Know Your Financial Situation
It’s impossible to make the best financial decisions without first understanding
your current personal financial situation. You need to assess your
strengths and weaknesses as well as the current economic environment. This
check-up can produce anxiety — you have areas of relative strength and ones
needing improvement — but that’s okay. What’s not okay is to avoid putting
together a plan that improves the areas that need shoring up. (Part I of this
book can help you assess your financial health across a range of important
categories.)
If you need help with your self assessment or financial review, consider hiring
a fee-only financial planner to help. Because fee-only planners don’t sell products
or receive commission, their advice isn’t constrained to certain products
and will be in your best interest. Membership organizations such as the
National Association of Personal Financial Advisors (www·napfa·org) and
the Garrett Planning Network (www·garrettplanningnetwork·com) are
good resources. You can also check the Certified Financial Planner Board of
Standards, Inc., (www·cfp·net) to make sure the planner you’ve selected is a
CFP certificant, ensuring a minimum level of training and competency.
Strategies #9 through #15 can help you address areas that are often weak
links, and Parts II and III can give you various tools and techniques you can
use to make change happen. If you haven’t yet thought about retirement in
a concrete way, Parts V and VI offer spending and investment strategies to
reduce the risk you’ll outspend your resources.
Keep Your Emotions in Check
Fear and greed are two powerful emotions that influence your investment
decisions for better or worse (usually for worse). Completely ignoring emotions
is a tall order for most folks. Remember that although worrying is okay
at times, you have to work around these powerful emotions to be a successful
investor. Keep these tips in mind when managing your emotions:
- Acknowledge your emotions. Admit when you’re feeling fearful or
greedy. Only by acknowledging your feelings can you guard against their
influence on your actions. You can’t discount fear as an influence on
your decisions until you first admit that you’re afraid.
- Don’t wait for the feelings of fear or greed to go away before you act.
They may never completely vanish. This book can help you develop
financial plans and strategies to guide your decision making. When your
emotions surge, refer to this book to stay on course.
- Understand how emotions fit into the economic cycle. You probably
feel best about investing when markets have been going up, up, up. The
higher the recent increase, the better you may feel about putting you
money in. But only people who already had their money in the market,
before it started going up, got those big, attractive gains. They had their
money in the market when it didn’t feel best.
- Remember, everyone’s in the same boat. If the economy is slowing
down or contracting, it also impacts your neighbors, co-workers, other
consumers, and producers. You’re not being left behind while everyone
else is passing you by.
- Avoid people who try to exploit your feelings. Turn off the financial
channels. Their programming is intended to play to your emotions to
keep you tuned in. If you have to watch, remember that it’ll be sensationalized
at times. News editors need to make the news sound exciting,
even when it’s really not.
- Don’t dwell on things beyond your control. Instead, focus on what you
can control. (See the next section.)
Control What You Can
Events that influence your personal financial situation fall into one of two
categories: events that you can control and events you can’t. It’s important
to recognize things that are out of your control, but don’t dwell on their
outcomes. Focus on what you can control. You have no control over the following:
inflation, tax increases, stock market returns, interest rates, and what
others are doing. But here’s what you can control:
- How much you spend
- Your level of personal finance and investing knowledge
- Where you put your hard-earned money (see Part II for detail)
- How much risk you take (see Part III)
- How you react to what you can’t control
Put Your Goals in Writing
You may have heard the old saying “If it isn’t being measured, it probably
won’t change; and if it does change, you probably won’t notice.” This holds
true for financial goals, too. Part IV is all about setting and achieving goals,
from buying a home to raising children and preparing for retirement. Setting
realistic goals is important, but it’s equally important that you devise a
system for tracking your progress. You’ll enjoy checking off your progress as
you reach your milestones.
You may be tempted to give yourself a bit too much leeway in meeting your
targets, so have someone keep you on track. You’ll benefit from finding an
accountability coach to work with: a spouse, partner, or friend. Coaches don’t
need to know every intimate detail, but they do need to know the following:
- Your goal
- The info you’ll be reporting
- How often you’ll give them an update
Offer to do the same in return — keep it fun and get started.
