Right Questions, Right Time
One of the hardest things for financial planners to help people accomplish is correcting financial decisions that weren't sufficiently thought through at the outset. In failing to ask the right questions before making a decision, people frequently cheat themselves out of the ability to have more money and a more comfortable lifestyle in the future. And they sometimes place themselves in situations that will lead to a crisis that is painful to resolve.
For instance, if you are buying a house, you have the option to ask what specific outcomes your decision will produce in the future before you buy the house.
Many times, people choose which house to buy based on what size mortgage payment they can afford at the present time, and they buy the “best” home they can afford now. Then when they are facing the next big financial issue, like transitioning to retirement or saving for a child's college, the only way to develop a sound plan for moving forward is to get rid of the house. To correct the mistake, they must often downgrade to a humbler dwelling than they would have had if they had chosen the “best” home – a more modest one – to begin with.
The best way to correct mistakes
The best way to correct such errors is not to make them in the first place. The best time to do financial planning is before you approach the major milestones of your financial life that affect the long-term outcome. Waiting until an urgent situation arises always requires more drastic measures.
For example, the closer you get to the end of your career, the more fixed your savings and your ability to save become. If you wait until a few years before you retire to come up with a retirement plan, making the transition will be much harder and may require that you settle for a much different lifestyle with fewer luxuries than you have always imagined enjoying.
Ask yourself the right questions at the right time
You can save yourself a lot of frustration and disappointment later by asking yourself the right questions before making a decision that impacts your future.
For example, when considering a major purchase, many people ask themselves, “Do I have the cash flow to afford this right now?” The right question is, "Will I be able to afford this over the next five years?"
Here are some of the questions we counsel our clients to ask themselves most frequently:
- What changes could happen with my income and expenses?
- Am I going to have children that will increase my expenses?
- Would this create unnecessary fear or stress if I were to lose my job?
- How will this affect my long-term goals?
- Will this diminish my ability to do something I want to do in retirement?
- Will this build value I can extract later?
- Will this be something I want to get rid of in retirement? Or will I want to maintain it?
- How much will I need to have saved to be able to afford it after I retire?
There are other questions that are always the right questions, but can create a crisis if they aren’t answered at the right time. Questions such as:
- “How will I pay for Johnny’s college tuition?” Time and compounding interest are on your side when you answer this while Johnny is still a toddler. It is a crisis when you wait until he is a senior in high school.
- “How will I fund my retirement?” You can maximize the impact on your financial future if you answer this the moment you get your first job. It is a crisis when you wait until age 50.
- “How will we pay off our credit card?” The time to ask this is before you make the charge. It is a crisis when you accumulate a balance that’s beyond your means to pay off this month.
Planning, by definition, is something done before the need arises, not after.
Asking the right questions of yourself at the right time can dramatically improve the course and quality of your life. Anytime you are making a big decision, challenge yourself to think beyond right now and ask the questions whose answers will lead to your best future. Then you can decide what is most important to you and develop a course of action that will allow you to get what you want out of life.