When considering a Donor Advised Fund, there should be a balance between aggressively funding your giving goals to save money on taxes and assuring that your other financial goals are being met as well.
In the past two posts I’ve been writing about my client Evelyn, who recently experienced one of life's major transitions. In this final post, Evelyn has more advice for what can be a difficult period for some people.
This is the second part of my interview with my client, Evelyn, a 73-year-old divorcee and retired high school teacher, who is going through a new transition.
I recently visited a fifth grade classroom for a personal financial lesson. The ideas we talked about were simple, but the concepts hold true whether you are a grade school student or well into adult life.
As I’ve been examining why I have been resistant to goals, I have started re-thinking how I approach them, and I’ll tell you why. A goal is a clearly defined personal objective, something you want to achieve in a specific time period. What I have recently realized is that there are different types of goals; not all goals are equal nor should they be executed in the same way.
Just as you wouldn’t train for a sprint the same way you would train for a marathon, different goals will require different approaches.
There are three main types of goals: short-term, long-term and on-going goals.
During college I went through several intense, short-term goal periods. One particular summer, I regularly worked 80+ hours per week to pay for my fall tuition bill. I taped a goal meter on the wall next to my bed with the exact amount that I needed by the end of that summer marked on the top of it. Every time I earned a paycheck from my various jobs, I would take a red marker and draw in how much closer I was to my goal.
As the summer wore on and I wore out, that meter served as motivation. It prompted me to pick up another shift or not spend money. It was a constant visual reminder of my goal and exactly where I was on my way to achieving that goal.
That lifestyle was not sustainable over a long period of time, but it was doable for three months.
Short-term goals, as the name implies, are ones that can be attained in a short time frame. They can be goals that we are willing to dedicate an intense amount of energy to, although not all short-term goals are worthy of that energy. As an added benefit, their relatively immediate results allows us to clearly see how achieving our goals helps our lives.
Motivation techniques, such as a poster on your wall marking your progress, or an inspirational photo, work well for short-term goals. An action plan with specifics allows you to cross items off as they are achieved. Tracking incremental advancements can serve as motivation to keep going. Remember to keep day to day goals realistic, otherwise, you won‘t feel you are making progress.
A word here about accomplishment: as I said in my previous post, I have come to realize the wisdom in pausing to breathe as part of the goal setting cycle. Resting after completing a goal allows reflection on your accomplishment, gives perspective and re-energizes you for the next task.
Retirement is a long-term goal for me and my husband. I know that we need money saved, but because I haven’t formed specific plans for retirement, I don’t know what that will mean for us.
I can imagine the type of life we would want to live, but because there are so many unknowns, it’s next to impossible to anticipate the budget we will have. Even people who are a year or two from retirement often have trouble envisioning what it will look like!
However, just because I can’t clearly envision the specifics of that goal doesn’t mean I shouldn’t be setting a target for it.
Long-term goals are directional. I’m aware of the general direction I need to go to reach our retirement goal, even though I don’t know the details. I know that saving monthly for retirement now will give me the freedom to make more specific decisions down the road.
Treating a long-term goal like a short-term goal is a recipe for disaster. For a short-term goal, I may look at my bank account daily as a way of seeing if I am I on track. If I were to attempt the same thing for a long-term goal, like frequently checking a retirement account, the process would be frustrating at best.
Another example is a career goal. If your goal is to be in the C-suite of your company, revisiting how you have yet to attain that goal daily, weekly or even monthly will discourage you and set you back.
Long-term goals are the directional goals that you re-visit over time.
After months of spending too much at the grocery store and throwing away far too much food, I decided it was time to get my grocery shopping budget under control again. While that may seem simple to some, it is a goal that requires constant on-going attention and energy from me.
I sit down and plan out our meals once a week. If every meal is planned, I no longer have to decide multiple times throughout the week whether to eat what we have on hand or find an easier/faster option.
If you approach an on-going goal, such as regular exercise or controlling your budget, the same as you do a short-term or long-term goal, you are setting yourself up for failure. Sprinting for on-going goals becomes exhausting and not checking on them regularly makes it more likely that they won’t happen.
Clearly I won’t ever attain perfection in my goal of eliminating all the wasted food in our lives by meal planning. There are going to be successes and there are going to be days where I simply don’t have the time or energy to follow the plan. This is to be expected. Think of on-going goals as behavior training.
An article on the Mind Tools website reminds us that “unless you clearly define exactly what you want and understand why you want it the first place, your odds of success are considerably reduced”. When setting goals, remember the SMART acronym: they should be Specific, Measurable, Attainable, Relevant and Time-Bound.
