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LIFE STYLE

Two Major Risk Factors to Retirement Success

For most people its not until they hit 50 do they have the O.S. moment – do I have enough money for retirement? Am I on track to continue my lifestyle when I stop working?

There are many principles we focus on early and often in financial life management, but a couple very few address are a couple risk factors that are largely out of your control but you must prepare for – Sequence of Return Risk and Longevity Risk. Traditional financial planning just can’t address these two issues so they largely are ignored, however, they are critical to what your “retirement’ lifestyle will be if you don’t address them now.

#1 - Sequence of Return Risk  is the order in which you get returns on your portfolio, i.e. 5% year one, 12% year two, 8% year three, -9% year four, etc. It’s not just the real return which matters, but also the order of these returns. Getting negative returns at the start of retirement can have a devastating impact on your retirement and how long you can live without running out of money. A 20% drop could wipe out 30 years of gains!  You never know when the down market will appear and its effects on your portfolio.

The sequence of returns leading up to and into retirement make a huge impact on the amount of income you will have. Suppose you have a $500,000 retirement fund and need to know how much you can withdraw to live on for the next 20 years. The stock market has averaged 10.24% annual return from 1926-2014. So you would think you should be able to pull at least 10% per year, on average, and have your money last 20 years. On $500,000 that gives you $50,000 annual income. Even if the return fluctuates in the future, as long as it averages at least 10 percent per year, the fund should last 20 years, right?

Wrong! Given typical levels of stock market volatility there are only slim odds that the fund will survive the full time. The following charts simulate this retirement strategy with actual S&P 500 returns starting in various years from 1992 – 1995.

As Ed Easterling puts it in Unexpected Returns, “The cycles that occur during an individual’s period of investment will dramatically influence the returns that investor realizes.” For investors to ignore the strategic implications of this investing reality is folly.

Even with the same behavior and doing everything “right,” you can get very different results even with the same average return.  This is sequence of returns risk!

#2 - Longevity Risk – The risk that you will live a long life and outlast your money. In retirement, longevity risk becomes the greatest risk because the longer retirement lasts (the longer you live) the greater the chance you will succumb to other forms of risk. Increased longevity means more time for another financial crisis, increased chances for health problems, housing costs, more time for inflation to compound, and so on.

Running out of money is usually at the top of the list of concerns when building a retirement income plan. And, it should be!

Once you get into retirement you no longer have an income. Your income is determined by your assets. Retirees often require regular withdrawals from their portfolio to pay for living expenses. Traditional methodology is that you spend the interest off your assets (hope that is enough!) or a combination of interest and the assets themselves.

To ensure your money will last your advisor says to invest more conservatively to lessen your chances of losing money. But at the same time you are diminishing your returns, which means a greater likelihood of dipping into your principal. Neither is a prospect for success!

Maintaining some acceptable level of return means a portion of your portfolio is at higher risk. High portfolio volatility increases the likelihood that you will have to withdraw funds while the portfolio is down, maybe even deep down. The amount of remaining principal determines the amount you can safely withdraw each year. High portfolio volatility and suffering a large loss requires a reduction in retirement income (and lower standard of living). This matters a lot because now you’ve begun a downward spiral from which you may never be able to recover. Sharp  drawdowns  and roller-coaster volatility can drive you to sell equity holdings to cover living expenses. As a result, you get to experience the decline but not the recovery, which will quickly erode the portfolio and leave you without any income.

Diversification is traditional portfolio theory’s answer to managing these risks. While diversification may manage non-systematic risk (specific risk), it fails to manage systematic risk (market risk, day-to-day fluctuations in the market), particularly during bear markets. Asset allocation, as we’ve noted above, only gets you so far. Many markets that were once normally non-correlated now move together under economic stress. Diversification can then fall short when it is needed the most.

So what’s the answer? We’ve studied this A LOT and have come up with some unique answers that are easy to understand and simple to implement.

