Our article “Threats to Financial Independence in Retirement” discussed problems that can derail a household’s financial sustainability. That list, from Financial Advisor magazine, brought to mind the work of financial planning pioneer Bert Whitehead, and his list of the top factors affecting your financial future.
The most noteworthy point about Bert’s list is that, while many people work with their financial advisors to achieve the best possible return on their investments, rate of return ranks dead last out of the top 10.
Here are “The Top 10 Factors that Affect your Financial Future,” excerpted from Overcoming Financial Dysfunction (Whitehead, Bert and Robinson, Kenneth F., p. 2-4. 2007: Bert Whitehead, JD, MBA):
- How much you earn. Enhancing your earnings will do more for your financial future than any other single strategy. It is number one.
- How wisely you spend. Are you a savvy shopper, a wise consumer, thinking before you spend? Or are you an impulsive shopper?
- How much you’re investing. Are you putting away at least 10% of everything you earn? This doesn’t mean money you save to make a big-purchase item at the end of the year (e.g., a big-screen TV or a car) but rather permanent savings.
- How much you pay in taxes. Lawfully reducing your tax liability gives you more money without requiring you to reduce your standard of living. You don’t have to give up anything.
- How diversified your investments are. An investment portfolio that’s “ready for anything” is more important than one that’s poised for “the next big thing.”
- How stable your relationships are. Unsteady family and employment relationships divert energy and resources from many goals, including financial goals.
- Being a savvy homeowner. Own and live in the right-size house, and understand that a home mortgage, when put to good use, is “good debt.”
- Living within your means. That translates, most importantly, as no consumer debt.
- Avoiding bad habits and horrible mistakes. It’s difficult to invest your way out of your losses when you have a gambling problem or have been taken by a con artist.
- Rate of return on savings and investments. Yes, rate of return matters—but not as much as nine other factors.