Next time you set a goal, recognize what type it is (short-term, long-term, or on-going) and the amount of energy or patience that will be necessary. Having clear expectations and awareness of your direction will increase your chances of successfully attaining your goals.
I have struggled with goals lately. As a financial planner, I’m naturally wired to set goals. An integral part of working with my clients is looking at their goals and the financial ramifications of those goals. In fact, some of the most powerful meetings a financial planner can have the privilege of attending are those in which someone realizes that a dream they never thought was possible could actually become a reality.
Goal setting is powerful and necessary. I understand that, but I found myself resisting the idea of setting goals recently. This resistance was unfamiliar and something I simply didn’t understand.
When I don’t understand something, my first response is to try to figure it out. Why was I having an aversion to setting goals for the first time in memory? I had conversations with business consultants, goal-orientated friends and anyone who would talk to me about it. The common theme I heard was that once you achieve your goals, which was where I was at, you reassess and create new goals. It’s the cycle of success: set goals, achieve goals, set new goals, achieve those goals. Lather, rinse, repeat.
I found myself asking – what if I’m content, what if I have everything I want? I have a business I love, my family’s income is comfortable and I’m further along in my career than I could have imagined even a year beforehand. What if I don’t want or need more at this point?
Recalling my conversations about goals, I realized there is a lot of wisdom in being content. The purpose of life is not simply to achieve more, be more and have more.
After recognizing this, I decided to appreciate and enjoy this season of life that I had worked so hard for. I began, for the first time in my career, to allow myself to have slow afternoons and not look for a new designation or training or ways to grow my business.
As I freed myself from the pressure of achieving bigger and better goals, I found that I was resting.
Resting allowed me to focus on my daily life and enjoy my daily routine. Resting meant that my husband and I started spending time together instead of sacrificing that time for future career goals. Resting opened time in my calendar to drop everything for a friend who needed help one afternoon.
Resting has given me a better perspective. According to an article by Ferris Jabr in Scientific American, "downtime replenishes the brain’s stores of attention and motivation, encourages productivity and creativity, and is essential to both achieve our highest levels of performance and simply form stable memories in everyday life." Times of intense, focused work are for a season and are not supposed to be the constant. It’s good to allow periods of time to enjoy our accomplishments, instead of pushing them aside to move on to the next goal, just as it is good to have times of intense work. Besides, life has its ups and downs and different phases. There will be times in my life when I won’t have the luxury to relax; I’m guessing it’s wise to enjoy this slower pace while I have it.
Looking forward, I have several projects I want to start, but happily realize that I’ll be starting from a place of rest rather than a place of exhaustion. I now have the energy and focus to dedicate the time and mental exertion to what needs to be done.
I have come to realize the wisdom in pausing to breathe as part of the goal setting cycle. In fact, I would argue that resting is essential to successful goal setting and accomplishment.
Clients describe the meeting as shocking, even while admitting that they knew it was coming. It’s the financial planning meeting in which we look at their retirement projections to see if they are on track to meet their financial goals.
Some couples have figured it out. They know what they can spend; they live on a budget and have saved enough to be comfortable the rest of their lives. But for other couples, the meeting highlights adjustments they knew they needed to make.
And by adjustments, that can mean dramatic changes in their current lifestyle.
What to do when your lifestyle needs to change?
Get concrete numbers
When you come to terms with the fact that your lifestyle has to change, get concrete numbers. Talking in the abstract about needing to “cut back” is a lot different than knowing exactly how much money you need to be saving every year and what your ending budget number needs to be.
There are important numbers to consider when looking at spending cuts versus retirement dates or goals. If you were to work an extra year or five years, how does that change your financial picture? Often, those changes can have a dramatic effect on what you need to cut back.
Work with a financial planner
There are resources online, but I encourage you to find a financial planner you feel comfortable with and work with them through this process. Besides developing a relationship that aids financial recommendations, they can give you insights based on similar people’s experiences that they’ve worked with. A good financial planner will get to know you personally and offer advice tailored for you and your situation.
A knowledgeable financial planner will also help you identify the other areas in your finances to be aware of, expert advice that will help you should something unexpected happen. One gap in your insurance and an unfortunate incident can destroy your financial plan and everything you are working towards. Obviously, I’m biased, but I truly believe that the investment is worth it.