Download our free guide to learn how we avoid these major risks to your retirement and start living the life YOU want:

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How Do the Wealthiest Invest?

In our series on growing your wealth we’ve discussed healthy behaviors for priming your finances for growth, how to write a personal investing statements, and how to avoid unhealthy ways of thinking about investments. These are all essential for growing your finances in a way that serves your life. It is equally important that we have positive role models to study and look up to.

Unfortunately we can’t all be the Oracle of Omaha, but we can learn from behaviors of some of the wealthiest investors in the US. A recent study completed by U.S. Trust of nearly 700 high net worth investors (investable assets exceeding $3 million) found the following:

Wealthy Investing Behaviors

  1. Wealthy investors maintain a fairly high amount of account liquidity. More than half of the surveyed investors keep their liquidity high so that can take full advantage of an opportunity when it becomes available. This is not out of fear or caution, but a strategic decision to keep reserves ready to move quickly. How many channels of your portfolio could be easily liquidated and put to use?
  2. Large cash positions are a common portfolio feature. To further demonstrate the importance of multiple liquidity access points, 60% of surveyed investors have at least 10% of their portfolio in cash. This isn’t a conservative move, but a decisive and strategic commitment to be ready for the future. What percentage of your personal finance is held in cold hard cash?
  3. Long-term goals are more important than short-term growth. Wealthy investors are willing to forego short-term, rapid gains in favor of risk mitigation and steady growth over time. They know that the long-term is what will sustain them over time, and they focus their discipline accordingly.
  4. Mitigating tax burdens is a priority. More than half of those surveyed emphasized the importance of minimized the impact of taxes on their investments. This rated above pursuing higher returns. Wealthy investors are largely focused on their net pay, rather than the gross before taxes. Managing this burden is key for success. Do you know the tax rate for all of your assets?
  5. Tangible assets are important. Almost half of the surveyed individuals have invested in some sort of tangible asset, such as real estate. These can produce passive income and grow in value over time, offering growth and a revenue stream. Do you have secondary income sources?
  6. Credit can be used for good. Nearly 65% of surveyed investors agree that credit can be used to build wealth strategically. While their knowledge is powerful, it is important to note the risk associated here. Consider using credit cards for spending you already planned on doing (so long as you pay them off weekly) or increase your payments on low interest mortgages or student loans to save on interest. This will free up more long-term cash to invest.
  7. Consider the impact of your investments. Beyond your own finances, your investments can affect society and the world. Many mutual funds and ETFs present opportunities to invest your money in companies based on their social values and impacts on society or the Earth as a whole. Many wealthy investors perceive socially responsible companies as being less risky to invest in. What social values and impacts do you want to support through your investments?

Ready to join the ranks of wealthy investors? Begin your journey with our JBWealthFit.com curriculum to grow your investing knowledge and skill set. Or contact us directly to schedule a consultation. We’re excited to help you on this journey to change your life.

The Four Challenges to Building Wealth: Velocity of Money

As we continue our series exploring challenges to building wealth, we need to introduce the concept of velocity of money. In personal finance, the velocity of money refers to using your funds to build wealth more quickly by getting your money to do more than one thing at a time.

This is a well-kept secret of the financial industry and one that can transform your relationship to your personal finance.

How Can I Use My Money Now?

Accepting the status quo is not going to help grow your money and efficiently organize your personal finances. You’ve got to ask yourself “how can I use my money now to make things better down the line?”

Much of our culture and advertising is devoted to making you chase the “next great thing,” the next bit of instant-gratification, and that next hit of dopamine. While pervasive, it’s not a sustainable model for your life.

Choosing to embrace the following behaviors now while delaying those small bits of gratification will make your future life much more enjoyable:

  • Pay down debts
  • Build an emergency fund
  • Invest in your future
  • Invest in yourself
  • Save for retirement

Those choices may not offer the immediate reward promised by so much of our flawed, impulsive human nature and the marketing campaigns designed to take advantage of it. But in the long run, those small changes now will have a big impact on your life.

