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Being “good” with money is a relative term. Individuals maintain unique viewpoints on, and have had different experiences with, money throughout their lives, and that shapes their relationship to it. My purpose in this article is not to declare what is right or wrong.
Instead, I want to provide some ideas that might help you think about money differently, which can help your financial journey going forward.
Here are three things that let me know, as a financial planner, that you’re good with money.
1. You understand the value of asset protection
There are many different elements of financial planning, but it can be divided into two main categories: asset building and asset protection.
Asset building involves the accumulation and growth of wealth, and is generally the primary topic in money discussions. However, the value of asset protection is equally (sometimes even more) important to someone’s financial plan.
It is clear to me that an individual is good with money when they understand (and focus on) the importance of protecting their assets. Asset protection includes maintaining adequate liquidity (e.g. in the event of a financial emergency), insurance coverage (e.g. health, disability, life, long-term care, auto, home/rental, and umbrella), and estate planning.
Let’s illustrate an example of how the understanding of protecting assets can be of great benefit. John recently hired Joe, who is a financial planner and provides comprehensive financial planning services to clients. After Joe’s initial financial plan review, he notices that John does not maintain disability insurance coverage. Joe recommends a consultation with an insurance agent who can provide this service. John has absolutely no objection to Joe’s recommendation, immediately starts taking the appropriate steps, and obtains an individual disability policy.
Fast forward seven years. John pays his disability insurance premiums regularly and has had no problem doing so because he knows it is money well spent (even if he never becomes disabled). In a bizarre moment one day, he slips on his driveway and sustains major knee damage, which drastically limits his capacity to earn income. Despite this unfortunate situation, John’s disability insurance policy provides him income benefits as he continues rehab on his knee for a return to work. During this period of disability, John is still able to save money with the incoming cash flow. This continued savings capacity allows the growth of his wealth to not be disrupted.
2. You understand the importance of keeping your money in motion
One overlooked threat to asset accumulation is inflation, which is the rate of general price increases. It lessens the purchasing power of someone’s current dollars. As a result, it is essential that inflation gets factored into financial planning, and individuals continue to “keep their money in motion.” In other words, offsetting the impact of inflation requires assets continuing to grow.
Having this mindset shows me that a person is aware and trying to do good things with their money. The growth (investment) vehicle (e.g. stocks, bonds, real estate, business ventures) that is used depends on an individual’s specific financial situation, goals, time horizon, and risk tolerance.
3. You are willing to learn
Being willing and open to learning different things is a great quality to possess in all areas of life, especially with the topic of money. Given the vast amount of financial planning knowledge available, and the fact that it is continuously changing (e.g. tax policy), a willingness to learn tells me that someone is good with and really cares about their money.
Yes, it is a financial planner’s responsibility to have (or maintain access to) the appropriate knowledge, but there are also great benefits when clients have a strong interest in really learning as well. I think it is awesome when clients ask questions, because that clearly shows that they want to learn. One of my passions and purposes in life is helping others become more knowledgeable about money, which ultimately provides them the opportunity to make better financial decisions that align with their specific goals.
Martin A. Scott, CFP, is the founder and financial planner of Lasting Wealth Principles, a fee-only comprehensive financial planning firm.
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