Financial Education and Changing Your Mindset

What they don’t teach you in school.

Although we place a great deal of emphasis on going to school and getting a good education, the reality is that most institutions—from grade schools to universities—teach very few, if any, financial-planning skills. And without this knowledge, many people go through life unknowingly cheating themselves out of a solid financial future.

In the past, many companies took care of their retirees by offering a pension that would provide income for the remainder of their lives. This, coupled with Social Security and personal savings, was oftentimes more than enough to provide a comfortable retirement.

Unfortunately, this is no longer the case.

Now, with the responsibility for a secure financial future placed solely in the hands of individuals, having a solid education about how money works—and how it can work to your advantage—is essential.

The good news is that financial planning at any age doesn’t necessarily have to be complicated. In fact, by following just a few simple “rules,” building up ample savings for retirement can be much easier than most people think. But like anything else, it is important to start with the basics and work from there.

Compound Interest: The Eighth Wonder of the World

One of the most fascinating components of making money work for you is compound interest. With compounding, even the smallest amount of money that is saved can multiply systematically over time as the interest that is gained earns even more interest on top of that.

There is an interesting thing that happens if you simply take a penny and double it every day for 30 days. At the end of just one month, believe it or not, that one small penny will have grown to over $5 million!

Or consider a one-time lump sum of $1,000 that is invested. The long-term return can be amazing when the interest on that money is compounded over time—even if you don’t add another cent to the account. In this case, after 20 years with a 5 percent return, your $1,000 could grow to more than $2,600. After 30 years, your savings would be in excess of $4,300.

The magic of compound interest also works if you invest funds periodically. For example, using a 5 percent return over time, investing $100 per month could grow to almost $15,500 in 20 years. Likewise, in 30 years, investing $100 per month at 5 percent interest would give you more than $81,800! So even if you don’t think that setting aside $100 per month will get you very far, when you consider the advantages of compound interest, it can definitely snowball into a nice-sized sum.

Compounding is so powerful that Albert Einstein stated, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

How to Be Good at Money Math

While not everyone is good at every topic, having an understanding of math—particularly as it pertains to money matters—is a primary ingredient for your financial success. In fact, just the way you think about money can actually determine a great deal about where you will end up financially.

This is important in terms of both saving money and growing it. For instance, even just the simple act of changing your habits and putting small amounts of money to work for you can make a tremendous difference.

Let’s say that you set aside just one dollar every day—perhaps what you already spend for a small cup of coffee. Over time, the money that you save can truly add up.

$1 per day for 30 days = $30 per month

Thinking about math as money, and what that money can buy, can help you to more clearly visualize the concept of numbers and how they work.

What Do You Want Your Money to Do?

As young investors, money is primarily about accumulation. But as we get older, the primary goal for the money we have saved will typically turn to one of generating cash flow. This is because when you retire, you will need to “replace” your paycheck, and the way to do that is by converting your savings into an ongoing stream of income.

Because people are living longer lives now, knowing that your income won’t run out is an important aspect of financial planning, as is ensuring that you also have enough to cover taxes and inflation.

The Time to Start Is Now

It has been said that “goals are dreams with a deadline.” This is a great way to look at your financial goals. So ask yourself when you would like to realistically become financially independent. Is that possible within just a few years, or will you need many years in order to come up with the savings and income that you will need?

Once you have an approximate time frame in mind, you will be much better able to move toward your goal and track your progress along the way. But in any case, regardless of where you are financially, it is essential to begin setting money aside right now for your future.

In fact, the most important habit that you can develop for life-changing financial success is to utilize the best available strategies for taking action on your short- and long-term goals.

In moving toward your financial goals, having the “LGBTQ advantage” could allow you to save more money in a shorter period of time. Unlike the “traditional” family model where there was only one breadwinner, LGBTQ couples have an advantage because they are often bringing in two incomes. So if both commit to setting aside money to save and invest on a regular basis, they could reach their financial goals and enjoy the benefits of financial freedom sooner rather than later.

Taking the Next Step

As with any successful journey, the road to financial security should begin with a clear and focused plan with all of the key steps outlined. In doing so, you will be better able to stay on course and make any changes that are needed. 

The best place to start is by sitting down with an experienced financial advisor who can guide you through the process and explain the tools that are needed to get the job done. Choosing an advisor who is also adept in LGBTQ issues can help you pursue your goals by using financial vehicles that complement the resources you have available. 

This article appears in the April 2019 edition of OutSmart magazine.

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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