Last week I had the pleasure of preparing a financial analysis for a young family who brought along their three-year-old son. As the toddler was looking around my office it was obvious he was thinking something. Then, he looked up at me and said “You need to decorate for Christmas.” I smiled, and replied that he indeed was right. I needed to do that.
We all know what we need to do. Even at an early age, some things are just self evident. Sometimes, though, a friendly reminder doesn’t hurt. For our December Wealth Update, this young man inspired me to provide a friendly financial reminder of the things we should do, the things we need to do to secure our financial future:
Add to our savings on a regular, disciplined schedule.
When is the best time to start saving more? The simple answer, the one that everyone who asks that question already knows when they ask it, is now. Why, then, do we continue to tell ourselves that we’ll start next month, or next year, or after the next raise, bonus, life-event etc? Because it’s easier. It may be easier, but we know better. How do we overcome the instinctual behavior of putting off building our wealth? I recommend automation. Uncle Sam figured this out years ago – in 1943, to be exact, when it was realized that mandating withholding from paychecks was a much more reliable way to force the populace into paying taxes. I’m still amazed when I hear people talking about how much money they “get back” rather than how much money is taken out of each and every paycheck. The government has maintained this system because (for their purposes) it works. In my view, the best time to save money is before you psychologically even know you have it. That’s why, for my non-retiree clients, I recommend automated transfers to savings and investment accounts on the same day the paycheck comes in. Employer retirement plans of course accomplish this goal as well. If you never see the money, you’re much less likely to find a way to spend it. And, as we all know, saving like this on a regular basis really does add up.
Remember that our neighbors don’t always tell us about their failings.
We all have friends or neighbors or co-workers who don’t hesitate to tell us about the 356% return they made on XYX stock last month, or about the clever options strategy they’ve perfected, or how they bought gold “right before the crash.” And all of those statements, even if sometimes exaggerated, may be true. And it may be that that person truly is a financial genius. But we know better, don’t we? The simple truth is that when that same friendly person loses his shirt on ZZZ stock, he likely keeps it to himself. And that’s ok, it’s very much human nature, but it’s worth keeping in mind when the adrenaline-hungry part of our brain tries to tell us we’re missing out on some instant-riches opportunity. The next time you hear one of these remarkable stories my advice is to smile, but not to try to replicate it.
Plan for purchases, and purchase with confidence.
There are some purchases that we know are coming. A 20-year roof is called that for a reason (and no not because it takes 20 years to pay for it.) Vehicles, paint, and heat pumps all have a life expectancy. Why, then, is it an emergency when one of them suddenly needs replacing? Enter our earlier thoughts on automated savings. Savings can (and sometimes should) be specific. “This is my car savings fund.” What a wonderful thing to be able to say. If you can pay a dealership for 60 months for a vehicle, then why can’t you pay yourself for 60 months for a vehicle instead? You can. Predictable purchases aren’t emergencies; they’re predictable purchases. Secure your financial future by planning for them.
Decorate for Christmas (or in other words, don’t forget to celebrate today)
It’s easy, sometimes too easy, to get caught up in the commotion of whatever it is we’re planning for, thinking about, fretting over, or tasked with that we just plain forget to enjoy this journey we call life. Last week, it took a three year old to remind me that sometimes it’s the simple things that can bring joy to our lives. It took me ten minutes to put up some Christmas decorations and now every time I walk up the stairs to my office and see them I smile because I took the time to celebrate today – something I knew I should have been doing to begin with.
Here’s wishing you and your family a very Merry Christmas!
John N. Hall, CFP®
Lynchburg Wealth Management