Identify your values
Knowing your values makes financial decisions so much simpler. It becomes easy to lose sight of what is really important to us, much of which doesn’t require a lot of money, and focus on the extras of life. Living life within your values creates the framework by which you begin to make intentional decisions.
In his New York Times column, David Brooks says it well: “Early in life you choose your identity by getting things. But later in an affluent life you discover or update your identity by throwing away what is no longer useful, true and beautiful.”
Consider Cutting Back Big
Big lifestyle changes are hard. Much of the popular advice you hear these days advocates cutting back on purchases like your everyday latte at Starbucks. While it’s true that small changes can make a difference, those results will be more subtle and long-term.
When you are faced with a lifestyle change, you must put all the options on the table. Some may be painful: downsizing your house, trading in your leased car, looking for another job, moving for a promotion, cutting your annual vacation. However, it’s necessary to consider every way in which you can make a significant change.
Begin Evaluating Every Option
Look at a list of all of your expenses and evaluate every line item. Begin by asking “why”. After evaluating what you money is being spent on specifically, ask why you are choosing to spend money on the items that you are. What are the alternatives? Even when alternative options seem far outside the realm of possibility, still include them. The purpose of this step is not to solve the problem, but to brainstorm every possible solution. Considering options that seem far from what you are willing to do (like trading your car for public transportation), give perspective and bring attention to the luxuries that you have in life.
Below are some examples of line item evaluations:
Car Payment: $650/month
Why am I spending money on this? Because I need transportation!
Why am I choosing my current option? Two cars are more convenient for our family and I’ve always wanted a BMW.
What are the alternatives? Sell it and have one car in the family, sell and buy a nicer car, sell and buy a less expensive car, sell and buy a used car, take public transportation.
How open am I to changing this (or do a scale of 1-10 on how important this is)?
If you were to change, what would be the monthly/yearly cost difference?
Eating Out: $400/month
Why am I spending money on this? Because we need to eat.
Why am I choosing my current option? We enjoy eating at restaurants and it’s convenient.
What are the alternatives? Eating out less, purchasing ready-made meals, personal chef, cooking all meals at home.
How open am I to changing this (or scale of 1-10)?
If I did make a change, what would be the monthly/yearly cost difference?
Begin to make decisions
After you have worked through your line item evaluations and identified what’s important to you, start making decisions.
As with so much in life, these decisions are not easy or clear cut. Every decision is a trade-off. What is right for one family is not going to be right for the next.
Remember to reflect back on why you are making these changes. It takes courage to make big decisions when your lifestyle has to change, but knowing why you are changing can make all the difference in the world.
If you find yourself unsure of your future and aren’t even sure if you need to cut back, I encourage you to consult with a financial advisor and begin the journey to achieving your financial goals.
“I have no idea how we did it back then,” a client couple commented on a copy of their budget from fifteen years prior. They laughed as they remembered their early struggles. They knew that their life had altered over the years, but hadn’t realized how much it had transformed financially.
The changes that take place over many years can be hard to identify as you go through daily life, but looking back over time, the changes can be shocking.
Most people see their incomes rise over the course of their working years, and as it does, that extra money is added to what they spend. With more money to spend, lifestyle spending creeps up.
Lifestyle creep happens over years. When you were younger, you might not have imagined eating fine dining on a regular basis, or having the ability to shop at Whole Foods or to take vacations. Your own children have grown accustomed to having the gifts and luxuries you never had growing up.
We don’t notice the innocuous changes and grow comfortable with the gradual adjustments. Because it’s not a sudden change, we don’t make conscious decisions about spending. It just happens.
Lifestyle creep is normal and expected in life, but looking at it from a financial perspective, there can be negative consequences if you don’t plan well for it.
How Lifestyle Creep Effects Your Financial Plan
You become inured to spending money
The danger here is that you may not even realize it. An increase in income means an increase in spending. What use to be unimaginable, becomes the norm.
Your perception of money changes
Spending $20 outside your budget may once have thrown your finances for a loop. Now, you don’t even blink at $20 spent here and there, and may spend even more than that without a second thought.
Your lifestyle changes
While you were once able to live comfortably on a certain amount, several years later, that amount has increased. You value the experiences and luxuries of the life you enjoy now. You didn’t know what you were missing before!
Not only has your lifestyle changed, your friends and social circles have changed. Social expectations may include dining at restaurants that would have never fit your budget before. You may feel (consciously or unconsciously) that in order to maintain those relationships, you have to maintain the spending.
