“Success is not final, failure is not fatal: it is the courage to continue that counts.” attributed to Sir Winston Churchill
The quote, “Success is not final, failure is not fatal: it is the courage to continue that counts.”, is often attributed to Sir Winston Churchill. However, Churchill did not utter these words according to many Churchill scholars including historian Richard Langworth.
During a speech at the University of Miami, in February 1946, Churchill commented:
“I am surprised that in my later life I should have become so experienced in taking degrees, when, as a school-boy I was so bad at passing examinations. In fact one might almost say that no one ever passed so few examinations and received so many degrees. From this a superficial thinker might argue that the way to get the most degrees is to fail in the most examinations.
This would however, Ladies and Gentlemen, be a conclusion unedifying in the academic atmosphere in which I now preen myself, and I therefore hasten to draw another moral with which I am sure we shall all be in accord: namely, that no boy or girl should ever be disheartened by lack of success in their youth but should diligently and faithfully continue to persevere and make up for lost time. There at least is a sentiment which I am sure the Faculty and the Public, the scholars and the dunces, will all be cordially united upon.”
Churchill spoke a lot about success. In the speech he gave at the University of Miami, he spoke about how poorly he did in school as a child, yet how many degrees he either earned or was awarded in his adulthood.
He conveyed to the audience that with determination and perseverance, those who feel like they’re failing should not be discouraged. Since, by being diligent in your pursuits, and with determination, you can ultimately achieve your goals. Because, any goal that is worth pursuing is going to end in multiple failures before success is finally achieved.
With the right mindset and hard work, achieving your financial goals are possible. However, you have to start by understanding and eliminating your negative thoughts. If you believe there’s no point trying to achieve your financial goals and to go for the life you want, then you’ll never achieve them. Therefore, you might be tempted to make choices that make your financial position worse.
Achieving a positive mindset can be difficult, but there are some proven techniques that’ll help you:
Take care of yourself physically and emotionally
Know where you stand financially
Set achievable financial goals
Make small changes
Try to see the positive and maintain a positive attitude
Your financial security and well-being are determined by your mindset. Financial security gives you the time and opportunity to do the things that might make you happy. Taking control of your financial life and changing the way you think can make a huge difference.
With a positive and determined mindset, you can set goals and make plans to achieve them. You’ll remain focused on your goals and create the extra money to save and invest toward achieving those goals.
For example, if you want to retire early, the way to do so is to make more money, spend less, and invest more. You’ll need to resist temptation to spend what you have or to not spend what you haven’t got.
Even with a positive mindset, you won’t achieve your goals overnight. But it’ll put you on the right track to take more control over your finances.
There are three ways to take control and have more money to invest and accumulate wealth.
First is to make more money.
Second is to spend less.
Third is to invest for the long term and grow your money.
You’ll need to combine financial literacy with a plan and self-control. And when life throws you a financial curve ball, you’ll need to stay positive – remaining focused on your goals and not make excuses.
Financial security
Safety and security are incredibly important human needs. And, people must feel secure before they’re able to address their “higher-level” needs of belonging, esteem, and self-actualization according to Maslow’s Hierarchy of Needs.
Security expert Bruce Schneier states, “Security is both a feeling and a reality.” But feeling and reality can be quite different. “The reality of security is mathematical,” says Schneier. It’s all about the probability of risks and the effectiveness of corresponding countermeasures.
Most of people try to achieve financial security mathematically. We consider all the potential financial risks we face – unemployment, illness, unexpected costs, etc. – and try to determine reasonable countermeasures for each of those risks. You might not consider yourself financially secure until you have adequate emergency savings to last being unemployed for 6 months.
Security is a feeling on your psychological reactions to both risks and efforts to reduce risks. You can create a reality of security and still not feel secure. Similarly, you can feel secure and yet not really be secure in your current position.
When it comes to finances, you can stable employment, be in great health, and have money saved up – and still not feel secure with your money.
