ABOUT THIS EPISODE

We’ve talked about your tactical finances—meaning you weekly and monthly inflows and outflows. Now we want to talk about the long term, which we have dubbed your “strategic finances.”

Your strategic finances are about wealth building. And while that sounds grandiose, we want to get beyond simply thinking abut retirement or saving up for a single thing like a house or your children’s educations. We want you to take a 360 degree look at your financial picture, see where you are, where you’re going, and where you might need to make some changes to realize your goals.

We’re going to start with the same advice on strategic finances that we gave for tackling your tactical finances—pull all of your data and set up a date for coffee or lunch to comb through everything to get your house in order.

Now, answer the following questions:

1 – What is the difference between what I am saving for retirement each month and 15 percent of my pre-tax income? (If you have a pension or other defined benefit plan, how much of your income will it replace, and what would it take you saving or investing on a monthly basis to make up the difference?)

2 – How much is three months of household expenses? Do I have that in an easily liquid account not earmarked for anything else? If not, divide what you are currently lacking by 12.

3 – How much would I need to increase my monthly life insurance policy premium buy to get a benefit that would replace my income for a year and set my family up to live on just my partner’s income?

4 – How much do I need to increase my monthly mortgage payment by to pay off my mortgage before my goal retirement date?

5 – How much more do I need to save each month to reach my goal for my child’s education account?

6 – What other savings goals do I have, and how much would I need to save each month to realize them in the time I have in mind?

Now, added up these six numbers.

And take a deep breath.

The sum of those six numbers is how much you need to increase your monthly savings to achieve you strategic financial goals. I expect most of you do not have that kind of money simply accruing in your checking account each month waiting to be shipped off to these other accounts. 

We have to prioritize which savings goals are most important and/or consider whether we could budget a bit differently on the tactical side to free up more money to save. Every financial planner will tell you to put your retirement plans before your children’s educations. Paying off your mortgage early can free up that money later, often when your children will be in college, that you could then choose to use in helping them out.

We’ve said this before, but after going through this exercise, it is best to just sit with the numbers and not make any snap decisions. A week or two of reflection and consideration will help you get clear on what you have and what you’d like to do with it.

We hope we’ve convinced you that there isn’t anything particularly magical or voodoo like when it comes to your finances. You are perfectly capable of taking control by gathering all of your information, organizing it in a spreadsheet, analyzing it using broadly accepted financial guidelines, and making informed decisions.

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