Financial Balance

We are all susceptible to making financial decisions in the moment that may end up being detrimental to our longer term future. Balancing immediate financial concerns with future goals is at times a herculean task. There is an inevitable tension between living for today and saving for tomorrow.

Personal economics is all about making choices, ordering priorities and aligning financial affairs around that framework. Very few clients find difficulty with this in general until it comes down to the tradeoffs these choices necessarily infer. It is not possible to spend 100% of your income today without sacrificing your longer term future because you have no savings. That's the rub. If you live totally for today, you will likely have a poorer tomorrow in financial terms.

We try to help clients balance their present and future financially speaking. In essence it starts with 4 simple questions:

·         How much can you save each year?

·         How much will you eventually need?

·         When will you need it?

·         What risk level is needed?

The attached 6 minute video featuring Professor Ken French is an excellent description of these questions and the overarching issue of sustainability of purchasing power. That is our ultimate aim after all. Professor French has an interesting way of describing how we can try to move up the risk curve with the potential of achieving higher returns if they are needed to maintain this purchasing power. As he says "higher risk equals higher expected returns.  Expected means most of the time, which also means sometimes you don't get the returns."  That really is the essence of the matter.  How's your balance?

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