Four Simple Financial Habits to Implement Sooner Rather than Later

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2015_03_02Seth Cohn, Founding Partner of WealthMD

Most of my work as a financial planner is with my physician clients; however, I am also intimately involved in the development of financial education curriculums for physicians at all levels of practice. In my years of working with clients, what I have discovered is this: Typically the difference between people who achieve their goals and those who do not achieve their goals is not the income that they make, but rather the habits that they have or have not formed. During my career, I have discovered four simple financial habits that can make all the difference in accomplishing one’s financial goals.

Write Down Your Goals
The first habit that I see in those who reach their financial aspirations is that they verbalize and write down their goals. People who write down goals are more likely to achieve them than people who do not. Goals can be tracked as quantitative goals or qualitative goals, and both are important. Quantitative goals can be specifically measured, such as a goal to accumulate $2 million in a retirement account by the age of 65.

Qualitative goals cannot be measured in numbers but instead relate to how a person feels, such as aiming to live a comfortable retirement or to feel less stressed by work obligations. Clients who define their goals may sleep better at night. Sometimes simply mapping out a plan for achieving goals can quell financial anxiety. There is no right or wrong way to track your goals, as long as they are clearly defined. As your life changes, your goals will as well. Update them as needed, and be sure to set attainable goals, because as you cross them off your list, you will surely feel a sense of accomplishment.

Pay Yourself First
A very important question to ask yourself is this: Do you pay yourself first? If not, this is an important habit to form. No one wants to have a drastic decrease in standard of living in retirement, and yet so few people are actually saving enough money for their future. The biggest cause of this mistake is that most people do not take the time to create a household budget. If you do not know how much money it takes to run your household or business, how can you plan on what you will need to fund your retirement? There are only three ways you can allocate your income within your budget: you can spend it, you can save it, or you can pay down debt. The problem we typically see is that clients spend too much and save too little. If there is no budget in place, money gets squandered, because people spend first and save last. The key principle of saving is \to pay yourself first. Figure out what you want to save, and spend what is left over, not the other way around. The easiest way to do this is to set up automatic contributions and bank drafts into various savings vehicles each month. There are also extremely useful Smartphone and iPad applications available to help create a budget and keep track of financial goals. It does not matter whether you choose to use your computer, Smartphone, or maintain a written budget, as long as you have an idea of your cash flow. Give up some of the instant gratification that comes from spending your money today, and pay yourself first so that you will have a secure future.

Assemble Your Team
Do you have an advisory team? Do your CPA and your investment advisor chat about your finances while you are at work taking care of patients? Have your life insurance agent and your estate planning attorney worked together to make sure your legal documents are correct? Having an advisory team in place that works on your behalf allows you to be the pilot of your financial future while having a team of expert navigators at your service. Most clients who we meet with have done plenty of piecemeal planning—they usually have a CPA, old estate planning documents, a brokerage account or two, and various insurance products that they have purchased over the years. Unfortunately, most often people have multiple moving parts (or people working for them) but no coordination among all of the pieces of their financial plan. Many people are hesitant to engage a financial planner to help with this coordination, because they do not want to lose control; but having all parts of your team in place and working together is vital to reach your financial goals. The core disciplines within investment, tax, and estate planning overlap with areas of risk management and asset protection. As you progress through life, you should assemble a financial team of experts who communicate on your behalf to ensure that your plan is coordinated and all pieces tie together. Make it a habit to keep your team up to date and to meet with them regularly.

Protect Your Money
The last concept, simply stated, is to protect your money! Whether it is knowing and understanding your credit score, having your assets allocated properly, or having adequate insurance in place, protecting your assets is extremely important to your financial health. It always surprises me how few people actually review their credit report on a regular basis. There are numerous free resources to use for credit scoring and reporting, including www.annualcreditreport.com and www.creditkarma.com. Hold your credit near and dear to your heart, because you never know when you will need it. You should learn what truly affects your credit score—things such as length of credit, credit available, and hard inquiries within the past 24 months can have a big impact. Another concept to consider is asset protection, which simply means protecting your wealth as it grows. Be sure to take advantage of asset-protected vehicles such as retirement plans, asset-protection trusts, segmented business interests, and any other vehicles specific to your state’s asset protection laws. Protecting your money also means that you should be an informed consumer. Are you paying too much for the goods and services you currently pay for?

When is the last time you reviewed your monthly bills to see if you could get a better deal? Finally, risk management is an area that constantly gets overlooked. Do you have the correct amounts and types of coverage for life, disability income, and umbrella insurance? Do you own long-term care insurance for yourself or your parents to protect retirement nest eggs from future health care expenses? Be sure to protect your money as you progress through life and your career. They say it takes 21 days to form a new habit. I think we can beat that! Get started now and you can have a new financial life today.

Disclosure
Seth Cohn is a financial planner and founding partner of WealthMD. Seth specializes in representing health care professionals and their practices in the design, implementation, and maintenance of their comprehensive financial plans. He is experienced in working with physicians in all stages of their careers and has served as a guest educator at numerous teaching hospitals, IPAs, and medical associations throughout the southeast. Seth currently lives in Atlanta, Georgia, with his wife, Valerie. For more information, please contact Seth at 404-926-1317 or sethcohn@financialguide.com. Note: WealthMD is not a subsidiary or affiliate of MML Investors Services, LLC, or it’s affiliated companies.

Provided by Joshua C. Harper, CFP®, CLU®, of WealthMD (877-Our-MDPlan or jharper@wealthmd.com)

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