The benefits of managing and adjusting your personal finance life
When you read the average personal finance conversation on the internet, there is a lot of talk about creating a plan and sticking to it. This plan typically involves gradually paying off consumer debt, saving for emergencies, and investing select parts of each paycheck. Advocates of personal finance
awareness emphasise planning, even automation, and this model has its benefits.
4 Apr 2016 13:43
People who reserve specific percentage amounts of each paycheck to various personal allocations will see steady benefit that changes their lives, often faster than they might have anticipated. But the automated financial life has its downsides, the chief of which is better opportunities coming along, which could be missed if an automatic plan bypasses them. Here are a few examples.
- Costs of living go down. Though this is rarely the case, careful planning will ensure that sooner or later, certain costs will be eliminated. The big example in most lives is the home mortgage. Most personal finance sources advocate for NOT paying down the mortgage loan early, as low interest rates ensure that almost any other allocation of funds will be more efficient. Some still do so anyway, and manage to kill off their mortgages early. Even if you wait, a home that is owned outright will be savings of thousands or tens of thousands of dollars annually. It can be tempting, with so many suddenly freed funds, to use the extra money for “fun”. But it’s in these times that it’s all the more important not to increase the boundaries of one’s lifestyle. Increased savings will ensure that you don’t create a lifestyle that is unsustainable in later retirement. But this requires some adjustment to your overall allocation strategy.
- Your costs go up. Most payments that you make monthly are subject to change. These include utility bills, city tax payments that are included in the price of your mortgage, insurance payments, and the like. It’s very important to keep track of what you’re paying over time, even if these payments are automatically drafted out of your financial accounts. Resources like eCompareMo.com are there to show you where savings can be found with many different financial entities. Don’t forget about the payments you are making, even when you don’t “consciously” pay them every month. As these costs rise, ask for discounts or take your business elsewhere.
- You have children. People with children have to save and budget differently than people who do not. Having a child will force you to change your plans quickly, but it won’t destroy them. Parents must be very picky with how they spend their money, learning to eat and entertain and educate well, but less expensively than is commonly done.
There are plenty of other times to evaluate and re-evaluate financial strategies. Some people never do this. Without occasional consideration, the plan that you chose to drive your finances when you were 20 likely will not work when you are 50. In every case, make the best plan possible, stick to it as much as you can, and make new plans as needed.