It’s one thing to know the X’s and O’s of personal finance, and the numbers of making smart money decisions. It’s a completely different thing to have the financial behavior skills to execute on that knowledge. Learning formulas and calculations is easy work compared to mastering your own behavioral biases, and emotions when it comes to your own finances.
We’ve said it before, life here at the Jersey shore isn’t cheap. Making sound financial decisions is crucial to supporting your lifestyle in this area. Identifying potential costly behavioral mistakes is the first step in building a strong foundation towards positive decision-making. We discuss a few common money mistakes below.
Mistake #1: Playing Victim to Your Debt
Feeling sorry for yourself isn’t going to help you pay off your debt any quicker. Telling yourself “I’ll never get out of debt. This is pointless” is a great way to stay in debt forever.
Digging yourself out of debt takes hard work and focus. If you’re convinced the task is insurmountable, you’re likely to put less effort into accomplishing it. We simply cannot allow that to happen when it comes to debt.
Mistake #2: You Don’t Plan for the Future
The earlier you start saving, the harder your money will work for you in preparing for retirement. It can be tough to think about retirement in your 20s and 30s, but putting a small amount in retirement savings every month through your early adult years could mean thousands more you’ll have to withdraw in your 60s and 70s.
We say it here all the time, “future you” will be glad “present you” made these decisions and took a little bit of time to plan things out.
Mistake #3: You Aren’t Prioritizing Properly
Taking the last point in a different direction, prioritizing financial decisions is a huge part of financial success. Finding that balance between putting a little away for retirement versus having a substantial enough cash flow each month to survive now is so important.
When you’ve got your own retirement to think about, aging parents and kids headed off to college – how do you know what to spend and where?
Working with a financial planner can really help you prioritize things properly. As basic as it may sound, staying organized with your finances is half the battle.
Mistake #4: You Don’t Have a Distribution Strategy
Saving enough for retirement is really half the battle. The other half? Spending your money in retirement AND spending it the right way. Figuring out what money to draw down first, and what the most effective tax strategies are is more complex than some would like to believe. It’s not overwhelmingly difficult, but it does require a good amount of thought and planning ahead of time. Heading toward retirement with no distribution strategy in place could create unnecessary tax burdens and financial distress.
Fixing Bad Financial Behavior
Now that we have identified some bad behaviors a lot of people have, how do we fix them?
Conquering bad financial behaviors takes focus and hard work. There’s no quick fix, and you should expect changes to be gradual. Below are a few of our tips for conquering bad behaviors that may be affecting your financial wellness.
Tip #1: Be Intentional with Spending
In today’s day, it’s become easier and easier to spend money without even thinking about it. Online shopping and electronic payments make overspending very easy. Being intentional with every dollar you spend is the key to success.
Knowing where every dollar goes is the best way to get yourself started on the right path. It makes keeping track of your financial goals that much easier.
Tip #2: Don’t Let Financial Paperwork Pile Up
Avoiding a bill or bank statement doesn’t make it go away – but it does increase the chance of incurring late fees and penalty charges. If you aren’t already, get organized with your statements and other financial paperwork.
Especially in 2021, there are plenty of organizational apps and programs you can use to organize your bills each month. Statements and bills can be easily paid online, and cuts down the hassle of physically writing checks.
Tip #3: Create an Emergency Fund
This is ALWAYS good advice. As we’ve discussed countless times before, if you don’t have an emergency fund established – START RIGHT NOW. If 2020 wiped your emergency fund clean, start again! There is never a bad time to fund your emergency savings.
Tip #4: Make a To-Do List
The truth is, there’s almost always something you could be working on when it comes to boosting your financial wellness. If it feels overwhelming, start writing down everything on your financial to-do list. Breaking it down and crossing one thing off your list at a time can help make financial wellness much more manageable. (A little mental trick to use is to put some SUPER easy things on the list, so you can feel motivated about crossing things off!)
It’s not easy to break habits, and it takes time to form new, better ones. But there is no better time to start than right now! 2021 is the year to get things on track. If you’re feeling overwhelmed about your finances, give us a call. We would be happy to help you organize everything and build a plan to tackle your financial goals. You can click here to schedule an initial call with one of our team members. There is no cost or obligation!