Financial goals are great, but if your fears and worries about money are holding you back, there’s a lot to be said for simply trusting in yourself and your abilities.
Build your savings. Find the ideal job. But also give yourself the proper credit for being able to make due when the unexpected happens.
Having a positive financial mindset is the foundation for taking control of your money and becoming more financially stable. Setting yourself goals, addressing and eliminating bad habits, and learning how to get a handle on your thought processes will help you to manage your finances and put you in a better position with all aspects of your life.
“Global investment managers are more worried about the risk of inflation on markets than they are about the risk of Covid-19.” Bank of America survey
72% of global fund managers expect strong inflation to be transitory, despite US prices surging 5% year-on-year in May, according to Bank of America’s latest survey. The Bank of America survey polled 224 managers with $630 billion in assets under management between March 5 and 11, 2021.
In their collective opinions, trillions of dollars in federal stimulus spending in the United States helped set the economy on the path to recovery, but it’s also fueled concerns about ballooning levels of debt and the rapid inflation that could accompany the injection of so much money into the fragile economic system, according to an article in Forbes.
Despite the risks, investor sentiment overall is still “unambiguously bullish,” the survey found, with 91% of fund managers expecting a stronger economy in the future and nearly half of fund managers are now expecting a v-shaped recovery in global markets.
“Investors (are) bullishly positioned for permanent growth, transitory inflation and a peaceful Fed taper,” said Michael Hartnett, chief investment strategist at BofA, adding that 63% of the investors believe Fed will signal a taper by September.
“Inflation jumped 5 percent in the past year, the fastest pace in 13 years.”
Inflation in the US has jumped to the highest rate since 2008. For the past decade, inflation has averaged under 2 percent a year. But suddenly, inflation is rising much faster than anticipated and planned by the Federal Reserve. For instance, inflation rose 5 percent between May 2020 and May 2021, the Labor Department reported.
Inflation results when demand exceeds supply in an economy. When the economy grows faster than its ability to provide goods and services demanded by consumers, prices rise. When the economy grows more slowly than its potential growth rate, prices tend to fall. Factors that affect an economy’s growth rate include the supply of labor and the productivity of those workers.
Inflation is imply defined as the price of a good or service increasing over time. Conversely, you can also define inflation by looking at the value of the dollars purchasing those goods and services. Said another way, while you might agreed that the price of good and services have increased, you can also state the dollars you spend now purchase less quantity of goods and services … and by extension, the dollars themselves are clearly worth less.
Money supply and budget deficits
We’ve learned that inflation is, “always and everywhere a monetary phenomenon,” according to economist Milton Friedman. Money supply growth is a requirement, but in and of itself, it’s not enough to cause inflation. The money needs to find its way into the economy and turnover rapidly to generate inflation. (This is referred to as the velocity of money or ratio of M2 money supply to gross domestic product, or GDP.) In recent years, the velocity of money has fallen sharply.
Rising budget deficits are not necessarily linked to inflation, either, but can contribute to an overheating economy. It all depends on whether it stimulates demand to exceed supply. From a long-term perspective, there has been little correlation in recent years between the level of debt in the economy and inflation.
The causes of present inflation and the primary explanations are:
Pent-up demand following the COVID-19 shutdown.
Base effects (essentially older low values rolling off).
A massive increase in the supply of dollars.
Rising Prices
“Inflation is taxation without legislation.” – Milton Friedman.
With commodity prices soaring, money supply growth exploding, and government spending surging, there is a palpable fear of a return to 1970s-style inflation. I get it. I remember those times.
Core inflation, which strips out volatile items such as food and energy, leaped to the highest level since 1992. It rose 3.8% year-on-year, up from 3% in April.
Other official data showed that the number of initial claims for jobless benefits fell to its lowest since mid-March 2020, when the first wave of Covid-19 hit.
The cost of used cars and trucks climbed 7.3% in May from April, accounting for a third of the increase in inflation. Prices were 29.7% higher than a year earlier. They have risen in recent months because of a global semiconductor shortage that has held back car production, pushing people to enter the market for second-hand vehicles instead.
