I don’t know about you, but I love Halloween. The creative costumes, haunted houses, adorable kids (and the chance to act like one!), plus copious amounts of candy all add up to one of my favorite holidays.
With Halloween happening earlier this week (and all the candy still staring at me!), I got to thinking about some of the “money monsters” we see our clients facing, and how to keep them from sending you running in fear.
But first, I also want to outline a three money moves we recommend that can produce scary-good results.
We talk about this often because it is so important. One thing I notice when looking over clients’ financial progress is that typically, the ones who are maxing out their IRAs/ROTH IRAs and hitting their savings goals year after year are the ones who are automating. There are always the exceptions who lump-sum-fund their accounts once a year, but this approach is not nearly as common – or successful. There’s always something lurking to make that check harder to write. A major key to long-term financial success is consistency, and automation goes a long way toward this.
You need to understand what your (financial) end-goal is — and how you plan to get there. There are a few truths that apply to achieving any goal. The first is simple — identifying your goal. In the military, we use the acronym S.M.A.R.T. to set goals: Specific, Measurable, Actionable, Relevant, and Time-bound. The second truth is that it’s essential to have a plan in place to get from point A to point B.
When working towards any long-term goal, there will be times when you’ll question why and what you’re doing. From my own experiences and from what I have seen with our clients, the more you understand where you want to be, and the clearer you are about the steps necessary to get there, the more likely you are to stay the course. Again, a major key to long term financial success is consistency.
This is another topic we stress a lot because it is so important. Hitting your savings goals, or having the cash flow to automate your savings, comes back around to knowing how much money you have, and where it is going. I understand assigning a job to every dollar that comes in the door is not for everyone – most people want their budget to be a little more fluid, and that is fine. However, at the end of the day, you are more likely to be successful if you know exactly where (or at least have a good idea) your money is going, and where your budget leaks tend to be. At Family Financial Partners, we use eMoney to help our clients track their spending and monitor progress.
Now, to address some of the financial monsters we often find hiding in the shadows, waiting to jump out and scare you. There are ways to keep them at bay, don’t worry.
Don’t assume what you are currently doing will get you to where you want to be. Trust me, I was guilty of this myself, and some of the hardest conversations I have with clients involve telling them that what they have been doing for the last X number of years might not have been the most efficient strategy. This can be a savings rate issue, or an investment strategy issue, but each situation we see is unique. Either way, if you have never taken the time to sit down with a financial advising team and create a plan, you are essentially just rolling the dice to decide your financial fate.
I have seen many examples of people rolling their 401(k) into the popular mutual fund of the day and never taking a second look. Over time, the markets and portfolio managers change, and there is a good chance that mutual fund is not the best for you anymore. While I am not advocating day trading, I do recommend periodically reevaluating where you and the markets are and adjusting your portfolio as necessary. Again, you want to be in as much control of your financial fate as possible.
There is nothing that makes me cringe more than hearing that someone has done this. It’s (almost) never a good idea. This move is essentially hitting the restart button on your retirement savings, except now you are older and therefore have less time to save and will likely have to work longer. You worked hard to get those dollars in the account to begin with, so now, let them work hard for you.
I get that it’s tempting to use that money elsewhere, especially if you’re between jobs or facing a tight financial time in your life. But consider this too: In addition to starting back at zero, also remember that you will likely be hit with taxes and a 10 percent penalty (assuming you are under 59.5 years old). Depending on the size of the account and your income, you can quickly get to a point where you are giving away 40 percent or more in taxes and penalties! Except for extremely rare situations, taking $0.60 on the dollar is just not a smart financial move.
What financial decisions are you considering making in life? Would you like a second opinion? What questions do you have about what you’re doing with your money to work toward the future you envision? Call us today. No scary monsters here!
Article by Kyrk Davis, Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.
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