The Magic of Compounding

The reason why your choices today have a magnified impact on the future is because of two things: Lost Opportunity Cost and Compounding.

A dollar invested today has the opportunity to compound over and over through the years, building its overall value. You shouldn’t underestimate the awesome power of compound interest; If you’ve ever struggled with high interest credit card debt, you know how the momentum of compounding can build.

Turning this principle into a positive is why we stress the idea of “time in the market” rather than “timing the market.” Building your wealth is a process, and compounding can work for you if you consistently make intelligent choices over time.

When to Refinance Loans

If you’ve taken out loans, you’ve likely received countless direct mail advertisements for refinancing programs. While these seem like a great way to lower your payments, you must be cautious when evaluating them. Many come with early repayment penalties and fine print rules that heavily favor the program and lender rather than you.

If you have a loan you’re looking to refinance- such as your mortgage- look first for ways to remove your private mortgage insurance (PMI) after you’ve built 20% equity or more in the home. You can also look into ways to change your repayment term so that you can pay loans off sooner and save yourself thousands of dollars in interest. Any time a loan term can be updated in your favor it’s worth exploring new options. Just be sure to evaluate the entirety of your new solution and not just the face value of the monthly payment.

Make Your Money Work Harder

The real way to build wealth and increase the velocity of your money?

You have to be as demanding of your money as you are of yourself.

Are your investment and savings strategies underperforming? Update them. Is accelerating interest of outstanding debts hurting your overall quality of life? Rebalance your strategy to pay off debts sooner or explore refinancing options to ease some of the burden. Personal finance is complex, but solving issues can be as simple as acknowledging a problem exists and then finding a workable solution to that problem. We’ll discuss visibility and organization in our final post in this series, but know this: accepting lackluster performance will lead to a stressful and lackluster financial life.

Ready to learn how we can help you increase your money’s velocity to build wealth quicker and more effectively? Complete this questionnaire to see which Jarred Bunch Consulting service is right for you.

How Smartphones Hijack Our Minds

It seems our entire lives are contained in that tiny instrument. In fact, according to data Apple collects, the typical owner uses their phone 80 times per day. Our phones are our constant companions.

Nicholas Carr recently wrote in the Wall Street Journal how our brains become dependent on phone technology and may weaken our intellect.

He writes, in a 2015 Gallup survey that more than half of iPhone users said they couldn’t imagine life without the device, and for good reason. With so many useful functions it’s really a computer that fits in our palm.

But while our phones offer convenience and entertainment, they also breed anxiety. “Their extraordinary usefulness gives them an unprecedented hold on our attention and vast influence over our thinking and behavior,” writes Carr. What happens to our mind when a single tool has such dominion over us?

Scientists are exploring this question. Not only does phone usage shape our thoughts as we swipe our screens, but the effects linger even when we are not using our devices. As the brain becomes dependent on the technology, the intellect weakens.

Carr sites multiple studies showing that when our phone beeps, buzzes, or rings (do they ring anymore?) our attention to the job at hand wanders, we become distracted and work becomes sloppier whether we check the phone or not. In one study, it showed that when the phone beckons but we can’t answer it, our blood pressure rises, the pulse quickens, and problem-solving skills decline.

Dr. Adrian Ward, a cognitive psychologist and marketing professor at the University of Texas at Austin, conducted research showing that as the phone’s proximity increased, brainpower decreased. The more heavily students relied on their phones in everyday life, the greater cognitive decline they suffered. Studies upon studies are showing similar results. The evidence that our phones can get inside our heads so forcefully is unsettling.

The qualities we find most appealing about our smartphones – constant internet connectivity, multitude of apps, responsiveness, portability – are the very ones that provide such influence over our minds.

