily? I am a big believer in cushion and paying yourself first yet I also want my clients, actually everyone, to live a life they enjoy and help others.
Knowing where you stand now can give you some comfort and hopefully help you make wiser and better decisions. Knowing the general path for how to get you where you want to go is priceless.
What are the variables you can control? Focus on them with how you live and spend.
I have lots more to say on this topic but that is all for today. 🙂
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