Your retirement numbers change
This is the most important way that lifestyle creep affects people. For most, the goal of retirement is to maintain how you are currently living your life, or even increase the amount you live on; meaning that your income level will stay the same or higher.
As your lifestyle spending slowly rises, the amount you need in retirement will also rise. A small lifestyle change now has a dramatic effect on how much you’ll need in the future. As a basic example, for every $1,000 increase in your yearly spending, or $83 per month, you will need to have an additional $25,000 saved for your retirement years to sustain that lifestyle.
People feel compelled to save more money as they near retirement. Saving money is very important, but the biggest impact a couple can make on their retirement is to decrease their expenses.
Proactively Planning for Lifestyle Creep
Track spending and income
If you had a financial plan done in the past, be aware that your income and expenses are likely to have changed over the years. To keep current with the amount you need to be saving, track spending and income and revisit that financial plan often.
The most important element of a financial plan is the dollar amount that goes out every month. When that number changes, it is critical to let your financial planner know. Together you can determine an appropriate savings plan.
Many people intend to save their raises or bonuses. They plan on increasing their 401(k) contributions or putting extra money away for the children’s college fund or another financial goal. However, it’s far too easy to have good intentions and still miss implementing them.
Your expenses will always rise to your income unless you have a plan in place. A plan requires intentionality, energy and time. Frequently it’s on the to-do list, but can feel so enormous that it never gets done. Don’t let this happen!
Your first step is to realize how important this task is. These simple decisions to save or invest windfalls can be the defining point in your financial plan's success. Next, make the commitment to plan and take the time to put systems in place to make it easier to allocate that money. Set up an automatic investing plan or arrange to make extra payments on debt. Check into budgeting apps that help you save without thinking about it. Implementing these seemingly small steps throughout your life will yield big results.
Don’t let lifestyle creep wreck your retirement goals. Being conscious of your spending and having a plan in place will not only pay off financially, it will bring peace of mind as well.
In my freshman year of college I had to take the Clifton StrengthsFinder assessment. Two of my top five strengths were “Competition” and “Achiever.” Over the years I’ve had to come to terms with the blessings and curses of being a competitive overachiever.
“No matter how hard you tried, no matter how worthy your intentions, if you reached your goal but did not outperform your peers, the achievement feels hollow,” reads the description of the StrengthsFinder Competition Theme.
I have no doubt that my competitive nature helped me all throughout school. It served as a motivator when subjects seemed far from interesting and kept me focused on my education. But after I finished school and completed all my professional certifications, I was left with an emptiness. Without courses, I no longer had a yardstick to measure my success. There weren’t assignments and projects to overachieve on, there were no more “A”s to show or professors to tell me what a great job I had done.
I had to find a new way to compete and achieve. The obvious way to do this was to compare myself with those around me, my peers and friends, but I quickly realized how pointless that was.
Our Financial Perspectives
One of the incredible privileges I have in my career is getting an intimate look at other people’s finances, learning what is truly important to them and observing how they choose to live their lives.
I’ll never forget the conversation I had with one client couple. Their net worth was in the eight figures, and they lived well within their means. At the end of the meeting, they looked at me and said “We know we don’t have that much, but do you think we’ll be okay?”
At that moment I realized that, no matter how wealthy you are, there will always be someone who has more. Someone who has more money, a nicer house, a better education, a better career. Even people with lots of money feel this way.
I’ve worked with families who have far more money than I was raised with and people who have incredibly successful careers. I quickly realized that the happiest people were the ones who weren’t in a financial race. Yes, they had financial goals, but the goal wasn’t to simply make more money, the goal was rooted in a deeper value.
The happiest clients were the ones who knew what was important in their lives and pursued those values rather than simply valuing the accumulation of more money. They knew, accepted and weren’t bothered by the fact that there will always be someone out there with more money.
I’ve also seen people who were miserable in their careers despite making incredible salaries. Some would say they were winning at the comparison game, but losing at life.
Dangers in Financial Competition/Comparison
The very nature of competition is being aware of other people. But there is danger in judging your life by comparing it to other people’s.
It defines what you chase
It becomes far too easy to chase financial goals because you are trying to keep up with those around you, or worse, just because you want to beat someone. Jealousy, competition and keeping step with your social circles become the motivators instead of your core values.
It says where you're at isn’t good enough
Competition runs on the same premise as the advertising industry: that you need more. You need to be more successful and have more money and move faster through your career. Competition can easily sit at odds with contentment.
