With the Election Over, Now Really Ask Yourself If You Are Better Off Than You Were Four Years Ago

November 26, 2012

Are you better off than you were four years ago?  Now that the election is over, it is not a question loaded with political implications so you can actually take some time to think about your answer. It is actually a very important question and here is another one, where are you headed four years from now?  Most people, unless they work in politics, don’t anchor their life on four year increments but you could — it may actually be very useful financially to do so.

I will never forget the election year of the “hanging chads” because the delay of the election had an impact on me personally.  At the time, I was a financial planner in northern California and was invited to be a regular guest as a financial expert on ABC News 10, the local TV station.  After doing a few dry runs, the anchor suggested, “Why don’t we have you start after the election?”  Since that was a week away, it was not a problem except of course that the results took weeks and weeks and the Supreme Court had to get involved in the decision.  Every four years when the presidential election comes around, I remember vividly my stop and eventual start on the news.  The presidential election is kind of an anchor from where that news spot lead me career-wise as a financial planner to a financial educator, along the way doing radio shows, hosting podcasts, and eventually blog writing right here.

This election, by anchoring the phrase, “Are you better off than you were four years ago?” and actually looking to see if you are, could have a major impact on your finances.  Asking whether you will be better off four years from now will help even more, not because of economic policy or which political party is in office this term (though that may have some impact, positive or negative), but because of your personal finance trends.  You can track these annually but sometimes that is like watching grass grow or paint dry – so in addition, look at them every year and do a deep dive into your financial trends at election time every four years.

Personal Financial Indicators:

  • Income- What is your gross salary and how much are you earning in bonuses?
  • Employee benefits – Note any wealth building employee benefits your employer provides for you. What does your employer contribute to your 401(k) or profit sharing account? Do they fund your health savings account or flexible spending account?  What stock options do they provide?
  • Emergency savings – How many months of expenses do you have saved in a liquid and accessible account?
  • Total debt – include your mortgage, auto, and student loans and all consumer debt.
  • Consumer debt – include consumer loans, credit card debt, auto loans, etc.  Any debt that doesn’t back an appreciating asset like a home mortgage or investment property would fall in this category. Student loan debt would not because you invested in yourself.
  • Debt to income ratio- What is your trend here? Are you taking on more debt with an increased income? If your income has dropped, are you adjusting your lifestyle?
  • Savings percentage- How much are you saving as a percentage of your income?  Note any trends here. Are you saving less than you did four years ago?  If so, review your budget and make adjustments.
  • Retirement savings contribution- What is your contribution percentage to your 401(k) and any other retirement savings plans?  Are you only saving up to an employer matching contribution? What is your retirement savings trend?  If you aren’t saving the maximum, increase it gradually or take another track and go drastic and bump it up to the maximum.
  • Total invested assets – useful information to see how your wealth is growing.
  • Overall return on your investments – What is your overall portfolio earning?  Using this weighted average calculator, you can determine how your investments are performing as a whole. Most investments don’t post four year returns tied to the presidential election though, so you might use a common time frame such a one year history or a five year average of each investment to come up with your overall return to determine your personal trend.
  • Home equity – Although most homeowners saw their equity fall off a cliff four years ago, in some areas it is climbing back.
  • Your net worth– the bottom line.  Here are a couple of resources – Financial Organizer, Net Worth Calculator

Looking forward to the next four years, consider what major expenses you may have coming up:

Buying a home or investment property

Major home repair

Purchasing a vehicle

A special trip or vacation

A wedding

Funding college tuition

A graduation

If you are able to spot a trend that could have a negative impact on your wealth building such as your expenses increasing every year in direct proportion to your annual income or continually earning a low overall rate on your investments during varying market environments, you may be able to catch a problem while you can still do something about it.  Also, when you look ahead to what is coming up, you won’t  be surprised when a big expense hits.  Going forward, you may even look forward to the election and be able to tolerate the negative ads a little bit more, knowing the election season symbolizes something else, something personal.  You’ll also be able to more easily answer the question if anyone asks.