Five Dollar Questions
While frugality can be a helpful tool on the path to financial independence, there are limits to how much we can save. After all, we all need a place to live and food to eat. That’s why I emphasize the importance of focusing on “big picture” questions rather than getting bogged down in small details.

In this blog post, I’ll dig into what it means to prioritize $50,000 over $5 questions, and how this approach can help us achieve our financial goals more effectively.

What is a $5 Question?
We’ve all heard the advice to cut out small expenses like a daily cup of coffee in order to save money. While there’s some truth to this, it’s important to keep things in perspective. In my opinion, these so-called “$5 questions” – small financial decisions that don’t have a significant impact on our overall finances – aren’t worth obsessing over.

For example, if you enjoy your $5 latte or having all your lights on, the small cost increase shouldn’t necessarily be a reason to not pay for it. Life is too short to constantly worry about every penny we spend. Instead, we should focus on the big picture – the financial decisions that can have a significant impact on our long-term goals. By prioritizing these “bigger” financial decisions, we can achieve greater financial stability and peace of mind.

$50,000 Questions
That’s where $50,000 questions come in. These are the financial decisions that can have a significant impact on your long-term financial goals. Let’s take a look at some of the critical financial decisions:

Big Purchases
When it comes to big purchases, two of the most significant investments you’re likely to make are your home and your car. These purchases can have a lasting impact on your financial situation, so it’s crucial to make smart decisions. Overspending on either can lead to unnecessary financial stress and may hinder your ability to achieve your long-term goals.

Increasing Your Income
While it may not be the easiest advice to follow, taking steps to increase your income is crucial for achieving your financial goals. Rather than solely focusing on cutting expenses, it’s important to also consider ways to boost your earnings.

If you feel undervalued at your current job, take the time to research and understand the market value of your skills and experience. Use this information to prepare for salary negotiations or explore job opportunities that align with your salary expectations.

Remember that while there may be limits to how much you can reduce your spending, there is no ceiling on how much you can earn. By proactively taking steps to increase your income, you can create more opportunities for financial security and success.

Savings Rate
As your income increases, so should your savings rate. One way to improve your savings rate is by setting up automatic contributions and gradually increasing the amount over time.

Even small increases in your savings rate can add up to significant gains over the long run. So, make it a priority to consistently save a portion of your income and invest it wisely.

Tax Planning
Taxes are one of the biggest expenses in your life so it’s important you do proper planning and make sure you’re not paying more than you need to. One effective strategy is to utilize tax-advantaged accounts. A few examples of these accounts are 401(k)s, IRAs, and HSAs. Timing when to take distributions or convert accounts can also have a significant impact.

While it may be tempting to focus solely on maximizing your income, neglecting tax planning can be a costly mistake.

Asset Allocation
Every dollar you earn or save should have a purpose, and one of the most crucial decisions you can make is how to allocate your capital. Proper asset allocation means finding the right mix of investments that suit your individual financial situation and goals.

Bottom Line
While it’s important to be mindful of our expenses and cut back where we can, it’s equally important to keep things in perspective and focus on the big picture financial decisions that will have a significant impact on our long-term goals. By prioritizing $50,000 questions over $5 ones, we can make informed decisions that can set us on the path to financial stability and peace of mind.

 

George Maroudas, CFP®

George Maroudas, CFP®

847-550-6100
george@pmgwealth.com
Twitter @ChicagoAdvisor

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