I’m excited you’re interested in how to get good with money and I’m confident I can help you get where you want to go.
This article will go through 7 steps to help you achieve financial prosperity.
It’s not enough to know about money. It’s not enough to know how to invest and manage your finances. You also have to make change real and sustainable.
You need to recognize personal finance is a lot. There’s immense technical knowledge in many different areas; investing, insurance, taxes, estate planning, business planning, philanthropy and more. Then there’s recognizing any emotional connections that exist. And then it’s integrating it all together.
You need to figure out how to maximize your resources of time, attention and money. And, you’ll need to take into consideration your desire and interest; do you want to spend time on this?
There has to be someone whose job it is to bring all of this together. The good news is, it’s available at every level. There are world-class advisors who do, and there are FinTech companies meeting these needs and an entire industry of hourly coaches.
But it comes down to choice. Will you choose to dedicate the resources to doing this? Will you accept the personal responsibility?
I’ve been helping people through this process for over 20 years as a financial advisor. While there’s a lot to consider, there’s never been a better time than now to do it.
Briefly, this is a follow up to an earlier post, How to Get Out of Debt and Become Financially Secure in 7 Steps. To bring you up to speed, here are the 7 steps I talked about.
- Know your “facts.” When talking about personal finance, your facts are your current financial situation, meaning your cash flow and budget.
- Know yourself. It’s imperative to get clear on your beliefs about money and your goals and priorities.
- Set your initial emergency fund. Get $1,000 saved in an account separate from your everyday checking account.
- Pay yourself first. Enroll in your company’s 401(k) or open an IRA and begin contributing.
- Grow your emergency fund. Get one month’s worth of living expenses saved.
- Pay off credit cards. Develop a plan to eliminate credit card debt and execute the plan.
- Complete your emergency fund. Get six month’s worth of living expenses saved.
Here are the 7 steps I’m going to cover today:
- What role will you play in your finances?
- What new knowledge will you need?
- How much will your financial goals cost?
- Understanding your brain
- Keeping an eye on your lifestyle
- Treating obstacles as opportunities
- Reviewing and planning
Let’s get started
What role will you play in your finances?
This may seem like a silly question, but you have the ability to choose what role you’d like to play.
Whichever role you decide on, you’ll need to be an active participant. I listed the challenges in the introduction, and you’ll need to spend some time thinking about the role you’d like to play.
To help you decide, answer these questions:
- Do you have the time to devote to your finances?
- Do you have the attention?
- Do you have the desire?
Please know, there’s not a right or wrong answer. Some people love finance, some despise it. Fundamentally, there must be someone whose job it is to ensure each aspect of your financial life is doing what it’s supposed to be doing.
There are three models I propose you consider:
- DIY. You’ll be the one charge of everything. You’ll learn and implement what’s needed to reach your financial goals and objectives (I’ve listed resources to help make this happen at the end).
- The Partner model. You’ll gain a working knowledge of many aspects of your financial life, and work with a coach or join a mastermind to help act as another set of eyes and keep you on track (again, there are resources at the end).
- The Outsourced model. You’ll hire a professional advisor to handle all your finances.
Even if you opt for the third option, it will still be important for you to take an active role.
What new knowledge will you need?
Which of the three models did you choose, or are you leaning toward? What new knowledge will you need for each model?
DIY will require the most knowledge. You’ll need to learn enough about each area of your financial life to be able to choose service providers. For example, you’ll determine how much life insurance you need as well as the type, and select the carrier.
The Partner model will also require you to educate yourself on each area, but you’ll also be able to rely on a coach or mastermind to bounce ideas off of. For example, when deciding between a Roth or Traditional IRA, a coach can help make that determination.
Even with the Outsourced model, I suggest you educate yourself on certain areas so you can be an informed and active participant.
How much will your financial goals cost?
In the introduction, I referenced a previous post where I suggested you complete our Goals and Values courses (which you can access at no-cost). It’s imperative to have clarity on your biggest financial priorities and to know how much they’ll cost.
