Save and Give First Adam M. Grossman | October 11, 2020
I’VE DISCUSSED the election in my recent articles and cautioned against timing the market. But if market timing isn’t recommended, what can you do to keep your finances on track through this potentially turbulent period? Last week, I suggested reviewing your finances through the lenses of leverage, liquidity and cash flow. This week, I’d like to share another framework—and this is one you could employ at any time and not just in times of worry.
Financial educator Brian Portnoy (not to be confused with day trader David Portnoy) offers this perspective: In the world of finance, he says, most of the discussion focuses on investments. While investing is important, it’s just one of seven dimensions of money that he sees as equally important.
The other six are:
I like this approach, but it isn’t necessarily easy. It requires each family or individual to find a balance among the seven dimensions. But how?
I would start with the three areas that involve outflows—spending, saving and giving—since there’s a tradeoff among them. The other areas are also important, but they’re topics for another day.
1. Saving. In many—if not most—households, money is saved only after taxes are subtracted and the bills are paid. Ideally, however, you should budget for savings upfront. If you have a 401(k) or a similar employer-sponsored retirement plan, this is relatively easy because these plans make saving automatic. But if your employer doesn’t offer a retirement plan or you want to save more than your plan allows, how much should you earmark for savings? I would ask three questions: How much do I need to save? How much can I save? How much do I want to save?