Category Archives: Goals

The National Study of Millionaires

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“Anyone in America can build wealth. The only thing holding you back is you. Get out of debt. Save consistently. Keep your spending in check. Let time and compound interest do their magic. If you’re willing to work hard and keep the long-term goal in mind, you’ll reach the million-dollar milestone.” Chris Hogan

Summary

  • “The National Study of Millionaires” is the largest survey of millionaires ever with 10,000 participants.
  • Eight out of ten millionaires invested in their company’s 401(k) plan.
  • The top five careers for millionaires include engineer, accountant, teacher, management and attorney.
  • 79% of millionaires did not receive any inheritance at all from their parents or other family members.

The National Study of Millionaires by Ramsey Solutions concluded that millionaires successfully accumulated wealth through consistent investing, avoiding debt like the plague, and smart spending. No lottery tickets. No inheritances. No six-figure incomes.

Thus, according to the survey, there is positive news for Americans who may have lost hope that they can ever accumulate wealth. “The people in the study became millionaires by consistently saving over time. In fact, they worked, saved and invested for an average of 28 years before hitting the million-dollar mark, and most of them reached that milestone at age 49.”

The study’s results demonstrated a dramatic difference between how Americans think wealthy people get their money and how they actually earn and spend their money.

In a nutshell, regular, consistent investing over a long period of time is the reason most of the people in the survey successfully accumulated wealth. And, even when millionaires don’t have to worry about money anymore, they remain careful about their spending. Ninety-four percent of the people studied said they live on less than they make. By staying out of debt and watching expenses, they’re able to build their bank accounts instead of trying to get out of a financial hole every month.

Investing Goals, Time Horizon and Risk Tolerance

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When it involves investing, it’s important that you start with your financial goals, time horizon and risk tolerance.

At times in calendar year 2020, the global economy seemed on the verge of collapse. Risk, ruin and enormous opportunity were the big stories of the year. Overall, the year was marked by change, opportunity, calamity and resilience in the financial markets.

Yet, in the financial markets, winners dramatically outweighed the losers, according to Forbes Magazine. Almost overnight, new winners were born in communications, technology, lodging and investments. Innovative technology companies in the S&P 500 Index propelled U.S. markets higher. And, many industries were more resilient than expected, in part because of an unprecedented monetary and fiscal response from Washington.

In light of the unprecedented upheaval, you, like everyone else, want to see their money grow over the long term, but it’s important to determine what investments best match your own unique financial goals, time horizon and tolerance for risk.

To learn the basics of investing, it might help to start at one place, take a few steps, and slowly expand outward.

Begin by Setting Goals

As an investor, your general aim should be to grow your money and diversify your assets. But your investing can take on many different forms.

For instance, it might help you to decide the investing strategies you intend to follow in order to grow your money. Such as whether you are interested in purchasing assets that could appreciate in value, such as equity stocks and funds, or play it relative safe with bonds and cash equivalents.

If you’re interested in investing in bonds, you will receive a steady stream of income over a predetermined time period, after which you expect repayment of your principal.

You might also be interested in pursuing both growth and income, via dividend stocks.

Learning to invest means learning to weigh potential returns against risk since no investment is absolutely safe, and there’s no guarantee that an investment will work out in your favor. In a nutshell, investing is about taking “calculated risks.”

Nevertheless, the risk of losing money—no matter how seemingly intelligent or calculated your approach—can be stressful. This is why it’s important for you to really get to know your risk tolerance level.  When it comes to your choice of assets, it’s important to bear in mind that some securities are riskier than others. This may hold true for both equity and debt securities (i.e., “stocks and bonds”).

Your investment time horizon can also significantly affect your views on risk. Changes in your outlook may require a shift in your investment style and risk expectations. For instance, saving toward a short-term goal might require a lower risk tolerance, whereas a longer investing horizon can give your portfolio time to smooth out the occasional bumps in the market. But again, it depends on your risk tolerance, financial goals, and overall knowledge and experience.