Energy prices rose, by 28.5% year-on-year, including a 56% jump in gasoline prices compared with May 2020, when demand slumped due to the pandemic. And, gasoline prices are destined to go higher with the cancelation of the cross-border permit for the Keystone XL pipeline and suspension of the program for oil and gas leasing on federal lands and waters.
The cost of flights, household furnishings, new cars, rental cars and clothing rose during May.
Inflation jumped 5 percent in the past year, the fastest pace in 13 years. Few are panicking yet, but there’s a big debate about how long prices will stay high. https://t.co/yefQt0zQWH
— The Washington Post (@washingtonpost) June 10, 2021
What should investors do?
In response to inflation, investors should:
Must become awareness of inflation. Inflation is likely to increase throughout the year (and perhaps further), and bonds are likely to at least be less of a stalwart than they have over the past 40 years. It is important to realize that is possible and you should all be prepared for lower near-term performance in fixed income markets.
Diversification is key. Equities, for example, have historically been a reasonable asset during certain inflationary periods as companies can often pass through increased costs.
Explore other forms of inflation protection, as well as a broader diversification of fixed income instruments.
Inflation is clearly present for U.S. consumers in the grocery stores, at gas stations and in vehicle sales. Fears over rising prices has investors fearing that pent-up demand and supply chain bottlenecks would create inflationary pressures, and force the Federal Reserve to “tamper” their monetary stimulus program and dampen demand by increasing interest rates.
“The great Western disease is, ‘I’ll be happy when… When I get the money. When I get a BMW. When I get this job. When I get the relationship,’ Well, the reality is, you never get to when. The only way to find happiness is to understand that happiness is not out there. It’s in here. And happiness is not next week. It’s now.” Marshall Goldsmith
Research shows that after you make enough money to pay your essential expenses and save for the future, making more does little for your happiness. A 2010 study by economist and psychologist Daniel Kahneman found that, where wealth is concerned, a person’s satisfaction with their life no longer increases after about $75,000 ($90,000 in today’s dollars) a year.
If anything, once people start making a lot of money, they begin to think they’re doing worse in life, because they become obsessed with comparing themselves to those who appear richer and appear to be living a relatively larger and more luxurious social media embellished lifestyle. But, it important to remember that, “Money has never made man happy, nor will it, there is nothing in its nature to produce happiness”, Benjamin Franklin quipped. “The more of it one has the more one wants.
Instead, research suggests that spending money on experiences rather than tangible goods, giving to others with no thought of reward, and expressing gratitude for what you have, results in the greatest feelings of happiness.
Pitfalls of chasing money
Focusing on chasing the accoutrements of wealth is a trap, because it leads only to an increased focus on chasing wealth. Even multimillionaires make the mistake of believing that money, and not time, experiences and gratitude, will enrich their lives.
“These days, in our materialistic culture, many people are led to believe that money is the ultimate source of happiness. Consequently, when they don’t have enough of it they feel let down. Therefore, it is important to let people know that they have the source of contentment and happiness within themselves, and that it is related to nurturing our natural inner values.” Dalai Lama
A few thousand of the world’s wealthiest people were surveyed and asked how much money they’d needed to be “perfectly happy”, according to Harvard Business Review. Seventy-five percent (many of whom had a net worth of $10 million or more) said they’d needed “a lot more” ($5 million to $10 million, “at the very least”) to be happy.
It doesn’t take a PhD in psychology to see how misguided the mindset of “needing a lot more money” is not related to achieving happiness.
Money may not buy happiness, but there are some things you can do to try to increase happiness such as writing down what you’re grateful for. Literally “counting your blessings” can help you feel more positive. Instead of thinking about what you don’t have, think about the things you do have.
Nothing less than your health and happiness depends on reversing the innate notion that money alone leads to happiness. It’s important to start seeing time, daily habits, being grateful, and lifestyle are the main drivers that determines your happiness:
Convince yourself that your time, expressing your gratitude, and your health are more important than money and your bank account balance.