It defines happiness
Far too often, happiness is found in knowing that we are better off than others. A shallow sense of satisfaction is derived from knowing that when people visit our house, they will be impressed because it is nicer/bigger/better than theirs.
It breeds discontentment
The same is true when you don’t “win.” Comparison can breed discontent when you realize that your home will never compare with others, or that your career path with never result in a salary like your brother-in-law’s. Comparison shifts our focus from our lives to others.
Looking at Comparison in a Different Way
The best example I have of re-framing comparison is my mom. My mom has three daughters-in-law who are incredibly talented and amazing women. She has acknowledged that it would be easy for her to compare herself to them, to always try to play catch up with their beautifully decorated houses and various accomplishments.
One day, while talking with my mom, she said “I decided that instead of feeling insecure about my house not being as nicely decorated as theirs, I was going to be their biggest cheerleaders. I want to be the one leading the way in telling them how incredible they are and showing them off to the people I know.”
What a great perspective.
She continued by telling me how freeing it was when she made the decision to be their greatest supporter instead of subtly comparing herself with them.
How to Avoid the Hazards of Comparing
The first step in redefining the comparison game is to know what you value and the goals that you want to pursue. Know what is important to you.
The second step is to think differently about other’s successes. When you find yourself observing other people’s situations, instead of getting the emotional high or low, stop and think about what values the other person is holding to make those decisions. Are their lives or decisions ones that would fulfill your values? Are your motivations for living the life you have in line with your values?
The third step is to cheer others on. It doesn’t come natural at first, but when you see someone else's successes, be the one to applaud for them. Changing your mindset this way can be liberating and allows you to experience contentment and joy in seeing other’s successes.
I’ll leave you with a practical example of this. Several personal friends have been taking incredible vacations around the world. My husband and I were talking about this recently in light of our values. While we would certainly love to travel overseas, with limited vacation time and managing our budget, we realized that this couldn’t be and wasn’t our priority in life. We decided that instead of taking exotic trips overseas, we’ll be making more trips to South Dakota to visit family. Our values guide us to prioritizing our relationship and our future children’s relationship with their grandparents and extended family.
Yes, we would love to go on elaborate vacations, and we very well might do that someday, but letting our values dictate out choices has fostered contentment. We’re happy with the lives that we have chosen.
I once heard Michael Port, a successful author and speaker, talk about goals. He wrote Book Yourself Solid, which was released in 2006 and held the number 2 spot on the Amazon best seller list for three days. That would have qualified as a wild success for most, but instead of being pleased with this accomplishment, Michael was disappointed that he didn’t make it to number one.
Michael said that if he would have set a specific goal of making the top 10 on the Amazon bestsellers list, he would have been thrilled with his success. But he hadn’t set a definite goal – he had just thought that, based on his current success, he would see his book reach number one. Rather than experience the joy of success, he felt the defeat of failure.
How often does this happen in our personal lives? If values and goals are not defined, we may miss those successes simply because we weren’t looking for them. Missing success happens far too often.
Why We Miss Success:
Not setting clear goals
All too often, we go about life without intentionally thinking where we are headed. Or if we do think about where we are headed, we think of a general direction rather than clear goals. “Setting goals gives you long-term vision and short-term motivation” says an article on MindTools.com about personal goal setting. Having clearly articulated goals allow us to see progress and know when we should be celebrating success rather than letting these moments of victory go by unnoticed.
Comparison to others
Many times we set out to achieve a goal and reach it, only to find out that the person next door beat us to that same goal or exceeded where we wanted to be. Our successes seem to diminish in light of someone else’s success.
One of my favorite quotes is “comparison is the thief of joy” and it couldn’t be truer here. We lose sight of our own story and journey and instead focus on other people's when we constantly compare ourselves. And many times we don’t even know their full story or where they started from or how they got to where they are.
There is always more
Regardless of how great your success is, there is always more. There is always more money, more prestige or a more enjoyable opportunity. And the more we achieve or move along our journey, the more opportunities we are presented. Our expectations shift and suddenly our focus is on the next achievement or desirable outcome, forgetting what we originally set out to do.
In an article in Psychology Today, Jay Dixit states “one of life's sharpest paradoxes is that your brightest future hinges on your ability to pay attention to the present.” If we don’t mindfully appreciate what we have accomplished, we do ourselves a disservice.
Why are goals important?
Never being satisfied
Because there is always more, it becomes far too easy to stop being satisfied with what we have and strive for what we could have. We look forward to what could, or what we think should happen and forget to look to the present and appreciating what we do have.
