Know Thyself - The Cardinal Financial Panning Rule?

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Author: Clay Cotton

Article source: http://www.articledeshboard.com/. Used with author's permission.

While we often apply the rule to evaluating risk tolerance, it works for all aspects of financial management. Raw numbers mean nothing if you have to go against your established behavior patterns to achieve them.

To put it even more simply, if the success of your retirement, [tag]investment[/tag] or money management plan depends on you becoming a systematic saver, and you've never demonstrated that ability, you're probably dooming yourself to failure.

Psychologists know that few behaviors can succeed if they conflict with historical patterns supported by deeper beliefs, values and ultimately, your basic identity.

The fact is some of us have the discipline to save and others don't. A young woman I know of is "a saver", to the tune of $2,000 a month. She didn't spend her excess cash but stashed it away for her dream home. Yet I know plenty of young people who've lived rent free or nearly rent free at home for years and hardly saved a dime. And these are examples of "root identities" that govern our lower-level "behaviors".

The Know Yourself rule also applies to your life situation. If you make a financial plan, look down the road and ask yourself if there is anything in your identity, beliefs and values that might stand in the way of you carrying it out. There are periods in one's life when it is extremely difficult to save a dime, even if the cash stash ethic is deeply ingrained. You can be a pretty good saver when you're younger, but that changed when children, car loans and a mortgage came along.

Your stage-of-life can affect but not entirely override your identity, beliefs and values.

It was frustrating in our thirties and early forties to find ourselves skipping IRA contributions year after year, and we also delayed planning for eventual long term care needs. This pattern is completely normal but we could have avoided both frustration and a sense of failure if we had taken into account how these typical life events can affect savings and asset protection plans over time.

Now, with children vamoosed and cars paid off, we find there are a few extra bucks heading to retirement savings and long term care insurance every month.

One thing I've learned is that these plans are not just about me. They're about how my loved ones will be affected over time by the plans I put in place now.

While it's well and good to accumulate and grow assets, what matters is protecting these assets against catastrophic losses like long term care due to accident, longevity, disability and conditions like alzheimers, parkinsons, stroke and multiple sclerosis which are very care-intensive and which can drain your financial reserves, causing a tragic burden on your spouse and family.

Knowing thyself is paramount, but don't forget to filter your thinking through your life-stage, and protect against catastrophic loss from long term care. The long term care loss is a loss which, for a couple, has in fact well over a 70% chance of happening to you.