Remind yourself that your values and that your closely aligned goals when faced with critical life and financial decisions.
Make deliberate and strategic decisions that allow you to have more time across days, weeks months, and years.
Among millionaires, past studies reveal that wealth may be likely to pay off in greater personal happiness only at very high levels of wealth ($10 million or more), and when that wealth was earned rather than inherited.
Takeaways
Research concludes that money can buy life satisfaction and that money is unlikely to buy happiness, but it may help you achieve happiness to an extent through experiences, expressing gratitude, and giving to others. Look for experiences and opportunities that will help you feel fulfilled and that are aligned with your values. And, remember to count your blessings.
And beyond that, you can find happiness through other nonfinancial means, like spending time with people you enjoy or thinking about the good things in your life. Since, “Happiness comes from spiritual wealth, not material wealth…”, according to Sir John Templeton. “Happiness comes from giving, not getting. If we try hard to bring happiness to others, we cannot stop it from coming to us also. To get joy, we must give it, and to keep joy, we must scatter it.”
Retirement presents some unique emotional challenges.
There are significant emotional challenges of retirement. Knowing how to deal with retirement emotionally can be just as important as, or more important than, financial preparation.
Most people spend the majority of their lives working to cultivate a career and raise a family. It’s human nature to take solace in the daily routine that you developed, but when you reach retirement you may find that it takes some time to get used to your new life after leaving the workforce and/ or becoming an empty nester.
If you’re having a hard time adjusting to retirement, you’re not alone. A survey of 1,000 people ages 60 to 73 shows that about two-thirds of Baby Boomer participants said they had difficulties in transitioning from their primary profession to retirement. The survey also identified the top reasons that participants had trouble adapting to life in retirement:
37% said that they missed the daily social interactions they would have with work colleagues.
32% had trouble adjusting to a new daily routine.
22% found it difficult to find ways to create meaning and purpose in their life after work.
The good news is that eventually more than half of the participants found that they adjusted to these changes rather quickly, and 97% reported being “somewhat” or “rather” satisfied in their retirement.
The key to adjusting to these life changes and living a fulfilling life after work is emotionally preparing for the transition years and decades prior to reaching retirement age.
Deal with Retirement Emotionally
Though retirement is often seen as a time to slow down, this doesn’t mean that you can’t continue to remain active or find meaning outside of your professional life. And, there are ways to cope with the emotional challenges of retirement:
Find activities you enjoy outside of work. – Retirement is the time for you to do the things that you enjoy most. Volunteer your time at your favorite local organization or take up a new hobby. Staying active is a great way to find meaning in life after work.
Begin to expand your relationship base. – Chances are, many of your friendships were formed in the workplace. Though it’s great to keep in touch with former colleagues, try to develop new friendships. Friends are the key to staying connected and maintaining your well-being.
Include your family in your pre-retirement plans. – Once you’re retired, you will have more time to spend with your spouse. Actively include him or her in your pre-retirement plans. Have a conversation about what you would like life after retirement to look like and discuss how you can help support one another.
Have a solid financial plan. – Not having enough resources to support yourself after retirement can add stress to your life. One way to make sure that you are emotionally prepared for the transition is to make sure that you have a financial plan in place that provides a quality of life for yourself in retirement.
Change in life status is exciting and can be positive if you’re prepared.
Mindset, attitudes, behaviors and habits.
Retirement can mean looking forward to a simpler, less stressful life, free of commuting, demanding boss, meetings and deadlines.
Good health care, combined with recreational and fitness opportunities, are critical attributes of retirement of a healthy retirement. Good health, combined with a moderate cost of living, are critical since 96% of retirees—and 99% of those age 75 and over—say that health is more important than wealth to live well in retirement, according to the survey.
Yet health and wealth are very intertwined. People with financial resources can invest more in their health, and those in poor health have a harder time enjoying what their money can buy.
