Do you know where your beliefs, ideas and values about money come from? The answer is most likely your parents or whoever raised you. But how do you know when they’re wrong?
When I was 28, I spent my life savings — all of it — at once. I did it to launch my own business — a cutting-edge, non-profit to build the life I had wanted since I was a teenager. My parents, however, were not entirely thrilled. Their warnings about debt, failure and that looming cloud of “the future” grew louder every time I wired money to buy equipment or declined more secure job offers.
How did I know it was time to heed my own advice and not theirs? Consider the following as you decide what to do with your dollar bills:
What does the research say?
The wide world of Google is at your fingertips, and your own financial institution likely offers periodic consulting perks. What do experts other than your parents recommend? Always conduct your own research before making financial decisions; at the very least, you’ll learn something, and perhaps acquire mentors whose objectivity is less in question. In my case, a fellow entrepreneur in my sector was a nice compliment to the broad-spectrum finance skills I learned from my parents.
Where do you currently stand?
Are you responsible for children, pets or a mortgage? As you become more mature and shoulder more financial commitments, your risk tolerance will change. Think critically, creatively and candidly. Scads of folks told me that launching a business while raising a six-month-old by myself was pure madness. But I acted when I did because the numbers lined up — raising an infant is cheaper than a school-age child, which meant I had several years to make this business a success before family finances became pressing. No matter what anyone said, the time was right for me to take a financial risk.
What is your goal?
Are you close to retirement? Saving money for a down payment on your first house, an engagement ring or a career move? Money is simply a tool to reach a desired end, but you never know how much you’ll need if you don’t know where you’re going. Once you determine your goal, remember to add a cushion for inflation, taxes and the unexpected.
Do you have a backup plan?
Those who love you often give financial advice from a singular perspective — security. But security comes in many forms, and optionality is one of them. My “Plan B,” for instance, was the knowledge that if my business failed, I would know by the time my child was in school; this meant that my resume would still be relatively up-to-date and I could reasonably expect to return to the corporate world. In the interim, I developed the relationships and support structure necessary to freelance as a consultant when ends weren’t meeting well. Sharing my backup plan with loved ones reassured them that I was planning ahead.
What role does money play in your life?
Money touches everything in our lives and how we use it reflects our values, desires and priorities. How do you want to live? Are mansions important to you? Is a certain type of schooling for your child important? What is your personal money psychology? Are you primarily concerned with security and always braced for the worst to happen, or do you have a more relaxed relationship with the green stuff?
No matter what your current financial position is or where you’re going, you’re going to meet a lot of folks who have a lot to share. Take it all in; develop the analytical skills necessary to evaluate the quality of the advice, independent of the source, and decide in accordance with your own values and goals.