We have all been there. Struggling with how to juggle living and enjoying life while managing our money in the most advantageous way is a real challenge. We want the best out of life, but at times we can be our own worst enemy. For some, lack of knowledge leads to indecision. For others, a little knowledge can be a dangerous thing. I see people either making no decision, making a decision too slowly, or rushing and making the wrong decision based on too much confidence and not a deep enough understanding of the topic. Let’s take a look at bad money habits to break.
Analysis paralysis - We have a financial situation and we need to make a decision but we just can’t do it. We can’t decide which way to move. Indecision immobilizes us. We have analyzed too much information and can’t see how it fits into our situation. As a result, no decision gets made due to analysis paralysis. Time to seek professional help. It’s worth the money!
Rash decision – Some folks make the first decision that comes to mind, or that their friend made. This, too, can be a bad approach. A decision your friend made might work for their personal situation, but maybe not in your case. You don’t know their detailed situation, filing status, goals, income, etc. Making a decision too quickly just to have one less thing on your plate is not be the best approach. What works for one person, may not work for another.
Return chasing – Picking an investment or strategy based on the perceived highest return can be dangerous. I’ve had people tell me they picked a certain fund because it had the highest return in the prior year among the funds they reviewed. They invested and now the fund is not returning what it did just a year ago. This happens all too often and is the worst way to invest your money and your time. Stop chasing returns and get a real plan.
The sure thing – This is similar to return chasing. In America, it seems we are always looking for shortcuts and sure things. When it comes to healthy financial habits and true wealth building, betting the farm on a single stock is dangerous. It’s extremely risky and your outcome will likely be about the same as placing all your money on red 23 on a roulette wheel. We always hear about these homerun stocks after the fact, and yet people still put money into the stock thinking it will continue a meteoric rise. This approach, throwing your hard-earned money on the latest hot stock, hot commodity, or hot startup is a quick way to be back at zero. Crypto, anyone?
No cash on hand - You need an emergency fund. No matter your level of wealth, access to cash is still a necessity. Forgoing the building of an emergency fund simply to get in the game and start investing is risky. You can do both, but build that emergency fund first by having a plan to prioritize cash.
No goal – I have seen folks who picked investments just because… it was popular, it was recommended, the name sounded good, or someone at church did it. These are not reasons to invest. Investing in a conscious, methodic, and continuous manner is a good thing. Time, volatility, and compounding are actually your friends. Having a thought out plan based on your risk tolerance, your goals, and your resources is a must. Randomly picking investments rarely ends well. Have a goal.
All of these bad habits are easy to break with some help. This would be a good time for a financial planner. Money spent on a relationship with a fee-only, Certified Financial Planner™ will more than pay for itself in the years to come. Breaking those bad habits, creating new, good habits, and having someone you trust and rely on will be rewarding in the long run. You work hard for your money, you deserve your money to work hard for you!
As an independent CERTIFIED FINANCIAL PLANNER™, I can help you break those bad habits. Contact me and let’s get started on creating some peace of mind. #talktometuesday #financialplan #letsmakeaplan #CFPPro #todolist #moneydolist