Over the last couple years, it has become more and more clear every day that our success, whether it’s with our health, faith, relationships, or work, is all tied to behavior. Not only is our success in these areas tied to behavior, all of these areas are all tied together. If one of these areas is way off track, it’s just about impossible for everything else to be optimal.
Financially, the biggest indicator of success is your ability to produce income and then save a portion of what you earn. Investing appropriately or taking advantage of opportunities to produce a larger income is the next step. Rate of Return plays a role, but Rate of Savings will make or break you. We only have one life and one compound curve.
The problem most families face is over time you continue to get busier. There are constantly items that are being thrown on your plate, whether at home or at the office. I've heard clients say:
"As soon as we get this trip paid for and done with, we'll start saving."
"As soon as we finish the master bath/kitchen/back yard, etc. we'll start saving."
"As soon as Johnny graduates, we'll start saving."
"As soon as I get this credit card paid off, we'll start saving."
"Let me get through organizing for taxes, and we'll start saving."
I could go on and on and on. The problem is, as soon as you’re done with one item (or excuse not to save), what do you think happens next? The next big thing (or excuse to spend money) comes up.
The biggest hindrance to savings is the prioritization of paying off debt first. When that credit card gets paid off or the car gets paid off, what do you think happens? You'll spend money. Why? Because you're a human being with emotions; you've earned it and you deserve it.
This predictability in behavior is why I'll never be replaced by an app. You can invest and buy insurance on your phone, but your phone isn't going to solve bad habits and poor behavior. Traditional financial planning of picking a number (remember those ING commercials?) and then plugging in a rate of return and a monthly savings amount does not work. You'll stop saving at the wrong time, you'll sell your stocks at the wrong time, and at some point behavior will take a hit.
To an extent, if you don't start saving now there's a chance you never will. The future will always call your bluff.
Here's the playbook:
- Protect your Todays (lawsuit, illness, injury, death, job loss, etc.)
- Become a world class saver - Pay yourself first (20% or more of your family's gross income)
- Become Liquid (google "cash is like oxygen")
- Efficiently pay down debt (Quit paying Visa/Citi/Amex 20% interest)
This works, folks. I see people struggle with the "next big thing" every day but I also see people succeed with the four steps above, but IN THAT ORDER.
Who helps you with your financial habits and behavior? It doesn't have to be scary or intimidating. You just need someone to care and hold you accountable.