Tackling tough financial issues, such as overspending, debt and “having more month left than money available”, are a great way to drive change. Better yet, it’s always a good idea to learn more about financial management matters, getting out of debt and becoming a discipline saver for the future and invest for the long term.
To retire with financial security and sense of confidence, most financial experts recommend a certain liquid asset level, a mostly paid-off mortgage, and multiple streams of income. Furthermore, they observe that:
Retirees are feeling increasingly confident about their ability to maintain a comfortable lifestyle without running out of money. And, that is the primary goal for retirement.
Retirees want a physically active, healthy and vibrant lifestyle.
Retirees want to be emotionally engaged and socially fulfilling lifestyle.
Find happiness in retirement
Finding happiness and contentment in retirement requires retiring with core pursuits and sense of purpose. What’s paramount to an happy retirement and life is having multiple activities/ projects / endeavors that you’re passionate about participating.
These are activities (projects or endeavors) that excite and fulfill; hobbies on steroids and things you look forward to. Examples are learning an instrument, learning a language, and enjoying golf, biking, yoga, walking, hiking. Wes Moss, a managing partner at Capital Investment Advisors in Atlanta and author of three personal-finance books and host of the Money Matters weekly radio call-in show, commissioned Georgia Tech University in Atlanta do a statistical analysis retirees’ activities and found that “happy retirees have 3.6 core pursuits. Unhappy retirees have 1.9 core pursuits”.
When you have a long life expectancy, you can spend the first sixty years working for you and your family, then the next forty years working for the greater good and contributing to make the world a better place. Working for the greater food gives you a sense of greater purpose. One in five Americans downright hate their jobs. Compare this to the results that show that three in five could “take it or leave it”.
The Happiness Retirees on the Block (HROB) create their happiness by engaging in a long series of core pursuits — activities, projects and endeavors — that make a difference in their lives. Your core pursuits can lead you to a more fulfilling future while adding life to your years. Core pursuits can lead to a more fulfilling future while adding happy life to your years.
Get going, Get growing, Continue learning
Sparse diet, taking the stairs and take on activities that feed their soul and focus on you and the greater good. Curiosity may have killed the cat, but a lack of curiosity is what kills the happy retiree.
Are 41 percent of retirees economically insecure? It's a figure that many news outlets have repeated. In @Forbes, @biggsag sheds light on the supposed "retirement crisis" and offers better approaches to evaluating retiree well-being: https://t.co/ZLw0x0q8hb
“The past year has of course caused Americans to focus on their health, in particular their mental health, along with the health of their relationships. But the pandemic and the significant impact it had on the economy and stock market also taught us a valuable, and in many cases difficult, lesson about the importance of financial health and preparedness, including the importance of having a plan and emergency savings.” Rob Williams, vice president of financial planning, Charles Schwab
A majority of Americans (60 percent) are feeling more optimistic about the state of the United States overall, including the economy, the stock market and their personal financial prospects, according to Schwab’s 2021 Modern Wealth Survey. And, more than half feel positive about the U.S. job market, economy and role as a global economic power.
Schwab’s 2021 Modern Wealth Survey is an annual examination of how 1,000 Americans think about saving, spending, investing and wealth. The online survey was conducted from February 1 to February 16, 2021, among a national sample of 1,000 Americans aged 21 to 75.
Recalibrating Priorities and Redefining Wealth
“More than half of Americans were financially impacted by COVID-19 in 2020”
According to Schwab’s survey, more than half of survey participants were financially impacted over the past year, whether the economic environment strained their finances (31 percent), they faced a salary cut or reduced hours (26 percent), or they were laid off or furloughed (20 percent).
In lieu of this recent reality, more than two-thirds (68 percent) of Americans have reprioritized what matters most to them, with 69 percent saying mental health is more important than it was before, followed closely by relationships (57 percent), financial health (54 percent) and physical health (39 percent).
