Look! A Pool!

A friend had the opportunity in high school to go to Colorado for a few days of hiking and camping (big yellow bus, 20 of his closest friends). He shared with a certain pride the number of tables he bussed to pay for the trip. After a long day of driving, they turned into the motel parking lot. He asked me to imagine the group’s reaction when they spied a diving board; and again as they got closer and realized there’d be no swimming (the pool was empty, except for a foot or so of rust colored water).

Fortunately, kids are resilient, and the letdown was short-lived. The pool setback couldn’t overshadow the excitement around the incredible adventure ahead.

His story got me thinking about retirement. For the millions of baby boomers moving in that direction, after a lifetime of work, the next chapter should be an adventure as well, not a disappointment. Like the Colorado trip though, the next phase doesn’t come free of charge – it has to be funded. Many workers have been successful in this regard, but too many have not. According to EBRI, just 2 in 5 retirees are very confident in having enough money to cover basic expenses during retirement.[1]

The importance of personal finance

I’m still about a dozen years from retirement. My adventure – more time with family, travel, community service, woodworking and lifelong learning.

I count myself fortunate, learning personal financial management at an early age. Having spent my entire career with the Principal Financial Group, many important lessons have been reinforced daily. Most people, however, have had little if any such exposure. According to a recent study by the FINRA Investor Education Foundation, less than 3 in 10 report having been offered financial education at a school, college or workplace.[2]

That’s why I want to applaud Financial Literacy Month, and the organizations and professionals dedicated to helping individuals get on and stay on the path to financial wellness. It brings focus to an area too often ignored, yet critical to better financial decisions and broader financial security. In the spirit of the month, I’ve summarized some wisdom from Kiplinger’s[3]. I believe it truly captures the concepts that are key to building financial success.

Key 1: Invest in yourself
Your own earning power is the most valuable asset you’ll ever own. Keep [it] growing through continuous education, training and personal development.

Key 2: Protect yourself and your loved ones
Make sure you have enough insurance against life’s big risks – serious illness, disability and early death. Most people…are woefully under insured.

Key 3: Borrow sparingly
Use credit only to purchase things of lasting value: a home, education, maybe a car. Pay cash for everything else.

Key 4: Pay yourself first
If you feel you never have any money “left over” for investing…try reversing the bill-paying process. Make the first [payment] a deposit to [a savings or investment] account. If you’re having trouble paying that last bill, trim your discretionary spending.

Key 5: Don’t go for the home run
In investing,…shy away from highly volatile stocks. Don’t try to time markets, because no one does it consistently well. Use dollar-cost averaging to invest regularly in markets good, bad and lackluster.

Key 6: Diversify
…successful investors have always known that any one class of assets – stocks, real estate, bonds, cash – will have its day in the doghouse and its day in the sun. That’s why you’ve got to own all of them, in a mix that’s right for your age, income, family responsibilities and tolerance for risk.

Key 7: Live simply
Deferred gratification is no fun, but it’s the only way I know to fund your long-term goals. Take a close look…, and if you see a lot of spending that is dispensable, consider it found money for the bigger dreams in your life.

Key 8: Give generously
Your own financial security depends far more than you may think on the financial, physical and spiritual health of others. When you share your good fortune by donating your money, time and talent to charity, you help create a stronger economy and a healthier, safer world.

I encourage you to read the full version of Eight Keys to Financial Security. Consider it a good start toward building financial literacy so you can make sure your retirement pool is as full (and clean) as you’d like when you get there.