Of all the emotions I see investors wrestle with, shame tops the list with fear riding shotgun. Both are toxic to your financial well-being because they keep you frozen in a death-spiral of inaction.

Change requires taking different action. It is scary because there is the risk of failure; fear of the unknown. But doing nothing is a certain slow death. Which is worse?

You don’t have to make radical, scary changes to your finances to see improvement. But you do need to give yourself understanding and patience – without these two, you will not make the changes that are right for you, nor will you stick with the plan (which will send you into a new shame spiral). 

Like a new workout regime, the changes might not be massive, but they might cause you discomfort as you discover those “muscles” greatly in need of stretching. The first step is the most difficult, but the most critical.

Be honest – with yourself and especially with a partner. 

Why are your finances in disarray? No blaming your income or bad luck, either. Yes, those may have factored in to the situation, but what choices (action or inaction) have you made to make the situation worse? I’ve worked with many people with limited income and high day-care costs who still manage to fully fund retirement, so I know this can be done. What is the difference between those who do, and those who don’t? Priority. Focus on how to achieve the goal you seek, not why it is impossible. Immediately set aside what you need to save and work backwards. If your financial future is as critical as paying your mortgage, other items won’t creep in and misappropriate those funds.

Ask yourself – why are my finances not a priority? What is filling this space? Are you distracting yourself with other activities so you can claim you are “too busy” when really you are procrastinating? Is it due to disorganization? Fear? Overwhelm? It is important to identify what it is – because there are ways to get organized, there are ways to educate yourself to fight fear and overwhelm. But you must know what demons you are fighting against.

Explore your why.

Making a sacrifice requires stretching and changing, so you better have a reason – a motivation – to give you the courage to step forward – and not a superficial one, like owning the nicest house on the block. The why needs to be in line with your core values. Freedom to only work where you are fulfilled and respected; security that keeps you calm and not snapping at family over finances; helping others – either your children/grandchildren or those in need. The why is the beacon guiding you to stay committed to your goals.

Be realistic but dare to dream.

Household cashflow is finite, but money itself is not. Yes, you must look at where you currently are – what you are spending (and what you are spending it on), how much you are saving, etc. But to ramp it up requires thinking bigger than where you are right now. Again, keep it to your values and not material goods – for example, being able to retire early so you can spend more time with your family, or setting up a charitable giving program to support a meaningful cause.

Be specific.

It’s easier to fund your goals if you can imagine it or see it. When I ask most people how they envision their retirement, I get vague answers such as, no more work aggravation, time to relax, etc. I ask a litany of questions, most of which they have never truly examined, and watch them become energized by the possibilities. Will you stay in your home or downsize/relocate, will you travel and where to, what hobbies will you explore, with whom and where will you spend most of your time, will it be peaceful and relaxing or active and fun. For some, this process can be enhanced by creating a visual cue to make the brain imagine it vividly. A vision board – physical or on Pinterest – can play into the brain’s predisposition to valuing images over thoughts and redirecting your attention to actions that will get you closer to your goal.

Work with your natural tendencies.

Saver, spender or avoider are the basic tendencies people exhibit. All three have their pros and cons. The healthiest money mindset is a balance of these. Savers have the edge on accumulating assets but fail miserably in enjoying the benefits of their hard work (which can also make them difficult to live with). Spenders enjoy the here and now at the expense of larger, more important goals (and their credit score). Avoiders don’t pay attention to their money, thereby missing the opportunity to direct their financial future.

There is one strategy that is beneficial to all three types. Automation. Setting up regular recurring investments (either from a paycheck or bank account) helps the saver accept that the money left over at the end of the month can be enjoyed. The splurger who automates savings is forced to do the hard thing first and then can spend guilt-free. Because the splurger enjoys a degree of excitement, investing in the stock market can be an engaging experience that becomes a reward in itself. The avoider knows they are shirking their responsibilities and in automating gets the task out of the way by setting it up once. The beauty of the avoider is that they don’t obsess about the investments; in automatically funding the account, assets are left to compound undisturbed.

Take action.

Making changes can only occur if you want a different outcome and are ready to: be honest about your strengths and weaknesses, dive into your values and audit whether that is how you are actually living your life; and implement a repeatable strategy that makes it easier to succeed based on your natural tendencies. And, on the up side, it gets you looking toward the future, imagining a more fulfilling life where you don’t need to worry about money because you have all that you really want.

 

Let me answer your financial questions: email me at tmm@ritholtzwealth.com.

 

Photo by Tyler Nix, Unsplash.