If anything social networking has offered us is the ability to take the personal out of everything. When it came to money, investments and how you handled your daily finances, few people knew what you were thinking, what you were doing or even why. Now it seems, everything is intertwined. One move can have long and lasting effects on some other area of your personal financial world. The people around you, in particular, family, both younger and older, put pressure on each decision, in most instances, unwittingly.
Over the next several days, I am going to look at some of the six phases of personal finance and how each decision impacts the other. Often consider the six aspects of personal finance, they are listed, more or less in order of importance as: financial position, adequate protection, tax planning, investment and accumulation goals, retirement planning and estate planning.
Financial Position
This is often equated with your job. In fact, the job has little to do with it. It is more the income than the actual work you do to get it. Often lost in the mix of who earns what is the amount of time, education needed and demands on you that each type of employment demands. We can aspire to great things, wish for great wealth or dream a dream that takes us away from it all. But the reality of it is, we are all paid to do something (I’ll get those who are no longer paid in a moment.)
The hardest part about financial position is accepting it for what it is. If you make hundreds of thousands of dollars in your job, most of the laws of spending still apply. Thoughtful missives such as living within your means simply suggest that the means are larger. But even larger than life incomes present problems, many of which are the same as those with far less earned income. Income, it is wrongly assumed does not denote spending power so much as it suggests what you spend money might be more lavish. You still have to put a roof over your head, food on the table and satisfy your bills.
Living within your means seems so direct that it is easy to ignore. e.e.cummings once suggested “I’m living so far beyond my income that we almost may be said to be living apart.” Think of financial position as co-habitating with your income. You live side-by-side, agreeing on the rules of spending and earning and abide by each others limitations. Spending more than you make is very similar, if you think about it in these terms, as adulterous. When one member of a couple spends more than the other, it is often referred to as financial infidelity. But in fact, they are cheating on themselves.
The younger you are, the harder it is to enter into this sort of agreement. You probably have bills (from college, for instance) that are already larger than your income. The hope that you land a good job to pay for those bills is why you incurred them n the first place. But that doesn’t mean, you tell yourself that you shouldn’t spend. If that is what you are telling the reflection in the mirror, you are already cheating (on) yourself.
Financial position rarely reaches a comfort zone. It rarely allows you to do what you would like to do, when you want and wherever you chose. Financial position dictates those parameters. Credit however, extends them. Credit blurs those lines drifting instead beyond the boundaries of reality, allowing you to think, even if for a moment, you are not in the financial position you are in.
Being poor it was once said is nothing more than being inconvenienced. The solution to any financial position is to increase your income; not spend more than you earn. But keep in mind one of Murphy’s Laws so you aren’t surprised when you do make more money: expenditures rise to meet income. Your financial position may not be as bad as you thought and making more might not necessarily mean you will have less bills to pay. It just might be more convenient.
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