Almost everyone is familiar with the story of Ebenezer Scrooge in A Christmas Carol. I was thinking about that this year and thought Charles Dickens could have just as easily written about Ebenezer’s financial situation and had visits from the ghost of finance past (Debt), the ghost of finance present (Budget), and the ghost of finance future (Savings).
Mr. Scrooge was way out of balance in these three areas, past, present and future. He was saving so much money that none was left to use in his current budget. Being a miser is the wrong approach, even though it does wonders for avoiding debt. This left his only employee, Bob Cratchit, very cold in the office with no coal to burn in the stove. Scrooge was not enjoying his riches. I wonder what he was saving all that money for. He had no one to leave it too. He was not using any of it for himself. He was not using any of it for his extended family, friends or employees. He lived a miserable life. But he did have a big pile of money in his savings account. If money could buy happiness, it wasn’t working for Scrooge.
Finding the balance between the past, present and future are three financial elements that are key to overall financial peace and tranquility. Most financial advisors only talk about finding a balance within the investment leg of this trio—getting the right mix of cash, stocks, and bonds, and rebalancing each year. While this is important to good investing, a much more important concept is finding the right balance between debt repayment, lifestyle spending, and retirement investing, then reassessing it each year to maintain the balance.
This concept is critical to enjoying life to its fullest in every phase of life; learning years (school), earning years (working), and burning years (retirement). Playing your cards right all along the way will maximize your benefit in each of these seasons of your life.
If we consider our financial life as a road trip through time, the first step toward having a great experience is to plan the trip. We need a map to get to any destination we’ve never visited before. With the right map, we can go anywhere. Once we have a destination or goal in mind, we can figure out how to get there.
What are our financial goals? Five million dollars in the retirement account? We should write it down. Retirement at age 55? Owning a beautiful house on the lake? No more home mortgage? Whatever our goals are, if we do not write them down, we are unlikely to achieve them. Think of this as the index for the map of our financial life. When we want to find something on the map, we first look at the index.
Once we have a financial destination, we can determine its price tag. Once we know the price, we can map out a plan to get there. That plan is called a spending plan, also known as a budget.
Most people think of the word budget in a bad light. No one likes to budget, but it’s our road map to financial success. Everyone has to work within a limited amount of income. There is a ceiling. When resources are limited, they must be allocated for best use. We can allocate them willy-nilly and hope to get what we want—somewhat like driving on whatever road we feel like, and hoping to get to Disneyland. We’ll never make it. Or, we can allocate our resources purposely as we move toward our goals.
Everyone’s income must exceed their expenses. The only way to be sure this is happening is to make a spending plan. The difference between income and expense is what we can use to achieve our goals. If our expenses exceed our income, we will probably never reach any of our goals. A good rule of thumb to help us know if expenses exceed income is to look at debt. If we have any credit card debt or car payments, then expenses exceed income and adjustments need to be made.
If there are things we want to achieve, we will only get them by planning to get them. We must make a spending plan and identify those things we want our money to do for us. If we have a retirement date in mind, plot it out. We know how much money we have available. We know how much time we have to get there. We have an estimate of the interest rate we can work with. From these things we can plot a course to meet our retirement date and we shouldn’t be surprised when we actually arrive. After all, we planned it that way.
Take a moment right now to establish some financial goals. You can establish many types of goals, like health, fitness, family, and others. For now, concentrate on the financial area of goal setting. The goals must be very specific, such as pay off the car. They must have a deadline, such as pay off the car in eighteen months. They must also be realistic.
The ghost of finance past is a real nightmare to most doctors. Many of us struggle to make ends meet because our past has come back to haunt us. We spent so many years living on borrowed money to get our training, that when the time finally arrives for us to begin paying it back, that mountain is a great struggle to climb.
When forming a spending plan (budgeting the present) we need to make a heavy emphasis on this area of finance past. This is one ghost that can be removed from our story. With good planning, it is only a burden during the early years of our medical career. Once it is eliminated, more money becomes available to fund the present and the future.
If your financial life was turned into a movie, how would those ghosts make you feel? Would you be hurt badly by the ghost of finance past? If so, tackle the problem and eliminate it. Would the ghost of finance future seem skinny and anemic? If so, begin to address saving for your future. It is the ghost of finance present that is the most important. How would yours appear? Do you work too hard to enjoy life along the way? Do you have enough money to be relaxed or has the lack of available funds got you tense all the time? Do you fight with your spouse over money issues?
By the end of the movie, Mr Scrooge has learned the error of his ways. He decides to use his money to enjoy life as it comes. He learns that it is not too late to make some changes and live a wonderful life. He strikes a better balance in the use of his financial resources.
I hope the end of this year will have you reflecting on what changes you can make in your financial life so that 2018 will be your best year ever. Live within your income, accelerate paying off your debt, and save for the future. When you get these three things in balance, it is surprising how great you feel about life. Find your balance and you will find your best, most fulfilling, life.
If the ghost of finance past is haunting you, pick up a copy of my book The Doctors Guide to Eliminating Debt and remove this ghost from your story. If you need help getting back into balance, contact me and I’ll help you get there. Don’t put this off another year, you don’t know how many Christmas trees you have left.
Dr. Cory S. Fawcett