Personal Finance in a Self-Help World

The trip to the home improvement store could not have gone more smoothly. In one minute I walked from the car to the outdoor security light bulb I needed. Turning, I walked to the self-service checkout register to scan the item, slip the currency in the slot, pick up my change from the coin tray, and grab the receipt. About four minutes after I arrived at the big box store, I was back in my car headed home.

We live in a self-help world. We pay for and pump our own gasoline at the pump. We check out library books without assistance. No need for a psychologist to take an IQ test; you can take it yourself online in the privacy of your home. You can make your own airline and hotel reservations. Many things no longer require assistance of a specialist.

Then why do so many people in this self-help world not pay adequate attention to personal finance matters? Some people don’t keep track of the balance in a checking account and end up paying overdraft fees. A person who borrows money to purchase a car doesn’t calculate the total cost of the loan (principal plus interest) and ends up paying more than the car is worth. A widow moans because her deceased husband neglected to consider her welfare and purchase life insurance. A house, for many people their largest financial investment, deteriorates and the repair bill increases exponentially because of deferred maintenance. Retirement seems so far away that some do little or nothing to plan their financial future.

Lax Retirement Planning

Since 1980, the way retirement is funded has shifted dramatically. Before then, a company typically paid a “defined benefit.” The responsibility to fund and manage the retirement account rested exclusively with the company. In contrast, for many people today, funds for retirement are not guaranteed or predictable because the company is responsible only for the “defined contribution” paid on a monthly, quarterly, or annual basis. Accountability for the selection of specific investments within a retirement plan rests on the individual, not the company. With some plans, the individual must also make most of the contributions.

The shift of responsibility from employer to employee has not gone well. Some people don’t monitor their accounts once they are established. Studies show individuals typically don’t save enough to continue their standard of living in retirement. With the Nazarene 403(b) Retirement Savings Plan, only 42 percent of eligible pastors contribute to their accounts. A nationwide survey showed that a majority of those getting close to retirement do not feel confident that they have sufficient resources.

They didn’t pay adequate attention to personal finance in a self-help world.

Review & Revise

Two steps will help a person give more consideration to personal finance issues. First, review the current reality of various financial matters. See the truth of the situation; don’t make excuses or ignore uncomfortable facts. Second, revise your actions to increase your effectiveness in reaching financial goals. Make lifestyle changes as needed; small adjustments today can make a tremendous difference decades later.

Review your monthly expenditures. Track the details of your spending for one month, especially for discretionary items like eating out. Look for patterns as you reconcile your checking account. Make revisions as necessary.

Review the emergency funds you have set aside. Divide that balance by six to see how much you would have available each month if you couldn’t work for half of a year. Devise a way to build the emergency fund if you have inadequate resources.

Review your retirement accounts. Check to see that the beneficiary information is up-to-date. Use an online retirement calculator to assess your progress toward adequate retirement resources. Decide on the adjustments you will make today that will pay off during retirement.

Review and revise. Go through the cycle as many times as necessary to steer your trajectory toward the target. Start some type of financial education; increased financial literacy will improve your ability to make good decisions.

We live in a self-help world and each of us has responsibilities to which only we can attend. Shopping for a security light is nothing compared with the security that comes from paying attention to personal finance concerns.

Originally published by Pensions & Benefits USA.