I recently had my annual eye exam. Here are four personal finance lessons to apply to this experience.
1. Near Sightedness Just As Challenging As Farsightedness But Different
Near-sightedness causes distant objects to be blurry while close objects may appear normal.
In the financial realm, do you feel like you have the day-to-day financial decisions of your household mastered? Then you may struggle with identifying and actively working toward long-term goals like retirement and children’s education funding. You may be so concerned with the here and now that you fail to reflect on the future. Planning for the next three, five and 10 years requires intention and focus. (For more, see: 4 Best Personal Finance Apps for 2017.)
Farsightedness is the opposite: objects far away are clear but closer objects are difficult to see. Applying this concept to personal finance, you may be on “auto-pilot” when it comes to saving for distant 10 and 20-year old goals. Yet you struggle with day-to-day cash flow management as your family grows and careers evolve. Paying off debt may feel challenging. Alternatively, you may wonder if you should put extra cash towards an emergency fund or increase your 401(k) contribution now.
Regardless of whether you fall into the nearsighted or farsighted camp, a financial planner can help. She will provide accountability, direction and support as you develop short and long-term financial goals.
2. Surgery Isn’t for Everyone
Several months ago, I discovered I’m ineligible for LASIK surgery. Sad but true.
When it comes to personal finance, a one-time “quick fix” may not do the trick. Financial planning is a process. It evolves as your life circumstances change. The planning issues you have with three kids under the age of 10 are far different from the challenges faced by pre-retirees with children in college or retirees with grandchildren. Great financial planners will be with you for the long haul. (For more, see: Top 7 Most Common Financial Mistakes.)
3. You May Have to Run Through More Than One Scenario
The eye exam ended and my optometrist suggested new prescriptions for glasses and contact lens. I was at the office another hour as the technician explained my purchase options in detail. Ultimately, she handed over a hand-written sheet with four columns. I had to choose one.
Luckily, financial planning technology has progressed significantly in the last few years. When my clients want to explore different retirement or lifestyle scenarios, I have the option within my financial planning program to run “what If” scenarios. What if my client lives on 90% of current living expenses as opposed to 100% during retirement? What if he retires at age 65 instead of 62? Changing one variable can have a substantial impact on the likely success of a financial plan.
4. Insurance Only Lessens the Blow
I had a vision insurance plan that saved money on my annual eye exam, glasses and contact lens orders. However, the plan wasn’t enough to cover it all. I paid over $400 out of pocket.
In the personal property and health insurance realm, there’s usually a deductible. This is the amount you must pay out of pocket before any insurance benefit kicks in. In other words, you pay a recurring premium on the policy itself and the deductible if you need to file a claim. The lower the deductible, generally, the more expensive the premiums on an insurance policy. With disability insurance, large employers often cover 50 to 60% of your base salary if your disability lasts more than 180 days. What about the remaining salary that is not covered? That’s why supplemental long-term disability policies are often recommended by financial planners.
Did I do a good job connecting these two seemingly disparate concepts of an eye exam and personal finance? Comprehensive financial planning isn’t strictly about investments. Cash flow and risk management, tax strategies, legacy planning and education funding also fit in this broad basket known as personal financial planning. (For more from this author, see: 6 Ways to Make Sure You Achieve Financial Goals.)