References:

  1. https://www.forbes.com/sites/antoinegara/2021/12/28/forbes-favorites-2020-the-years-best-finance–investing-stories/
  2. https://tickertape.tdameritrade.com/investing/learn-to-invest-money-17155

Churchill on Success

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“Success is not final, failure is not fatal: it is the courage to continue that counts.” attributed to Sir Winston Churchill

The quote, “Success is not final, failure is not fatal: it is the courage to continue that counts.”, is often attributed to Sir Winston Churchill. However, Churchill did not utter these words according to many Churchill scholars including historian Richard Langworth.

During a speech at the University of Miami, in February 1946, Churchill commented:

“I am surprised that in my later life I should have become so experienced in taking degrees, when, as a school-boy I was so bad at passing examinations. In fact one might almost say that no one ever passed so few examinations and received so many degrees. From this a superficial thinker might argue that the way to get the most degrees is to fail in the most examinations. 

This would however, Ladies and Gentlemen, be a conclusion unedifying in the academic atmosphere in which I now preen myself, and I therefore hasten to draw another moral with which I am sure we shall all be in accord: namely, that no boy or girl should ever be disheartened by lack of success in their youth but should diligently and faithfully continue to persevere and make up for lost time. There at least is a sentiment which I am sure the Faculty and the Public, the scholars and the dunces, will all be cordially united upon.”

Churchill spoke a lot about success. In the speech he gave at the University of Miami, he spoke about how poorly he did in school as a child, yet how many degrees he either earned or was awarded in his adulthood.

He conveyed to the audience that with determination and perseverance, those who feel like they’re failing should not be discouraged. Since, by being diligent in your pursuits, and with determination, you can ultimately achieve your goals. Because, any goal that is worth pursuing is going to end in multiple failures before success is finally achieved.

References:

  1. https://richardlangworth.com/success
  2. https://inspire99.com/success-is-not-final-failure-is-not-fatal-winston-churchill/
  3. https://www.saturdayeveningpost.com/did-winston-churchill-really-say-that-answers/
  4. https://www.developgoodhabits.com/success-not-final/

Saving for the Future

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“Saving is about putting aside money for future use. Investing is about putting your money to work for you with the goal of growing it over time.”

Saving money isn’t the easiest thing to do, especially if you’re one of the many of Americans living paycheck to paycheck. But saving for the future remains vitally important — not just to enable you to make large discretionary purchases such as a big screen television or a luxury vacation, but for emergencies, retirement, or buying a home.

  • Saving involves putting aside money for future use.
  • Investing involves putting your money to work for you with the goal of growing it over the long term.
  • To build your financial future, you need to do both, save for the future and invest for the long term.

Unfortunately, many of Americans aren’t where they should be financially. A 2019 Charles Schwab Modern Wealth survey found that about 59 percent of American adults are living paycheck to paycheck.

If you’re having a hard enough time paying the bills and putting food on the table without racking up debt, saving for the future is probably the last thing on your mind. Only 38% of people have an emergency fund, according to Charles Schwab, and one in five Americans don’t have a dime saved for retirement, according to a survey from Northwestern Mutual.

But, being a good saver certainly puts you ahead of the game. And having solid savings’ habits are an important step toward financial security. But saving by itself is not enough. While saving is about accumulating money for the future, investing is about growing your money over the long term. And that can make a huge difference in your financial future.

Begin your savings journey today for a better tomorrow

The hardest part about saving is getting started.

Basically, saving is putting aside money for future use. Think of saving as paying yourself first or an essential expense. From your earnings, you should take out what you intend to save for taxes first, if you’re a freelancer, and then take out 10% to 15% for savings. In other words, before you spend your first dollar on monthly expenses, first you should set aside 10% to 15% of income for your savings.

You can think of it as money you have left over once you’ve covered your essential expenses. Essentially, you should make saving a line item on your monthly budget, so that saving becomes one of your essentials. And, having money tucked away will help you pay for the things you want above and beyond your daily expenses, and also cover you in case of emergency.

Having more month left then money

A savings account is an interest-bearing account that helps you save money and earn monthly interest. Separate from your checking account and long-term investments, savings accounts can grow with regular deposits and compounding interest that you can use for your future, large purchases or emergency funds.

