How’s that for some clickbait??
But in this case, it’s actually true. And I have a study to back it up.
Fidelity conducted their annual Couples Study, which asked around 1,000 couples various questions regarding their finances. And they concluded that there is indeed one thing that will give couples the best chance of financial success.
But before I make the big reveal, here are some interesting findings from the study:
- You make HOW much?! Fidelity asked couples if they feel they communicate very well with each other when it comes to finances. 72% said they did. But when asked the simple question of how much they think their partner actually makes, four in ten didn’t get it right. And a good portion of them were way off. It’s kind of like how everyone thinks they are an above average driver, which is literally impossible.
- Almost half of the couples questioned didn’t know how much money they would need to save in order to maintain their current lifestyle during retirement. While this isn’t too surprising given that most people are clueless when it comes to their personal finances, what surprised me is that the majority of this uninformed group consists of Baby Boomers, many who are going to retire in a few years! Now that’s dangerously ignorant.
- Worrywarts. It seems we are a very anxious and worried populace. About 75% of the respondents said they were worried about health care costs in retirement (did anybody say HSA?). And over half said that they are worried about outliving their money. So half of the people in the country are worried that they will die penniless. That’s a problem.
That’s a lot of bad news. But there is hope. There ONE thing that can ensure a successful transition into retirement and produce less anxiety about the whole thing:
Have a plan.
The study showed that those who had a plan for their retirement were way ahead of their counterparts with no plan, and felt a lot better about the whole idea of retirement.
Now while having a plan is indeed just one thing, it has a lot of different components. Having a good plan will give you and your family the best chance to earn and grow money while keeping it safe along the way. This requires a lot of moving parts.
Fidelity lists a few things to help get started with your plan, such as goal setting, starting your emergency fund and setting up an estate plan. These are all great things, but here are what I think are the most important things to do when forming the financial roadmap for the rest of your life:
–Make a debt repayment plan. To me, this means getting rid of all high interest debt (anything over a 10% interest rate) like credit cards ASAP, and then prioritize paying off your debt with the next highest interest rate. This doesn’t mean focus on getting rid of all debt before you do anything else. That would be a short sighted decision that will possibly cost you money at the end of the day. Student loans and mortgage debt, for example, can have low interest rates along with potential tax deductions, so it may not be a priority to pay those off right away.
The fact is, being stuck in high interest debt will hamper all of your other financial goals. So it’s important to get rid of those debts first and make a plan to pay off the rest.
–Get your spending in order. I don’t currently use a formal budget, but I did before and it was very helpful in finding out where our money was exactly going. It’s surprising when you see the transactions staring you right in the face. We decided to cut down or get rid of the things we were spending our money on that we really didn’t want to, and that freed up a lot of money for investing and paying down debt.
There is always extra money to be found by using a budget. This money can then be used to supercharge your other financial goals. But it will never be found unless you track your spending, so it’s a good exercise to do every so often.
–Find ways to increase income. Once your debt repayment and spending are in place, focus on finding ways to increase income. Cutting expenses is important but it doesn’t require much imagination and can only go so far. The main ways to increase your income are getting a raise at your current job, start some side jobs/businesses or work hard to grow a full time business. Within these three methods, however, you can get very creative.
Creating new streams of income takes some work building a foundation which won’t make you much money initially, but hopefully will provide solid income in the future.
Finding new avenues of income also serves as a form of financial protection. If someone just relied on their primary job for their income and happened to lose that job, they would be in a very tough spot. But if you lose your job while having other streams of income, you can just ramp up work on those streams and maybe even eclipse your previous income.
I agree 100% that having a plan is the path to financial success for couples and everybody else. It will allow you to optimize your financial goals by making sure money is going where it needs to be. How you get that plan is different for everybody.
Fidelity is obviously looking for customers to sign up for a plan with them, and many people would feel more comfortable working with a financial adviser to set up a blueprint. But I believe anyone can do some research and figure out most of their plan and talk to an adviser to fill in some gaps if needed.
The vital thing is to set up a plan, because if you don’t, you’ll likely end up somewhere you don’t want to be.