How to Stop Doing Dumb Things with Your Money

By Hightower Westchester on February 1, 2021

It’s easy to blame our financial difficulties on things that are out of our control like inflation or not getting a raise, but the truth is we have no one to blame but ourselves and the bad financial habits we’ve adopted over the years.  But acknowledging that harsh reality means we now have the power to change our financial destiny by making different decisions.

So, let’s start by understand this puzzle and changing some of those bad financial habits.  Even though it might not seem to be the case, financial success is more about behavior than it is about skill.

First off, you need to create financial goals.  Flying blind isn’t going to get you where you want to go. Assess where you’re at and what’s important to you, and don’t be too vague.  Then, pick a specific goal, like saving up one month of living expenses or paying down a specific amount of credit card debt, and focus on making progress on that specific goal.  Focusing on too many things at the same time is probably the most common mistake that we see because it leads to people getting overwhelmed by their personal finances.

While all your goals are important, people often struggle to make progress when they split their focus and resources.  They end up feeling overwhelmed and lose motivation as a result.  You will set yourself up for a better chance of success if you treat it like a short sprint where the goal will become more tangible.

It’s easy, not to mention human nature, to put off the tasks we want to do least.  But avoidance won’t make them go away.  Take a lunch break and tackle a financial goal, whether it’s reviewing your insurance policies or creating a will.  Seeing one of your financial goals put into motion may give you the boost of confidence you need to move on to your next goal.  And take time to get organized.  Stay on top of your finances so you are aware of important information about your accounts and know when payments are due.  Actively manage your finances to avoid unnecessary late fees and additional interest charges.

Next up is creating a budget…fun!  I know we’ve mentioned budgeting a lot in previous blogs, and that’s because they play a crucial role in helping you manage your money responsibly.  The good news about budgeting is that you can start building one today!  The bad news is that you may have to overcome your personal aversion to budgeting before you give it a try.  That’s a fairly common problem, probably because many people think that a budget will only shackle their lifestyle.  But keep in mind that most successful businesses have a budget that lays out its short- and long-term goals.  Why shouldn’t every household do the same?

Also, find a budgeting method that works best for you.  For example, a simple spreadsheet or an online app (like our Client Portal).  Just find a way to track your income and expenses that makes sense for you.  Once you’ve created a realistic budget with bills, savings, and fun money all built into it, try your best to stick to it.

Now it’s time to learn about credit.  Many people begin using credit shortly after their eighteenth birthday.  For college students, a credit card can be quite useful if they don’t have the ability to work a full-time job while managing a heavy class load.  Unfortunately, inexperience with credit can sometimes lead to a development of poor credit habits.  Ordering pizza, shopping for clothes, and buying gas are all small expenses that can quickly create a sizeable balance for a college student that might not be working, making the payments a challenge.

Credit cards are incredibly convenient, there’s no doubt about that, and they can help you gain access to more credit over time, but only when used responsibly.  If you’re unable to keep your balances down, your credit score will suffer, and you’ll pay more for any additional credit you need.  Instead of paying the minimum each month, pay as much as you can.  Paying down your debts quickly is the key to avoiding added interest or late fees.  And avoiding added interest and late fees means you get to put that money towards one of your financial goals instead.

Let’s discuss emotional investment decisions.  When the market gets rocky, it’s easy to feel emotional and want to bail on your investments and current strategy.  But this can often prove to be a costly mistake.

Although 2020 was highly volatile, the markets hovered around historic highs in December.  Markets can drop suddenly but often rebound quickly; and do so without advance notice.  Don’t try to time the market based on where you think it’s going.  There’s a myriad of reasons as to why timing the market isn’t a good plan, but we’ll keep it simple.  When it comes to investing, you need to think long term.  As they say, you have to be in it to win it.

It’s a good reminder to check your emotions during the highs and lows of the stock market.  We have all fallen in love with a stock at some point in time.  Make sure to stay focused on the fundamentals of that stock and not your love for the widget they might sell.  Before making a hasty decision in a volatile market, take a breath and reconsider the changes you’re considering making.  We advise our clients to assess their risk tolerance and make sure that they are comfortable with the risk they are taking based on their goals and time horizon.  Often, that means making no adjustments whatsoever to avoid reacting to market volatility.  Other times, it might mean making an adjustment for an appropriate reason, like if your goal has changed or you realize your risk tolerance is different than you originally thought.

Yes, you should ignore generic financial advice.  This might sound self-serving but if you need help, get it from a professional who knows a thing or two about the financial world.  Not only can they help you invest your assets wisely, but they will also help you get a long-term plan in place.  Professional advice is not just recommended when it comes to your investments.   Coordinate with your accountants and attorneys and have a team in place that practices a fiduciary standard.

Stop wasting money on meaningless things.  Do you spend money on things that don’t matter to you?  You should be nodding your head yes because we all do.  It’s easier to make purchases that align with your priorities when you determine your life values and set financial goals.  Uncover what you cherish most to make wise financial decisions that align with your core values.  Of course, having some fun money set aside is important, but it is more important to understand where your money is going and why.

Regardless of your finances, it’s never too late to start fresh.  We’ve all made mistakes along the way, but as you’ve probably heard before, it’s what you do after you’ve made the mistake that makes all the difference.  As Albert Einstein said, “We cannot solve our problems with the same thinking we used when we created them.”  Use the tools we just discussed to help you make decisions that align with your goals.

Here at Hightower Westchester, we will help you find the tools you need to overcome any bad money habits you exhibit and to abide by the financial rules you’ve always wanted to follow.  To reiterate, financial success is about having the right mindset, not skill.

Richard Flahive – Private Wealth Advisor and Director of Research & Planning – Hightower Westchester

914.825.8639 – rflahive@hightoweradvisors.com