(Wednesday, July 29, 2020, 10:20 p.m. EST) Changing your financial behavior can be an important step in determining your long-term financial success. Here are three simple activities that can help.
Automate. Infrequent interventions, such as budgeting once a year, are less likely to bring success than more automatic actions that occur quarterly or monthly. Enrolling in a salary reduction plan which takes money from each paycheck and goes into your qualified retirement plan illustrates the difference between decisions that require your recurring action versus those that automated. What else might you automate to increase your savings or make sure you pay your bills? Examples include signing up for a newsletter, webinar series, or class about tax and investment planning. The easier you make it to become educated about a topic you might not otherwise research regularly on your own, the more likely you are to seek out the knowledge you need to be more fully engaged in learning and find answers to the important questions.
Write It Up. Whenever you make a major financial decision, write yourself a note about your decision. By jotting down your analysis at the time you make a decision, you’ll create an introspective record that, over the years, will help reveal successes and failures.
Increase self-awareness. Your financial personality can help or hinder your financial success and you may be entirely unaware of it. Increasing self-awareness can help you avoid sabotaging yourself. The burgeoning social science of behavioral finance can help you learn about your financial personality traits. For example, would you rather receive $160 today or $246 in 12 months? How about $160 today or $180 in 12 months? Your answer to a series of questions like this can reveal your predisposition toward deferring rewards now in favor of reaping financial benefits from a long-term plan. Similar questions can guide you in determining how likely you are to tolerate losses in bear markets, whether you are overconfident about your financial decision-making abilities, and offer hints of the types of investments that might work best in a long-term portfolio designed to help you accomplish your financial goals.
If you are interested in increasing your self-awareness about your financial personality by taking a behavioral finance assessment or would like to talk about other steps you can take to ensure healthy financial behavior, please do not hesitate to contact us.