Having a sizeable savings account can help you stay out of debt and give you the cushion you need should you face an unexpected illness, job loss or expense. Plus, when you want something special like a week’s vacation, you’ve got the money.

Building a “cash cushion” is an important step towards financial freedom. In a cash cushion, or emergency fund, you want enough cash on hand to cover three to six months’ essential expenses.

Additionally, a well-rounded savings strategy should focus on both short-term and long-term goals, says personal financial expert, Carrie Schwab-Pomerantz CFP® major moves in order to save money — Those extra dollars are being used in two ways: to pay off debt (credit cards and student loans) and to save for a new home.

Most people keep their savings in a bank account. The upside is that it’s easily accessible and safe; the downside is that it won’t earn very much. Money in savings accounts is not likely to keep pace with inflation. Which means the money you have saved today can actually lose buying power over time. That’s why just saving isn’t enough.

Investing creates the action

Investing, on the other hand, is about putting your money to work for you with the goal of growing it over time. Here’s an example. If you put $3,000 each year in a savings account and earn 1 percent, at the end of 20 years you’d have about $67,000. If you invested that same amount of money and got an average 6 percent return over the same time period, you’d have nearly $117,000. The sooner you start saving the less you may need to save because your money gets to work that much sooner. The more you save, the more you have to invest—and the more those returns can add up.

Nobody knows, especially the talking heads in the financial entertainment media, if the stock market is going up or down tomorrow, much less six months or 12 months from now. Moreover, it should not matter if the market meltdowns one day and melt-up the next. When it goes down, you should invest. And, when it goes up, you should invest. In other words, you must consistently invest in the market. Do not let volatility and market moving news faze you, or cause a bout of investing paralysis.

Investing involves risk

Of course, investing involves risk. And the stock market particularly will have its ups and downs. But there are ‘tried and true’ ways to mitigate that risk. The key to mitigating risk is to diversify by choosing a broad range of investments in stocks, bonds, and cash based assets that aligns with your financial plan asset allocation, risk tolerance and time horizon and never put all your money in one particular stock or asset.

One other important factor is time. To protect yourself against market downturns, a long-term approach is essential. At your age, you have time to keep your money in the market and ride out the inevitable market lows. The trick is to stick with it through those lows, keeping your focus on the potential for long-term gains.

Beginning with your next paycheck, commit to paying yourself first. Develop a budget, evaluate your spending needs, and understand your long-term goals.

References:

  1. www.schwab.com/resource-center/insights/content/youre-saving-should-you-be-investing-too
  1. https://www.bustle.com/life/3-women-share-how-theyre-saving-for-their-big-life-goals
  2. https://content.schwab.com/web/retail/public/about-schwab/Charles-Schwab-2019-Modern-Wealth-Survey-findings-0519-9JBP.pdf
  3. https://news.northwesternmutual.com/2018-05-08-1-In-3-Americans-Have-Less-Than-5-000-In-Retirement-Savings

Financial Security Begins Within

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Mindset matters.

With the right mindset and hard work, achieving your financial goals are possible. However, you have to start by understanding and eliminating your negative thoughts. If you believe there’s no point trying to achieve your financial goals and to go for the life you want, then you’ll never achieve them. Therefore, you might be tempted to make choices that make your financial position worse.

Achieving a positive mindset can be difficult, but there are some proven techniques that’ll help you:

  • Take care of yourself physically and emotionally
  • Know where you stand financially
  • Set achievable financial goals
  • Make small changes
  • Try to see the positive and maintain a positive attitude

Your financial security and well-being are determined by your mindset. Financial security gives you the time and opportunity to do the things that might make you happy. Taking control of your financial life and changing the way you think can make a huge difference.

With a positive and determined mindset, you can set goals and make plans to achieve them. You’ll remain focused on your goals and create the extra money to save and invest toward achieving those goals.

For example, if you want to retire early, the way to do so is to make more money, spend less, and invest more. You’ll need to resist temptation to spend what you have or to not spend what you haven’t got.