This creates an endless cycle of dissatisfaction. We believe that happiness will be waiting upon achieving the next milestone, yet when we finally get there, happiness can only be found hiding behind the next achievement. It's easy to forget that happiness is the journey, not an elusive destination.
Avoid lifestyle creep
As a financial planner, I would be remiss if I didn’t mention the financial implication of continually striving for more without giving heed to why.
As incomes rise, spending naturally rises as well. Lifestyle creep is innocuous: you get a raise and you treat yourself. Soon, you are treating and upgrading and splurging regularly; and before long, spending more becomes de rigueur. It’s a subtle shift in expectations. We become used to what were once far off luxuries, and now can’t imagine life without them.
Many times, I’ll hear clients comment on how differently they live their lives now than they did before. Sometimes it’s intentional, other times they look at their financial path and wonder how they got to the lifestyle they are at.
Improving your lifestyle isn’t necessarily a bad result of success, what’s important is whether or not your goals are intentional. Have you made a conscious decision how to spend any raises or windfalls, or are you floating down the lazy river of mindless spending?
Anchor your life
Making conscious financial goals anchors your life to your central values. It gives meaning to accomplishments and progress. It gives you the opportunity to make sure that the important things in your life stay important. It allows you to move forward with success without losing sight of where you want to be.
Set goals, recognize when they are achieved, and allow the sweet taste of success to fill your daily life.
You'd much more likely be found perusing books on thirteenth century Scandinavian religious poets than caught even walking near the personal finance section in the bookstore. You break out into hives when you pick up a book on money management. You can hardly bear to open, much less review your bank statement. Does this sound like you? Perhaps money is a regular source of stress in your marriage. Or you just avoid talking about money at all costs, yet have a nagging feeling that you should know more than you do. Then there are all the numbers and jargon and fine print.
I admit it. Personal finance is overwhelming.
Everywhere you turn, from friends and news articles to talk shows and internet chatter, there’s differing advice on what you should do. Pay off your mortgage, don’t pay off your mortgage. Invest in this, don’t invest in that. The advice seems to be always changing. Never mind that your life is always changing!
Not only are money matters frequently overwhelming, they’re often filled with “should haves.” I should have known better. I should have known that taking out that credit card was a bad idea. I should have known what to do with my 401k. I should know what a 401k is!
If you feel like a dinghy swirling in a money maelstrom with the winds and tides constantly changing and worrisome misgivings circling like sharks, don’t fret. Calmer waters can be found!
Let’s set some ground rules to go forward.
1. No “should haves.”
Shaming yourself into action just doesn’t work, so don’t do it. The mistakes you made in the past are over and done, it’s time to move forward. Unless you are willing to forgive and be kind to yourself as you move forward, your progress will be limited.
2. Choose to look forward.
Even though I’m a financial planner, I still struggle when I hear the word “budget.” I automatically associate it with chastising myself for spending more than I planned on, for letting my husband down by not following our spending plan.
However, just because that’s where my mind goes, it doesn’t mean my mind stays there. When we discuss budgeting as a couple, I decide that I'm going to look forward instead of worrying about what's done and dusted. You can decided that as well. The past is simply your guidepost. Budgets can give you a perspective on the how you spent, but their true purpose is to look toward the future.
3. Cut yourself some slack.
No matter how organized a person is when they come into my office, it takes everyone time before their money matters are straightened out. The worst thing a person can do is expect to sit down and have their entire financial situation figured out in one hour.
Financial goals take time, much like working out and eating right. The motivation is there at the beginning, but it can slowly fade as time goes by. Accept that you’re going to make missteps and fumble along the way. It’s what you do to get back on track that determines your success. And remember, even just having the desire to understand your finances is a brave first step.
4. Give yourself credit.
Think back in your life. What are you most proud of? What is the greatest challenge you have overcome? Have you pulled yourself together after losing a job and moved forward?
Enduring the death of a loved one, caring for someone who is ill, surviving countless sleepless nights with a newborn baby or making it through a child’s rebellious teenage years are all life experiences that people go through that are far harder than getting your finances in order – I promise you.
You’re still reading. That tells me that you have what it takes to move forward with your finances. It takes courage, but I know you can do it. (Feeling like you lack that courage? Reread Ground Rule #3.)
Now that we have the ground rules in place, let’s talk about some practical steps you can take today.
Pick a (free) online budgeting tool
There are a lot of great sites out there that are free as well as user friendly. Two of my favorite tools are mint and the budgeting tool that comes with our bank (USAA). Personal Capital is another free product ranked as a top financial tool. The goal is to get all of your information in one place, allowing you to easily get an overall picture of your finances.