Being financially comfortable
“Americans lowered the bar for what it takes to achieve “financial happiness” and to be “financially comfortable” in 2021”
When it comes to achieving financial peace of mind, Americans say you only need a net worth of $624,000 to be considered “financially comfortable.” That’s down significantly from the $934,000 net worth that Americans cited as the minimum needed for financial comfort last year, according to the Survey.
Additionally, the survey finds that Americans have also revised their perspective on what it takes to be wealthy. It takes $1.9M to be viewed as wealthy, more than double the national average, but down from 2020.
U.S. households had an average net worth of $748,800 prior to the pandemic, according to The Federal Reserve’s 2019 Survey of Consumer Finances. However, the median, or midpoint, net worth of all families was much lower, just $121,700 in 2019.
Some lessons learned or relearned from the pandemic include the importance of being financially prepared and being mindful (and more aware) of your financial, physical, mental and emotional health.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” Robert Kiyosaki, Rich Dad Poor Dad
Investing, which involves putting your money to work, is a great first step toward building wealth for yourself and your family. If you think investing is gambling, you’re doing it wrong. The world of investing requires discipline, planning and patience. And, the gains you see over decades can be exciting. The three most common categories of investments, referred to as asset classes, include:
Stocks – which are a share in a company. These tend to be riskier investments, but also typically offer more potential for profit over time.
Bonds – which are a share of debt issued by a business or the government. These are safer investments, typically returning a lower profit than stocks over time.
Cash and cash equivalents – which are readily available cash and short-term investments like certificates of deposit (CDs). These are the safest investments, but typically return little profit over time.
Before you start investing, it is important for you to understand a few basic concepts and definitions, such as:
Risk Tolerance
Risk tolerance is basically your emotional ability to deal with losing money. If you invested $1,000 today, could you deal with it being worth $500 for a period of time? That’s possible if you invest heavily in stocks, which tend to increase in value over time but can be volatile from one day to the next. If you answered yes to being okay losing a great deal of money for a period of time, then you have a high risk tolerance.
Time Horizon
Time horizon is the amount of time before you want to use your money. If you’re planning to use the money to make a down payment on a home within the next three years, you have a short time horizon and would likely have less risk tolerance. If you’re not planning to use the money until you retire in 30 years, then you have a long time horizon and can afford to take on more risk.
Asset Allocation
Asset allocation is the percentage of stocks, bonds or cash you own. If you have a high risk tolerance and long time horizon, you’re likely to want a larger percentage of stocks because you’ll be able to weather ups and downs and make more money over the long term. On the other hand, if you have a low risk tolerance and short time horizon, you probably want more cash and bonds so that you don’t lose money right before you need it.
Stocks, bonds and cash tend to respond differently to market conditions (one may go up when the others go down). Asset allocation helps you spread your money so that when one asset class unexpectedly zigs, your whole portfolio doesn’t zig along with it. In this way, asset allocation can help ensure your portfolio is correctly positioned to help you reach your financial goals, no matter what is happening in the market.
Diversification
Diversification splits your investments among different groupings or sectors in order to reduce risk. That includes your asset allocation. But it also includes where you invest within asset classes. For instance, you might diversify between stocks in companies located within the United States and stocks in companies located in Asia.
Different sectors of the economy do better at different times. It’s tough to predict which one will do well in any given year. So when you diversify and own stocks across different sectors, you are positioned to make money on whatever sector is performing well at the time. A well-diversified portfolio can help lessen the impact of market ups and downs on your portfolio.
Rebalancing
If you’ve done a good job with asset allocation and diversifying, then the balance of your portfolio is likely going to get out of whack over time as one sector does better than another. For instance, let’s say you wanted 10 percent of your stocks to be companies in Asia. If companies in Asia have a great year, those companies may now make up 15 percent of your stocks. In that case you’ll want to sell some of those stocks and use that money to buy more stocks (or even bonds) in parts of your portfolio that didn’t do as well.
