As part of the Military Advocacy team here at USAA, one of my responsibilities is to ensure we are prepared to deliver financial readiness presentations to our members. A while back, I had the opportunity to listen to one of my teammates, Laura, deliver a presentation.
The theme of her presentation was "alignment," and I liked it so much, I'm stealing it ... thanks, Laura! Alignment is critical in all facets of our lives. If you've ever driven a vehicle with an alignment problem, you know that's the case. While intuitively, I've always understood that, I've never applied the idea across the range of personal finances.
So here we go. What follows can be your own personal finance alignment test:
Is your spending aligned with what's important to you? Often, budgeting is discussed as an end -- something to have or do. In fact, carefully managing your income and expenses is a means to an end. What is it you are trying to accomplish? Maybe it's paying down debt, buying a home, creating a comfortable retirement or providing for your kids' education. Does what you're doing with your money align with what you're trying to accomplish? If the answer is no, it may be time to overhaul your spending (and savings) plan. Alignment.
Is your life insurance aligned with the reasons you have it? When I'm talking to our members, one of the most common life insurance questions that I get is, "What type of insurance should I buy?" While insurance policies -- especially permanent policies (whole life, universal, etc.) -- can be confusing, my answer isn't: Pick a policy that provides coverage that aligns with the reason you're buying the life insurance. In other words, coverage associated with needs that go away with time (debt that's paid off, kids who become financially independent, retirement savings that is accumulated) is best covered with term insurance. Alignment.
Is your cash cushion aligned with your life? As a financial planner, the mantra is to have "three to six months of expenses" set aside for emergencies. Life is different for different people, and that's where alignment comes into play. A service member preparing for transition, or a dual-income military family whose non-military spouse's income is geographically vulnerable, could choose to have a lot more cash than the planning principle would dictate. On the other hand, someone with more stability or wealth could elect for a smaller stash of cash. Alignment.
Are your investments aligned with your goals' time horizons? The mythical one-size-fits-all "right" investment or investment portfolio is illusive. Each has a different set of goals, time horizons, tax situations and risk tolerances. However, perhaps the biggest check you can make when evaluating your own savings and investments is ensuring a clear linkage between the investments you select and the time between now and when you'll need the money. The investments you select or portfolio you build for a savings goal two years out should look a lot different from those set aside for a goal 30 or 40 years into the future. Alignment.
Are you and your significant other aligned? It's quite disheartening when a couple shares that one partner takes care of all the finances. It's hard to work together -- spending, saving and aspiring -- if you're not on the same sheet of music when it comes to your day-to-day and longer-term finances. Start talking about both. Alignment.