Even with a positive mindset, you won’t achieve your goals overnight. But it’ll put you on the right track to take more control over your finances. 

There are three ways to take control and have more money to invest and accumulate wealth.

  • First is to make more money.
  • Second is to spend less.
  • Third is to invest for the long term and grow your money.

You’ll need to combine financial literacy with a plan and self-control. And when life throws you a financial curve ball, you’ll need to stay positive – remaining focused on your goals and not make excuses.

Financial security

Safety and security are incredibly important human needs. And, people must feel secure before they’re able to address their “higher-level” needs of belonging, esteem, and self-actualization according to Maslow’s Hierarchy of Needs.

Security expert Bruce Schneier states, “Security is both a feeling and a reality.” But feeling and reality can be quite different. “The reality of security is mathematical,” says Schneier. It’s all about the probability of risks and the effectiveness of corresponding countermeasures.

Most of people try to achieve financial security mathematically. We consider all the potential financial risks we face – unemployment, illness, unexpected costs, etc. – and try to determine reasonable countermeasures for each of those risks. You might not consider yourself financially secure until you have adequate emergency savings to last being unemployed for 6 months.

Security is a feeling on your psychological reactions to both risks and efforts to reduce risks. You can create a reality of security and still not feel secure. Similarly, you can feel secure and yet not really be secure in your current position.

When it comes to finances, you can stable employment, be in great health, and have money saved up – and still not feel secure with your money.

Financial goals are great, but if your fears and worries about money are holding you back, there’s a lot to be said for simply trusting in yourself and your abilities.

Build your savings. Find the ideal job. But also give yourself the proper credit for being able to make due when the unexpected happens.

Having a positive financial mindset is the foundation for taking control of your money and becoming more financially stable. Setting yourself goals, addressing and eliminating bad habits, and learning how to get a handle on your thought processes will help you to manage your finances and put you in a better position with all aspects of your life. 

References:

  1. https://www.moneymanagement.org/blog/what-does-it-mean-to-be-financially-secure
  2. https://www.dollarbreak.com/wealth-creation-mindset/
  3. https://www.credit.com/blog/why-financial-productivity-begins-with-w-positive-mindset/

Sage Advice: Stay Invested

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“If you’ve got $25,000, $50,000, $100,000, you’re better off paying off any debt you have because that’s a guaranteed return.” Mark Cuban

The late Jack Bogle was fond of saying, “Nobody knows nothing.”  Which demonstrates that predicting the future is always hard, but 2020 illustrated to us just how difficult it can be. If you would’ve predicted that U.S. domestic stocks would rise over 10% in the same year as a global pandemic, no one would have believed you.  But that’s what makes markets so complex and volatile, especially in 2020, a year unlike any other.

The real problem is that there are too many economic and financial market unknowns to consider in the coming years and decade. And, he says, we, as a nation, are not focusing on what he believes to be the single most important concern in the economy: the “soaring cost of health care”. There is also the soon to be problem of pandemic caused ballooning federal deficits and national debt as a percentage of GDP.

Elected officials seem content to continue to kick the health care cost can down the road. But, with all of the potential economic uncertainty and financial market volatility, it’s hard to know what to do when it comes to investing.

The U.S. stock market is the greatest wealth-creation tool in history.

Investing in the stock market allows you to become a partial owner of thousands of profitable and growing companies. And, when paired with the power of compounding, the market is what allows you to save for retirement.

Below are five pieces of advice for investors who are worried about the turbulent economy and volatile financial markets:

  1. Keep investing. Keep putting money away. Despite fluctuations in the market, Investors should continue to save. And if the market dips? That’s okay since a lower market can be beneficial for funding longer-term goals such as retirement and education. Saving is always a good idea, and if you can add to savings when the market is low, you may be in a better position when the market goes back up.
  2. Pay attention to asset allocation. A good starting point for asset allocation, according to most financial advisors is a portfolio consisting of 65% stocks and 35% bonds. That’s it. “Stay out of the exotic stuff,” he says, however, noting that the allocations of assets may change depending on age and circumstances. If you’re younger, for example, you might skew towards investing more in stocks: you have time to take more risks. However, if you’re older, you might consider putting more in bonds, typically more conservative and consistent. But don’t tilt too far in either direction, he warns, noting that you should pay attention to the norms.
  3. Diversification is the key to any successful portfolio, and for good reason–a well-diversified portfolio can help an investor weather through the most turbulent markets. Diversification is the practice of spreading money among different investments to reduce risk. Historically, stocks, bonds, and cash have not moved up and down at the same time. The rationale is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security. Diversification is a strategy that can be neatly summed up as “Don’t put all your eggs in one basket.”
  4. Expect lower returns. For years, the market was flush and paying out significant returns. That’s not going to continue. You should expect to see lower stock returns for the next 10-20 years, noting that 12% returns moving forward isn’t realistic. The same is true when it comes to bonds, he says, claiming that 6% returns are not in the cards. Managing those expectations is key.
  5. Don’t pay attention to fluctuating markets and keep putting money away so long as you are able. Remember that the markets – and your own investment strategy – may change over time. That shouldn’t make you so nervous that you bail. “Stay the course.”

If 2020 taught investors anything, it was, “Nobody knows nothing.”

It’s important to focus on saving and investing. You need to live below your means and invest the difference to accumulate wealth. There’s no backdoor trick around that fact.

References:

  1. https://investornews.vanguard/getting-started-with-investing/
  2. https://www.forbes.com/sites/kellyphillipserb/2016/06/15/vanguard-founder-jack-bogle-talks-about-taxes-investing-and-the-election/

Investing Goals

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“The goal of investing is to maximize your returns and to put your money to work for you.” 

Emergency funds
Being prepared for life’s surprises can take a burden off your mind—and someday, your wallet. An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly.

Here are some of the top emergencies people face:

  • Job loss.
  • Medical or dental emergency.
  • Unexpected home repairs.
  • Car troubles.
  • Unplanned travel expenses.

3 benefits of having emergency money

Aside from financial stability, there are pros to having an emergency reserve of cash.

— It helps keep your stress level down.

It’s no surprise that when life presents an emergency, it threatens your financial well-being and causes stress. If you’re living without a safety net, you’re living on the “financial” edge—hoping to get by without running into a crisis.

Being prepared with an emergency fund gives you confidence that you can tackle any of life’s unexpected events without adding money worries to your list.

— It keeps you from spending on a whim.

You’ve heard the saying “out of sight, out of mind.” That’s the best way to store your emergency money. If the cash is only as far away as your closest debit card, you may be tempted to use it for something frivolous like a designer cocktail dress or big-screen TV—not exactly an emergency.

Keeping the money out of your immediate reach means you can’t spend it on a whim, no matter how much you’d like to.

And by putting it in a separate account, you’ll know exactly how much you have—and how much you may still need to save.

— It keeps you from making bad financial decisions.

There may be other ways you can quickly access cash, like borrowing, but at what cost? Interest, fees, and penalties are just some of the drawbacks

Retirement

Saving for retirement might be the most important thing you ever do with your money. And the earlier you begin, the less money it will take.

When it comes to preparing for retirement, there are a lot of things you can’t control—the future of Social Security, tax rates, and inflation, for example. But one big thing that you can control is the amount you save.

Social Security shouldn’t be your only retirement plan since Social Security was never meant to be anyone’s sole source of retirement income.

In fact, a 30-year-old making $50,000 per year today—and who might realistically expect to make substantially more by the time he or she retires—can expect less than $22,000 per year from Social Security at age 67 (in today’s dollars).

In the past, pensions often offered an additional source of income for retirees. But pension plans are becoming rare in today’s world, and it’s more important than ever to take advantage of the opportunity to save for your future.

Keep in mind that on average, Social Security payments make up only about 33% of Americans’ retirement income, according to Social Security Administration.

Spending now could mean you’ll pay for it later

Perhaps you’d rather spend your money on other things that are more fun than saving for retirement.

But because compounding can enhance the value of your savings, the “pain” of each dollar you save now can be greatly outweighed by the flexibility you gain later.