Worried about having all your financial info in one place? Read this article about the security of online personal finance software.
Set a timer
Decide on a time limit. It could be 15 to 30 minutes. Start with something simple, like linking your online banking to a personal finance tool or simply seeing how the program gives you reports. As you get familiar with the software you'll feel more comfortable using it.
Specify a specific date and time
Schedule a time for next week when you will spend 15 minutes looking at your finances. Nothing more. We’re focusing on baby steps. Make it a goal to sit down with your finances four times in the next month.
Involve your spouse
Talking about money with your spouse can be unpleasant and sometimes even contentious. Once you have one month of expenses listed, bring your spouse into the picture. Have a conversation with them about your spending and discuss if it’s aligned with what’s important to both of you. Be aware that talking with your spouse about money can be difficult (read more about that here and here). Bonus points if your spouse enjoys budgets and will do the first steps for you!
It’s easy to lose track of financial goals. Make them a priority. Put a note in your wallet by the credit card you use most often or stick a picture of that vacation spot you want to travel to on your mirror. The idea is to remind yourself daily to spend money wisely. It’s far too easy to fritter away money in small amounts here and there (that eventually add up to large sums) when you don’t have a financial goal in mind.
You don’t have to manage your finances alone. Find a financial planner to help you work through your financial situation. When you meet with a professional, make sure that you find one that makes you feel comfortable and is willing to work through your situation at your pace (read about how to choose a financial planner here).
Having a plan in place can make you feel like the king of the seas. So relax, personal money management is not as hard as you think. Follow these steps to help you grab that rudder and before you know it you'll be charting a course to financial confidence.
They could have been contestants on The Newlywed Game, their answers revealing how little they were in agreement on matters of married life. She wanted to travel to Europe and experience the finer things in life. He wanted to know how they were going to pay for their retirement and day to day expenses. She was missing out on life and she blamed him. Their financial lives were unstable and he blamed her. You could feel the tension in the room. The meeting could have used the experienced refereeing of a game show host. These conversations are all too common in my work.
Finding consensus with your spouse is one of the most important aspects of your financial life. Financial harmony within a marriage is critical to financial success.
Why is this so hard? It really shouldn’t be, but as many couples know, it is.
Talking about money is threatening
Regardless of financial situation, something about money strikes at the core of who we are. It defines our status in the world, what we can and cannot have. Money is integrated into every area of our lives, whether we like it or not. Even the most basic choices in life, like the shirt you are wearing or what you do for dinner tonight, is the result of a money decision.
There are conflicting values within each of us when it comes to money. For example, will it really matter if you eat out for lunch today? Surely it won’t affect your college savings. Setting aside money is great, but what about spending a little on that trip you’ve always wanted to take? Add another person into the equation and you have all the makings of an uncomfortable, but entertaining game show: the conflicts are endless.
When it comes down to it, we’re not talking just about money, we’re talking about values.
Ok, so these conversations are threatening, but they need to take place. So what do you do about it?
Make the conversation safe
The fastest way to make a conversation not feel “safe” is to start accusing your spouse. Remember, this is a values conversation, not just a money conversation. Neither of you want what is important to you to be minimized or insulted.
The goal of each conversation is to understand your spouse and for your spouse to understand you. Granted, sometimes you may never understand why your spouse has to spend money on that, but realizing it’s important to your spouse allows you to respect their decision.
Practical steps to making the conversation safe:
- Find a time that works for both of you. Trying to have a financial conversation when you are multitasking or concerned about everything else in life will only lead to frustration.
- Know each other’s strengths. If one of you hates math, budgeting can be more difficult. Forcing a spouse who hates math to balance the budget to the closest penny may be the equivalent to torture. Find a middle ground.
- Remember the person you fell in love with. Conversations can be tense, but remember what drew you to your spouse in the first place. If this is your focus, the edge will come off your voice and your spouse will feel the difference.
Establish ground rules
Which topics are off limits or which topics need to wait until the end?
What happens when you or your spouse gets overwhelmed in the details? Does the meeting stop? Do you take a fifteen minute break? Know what your triggers are and plan for them before you walk into the discussion.
Other ground rules may be to limit the amount of time you spend on the conversation. One person may not be able to focus longer than 30 minutes, making anything over that time fruitless.
Some people may want the numbers ahead of time. They may need time to process and think through their feelings before the discussion, allowing them to not feel blindsided in the conversation.