Rebalancing on a regular basis (once or twice a year, for example) can help ensure your portfolio remains aligned with your goals. And because it provides a disciplined approach to investing, portfolio rebalancing also may prevent you from buying or selling investments based on emotion.
Dollar Cost Averaging
Dollar cost averaging (DCA) involves putting your investment plan on autopilot. With DCA, you invest a set amount at set intervals (for example, $200 every month) in the market. By investing systematically, you’ll buy more shares of an investment when the market is lower, fewer when the market is higher, and some when the market is in between. Over time, this may help you to pay a lower average price for the total shares you purchase.
DCA takes the emotion out of investing, helping you to start on your investment plan sooner, rather than later. And once you begin, DCA can also help you remain focused on your goals, no matter what’s happening in the market. It helps make investing a habit.
Capital Gains
Capital gains is an increase in the value of an asset or investment over time. Capital gains is measured by the difference between the current value, or market value, of an asset or investment and its purchase price, or the value of the asset or investment at the time it was acquired {cost basis}.
Realized capital gains and losses occur when an asset is sold, which triggers a taxable event. Unrealized gains and losses, sometimes referred to as paper gains and losses, reflect an increase or decrease in an investment’s value but are not considered a capital gain that should be treated as a taxable event.
Fiscal Fact: The average white household had $402,000 in unrealized capital gains in 2019, compared with $94,000 for Black households and $130,000 for Hispanic or Latino households. These disparities have generally widened over time. Source: Tax Policy Center https://www.taxpolicycenter.org/fiscal-fact/unrealized-capital-gains-ff-05102021
Capital gains are classified as either short-term or long-term. Short-term capital gains, defined as gains realized in securities held for one year or less, are taxed as ordinary income based on the individual’s tax filing status and adjusted gross income. Long-term capital gains, defined as gains realized in securities held for more than one year, are usually taxed at a lower rate than regular income.
“If you want to become really wealthy, you must have your money work for you. The amount you get paid for your personal effort is relatively small compared with the amount you can earn by having your money make money.” John D. Rockefeller
Before you start investing or putting your money to work for your, do your homework and research. Once you’ve made a decision, make sure to re-evaluate the assets in your portfolio on a regular basis. A good asset today may not necessarily be a good asset in the future.
And, don’t panic during the inevitable setbacks and don’t be fearful during the inevitable stock market corrections that all long-term investors face. If the reasoning behind the investment decision was sound when purchased, stick with the assets, and they should eventually recover and grow.
“It’s difficult to master the psychology and emotions behind earning, spending, debt, saving, investing, and building wealth.”
Personal finance is simple. Fundamentally, you only need to know one thing: To build wealth and achieve financial freedom, you must spend less than you earn. Yet, it seems challenging for most people to get ahead financially.
Financial success is more about mindset and behavior than it is about math, according to J.D. Roth, author of Get Rich Slowly. Financial success isn’t determined by how smart you are with numbers, but how well you’re able to control your emotions and behaviors regarding savings and spending.
“Change your mindset and attitude, and you can change your life.”
You sometimes have to make sacrifices in order to improve your financial situation. For instance, if you are in debt, you need to sacrifice some expenses so you can pay more towards managing and eliminating your debt. It is these financial sacrifices that will require you to have the right financial mindsets so you can overcome the obstacles that derail people from managing and eliminating their debt.
According to an article published in USAToday.com, Americans do not have a financial literacy problem. Instead, Americans simply make the wrong financial decisions and have bad final habits which does not necessarily translate that they are unaware of the best practices of financial management. We know how to make the right choices about our personal finances. The problem, according to the article’s author Peter Dunn, is that Americans have a financial behavioral problem. It is bad financial behavior, decisions and habits that usually get them into money trouble. It is what put them in a financially untenable position.
A perfect example is that you should never spend more than what you are earning. It is logical after all. But does that mean you follow it. Some people still end up in debt because they spend more than what they are earning.
Other examples of beliefs about money and personal finance include:
Taking personal responsibility regarding your finances is everything.
You shouldn’t buy things you can’t afford.
