Life Is A Financial Tug of War

Financial planning is a like a tug of war contest.  Liabilities and obligations tugging against your resources and the ability to get more.










Photo from Wikipedia.

If you were the leader, how likely would you be to add strength to the opponent’s team.  Not very.   Strangely, people seem quite capable of adding to their life’s liability array  without a corresponding increase in their life resources.

If someone buys a new coat with a credit card, they have added to the strength of the obligation team and have done little to make their resource side stronger.  If they do not make an effort to own a rewarding set of job skills, they have done too little for their resources.  If they borrow to buy an apartment building they may have made the resource side stronger by more than the obligation side.  Good debt.  If they borrow for a vacation they may have added to both sides and depending on how bad they needed a vacation, it might work out.

Life supplies many of its own obligations and opportunities.  Food and shelter forever has a cost that must be met from resources.  Working now or retirement savings later.  Poor health choices while young may make for costly fixes later.  Investing in education and training may seem like it is costing now but the shortfall in salary and the cost to become educated today are all the while building a resource with very large future value.

No matter how you think about life, it will be better if the resource side is stronger than the obligation side.  It may be close in the beginning but it cannot stay that way.  Your anchor should be some kind of savings that you hope you never need to use.  You will need strong reserve tuggers in case something unforeseen happens.  (Insurance is one of these resources.)

Life gives you another advantage.  You can invest resources now to defeat future obligations.  Properly invested, your investments grow larger each year.  Like parking tickets.  The longer you keep them the more they are worth.

It is just organized common sense.  Take an objective look at what you have committed to and what you have to meet the obligations.  Work on building assets to meet the needs and work on avoiding obligations that cannot pay their own way.

There are simple rules.  Failure usually comes because a person fails to abide by them.


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Contact:  |  Follow Twitter   @DonShaughnessy

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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