Pink hearts, red roses and chocolates – love is in the air. The National Retail Federation is projecting that consumers will spend a record $20 billion on gifts this year. On average, $162 is spent per person, and the shopping list includes jewelry, an evening out, clothing, flowers, candy and gift cards.
Special gifts to those we love are an important part of Valentine’s Day. We want to celebrate by showing our loved ones how much we care for them. But financial freedom, confidence and security can show your love better than any gift!
Here are three things a prudent investor does to show their true love:
Current Self and Future Self
Planning for the future is challenging because it is abstract. We know we’re going to grow old, but it’s hard to visualize what that will look like. In addition, the temptation of instant gratification is strong. Behaviorists demonstrate this cognitive shortsightedness with Walter Mischel’s famous “marshmallow studies” where children are offered a choice: one marshmallow now or two if they wait an hour. Most chose option one. And the decision between today versus tomorrow manifests itself in everyday life choices from spending versus investing to dancing in the rain versus building a shelter. Consider looking at yourself as two people – current self and future self. Invest more time imagining your future self.
Build an Emergency Fund
There are plenty of reasons why people have inadequate savings for retirement. Some feel Social Security will be enough. Others hope something “good” is going to happen. But for many, life can get in the way – the fridge goes on the fritz, a car conks out or a kid breaks an arm on the soccer field. The budget sways and your savings goes to the back burner. According to a recent Financial Security survey by Bankrate, only four out of 10 Americans can cover a $1,000 unexpected expense with savings. Furthermore, six out of 10 people in a separate survey felt they had adequate emergency reserves while only one in three had enough to cover six months of living expenses (three to six months’ expenses is a guideline for cash reserves for workers, one to two years’ worth is good for retirees). Build an adequate reserve to cover life’s periodic surprises and consider parking the funds in an online Federal Deposit Insurance Corporation (FDIC) insured money market.
Here’s an example of why an emergency fund is advantageous. Assume you’re saving $500 a month to your 401(k,) you suffer a $6,000 blow, and you don’t have an emergency reserve. You suspend your 401(k) participation for a year to cover the expense. No big deal, right? Say you’re in your 40s – 25 years from retirement – and your 401(k) is averaging a six percent return. First, you might be locked out from contributing to your 401(k) for a year even if you got a bonus that’d cover the expense. Second, you lose the tax deductions for a year’s worth of contributions and the contributions would have grown to about $25,000 in 25 years (excluding the tax savings). And third, if your company had a 50 percent matching contribution, you would have had about $37,500.
Plan and Practice Retirement
Retirement is more than seeing that your finances are in order. Prepare for the increased time you and your significant other will be together in retirement and practice it before you cash your final paycheck. Baby boomers divorce at “unusually high rates” as they approach their 60s and 70s. The divorce rate for people age 55 to 64 doubled in the 25 years preceding 2015 according to the National Center for Family and Marriage Resource. It tripled for Americans 65 and older. Three tips have been offered:
- Discuss and align expectations. Is Georgia expecting me to do more chores while I’m planning to fish more? Or am I expected to be the center of her attention?
- Stay busy and stay connected.
- Communicate, compromise and give one another space.
Charles M. Schulz once said, “All you need is love. But a little chocolate now and then doesn’t hurt.” In addition to chocolate, why not try financial confidence and security?
Secure your future wisely and Happy Valentine’s Day from Sage Financial Advisors.
This article can also be viewed on the Reno Gazette Journal.