Have you ever thought you are not getting as far ahead financially as you think you should, but are not sure why? Then maybe one or more of these three behaviours may be the cause.
Your current financial situation is the cumulative effect of all the financial and lifestyle choices you have made to date. Over time your possible lifestyle outcomes diverge greatly and not necessarily towards the outcome you most want (represented by the star on the diagram to the right).
The purpose of comprehensively planning your financial situation is to maximise the probability that you will meet or exceed your desired lifestyle.
Implicit in this is to minimise the impact of negative outcomes from your choices and from external events.
Why we don’t meet our financial goals
I believe there are three main categories of reasons we don’t meet our financial (and therefore lifestyle) goals:
- Knowledge – we don’t find out the right things for us to do right now
- Behaviour – we don’t do the things we already know we should be doing
- Time – we take action too late (delay)
In this article let’s look at three financial behaviours that can prove fatal to the achievement of your goals and what you can do to overcome them.
There are other destructive behaviours. I have chosen these three because they eat away at your foundation and are counter-productive to your other efforts. Long term readers may notice they link to the three Cs of Money Mastery.
The Three Fatal Behaviours
1. No idea what you spend
The common impact of this behaviour is that you end up spending way too much money on insignificant things and don’t have enough for really important things. The longer term impact is that you will not be diverting enough savings to longer term wealth creation meaning you may never be able to retire on your terms.
A symptom of this behaviour is thinking “wow, where did all my money go?” Another symptom is having an ad-hoc important event creep up on you, like a wedding or milestone birthday and you not being able to afford to fully participate. A variant of that symptom is that whenever that happens you whack it on your credit card and spend months trying to repay it.
What to do
You know what to do to solve this one just like I know what to do to get fitter. If you exhibit this behaviour hire a personal trainer for your money to support you in getting financially fit.
2. Haphazard investment decisions
We make haphazard investment decisions when we don’t really know what is the best option for us but we can’t be bothered spending the time and energy on the research. So we tend to do what others are doing and take emotional comfort in being part of the crowd. (For most people this will be sub-conscious.)
The impacts of this behaviour are many and include:
- Mediocre returns – you may make money but probably nowhere near enough for the ‘risk’ you took, and also not as much as the rest of the market. So you miss your lifestyle target (the star).
- Stress – you are not confident about the investment so you are stressed about what could or is going wrong. You saved time doing the research but traded it for emotional stress – what’s the point?
What to do
The solution here includes:
- starting early (like right now) so time is on your side
- starting simple with only what you currently understand
- Taking incremental steps forward in your knowledge so you can increment forward in complexity of investments
- Hiring a mentor to educate you and thereby increase your confidence and capability. (A good financial planner will not only advise but also educate you.)
3. Blind optimism
This behaviour is all about the impact of negative outcomes from your choices and from external events.
Optimism – you think it’ll never happen to you. You underestimate both the likelihood and the consequences of something going askew.
Blind – You don’t even bother to investigate, consider and evaluate what could go wrong and its impact.
What to do
“Sometimes maybe curiosity can kill the cat-astrophe before it actually happens. Ask questions, seek answers, find possibilities.” Wise words from one of my mentors, Glenn Capelli.
Next erect your safety nets so if you fall off the tight rope of life you bounce rather than splat.
You probably know this stuff already – I write about it all the time. But if you are not doing the positive things you are robbing yourself of riches. One day the party is going to end and you will wake up with a rude hangover (that could last decades).
Party responsibly and you can enjoy both today and tomorrow.
Just like health, if you need support and accountability to implement new financial behaviours hire a personal trainer and even buddy up.
To have enough money to live the life you’d love stop researching new trends (K), start doing the foundation actions (B) and do it now (T).
Yours in prosperity
Matt Hern CFP
Financial Educator and Adviser