You don’t have to make a ton of money to be financially successful.
You can give yourself and your family an amazing life, if you’re able to remain disciplined and think long term.
Borrowing money from or lending money to your family isn’t recommended.
Education can get you a better job, if you get the right education.
You should buy life insurance.
You have much more to do with being a financial success than you think.
Financial literacy gems such as “spend less than you make,” “you need to budget” and “save for the future” are impotent attempts to help. However, lacking the correct financial mindset can make following the simple financial gems quite challenging.
There are 5 destructive financial mindsets that are the norm in our society today but you should actually get rid of starting today, according to NationalDebtRelief.com.
1. Using debt to reach your dreams.
This can actually be quite confusing. A lot of people say that it is okay to be in debt as long as it will help you reach your dreams. There is some truth to that but you should probably put everything into the right perspective. Buying your own home and getting a higher education are some of the supposedly “good debts.” It is okay to borrow for these if you can reach your dreams because of that debt. Not so fast. It may be logical to use debt to reach these but here’s the key to really make it work – you should not abuse it. If you get a home loan, buy a house that will help pay for itself. That way, the debt will not be a burden for you. When it comes to student loans, make sure that you work while studying to help pay for your loans while in school. Do what you can to keep debt from being a burden so it will not hinder you from reaching your dreams.
2. Thinking you do not need an emergency fund.
The phrase, “you only live once (YOLO)”, should no longer be your mindset – especially when it comes to your finances. You always have to think about the immediate future. If you really want to enjoy this life, you need to be smart about it. Do not splurge everything on present things that you think will make you happy. It is okay to postpone your enjoyment so you can build up your emergency fund. You are not as invincible as you think even if you are still young.
3. Settling for a stressful job to pay off debt.
“The most important thing when paying off your debts is to pay off your debts.”
Among the financial mindsets that you need to erase is forcing yourself to stay in a stressful job just so you can pay off your debt. You are justifying the miserable experience that you are going through in your job because you need it to meet your financial obligations. This is the wrong mindset. You need to put yourself in a financial position where you will never be forced to stay in a job that you do not like. Live a more frugal life that does not require you to spend a lot so you can pursue a low paying job and still afford to pay your debts.
4. Delaying your retirement savings.
Some young adults think that their retirement savings can wait. Some of them think that they need to pay off their debts first before they can start thinking about the future. This is not the right mindset if you want to improve your finances. You have to save for retirement even when you are drowning in debt.
5. Failing to have a backup plan.
The last of the financial mindsets that you need to forget is not having a backup plan. Do not leave things to chance if it involves your finances. You have to make a plan and not just that, you need to have a backup plan. If you have an emergency savings fund, do not rely on that alone. What if one emergency happens after another? Where will you get the funds to pay for everything? Think about that before you act.
Takeaway
Remember, personal finance is simple…it’s your emotion, behavior and habits that are challenging. Bottom-line, it comes down to your financial mindset. Smart money management is more about your mindset than it is about personal financial math of net worth, cash flow, saving and investing. The math of personal finance is simple and easy. It’s the psychology that’s tough and challenging. Essentially, the concepts to improving your finances and achieving financial freedom are simple but it is not easy to follow through with them.
On April 23, 1910, Theodore Roosevelt gave what would become one of the most widely quoted speeches of his career. In Paris at the Sorbonne, Roosevelt delivered a speech called “Citizenship in a Republic,” which would come to be known as “The Man in the Arena.”
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”
Theodore Roosevelt, Twenty-Sixth POTUS
I have quoted Theodore Roosevelt’s “Man in the Arena” speech since I saw it painted on our weight room wall at UM in 1995. It’s a constant reminder to ignore the noise, buckle my chinstrap, and battle through whatever comes my way.
110 years ago today, at the Sorbonne in Paris, Theodore Roosevelt gave what would become one of his most quoted speeches: "Citizenship in a Republic," a.k.a. "The Man in the Arena." https://t.co/WbFkduu0vC