A seminal study in 2011 led by Columbia University psychologist Betsy Sparrow concluded that smartphone users suffer from the “Google effect.” “Because search engines are continually available to us, we may often be in a state of not feeling we need to encode the information internally. When we need it, we will look it up.” Even Albert Einstein many years ago stated “Never memorize something that you can look up.”

An even more sinister twist is that study subjects were not very good at distinguishing the knowledge we keep in our heads from the information we find on our phones or computers. Dr. Ward explained in a 2013 Scientific American article that when people call up information through their devices, they often suffer from delusions of intelligence. They feel as though “their own mental capacities” had generated the information, not the devices. That insight sheds great light on our society’s current gullibility crisis, in which people are all too quick to credit lies and half-truths spread through social media by various bad actors. “If your phone has sapped your powers of discernment, you’ll believe anything it tells you,” writes Carr.

A good read on some of the psychology behind our cognitive behavior is Mistakes Were Made (But Not by Me): Why We Justify Foolish Beliefs, Bad Decisions and Hurtful Acts by Carol Tavris. I found this book very interesting and insightful.

Perhaps the most important thing we can do for now is to be mindful of ourselves, and perhaps put some distance between ourselves and our phones.

3 Ways Successful People Think Differently About Life

Have you ever found yourself thinking:

I wish I could be as lucky as other people, and not have to struggle so much in life.

I wish my life was as easy as other people’s, and that I didn’t have so many problems.

I wish I had the opportunities other people have, then I could be much better off.

Reading them here now, would you say that you agree or disagree with them?

We’ve all been there – in those moments where we’re not happy with the spot we’re at in life. It’s easy to let these thoughts creep into your mind and overrun it. But, if you agreed with any of the statements above, or find yourself thinking similar thoughts regularly, then you are not thinking like a successful person.

You’re not thinking with an abundance mindset. Instead, you’re thinking with – and living trapped in – a scarcity mindset.

To see how a successful person would think about life, let’s break down each of the above statements from their point of view.

1. Scarcity Mindset: I wish I could be as lucky as other people, and not have to struggle so much in life.

Abundance Mindset: My mindset creates my  attitude, creates my behavior, creates my life.

Stephen Hawking was diagnosed with an extremely rare, slow-progressing form of ALS at the age of 21. He’s been bound to a wheelchair for most of his life. Since 1985, he’s had to speak through his computer system, and requires around-the-clock care. But, he didn’t let these setbacks stop him from becoming a world renowned theoretical physicist, and one of the brightest scientific minds of this century.

Helen Keller was born blind and deaf. She went on to become a teacher, author, and the first deaf-blind person to earn a bachelor of arts degree. Clearly, she wasn’t going to let her struggles hold her back.

Hawking and Keller overcame their struggles, because like all successful people, they understand that everything starts with your mindset. Your mindset creates your attitude, creates your behavior, creates your results, creates your life. It’s that simple. That’s why you have to change your mindset, to start thinking about your daily choices as either inching you closer to success or failure. Then, you can master how successful people think.

2. Scarcity Mindset: I wish my life was as easy as other people’s, and that I didn’t have so many problems.

Abundance Mindset: View obstacles as opportunities for success, and a chance to better yourself.

When I was younger, I used to look at successful people and think that they just got lucky. They never had to struggle through all the hardships and obstacles that I did. Life and success just magically came easy to them.

Successful people understand that some of your best learned life lessons come from your struggles. Instead of wishing for things to be easier, learn how to view every obstacle you encounter as an opportunity for success. Learn how to view your struggles as opportunities to learn something, and become better.

It’s important to remember that whatever you’re focused on in life is what will grow. So, rather than focusing only on your problems, you have to focus on the solutions. The only way to do that is to face your problems head on. Successful people are willing to do this – they don’t spend their time letting problems defeat them. They don’t spend their time waiting for luck to come find them.

3. Scarcity Mindset: I wish I had the opportunities other people have, then I could be much better off.

Abundance Mindset: You can create your own environment rather than being a product of your environment.

