As a Financial Planner, I would be lying if I said that I’ve always made perfect financial decisions. I have had my fair share of financial ups and downs, which in a way, have made me more understanding of my clients, and their unique financial struggles. I have experienced what it’s like to have “too much month left at the end of my money,” and I have had years where I looked back on what I earned and wondered where it all went.
That said, I’m a firm believer that one of the most effective ways to reach your financial goals is through the power of habit. Unfortunately, for many, certain financial habits can be self-destructive, like using credit cards now and worrying about the bill later or allowing their spending to exceed their income regularly.
But, for others, their financial habits can be the secret formula of their financial success. Over the years, I have identified three financial habits that have changed my life for the better, and I hope they can positively impact yours as well.
- Pay yourself first by automating your savings.
Automating your savings allows you to put money away without thinking about it. It is one of the quickest and most surefire ways to reach your savings or investment goals. Even for myself, a financial planner for three and a half decades, I know that I might inadvertently spend it if I don’t automatically save it.
You move from simply knowing that you should be saving money for your future to doing it by automating your savings. One of the best ways to do this is by setting an automatic withdrawal from your checking account to an investment account or a personal retirement account, like an IRA or Roth IRA. Alternatively, it could be through a payroll deduction to an employer-sponsored retirement plan like a 401k.
In addition to getting on track toward achieving your financial goals by automating your savings, this can also provide a significant psychological benefit. When you choose to automate your savings, you know that once you’re done paying the rest of your bills, the leftover or discretionary money is yours to spend as you please. This relieves so much of the stress related to your “fun” purchasing decisions. This can be an excellent benefit for those who struggle to spend money on themselves and often feel like they need permission to enjoy some of the more frivolous but rewarding purchases.
- Keep more of what you earn by minimizing your tax bill.
I’ll never forget a visit with a local CPA during my first year in business in 1985. Naturally, as a new financial advisor, I wanted to see firsthand the ins and outs of tax planning and, of course, take advantage of every opportunity available. Not only did this CPA show me how to minimize my tax bill each year, but she also helped me shift my mindset around taxes. As a result, I now view taxes as somewhat of a choice. You can choose one of two paths: you can choose to plan ahead and legally minimize your taxes by using the tax rules to your advantage, or you can choose to do nothing, and likely pay more than the IRS requires you to.
To this day, proactive tax planning is one of the most impactful services that I offer each of my financial planning clients. As a financial planner, it’s my job to ensure that my clients consider every tax-saving strategy that fits their needs and circumstances. But to be effective, tax planning needs to start at the beginning of the year, not at the end. Unfortunately, all too often, by the time people see their tax preparer or CPA, the tax filing year has ended, and it’s too late to implement some of the most impactful tax-saving strategies. In other words, you are seeing your tax person in March for the tax year that ended in December, three months before. Meanwhile, you’ve lost three months of planning for the current year because you’re already three months in!
This is why I think of a financial planner’s role as being more future-focused, while a tax accountant’s role is more past-based. Ideally, having these two professionals working in concert on your behalf creates a powerful one-two punch toward reducing your annual tax bill. Every tax dollar you can save is a dollar that you are free to spend, save or invest toward reaching your financial goals.
- Be proactive, not reactive.
Health and wealth seem to be more closely connected than most people think. So, for example, just as you would schedule preventative visits with your physician or dentist to make sure everything looks good, you should also schedule preventive visits with your financial planner to ensure your plan is on track.
Unfortunately, too many people approach their finances from a reactive rather than proactive standpoint, only seeking advice during financial transition or crisis. The truth is, with the proper preventative care in place, many people could get on track, avoid or minimize situations of financial crisis, and lower the amount of financial stress they experience in their lives. Ironically, this could also lead to better health outcomes from lower stress levels due to an improved sense of control and outlook for the future.
Part of the work that I do with my clients is to consistently monitor and update their financial plan throughout the year, accounting for lifestyle, job, and economic changes along the way. This helps provide my clients peace of mind that they are on track and their plan is up to date, and it allows us to identify issues in advance and make necessary course adjustments.
Each of these habits can increase the likelihood of you achieving your financial goals, but habits don’t develop quickly. Remember to give yourself time when working on a new habit, and know that over time it will get easier as you strengthen your brain’s connection to your new behaviors.
I am here to help.
While these are just three of the financial habits that have changed my life, there are many more habits that can impact your financial situation. Part of what I offer my clients is unbiased, expert advice on what habits they can create and what habits they should adjust to reach their financial goals.
If you’re interested in scheduling a complimentary consultation to discuss your financial situation, schedule a call today!