Of course, we’re not suggesting you’d be better off squeezing the last drop of enjoyment from your life.

But we think that knowing you’ll be all set to meet your basic needs later—with enough left over to let you comfortably do the things you look forward to in retirement—is worth going without a few treats now and then.

Choosing to spend less on certain expenses now could make a huge impact in the long run! For example, you could spend $3,600 a year on payments for a new car during the next 5 years … or you could watch that money grow to $80,000 over the next 40 years!*

Control what you can

In the end, the future of Social Security isn’t the only thing that’s out of your hands. Tax rates will almost certainly change between now and your retirement date, and inflation will continue to increase prices over time. Other government programs, like Medicare, might also change.

But there’s one thing that only you can completely control: how much you save. Start now and you might be surprised at how little you notice the sacrifice.

  1. https://investor.vanguard.com/emergency-fund/
  2. https://investor.vanguard.com/retirement/savings/why-save

Five Money Goals to Financial Wellness | TIAA

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According to TIAA, there are five big financial goals anyone seeking financial well-being should include on their list:

  1. Max out your 401(k) / 403(b). One rule of thumb says that by the time you turn 30, you should have the equivalent of your annual salary saved (that’s all savings, not just retirement assets); double your salary saved by age 35; three times the amount by age 40. And, it’s essential to take full advantage of your employer match, if you have one: With a $50,000 salary from an employer matching up to 6% of your contributions, you’d be turning down $3,000 (free money) each year! Letting your employer match go to waste would be like you accepting a $3,000 pay cut without a fight. In the absence of an employer plan, contribute to an IRA instead, even though the target is much lower (the annual contribution rate for 2021 is $7,000.
  2. Build an emergency fund. Each year brings economic uncertainty to many and, even for the financially secure, life happens in the form of medical bills, domestic catastrophes and other unplanned expenses. As a general rule, it’s good to maintain an emergency fund that would cover three to six months of living expenses in case you find yourself unemployed. Once you’ve calculated how much you should save, set aside a certain amount from each paycheck to set you on your way.
  3. Get your financial affairs in order. Estate planning is something you can’t afford to ignore. Getting your financial affairs in order, and designating the right people to manage them in the event of your incapacity or death, takes a huge weight off your shoulders. Necessary documents include durable powers of attorney, which designate someone to manage your day-to-day affairs, and a living will or healthcare directive to instruct your doctor what to do if you’re unable to make medical decisions for yourself. Don’t forget to inform those assigned with the task of handling your estate, who need to know the location of your will and other estate planning documents.
  4. Give yourself a debt deadline. Bad debts. You know which ones they are: the loan you took out to pay for a wedding; the credit card with the sky-high interest rate whose balance keeps rolling like a New York subway car. Convincing yourself that minimum monthly payments are okay? How about setting a deadline for repayment and getting rid of this exponentially growing interest?
  5. Create a budget (and stick to it). If you find that your spending is a bit out of control, you may want to press the reset button on your out-of-control spending behavior with a budget.

Setting these five money goals is enough to start you well on your way toward financial well-being.

References:

  1. https://www.tiaa.org/public/learn/personal-finance-101/5-must-have-financial-goals

Goals

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“Most people don’t know what they want.” Jim Rohn

You can’t ask for what you want unless you know what it is you want, according to Mark Victor Hansen, co-author for the Chicken Soup for the Soul. And, the first step to creating a goal is to figure out what you want. If you don’t know what you want, you don’t know what you need to achieve to get there.

Creating a list of financial goals is necessary for managing money and financial success. When you have a clear picture of what you’re aiming for, working towards your target is easy. That means that your goals should be measurable, specific and time oriented.

There are several types and timeframes of financial goals:

  • Short term financial goals – These are smaller financial targets that can be reached within a year. This includes things like a new television, computer, or family vacation.
  • Mid-term financial goals – Typically take about five years to achieve. A little more expensive than an everyday goal, they are still achievable with discipline and hard work. Paying off a credit card balance, a loan or saving for a down payment on a car are all mid-term goals.
  • Long-term financial goals – This type of goal usually takes much more than 5 years to achieve. Some examples of long term goals are saving for a college education or a new home.