We’re taught to believe that we are destined to be a product of our environment. What we’re not taught to believe – and what took a long time to learn through my own journey – is that you can create your own environment.

The truth is, there are only two ways to change your life, 1) You take action and create a new environment that fosters your most important goals, or 2) You spend your time waiting for something new to come to you without working at it.

Nothing in your life will change until you take action. Every journey starts with taking a step – not thinking about taking a step. Successful people don’t wait for new circumstances to come find them. They don’t let themselves become a product of their environment. Instead, successful people make their environment a product of them.

Why Does it Matter to You?

The way you think about life, and what you do as a result, matters. If you have an abundance mindset, you will live and behave accordingly. If you have a scarcity mindset, you will live and behave accordingly.

You’ll either live the life you want, or you’ll settle for less.

Successful people think differently about life. They do things that seem to make no difference at the time, but yield big results after they compound over time. They write their problems down on paper, and treat them like equations they must solve. They keep trying, until they succeed.

If there are no problems, struggles, or obstacles in your life, you’re not growing. And if you’re not growing, you’re dying. You can’t give in to defeat. You can’t spend your time wishing things were easier, that you were luckier. Instead, spend your time determined to make yourself better. Refuse to let a scarcity mindset defeat you, so that you can live the life you want.

How to Find Out if You Were Affected by the Equifax Hack

Even if you’ve never used Equifax, the credit reporting agency could still have a significant amount of your personal information.

Last Thursday, Equifax said they had suffered a data breach, and as many as 143 million people could be affected. That’s almost half the country. The cybercriminals stole names, Social Security numbers, birth dates, addresses, and some driver’s license numbers. Basically, everything needed for the perfect identity theft cocktail.

In addition, credit card numbers for about 209,000 people were exposed, as was “personal identifying information” on roughly 182,000 customers involved in credit report disputes.

Equifax will not be contacting everyone who was affected by the breach, but will send direct mail notices to those whose credit card numbers or dispute records were accessed.

So, how would Equifax (one of three nationwide credit-reporting companies) have your information if you’ve never used their services? They get information from credit card companies, banks, retailers, and lenders, without you even knowing it.

The company is encouraging you to check if you were affected by the hack, and to sign up for credit monitoring and identity theft protection. They’re providing free service for one year through TrustedID Premier. You can access this service whether or not you’ve been affected by the breach.

To do this, go to www.equifaxsecurity2017.com and click on the Check Potential Impact tab. You will then be given a date when you can return to the site and sign up for the free service.

If you believe you’ve been affected by the Equifax hack, one option would be to place fraud alerts on your credit reports.  This would force a lender to contact you to verify your identity before issuing credit in your name. You can place an alert on your report for free by contacting one of the credit agencies (Equifax, Experian, TransUnion), which is then required to notify the other two. A fraud alert lasts for 90 days, and can be renewed.

A more iron-clad option would be placing a freeze on your credit. This would prevent a lender from being able to pull your credit report, and therefore wouldn’t be able to extend the credit. A credit freeze doesn’t affect any current credit you may have open. It just prevents new credit from being established in your name. Of course, you can temporarily unfreeze your credit, should you need to access it.

While a credit freeze may seem extreme, it’s something worth considering in this instance.

If you’re going to freeze your credit, you should do so at all three agencies. That way, no matter what agency the lending institution uses, your credit cannot be pulled.

Here are the contact numbers for each company, and links to their dedicated freeze landing pages. All of the numbers listed here are for automated freeze services, so that you can easily freeze your credit over the phone in just a few minutes:

Equifax: 1-800-685-1111

Experian: 1-888-397-3742

TransUnion: 1-888-909-8872

The Federal Trade Commission’s website also offers information about how to protect yourself against fraud.

If you have further questions regarding the data breach, Equifax has set up a designated call center at 1-866-447-7559.

We are encouraging all of our clients to take this data breach seriously, and to take the steps necessary to protect yourself against any threat of identity theft.

