I’ve got a low tire indicator that’s not working in the vehicle I drive, so instead of that light warning me to a low tire pressure in one of my tires, it just always stays on. I haven’t bothered to fix it because I just got four brand new tires. So at the time I had a high level of confidence that my tires were in great shape and I wouldn’t need to rely on a properly working low pressure indicator light anyway. I could just do things the old fashioned way and visually check and test with the air pressure gauge every once in a while.
Of course you know how this is going to go.. When I went to the shop for a balance, they told me I had been running on low pressure. If my indicator light had been working properly, I would have been alerted to an issue. But because it wasn’t, and the tires visually looked fine, I didn’t realize it was low.
The reason I bring this up is to draw a parallel to the indicator lights that we have running throughout the rest of our lives. You have indicators in your car, but you also have indicators for your health. You may have a red line that tells you you haven’t been watching what you’re eating as closely as you should, or that you really need to get back out the door with your exercise routine.
But what about money?
Although there are a lot of indicator lights when it comes to your finances, how do you choose the most important ones? From how much your car payment is costing a month to your credit score, there’s a a lot of different ways you could be looking at this.
Although a big car loan may mean that you’ve taken on a lot of debt, and may mean that you have a hefty payment each month, if you’re still hitting your other money goals, having a car payment ultimately won’t matter in the long run.
It’s about taking care of the things that matter first that will have the biggest impact over the course of your career. So let’s take a look at what matters the most.
First, the most important financial indicator is the amount of money you’re saving for retirement. Although you may have other debt today, those ultimately can be extinguished in just a few years with some hard work.
Your retirement savings, however, works by consistently saving over a long period of time. If you’re out of the game, you’re not contributing to your long term success. In fact, the earlier you get started with investing, the less money it takes to reach the same number by the time you retire.
The goal is to invest enough for your retirement that you’re able to continue having the sort of lifestyle you enjoy today when it comes time to transition away from your normal job.
Your next indicator is the margin you have in your life.
Margin is taking a step away from the financial edge. It’s having a buffer or emergency fund that keeps emergencies from turning into a disaster.
But margin is also important to reach your intermediate and short term goals.
You want to make sure that over the course of a year, you’re able to make progress on the goals you have for your finances.
You get to decide the goals.
Are you saving up for a vacation? Or are you paying down debt so that you put your family’s future on more solid footing?
Both are important, and both will probably need to happen over the course of your career.
The important thing is have enough control over your spending to allow yourself the financial agility to tackle those important projects.
Lastly, you want to have enough margin month to month to live life according to your values.
It’s up to you to balance your financial equation the way you see fit, but it’s important that you give yourself a little margin each month.
Without working to control our expenses, they’ll likely swell to take up all of our income. But with a budget, we can make sure that we’re allowing ourselves a chance to stop and smell the roses even in the midst of big goals like paying down debt or parenting.
The key indicator is the margin to make it happen. While a car payment might not affect your retirement as long as you’re saving each month, it may affect your ability to have enough margin month to month to reach your goals. Spending money on a car ultimately doesn’t matter as long as you’re still hitting your goals.
I can tell you that we’re still working on these goals too. Having three small kids has us more strapped than when we were living that DINK life(Dual Income No Kids). But no matter how messy things get, we’re still focusing on the big picture.
Focus on saving for as long as possible for your retirement. Out of all of your financial objectives, it’s the one that benefits the most from time spent throughout your career. Then, make sure that you control your expenses to give yourself the margin needed to focus on goals that matter to you. Step away from the financial edge and extinguish the cycle of debt, but make sure that you’re allowing yourself to stop and smell the roses along the way by spending in ways that matter most to you.
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