The  concept of setting “goals” can be intimidating to many individuals. It can feel so overbearing that it keeps people from even beginning the process settling goals.

Instead, a better way is to think of goals as a to-do list with deadlines and for the rest of your life. Goals can be added, subtracted and, most important, scratched off the list as you move through your life.

The major reason for setting a goal is for what it makes you do to accomplish the goal. This will always be a far greater value than what you get. That is why goals are so powerful—they are part of the fabric that makes up our lives.

“Research says that merely writing your goals down makes you 42% more likely to achieve them.”

Goal setting provides focus,  provides a deadline and measurement for your dreams, and gives you the ability to hone in on the exact actions you need to take in order to get everything in life you desire.

Goals are exciting because they provide focus and aim for your life. Goals cause you to stretch and grow in ways you never have before. In order to reach your goals, you must most do thing differently, you must become better; you must change and grow.

A powerful goal has components:

  • It must be inspiring.
  • It must be believable.
  • It must have written targets and you must measure progress against those targets.
  • It must be one you can act on.

When your goals inspire you, when you believe and act on them, you will accomplish them.

Achieving financial goals takes a little more than just luck.

It requires extreme discipline, dedication, and repeated sacrifice. It means setting short- and long-term financial goals and then following through on them. Unfortunately, these are things with which the majority of Americans seem to struggle.

Research, however, suggests that simply writing out a list of financial goals makes a person 42% more likely to achieve them, according to a study done by Gail Matthews at Dominican University.

It is widely known and accepted that if you want to achieve something, you had better set a goal.

However, very few Americans actually do or even know how to set financial goals. According to Schwab’s Modern Wealth Index, only 25% of people have some sort of written plan or goals. What’s worse, the Financial Health Network finds that only 29% of Americans are financially healthy.

Don’t wait for financial success to come knocking. Achieving your goal like affording a house, paying college tuition, or ultimately funding retirement, will most likely be on you.

References:

  1. https://www.success.com/10-tips-for-setting-your-greatest-goals
  2. https://www.forbes.com/sites/ellevate/2014/04/08/why-you-should-be-writing-down-your-goals/
  3. https://credit.org/blog/financial-goals-examples/
  4. https://www.success.com/rohn-5-simple-steps-to-plan-your-dream-life/
  5. https://www.aboutschwab.com/schwab-modern-wealth-index
  6. https://dollarsprout.com/list-of-financial-goals/
  7. https://finhealthnetwork.org

Financial Mindset

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“It’s difficult to master the psychology and emotions behind earning, spending, debt, saving, investing, and building wealth.”

Personal finance is simple. Fundamentally, you only need to know one thing: To build wealth and achieve financial freedom, you must spend less than you earn. Yet, it seems challenging for most people to get ahead financially.

Financial success is more about mindset and behavior than it is about math, according to J.D. Roth, author of Get Rich Slowly. Financial success isn’t determined by how smart you are with numbers, but how well you’re able to control your emotions and behaviors regarding savings and spending.

Financial Mindset

“Change your mindset and attitude, and you can change your life.”

You sometimes have to make sacrifices in order to improve your financial situation. For instance, if you are in debt, you need to sacrifice some expenses so you can pay more towards managing and eliminating your debt. It is these financial sacrifices that will require you to have the right financial mindsets so you can overcome the obstacles that derail people from managing and eliminating their debt.

According to an article published in USAToday.com, Americans do not have a financial literacy problem. Instead, Americans simply make the wrong financial decisions and have bad final habits which does not necessarily translate that they are unaware of the best practices of financial management. We know how to make the right choices about our personal finances. The problem, according to the article’s author Peter Dunn, is that Americans have a financial behavioral problem. It is bad financial behavior, decisions and habits that usually get them into money trouble. It is what put them in a financially untenable position.

A perfect example is that you should never spend more than what you are earning. It is logical after all. But does that mean you follow it. Some people still end up in debt because they spend more than what they are earning.

