You Are Here — How to Fix Past Financial Mistakes & Beat Inflation
The following is adapted from The Runway Decade.
We all encounter obstacles on the road to financial success. We make personal mistakes, and we face collective challenges too, like inflation. These obstacles can
feel tough to manage, but they don’t have to hold you back. To get where you want to go, start by identifying the “You Are Here” of your financial life.
For most of us, that’s a challenge in itself. When prices are up and markets are down, it can feel easier not to look — especially when you feel like you’ve made a few
blunders. But today is a new day. The purpose of clarifying where you are now isn’t so that you can lament the past. It’s so you can take control of your financial
situation and move into the future with confidence.
It’s also important to remember that what was working well two years ago or even last year might not be working well today. During times of high inflation, you’ll want
to take stock of your finances more often.
By taking a thorough inventory of your financial health, you can figure out exactly where you stand on the path to your destination.
Dump the puzzle pieces
Clarifying your current financial status is a bit like dumping all the pieces of a puzzle onto a table, flipping them over, and sorting them out. From there, you have to
figure out how to put together all of those pieces to create the big picture so you can look at it and say, “Okay, this is what we have, and this is where we are.”
First, gather up all of your important financial documents—anything that a dollar touches—like your will, personal tax returns, 401(k) and investment statements,
annuities, and life insurance policies. If you have employee benefits at work, like a pension or health, disability, or group life insurance, you might find all of that in
your employee manual.
You’ll also need to pull together all of your bank accounts, credit card statements, and mortgage statements for any properties you have financed. If you’re in
business, you might include employee agreements, business tax returns, and any stock options, if applicable.
Basically, you want to catalog the value of all of your assets and liabilities. Whenever we meet with people for the first time, we tell them they’re like a blank piece of
canvas to us, and we need to paint in the picture with all of these details.
Then, you’ll want to clarify your cash flow resources and needs. Exactly how much money is coming in from all sources and how much is going out every month?
What sources of income do you anticipate in the future, such as Social Security or pension payments from current or former employers? If you’ve inherited a
retirement account from a parent, you may have required minimum distributions to take out each year.
This probably doesn’t sound like a fun activity, but it’s essential to good financial planning. You have to know exactly what you’re dealing with to make accurate projections about what you’ll have available in the future and what gaps you might need to fill along the way.
Keep the right mindset
More than likely, you’ll be energized by this process as you start to feel organized and empowered about the wise decisions you’ve made and the assets you’ve
accumulated thus far. Even some people who haven’t been paying close attention to these things are surprised to find that they’re often in better shape than they
But, we also understand that this part of the process can be incredibly discouraging to some people. Your picture might reveal that you’re a lot further from your retirement goals than you thought. Don’t beat yourself up over it.
Know this for sure: there are people in better shape than you and people who have been in much worse financial condition than you who still managed to retire successfully.
Plus, let’s face it, this is your life, not someone else’s. You can’t use someone else’s plan to build your goals. It’s easy to start comparing yourself to others and feeling
bad that you haven’t made more progress, but this isn’t a competition. It doesn’t matter what the studies and statistics say about where people your age should be.
Don’t fall into that trap!
You’re playing your own game, and it will be different than just about everyone else’s for a reason.
Whether you’re looking at the statistics and saying, “I’m way behind where I should be,” or saying, “I’m ahead of everyone else — I’m doing great,” both mindsets are
misguided. In reality, how you’re doing compared to other people at the same stage in life doesn’t tell you whether or not you’re in good shape.
You’re in good shape if you’re on track toward your own retirement goals. That’s it. That’s the measuring stick.
You gain tremendous power
Most people don’t truly know where they currently stand on basic things like account balances, asset allocation, details of group benefits, and other financial details.
The main question we want you to answer affirmatively is, “Do you know?”
By painting in the big picture of where you currently stand with your finances, you gain tremendous power to shape and adjust your financial future.
Now you know what all of the pieces are and what they do, so you can sit down and talk to your spouse, your kids, trusted friends, or a financial advisor, and start
moving in the right direction with confidence.
Pete Bush, CFP®, is the CEO and partner of Horizon Financial Group, a full-service financial planning, investment advisory, and retirement planning firm. Focused on
bringing confidence and clarity to his clientele, Pete has worked in the industry since 1991, serving clients who include business executives, retirees, and professional
Bill Bush is a Chartered Retirement Plan Specialist℠, Certified Plan Fiduciary Advisor®, and the Media Manager for Horizon. He produces Horizon’s podcast series and
co-hosts Inside the Plan with the 401(k) Brothers. Before Horizon, Bill was a CEO in the healthcare industry and had a lengthy career in television broadcasting,
business development, and marketing operations.
Together, they’re the authors of The Runway Decade.