Go beyond the numbers
As you work through your budget, commit to talking about what’s below the surface. Instead of becoming defensive over numbers, share what they represent and why their important. For example,
“This line is important to be because .....”
Being aware and identifying why you are spending, saving or investing your money is incredibly important for yourself and your spouse. You have to lead the conversation to find the underlying issues.
Lower your expectations
You may walk into a financial conversation with your spouse and expect to come to a conclusion by the end of it. Anything short of this may be a failure in your mind. Lower your expectations. Financial conversations are never a one and done type of deal. The first conversation may simply be to identify a problem. Turn your expectations into goals and realize that it may take time before you end up where you want to be.
There’s nothing to lose and everything to gain when you take the necessary steps to open the lines of financial communication with your spouse. While it may be difficult to return to the rosy glow of honeymooners, thoughtful, deliberate conversations about money in marriage can bring you one step closer to wedded bliss.
The last week and a half has been rough for investors. Everywhere you look there is dire market news. Like Chicken Little, it's easy to feel like the sky is falling. Here are my five tips on what to do when the market is taking a downturn:
Turn off the news
I have stopped watching market news, I read it instead. Reading the news takes out the emotion and drama that fills newscasts and sells programming. I've found I am better able to assess what is actually happening in the market and give better advice to my clients when I’m not channeling the fears of talking heads.
Several years ago I happened to be working from home and had the news on in the background throughout the day. Later that evening the idea occurred to me to consider gold as an investment. As the thought passed, I was shocked. That kind of thinking went against all of my education and background. I then realized that every commercial break throughout the day had ran an ad for a company urgently advising investors to buy gold (specifically from their company). It was at that moment that I really started to understand the power that media, even in the form of commercials, has on people.
Work on something you can control
There is absolutely nothing you and I can do to change China’s economy or the interest rates or what the market is going to do today.
I get it; when there’s so much bad news, you have to do something. So try working on other areas of your financials, things that are not investment related. Finish your estate plan that you’ve been meaning to do for years. Revisit your budget and look at how you’ve been spending money. Are your finances lining up with what’s important in your life? Spend your energy being productive by working on what you can control, instead of fretting about things that are out of your hands.
Identify what's important to you
Another popular way of saying this is “know your why”. Why are you invested in the stock market? What are your goals for that money? Many common objectives include ensuring you and your spouse are taken care of in retirement or helping children or grandchildren get through college. Know why you are investing and then focus on that.
Financial contentions are one of the leading causes of divorce in the United States. When the market goes south, it increases the stress in our lives, and many times this stress spills over into marriage and family relationships. Focus on these relationships during market downturns. Don’t become a statistic.
Keep a cool head
Don’t panic. A market downturn may be more serious than an acorn hitting you on the head, but it doesn't help anything to get your feathers ruffled like a certain frantic fowl. Of course, it’s easier said than done. If you’ve had a plan in place, your plan should be working even in a downturn. This is the time to assess if your plan is doing what it should when the market takes a dip.
Remember, there are seasons to everything and the season of this market downturn will pass like all the others. One of my favorite analogies of the stock market is pruning a fruit tree. In order for a fruit tree to grow and produce healthy fruit, it has to be cut back every year. It cannot grown untended and expect to be a healthy, mature tree for years to come. The same is true with Wall Street. Corrections and downturns are healthy for the stock market. They cause investors to reassess companies and filter out bad investments. Pruning is a painful process, but it is necessary.
Buy, buy, buy
Market downturns are the perfect opportunity to invest. The stock market is essentially on sale at times like these. Of course we don’t know where the market will go tomorrow, but when the markets return, whether that be in one day, one month or five years, you will have benefitted from taking advantage of the reduced prices.
Wealth is made by decisions made when the market is down. The investors who stay in the stock market and continue to invest, even when the news is bad, are the ones that will find the most success and end up wealthy.
If you haven’t followed these guidelines in the past, or even during the current market correction, I have specific advice for you. Think about what you would want to do differently next time. What will you wish you had known? Why was pulling out of the market a bad idea? What would have happened if you would have stuck it out?
Write a letter or note to yourself about what you wish you would have done in the past. Date it and keep it. Read it again when the market goes down to remind yourself of what you wish you had done differently. Even better, share this information with your financial advisor, your spouse or a close friend. Let them help keep you accountable.
One of the most important elements of investing is what you do or don’t do when the market falls. Making wise decisions now allows you to enjoy success in the future.