Some of the most common financial goals are becoming debt-free, saving for retirement, saving for a down payment, and funding children’s education. I don’t want you to focus on which accounts, investments or strategies you’ll use to accomplish these, simply figure out how much each will cost.
Once you’ve done that, you’ll be able to reverse engineer how much you’ll need to save every year, and then every month.
This is an important starting point because it will help inform many other aspects of your financial life.
Your biggest goals are the starting point and you can move to smaller priorities once you’re done.
Understanding your brain
Psychologist Daniel Kahneman won the Nobel Prize in economics, an incredible accomplishment. He became fascinated by the reasons people make decisions. One of the key takeaways was we make the vast majority of personal finance decisions emotionally.
Yes, we’re supposed to make them logically.
Our brains are wonderful and they’ve served us well for the past six million years. But when it comes to our money, we need to pay close attention to what they are and what they aren’t telling us.
We fall victim to many biases. We have blindspots. We respond more strongly to loss then we do gain. We are able to easily absorb certain types of information better than others. All of this to say that we’re perfectly capable of making great financial decisions, but we need to be mindful of our thinking around money.
For example, when the stock market goes down, and I see my 401(k) balance has decreased, my initial response is to sell. Perfectly reasonable. Our brain is trying to protect us from danger.
But, upon reflection, we remember we’re supposed to buy when prices are low, and sell when prices are high; not the opposite.
We recognize that selling at this point would be the opposite of that thinking and we decide to take no action. Historically, we’re rewarded because the stock market rebounds and those momentary losses are recovered.
Oftentimes, our initial response to news or an event is not the correct one. When we’re able to take a step back and consider our next move, we are more apt to make a good decision.
Keeping an eye on your lifestyle
This is not the part where I tell you to sell all of your Earthly possessions and join a monastery. I never took a vow of poverty and I don’t expect you to either.
That being said, it’s imperative to keep an eye on your lifestyle.
Moving forward, everytime you get an increase in compensation, instead of simply increasing your lifestyle, consider putting some of the increase towards your saving and investing goals. For example, if you get a 5% raise, put 3% towards lifestyle and 2% towards retirement.
Conversely, don’t let fear of running out of money prevent you from spending money. Just as people fall victim to over-consuming, they also fall victim to being overly frugal.
Continuing to revisit your goals and values helps you to keep your lifestyle in perspective.
Treating obstacles as opportunities
When we human beings set goals, we do so with only the good stuff in mind. When thinking about the future I desire for myself and my family, rarely do I think about hard times or difficulties in relationships with loved ones.
But challenges and problems are a part of life.
Moving forward, start treating the obstacles as opportunities and address them head-on.
For example, when you notice resentment because one of your two children feels slighted by not being active in the family business, talk about it. You may discover they have a desire to join the business and you weren’t aware of it.
There are a lot of obstacles which come up with family and money. Don’t let them fester. Address them head-on and look for the opportunities to emerge stronger and happier.
Reviewing and planning
Whichever model you choose, it’s essential to get all the stakeholders on the same page.
By stakeholders, I mean family as well as any and all advisors.
You’re the CEO of your financial world.
No one should care more about your finances than you.
It’s important you hold quarterly review and planning sessions. If it’s just you, that’s great. You still need to schedule time and make sure you’re on track to reach your financial goals and objectives.
- DIY Financial Plan Course
- Goals Course
- Values Course
- Get Out of Debt Course
- Improve Your Credit Course
- Zebra – For your insurance needs
- Trust and Will – For your estate planning needs
- Quicken – For your budgeting needs
- M1 – For your investing needs
- OnTrajectory – For your financial planning needs
- Trustworthy – To bring your financial world together
- Money Alignment Academy – For your financial coaching needs as well as educational courses
- Mastermind – For community support
- You can connect with an advisor for a no-cost introductory call here.
We’re committed to getting you the support you need to reach your financial goals and objectives, no matter which model you choose.
Let us know how we can better support you on your journey!
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