So much of the messaging and information we receive today makes us feel unsafe.
Our current system rewards clicks and attention. Therefore, we’re served up a never-ending stream of sensational, and often terrifying, headlines and stories.
It’s almost enough to close all our social media accounts and get off the internet for good. Almost.
One of our foundational and fundamental desires as human beings is to feel safe. We crave certainty. In service of helping you get more of it in your life, I want to share my thoughts on what you can start doing immediately to feel safe about your money.
I’ve been a financial advisor for 20+ years and am honored to be named to Investopedia’s list of the top 100 financial advisors in the country many years running.
Here’s what we’ll cover:
- Understanding risk and asset allocation
- Increasing your level of financial understanding
- Setting your financial foundation
- Creating a plan
- Putting yourself first
- Living debt-free
Let’s get started.
Understanding risk and asset allocation
As investors, we tend to take on too much risk, or not enough. We need to find our “just right” amount.
Taking on too much risk most commonly happens when we put too much of our money in one concentrated investment like an individual stock. The rise of trading apps like Robinhood has made investing more popular, but has almost promoted too much risk. As a rule, you shouldn’t put more than 5% of your net worth in any one concentrated investment like an individual stock or crypto asset.
Not taking on enough risk is also dangerous. If you’re 35 and have all your money in cash, it will be very hard for you to accumulate enough assets to be able to one day retire. It’s important to utilize investment vehicles to get greater returns than you’re able to get on cash.
In order to find your “just right” level of risk, you can complete a risk tolerance profile. This will help you to understand what type of investor you are. From there, you can make sure you have the appropriate asset allocation, or mix of investments.
A proper asset allocation means you’ve got the right types and amounts of investments. For example, a moderate investor will have a mix of cash, bonds, mutual funds focused on US-based companies, and mutual funds focused on international companies.
On top of stock market investments, it’s also important to take other asset classes into consideration like real estate, cryptocurrencies, and commodities.
Understanding your risk profile and ensuring your asset allocation is right for you will go a long way in helping you feel safe about money.
Understanding your level of financial understanding
When I was a kid, I learned from GI Joe that, “Knowing was half the battle.” On a scale of 1 to 10, 10 being the highest, where do you rank your current level of financial knowledge?
Wherever you’re at, there’s always an opportunity to learn more. Now, my goal is never to make someone a personal finance expert (unless that’s what you want), but it’s important you understand certain fundamental concepts. My recommendation is that you start with your financial foundation and focus on creating your emerging fund.
As you increase your knowledge level, you’ll feel safer with your money.
Setting your financial foundation
Your financial foundation is built on cash flow, budgeting, insurances, legal documents, and your emergency fund. For today, I’m going to touch on your emergency fund.
I want everyone to get rich, or at least get whatever they want from a financial standpoint. But I know the only way to make that happen is to first find financial security. Once you’ve got financial security, you can move on to financial prosperity. Too often, we skip the first step.
The cornerstone of your financial life is your emergency fund. Pre-pandemic, I would encourage people to have three month’s worth of expenses saved up in cash. Today, I’m more comfortable with six months.
An emergency fund should be kept in a bank account (checking, savings or money market) that is separate from your every day checking account. It should not be invested.
People will sometimes push back and say, “Isn’t there an opportunity cost of not investing that money?” and the answer is yes. But the last thing I want is for you to have an emergency, to go and access your funds, only to have them down 25% due to the stock market. Keep your emergency fund in cash.
Now, I’m not saying it will be easy to save up that much money. I know how hard it can be. But it will be worth it. Fewer things will give you more peace of mind and safety than a fully funded emergency fund.
Creating a plan
A big part of financial success is putting yourself in the right position to do it. We all know we’ve got very little control over what happens to us. But we can control how we plan, and how we respond to adversity.
Financial planning is unnecessarily complex. At its core, it’s a straightforward process that looks at where you want to go, where you’re currently at, and works to close the gap. The first step is to get clear on what you want. To help you in this process, you can access our Goals course at no cost.
That will help you clarify how you want your financial future to look, and will guide you in creating plans for accomplishing your objectives. Creating a plan will help you feel safe about money.
Putting yourself first
The golden rule of personal finance is to pay yourself first. I think you can take this principle and apply it across every aspect of your life. The idea is this: if you’re in the habit of paying everyone else first, and waiting till the end of the month to pay yourself, there won’t be any money left over for you.
You make this happen by setting up automatic contributions to your accounts at the beginning of every month. So you’re putting money aside for your financial priorities before paying anyone else.
In terms of the other areas of life, let’s take your physical health as an example. If exercise is a priority for you, you need to put your workouts into your calendar and treat them like every other important appointment that can’t be missed. That will help you keep your commitments and put yourself (and your loved ones) first.
Once you get in the habit of doing this, you’ll feel a lot safer with your money.
Debt is a burden. It causes stress and anxiety and can destroy relationships. The average American has over $6,000 in credit card debt. Getting out of debt must be a priority.
I understand how easy it is to get into credit card debt, and how hard it can be to get out. To help you do it, you can access our Get Out of Debt course for free.
Once you’re out of debt, do everything you can to stay out. After an emergency fund, living debt free is the surest way to achieve financial peace of mind and to feel safe about money.
You’re someone who is capable of feeling safe about money, and achieving the level of financial success you desire. Set the intention to do some (or all) the things you’ve just read about, create a plan, and put that plan into action.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
I also invite you to check out our Academy Coaching Program. It could be just what you’re looking for.
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