November 05, 2015
We’re heading into the dangerous money season. With the holidays quickly approaching it’s that annual time of year when the goodness of your heart can lead to very bad results: You overspend on gifts, dining out, or nights out on the town.
Then come January the bills come due and you are in a big financial fix that either ends up with you running a credit card balance at an insanely high interest rate, or you scale back important financial goals-adding to your emergency fund, increasing your retirement savings-because you need more cash to pay off your holiday spending binge.
I can help you avoid this big financial mistake. All you need to do is memorize my 3-question test:
Is it kind?
Is it necessary?
Is it true?
Those are the three gatekeepers I personally use when I have a decision to make. I slow down and carefully ask myself all three questions. I will not do something if it is not kind, to me. Necessary, for me. And true to what I need and what I believe.
Those three gatekeepers can help you slow down before you overspend this holiday season. A gift purchase that comes from the deepest, purest place in your heart is nonetheless a mistake if it is not kind, to you. What do I mean by that? Well, if you can’t really afford the gift it’s a bad choice. Generosity is a two-way street. It must be as evident for the giver as the recipient.
No gift that explodes your budget is necessary. And don’t tell me you feel obligated to buy gifts, even though you know it’s not a smart financial move. People you love would be ashamed to know you over-extended yourself to give them a gift that isn’t affordable. And for all the other people in your life you don’t deeply care about, a gift is not necessary. A heartfelt note is all that is necessary.
And I always want you to make sure you are standing in your truth when you make any decision, whether it is a $25 gift purchase or a $250,000 home purchase. Always ask yourself if what you are about to do jibes with who you are, what you care about, and your goals. Staying true to yourself is the kindest gift you can ever receive. You deserve it.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.