Other examples of beliefs about money and personal finance include:

  • Taking personal responsibility regarding your finances is everything.
  • You shouldn’t buy things you can’t afford.
  • You don’t have to make a ton of money to be financially successful.
  • You can give yourself and your family an amazing life, if you’re able to remain disciplined and think long term.
  • Borrowing money from or lending money to your family isn’t recommended.
  • Education can get you a better job, if you get the right education.
  • You should buy life insurance.
  • You have much more to do with being a financial success than you think.

Financial literacy gems such as “spend less than you make,” “you need to budget” and “save for the future” are impotent attempts to help. However, lacking the correct financial mindset can make following the simple financial gems quite challenging.

There are 5 destructive financial mindsets that are the norm in our society today but you should actually get rid of starting today, according to NationalDebtRelief.com.

1. Using debt to reach your dreams.

This can actually be quite confusing. A lot of people say that it is okay to be in debt as long as it will help you reach your dreams. There is some truth to that but you should probably put everything into the right perspective. Buying your own home and getting a higher education are some of the supposedly “good debts.” It is okay to borrow for these if you can reach your dreams because of that debt. Not so fast. It may be logical to use debt to reach these but here’s the key to really make it work – you should not abuse it. If you get a home loan, buy a house that will help pay for itself. That way, the debt will not be a burden for you. When it comes to student loans, make sure that you work while studying to help pay for your loans while in school. Do what you can to keep debt from being a burden so it will not hinder you from reaching your dreams.

2. Thinking you do not need an emergency fund.

The phrase, “you only live once (YOLO)”, should no longer be your mindset – especially when it comes to your finances. You always have to think about the immediate future. If you really want to enjoy this life, you need to be smart about it. Do not splurge everything on present things that you think will make you happy. It is okay to postpone your enjoyment so you can build up your emergency fund. You are not as invincible as you think even if you are still young.

3. Settling for a stressful job to pay off debt.

“The most important thing when paying off your debts is to pay off your debts.”

Among the financial mindsets that you need to erase is forcing yourself to stay in a stressful job just so you can pay off your debt. You are justifying the miserable experience that you are going through in your job because you need it to meet your financial obligations. This is the wrong mindset. You need to put yourself in a financial position where you will never be forced to stay in a job that you do not like. Live a more frugal life that does not require you to spend a lot so you can pursue a low paying job and still afford to pay your debts.

4. Delaying your retirement savings.

Some young adults think that their retirement savings can wait. Some of them think that they need to pay off their debts first before they can start thinking about the future. This is not the right mindset if you want to improve your finances. You have to save for retirement even when you are drowning in debt.

5. Failing to have a backup plan.

The last of the financial mindsets that you need to forget is not having a backup plan. Do not leave things to chance if it involves your finances. You have to make a plan and not just that, you need to have a backup plan. If you have an emergency savings fund, do not rely on that alone. What if one emergency happens after another? Where will you get the funds to pay for everything? Think about that before you act.

Takeaway

Remember, personal finance is simple…it’s your emotion, behavior and habits that are challenging. Bottom-line, it comes down to your financial mindset.  Smart money management is more about your mindset than it is about personal financial math of net worth, cash flow, saving and investing. The math of personal finance is simple and easy. It’s the psychology that’s tough and challenging. Essentially, the concepts to improving your finances and achieving financial freedom are simple but it is not easy to follow through with them.

References:

  1. https://business.time.com/2013/03/11/why-financial-literacy-fails/
  2. https://www.usatoday.com/story/money/personalfinance/2015/09/27/americans-financial-literacy-behavior/72260844/
  3. https://business.time.com/2011/09/22/debt-tsunamis-debt-snowballs-and-why-the-conventional-wisdom-about-defeating-debt-is-wrong/
  4. https://www.nationaldebtrelief.com/5-financial-mindsets-you-need-to-get-rid-of/
  5. https://www.getrichslowly.org
  6. https://obliviousinvestor.com
  7. https://petetheplanner.com/yes-you-are-an-investor-think-like-one/