A client recently called and asked if one of his children might be able to meet with us concerning their financial future.
His son had finished his education this past May and taken a position with a local company. The client went on to say that his son was not that well versed in the financial world and asked us to provide some ideas or rules that might help him accumulate wealth. We certainly have had these requests before but thought it timely to put our thoughts into writing.
So we put our heads together, consulted with the youngest of our group and came up with the following advice.
After much discussion we discovered that whatever you determine success to be will ultimately be achieved by having created and then followed habits that produce positive results, all the while modifying them as life progresses and keeping in mind that you will periodically fail but it is always important to recognize that failure is something from which to learn.
For the next two months keep track of every dime you spend. This will help you identify areas where the expense of something exceeds the satisfaction of the purchase. Along the same line, take more steps toward your goal than away from it. For example, if you discover that you are spending more days dining out than eating at home make a resolution to eat at home more often than not; or bring coffee from home more often than you buy it on the way to work; or to bring a bag lunch to work more often than you go out for lunch.
This is a simple habit that can save you hundreds of dollars per year.
In this day and age, it is easy to get caught up in subscription services. Eliminate the subscription dinner delivery services, the monthly clothing choices delivered to your front door or the pick-up laundry and/or dry cleaning services. Mow your own lawn, do your own laundry and clean your own house. After all, you’re not Thurston Howell, III.
Consolidate your 401k, 403b or 457 plan from prior employers. Today, the average American changes jobs twelve times. By consolidating your former plans into your current one, you will have a better chance to maintain a cohesive investment strategy, one that will most likely result in better overall performance.
In conjunction with the above, when contributing to one of these plans, at least maximize the company match. Otherwise, you are leaving free money on the table.
Watch your pennies and the dollars will take care of themselves. Keep your investment expenses in line. Have a piece of your portfolio invested into index funds that have low internal management fees but are nonetheless still highly correlated to the underlying asset class. Furthermore, at a young age invest in broad based equity index funds with approximately 80% domestic with the balance invested internationally. Ignore the noise. Focus on the long-term.
Spend using cash or a debit card. Most credit cards charge usury rates above 15% and even if the rate is much lower if you can’t afford to make relatively small purchases from your budget than you probably shouldn’t purchase it anyway. It is also very helpful to work on immediately establishing and funding an emergency fund to use on EMERGENCIES so that you don’t have to replace your refrigerator by paying via high interest installment loans at the big box store or on your credit card.
Make purchasing decisions using both sides of your brain. The left side of your brain controls the logic (can I afford it) while the right has more to do with your imagination or desires. Generally speaking, you desire with your right and logically decide whether or not you pursue that desire (purchase) or not.
Steve Jobs once said that “simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call (518) 279-1044.