How often do you think about your future self?
Wherever you're at on that spectrum, my bet is that you'd be better off thinking about your future self more often.
Before you do anything, it's helpful to ask yourself: “Is this going to benefit me more now or in the future?”
If your answer is that you'll be benefited more now, you may want to reconsider your options.
You can apply this advice to many different areas in life, but let's focus on how it can help you manage your money better and make you a better investor.
Here are several ways to prevent your 70-year-old self from hating you . . . .
1. Get life insurance for you and your family.
If you're married, make sure you and your spouse have adequate life insurance policies. Coverage of ten times the annual salary of an income producing spouse and $250k – $500k for a stay at home spouse (you don't realize how much money they save you until they are not there to do all the things that they do).
If your spouse is the breadwinner in the family, imagine the financial devastation that would ensue if they passed away. Not only would you have to deal with the emotional toll of losing your partner in life, but you'd also have to find a way to survive on your income alone.
Life insurance is a great way to transfer the risk of losing your spouse's income to insurance companies.
Don't assume that your place of employment provides you or your spouse with adequate coverage. I remember a friend who once figured that his policy worth $10,000 provided by his employer should allow his family to bury him if he passed away. While that's true, what about his family's income loss? What about his wife and children? They would still need to eat!
Don't let the loss of a loved one be any more devastating than it has to be – buy life insurance! It's worth it.
2. Harness the power of compounding over time.
Albert Einstein has been quoted as saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it . . . he who doesn't . . . pays it.”
Well said Mr. Einstein.
The ability to compound adds an incredible financial advantage. As interest or earnings are added back to the principal, your money can start growing exponentially over time.
Did you catch that? Time plays an important role. The less you have of it, the less potential you'll have to see exponential growth in your portfolio.
If you want your 70-year-old self to love you instead of hate you, take advantage of the power of compounding early in life.
Hint: That means start now.
Here's what Marcio Silveira, CFP(R), CFA of Pavlov Financial Planning says about the power of compounding over time:
When you have time on your side you can benefit from the amazing exponential power of compounding investments. To let it work for you simply stay the course with a globally diversified stock portfolio, very low investment expenses (achievable with index-tracking exchanged traded funds), and minimal taxation (achievable with Roth IRAs). You will be shocked with how much money you will have accumulated.
Whether you're nearing retirement or are decades away, whether you start out in stock or investing with Lending Club, it's a good idea to start investing now and harness the power of compounding with the time you have left.
If you are shy about peer to peer lending, but also not comfortable with investing on your own, check out my review of Betterment and see how you can get into the stock market without spending hours learning charts and other investing techniques.
3. Find new business opportunities and build a solid career.
Just about every day I see new business opportunities. It took me a long while to get to that point, but the more I practiced, the more I saw them.
You know what they all have in common? They require work – usually hard work.
There are three things you can do when you see a good opportunity: (1) give up because it looks like hard work, (2) put it on your to-do list and get it done, or (3) delegate it to someone who can get it done for you.
The first option is taken all too often. Thomas Edison was once quoted as saying, “Opportunity is missed by most people because it is dressed in overalls and looks like work.” So true.
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The second option is great when you don't have the capital to pay others or when you think you're the only one who can accomplish the task.
The third option is very powerful as it can allow you to focus on what you do best and still get the job done. It frees up your time, promotes business growth, and can feed a lot of fantastic hard-workers out there.
As you explore new business opportunities, one of them might turn into a valuable career – you might even find a couple of great new businesses.
It's important to keep your mind open. Eric Roberge, CFP(R), founder of Beyond Your Hammock, says about business opportunities:
New business opportunities are everywhere. Keep your mind open and listen for the ideas that speak to you. If it sounds different, a little scary, and it grabs your heart . . . jump on it.
Great advice. Try new ideas and don't be afraid!
4. Review your beneficiaries on a regular basis.
Did you know that a beneficiary on an asset like an IRA account usually overrides who's named in your trust?
I've heard pretty horrible stories, one from one of my clients, where because someone was a beneficiary on an account, they got the money instead of someone else who was the intended beneficiary on the will.
Don't let this happen to you or your family. It can tear them apart.
Katie Brewer, CFP(R), of Your Richest Life financial advisory firm, shares a nightmare scenario:
What could be worse than having your family notified that your ex-husband received a big chuck of your 401(k) after you died because you forgot to fix some paperwork? Unfortunately, that scenario could happen if you didn't stay on top of your retirement account and life insurance beneficiary designations . . . . It's incredibly important to make sure that you know who you've designated as your beneficiary and check it every year.
The good news is that it doesn't take very long to review beneficiaries on your accounts. Take a few minutes to call your financial institutions and ask them who is currently listed as beneficiary on each account.
5. Stay away from unreasonable and unnecessary debt.
Debt can really hurt you.
There are times where going into debt would be reasonable and necessary. Then there many more times when it's not.
Stay away from payday loans. The interest rates are usually outrageous, and many times they're unnecessary when you could just sell a few expensive household luxuries (like that flat screen television or surround sound system), or even look into how to get a personal loan and have enough money to pay some bills.
Stay away from vehicle loans, too. Did you know that dealerships make a lot – if not most of – their money from vehicle financing? Do what I did, and drive a used, paid-off car. That way, you won't have to pay any interest and can use the savings to bolster your retirement accounts.
Cristina Guglielmetti, CFP(R), president of Future Perfect Planning, reveals how you can encourage yourself to stay away from unreasonable debt:
When faced with the decision to buy something on credit that you might not need, consider the full cost of the purchase over time (many online calculators are available allowing you to determine the full amount to be paid including interest); then do the reverse and determine how much the excess payment will add to your retirement funds. Often the comparison is enlightening, and provides enough incentive to pass up the unnecessary loan, or at least to choose a lower-cost option.
These are just a few ways you can prevent your 70-year-old self from hating you.
One day, it's likely you'll turn 70 years old. Once you do, you'll want to look back with a sense of accomplishment. Moreover, your circumstances will have been determined by everything you did in anticipation of your latter years – put your future self in a secure financial position!
According to Erikson's stages of psychosocial development, age 70 falls within the stage of needing to look back on life and feel a sense of fulfillment. Success at this stage leads to feelings of wisdom, while failure results in regret, bitterness, and despair.
Take action now and make your future self a happy self. You'll be glad you did.
This post originally appeared in Forbes.