Financial Success – What Does Finance Mean
Different people define “financial success” in different ways; below are five unique definitions of the term. The purpose here is not to judge whether some definitions are more legitimate than others, each reflects a vision of financial success that is held by a significant slice of the population.
Along with these definitions are tips for achieving the type of financial success you desire.
1. Fully Paid-Off Home
Some people breathe easier knowing they own the roof over their heads free and clear. If you are one of them, achieving this goal within the foreseeable future starts with buying a home you can readily afford. While some of your peers in a similar income bracket may be moving into more impressive houses, your focus should use a mortgage calculator and buy a property that allows you to make your mortgage payments with room to spare.
This can help you toward your goal in two ways. First, not having a mortgage that maxes out your budget reduces your risk of losing your home due to a temporary financial setback. Second, it can allow you to start putting extra money toward your mortgage. This can not only shorten the time it takes to pay off the loan, but it should also reduce the total interest you pay throughout the loan term.
If you find yourself regularly able to devote extra money toward your mortgage payments, it may be worthwhile refinancing into a shorter-term loan since shorter loans often charge lower interest rates.
Making paying off your mortgage a priority may mean putting less money toward saving for retirement, funding your children’s college education, or putting aside money for taxes. However, once you’ve gained the security of owning your home, you should have more room in your budget to turn your attention to those other financial goals; you might even consider moving to a state where people pay low taxes.
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2. Accumulate Success Symbols
Whether considered “conspicuous consumption” or “keeping up with the Joneses,” projecting an image of success is important to many Americans.
Using credit can help you obtain nice things sooner, so learn to buy smart and use credit wisely. Home equity loans or even personal loans are typically cheaper sources of credit than credit cards. A longer-term mortgage will provide you with lower monthly payments than a shorter-term one.
Whatever form of credit you use, you should become attuned to shopping for the lowest interest rates. That way more of your money can go towards what you buy rather than towards paying interest. Similarly, you should become an avid shopper and negotiator for the things you buy. This is especially true for bigger-ticket items, which offer the greatest potential to save money by getting a good deal.
If looking successful is important to you, make sure you don’t overextend yourself to the point of losing access to credit or even having to declare bankruptcy. After all, losing your nice things isn’t a good look.
3. Be a Top-Tier Earner
Some people view what they earn as a way of keeping score, and their goal is to climb to an elite level of earnings. According to the Bureau of Labor Statistics, it takes an annual income of $96,150 to be among the top 10 percent of earners nationally. The bar to join even more elite earning tiers rises steeply from there.
The best path to a high income is to have a career plan and be aware of the best states to make a living. Identify a field with high earnings prospects that suit your skill set, and make sure you have the educational credentials to be marketable in that field.
At some point, you may find that in order to rise to the truly elite earnings levels you may have to take some entrepreneurial risk. This may involve an investment of time and money that means putting other goals on the back burner, so you must decide whether this type of career path is worth the sacrifices you and your family might have to make.
4. Achieve Retirement Security
Most people don’t come close to making the maximum allowable 401(k) plan contributions each year, which means they could be doing more to work toward retirement security. Of course, the catch is, where is that money going to come from?
A more frugal lifestyle is a good place to start. This doesn’t just mean day-to-day penny-pinching, but also bigger decisions like holding onto your car for a couple of years longer, buying a smaller house, and taking less expensive vacations. These are the high-impact decisions that can provide you with a meaningful amount of extra money to devote toward retirement security.
Defining retirement security as financial success means committing to a more modest lifestyle than your peers enjoy now, but you may find yourself the one living large in the long run.
5. Provide for Your Family’s Future
Working toward this goal means anticipating your family’s future needs. It means starting a 529 college savings plan for each of your kids as soon as they are born. It means making sure you have enough life insurance to support your family, if necessary.
These are not cost-free decisions. They mean taking money away from supporting your current lifestyle, and from how much you can put toward retirement. In short, they are self-sacrificing decisions, but if providing for your family is what financial success means to you, that’s where your money should go.
Because each of these approaches affects everyone who lives in your household, it is wise to have open conversations about how you define financial success and what you are doing to achieve it. That way everyone can be working toward the same vision for the future.