Resolve to Practice Better Financial Habits
Business leadership author John C. Maxwell wrote, “Whenever people take action, they do so for their reasons, not yours or mine.” I think he’s really on to something. In how many past New Years have you told yourself that this is the year you’re going to master your resolutions? This time you’re really going to make a budget, pay off that credit card, and get on track to meet your retirement savings goals.
The majority of New Year’s resolutions are financial in nature. While the numbers vary slightly from study to study, we know that while most Americans make New Year’s resolutions, fewer than ten percent of resolutions are achieved. That’s a lot of disappointment.
Did you know that on average it takes sixty-six days to form a habit? Many worthwhile financial goals take ten years or more to reach. Most of us fail to accomplish our financial resolutions because we don’t give ourselves enough time to incorporate new money behaviors into our established routines. Old habits die hard.
Healthy Habits Start with Goals
Good financial planning starts with an awareness of your goals. Your first step should be to set financial goals such as, “I want to pay off my mortgage in five years,” or, “I want to save enough to put my children through college,” or, “I want to buy a house at the beach.”
For example, do you want to retire in the next ten years? Figure out how much you need to accumulate and then set your savings goal. Do the math to see what you need to save on a monthly, quarterly, or annual basis to reach your goal. Then set up a plan so that the money goes directly into your investment or savings account before you have the chance to spend it.
Plan to Reach Your Goals
After you set your goal or goals, you should make a plan to fund your goal. Start by analyzing your cash flow. Sit down before every month starts and project your income and expenses for the next month. Use this to plan how much you can save for the month. Transfer the difference to your savings or investment account and do not spend more than your projection. At the end of the next month, compare your actual spending to the projection. Repeat this every month, and before long you will be saving enough to meet your goal.
Select Investments that Fit You and Your Plan
Once you know your goals and have a plan, you will have a filter through which to process investments. If an investment doesn’t align with your plan or goals, do not select it for your portfolio. Risk and reward parameters must be considered. I will discuss this in more detail in the future.
By focusing on habits you will adopt simple, sustainable behaviors that will put you on the path to achieving bigger and better goals in 2017 and beyond.
Meet the Author
Tom Coulter, CPA
Tom is the President and a founder of Meridian Trust. Tom graduated from The University of Tennessee, Knoxville, in accounting with honors, in 1978. Tom previously worked for the international accounting firm, Deloitte. He later joined the financial medical advising firm, FIS Associates, before founding Meridian Trust in 1997. Tom has worked extensively in retirement planning, taxation, estate and financial planning and investment management. He is a Certified Public Accountant, a member of the American Institute of CPAs (AICPA), and the Tennessee Society of CPAs (TSCPA).
Tom is also credentialed as a Personal Financial Specialist (PFS) by the AICPA.