This article first appeared on CNN Money. To read the full article, click here

The Best Advice I Would Give My Younger Self

Last month, I turned 40. It’s not an old age, but it’s an age where you pause for a moment, and start to reflect more deeply on your life – what’s left of it, where you came from, and where you’re going next.

I’ve never been happier with who I am, and where I am, than right now. I love what I do, I love my family, and I have great friends. I am truly living the life I want to live.

Lately, I’ve found myself thinking about all the things I wish I could’ve told my younger self, including how life really works, and what’s true versus what society teaches us. It would’ve erased a lot of the misconceptions and assumptions I had growing up. My road to happiness probably would’ve been a lot smoother.

If I could go back in time and sit down with that kid, I imagine it would go something like this…..

Hey buddy, I know it’s hard right now. Mom’s struggling to pay the bills and put food on the table, and you never know how long you’re going to live in one place, or when the landlord is going to come knocking.

Knowing any other life seems virtually impossible for you. When the teachers ask, “Who wants to go to college?”, you don’t even bother raising your hand. What chance do you have of making it to college, right?

But, it’s all going to be okay. It will get better. Soon, you’ll realize two stark realities – being broke is horrible, and having zero control over your environment is crippling. It’s these realizations that are going to light a fire in you.

You see, you’ve been taught to believe that you’re a product of your environment. But, you don’t have to live this way when you get older. You don’t have to be defined by your current circumstances. Right now, when you look at successful people, you think they’re just lucky – they were a product of the “right” environment. You think they have access to resources and opportunities that you’ll never have, simply because of the difference in your circumstances.

One day, the desire to prove yourself will force you to make a promise that you’ll end up somewhere better. You won’t know how you’ll do it. But you’ll clean carpets, get a paper route, excel in football, and start to position yourself for a better future.

And guess what? You WILL make it to college. Even crazier, you’ll get your Master’s Degree, and land a corporate job at one of the biggest tech companies in the world.

You’ll come to this moment in your life, the moment where you’ve successfully changed your entire reality. You’ll have control. You won’t be broke. But, you still won’t be happy – and you won’t know why at first.

While you’ve spent your whole life working to better yourself, you’ve been running after all the wrong things. You’ve been chasing dollars, trying to crack the corporate bureaucracy, and wasting away trapped in a scarcity mindset. If you keep down this path, nothing will ever be enough for you. You’ll continue to view your life, and money, in the wrong way.

It’s this pivotal moment in your life when you’ll have to make a choice – settle, or create your ideal environment, change your mindset, and live the life you want.

Buddy, the world isn’t separated into lucky and unlucky. The difference is that successful people don’t let themselves become a product of their environment. Instead, they make their environment a product of them. They think with an abundance mindset, and in turn, create environments that further their most important goals.

My biggest hope would be to save you from spending the first part of your life trapped in a scarcity mindset. Too much time was wasted thinking “I can’t do that,” believing others’ success is at the cost of someone’s failure, and thinking some will have plenty while others will always lack.

You have to change the way you think about money, success, and life in general – now. You have to start thinking with an abundance mindset. That’s when you start asking “How can I do that?”, and viewing every obstacle as an opportunity for success. You’ll understand that money is simply a tool to help you live the life you want.

If there’s only one thing you learn from me today, let it be that an abundant mindset fuels an abundant life. Success isn’t about how much power and money you have. It’s about how you can use money to create opportunities that help you grow, live intentionally with your money, and that put your resources to work for YOU. It’s about living the life you want, at every stage of life.

Why High-Income Earners Are Living Paycheck to Paycheck

A six-figure income can go a long way in easing financial stress. But unfortunately, it doesn’t eliminate the risk of living paycheck to paycheck.

It’s easy to associate those who make a modest salary or work in a low-paying job with a “paycheck to paycheck” lifestyle. But, a study from Nielsen Global Consumer Insights is changing the game. The study found that one in four families making $150,000 or more are living a similar lifestyle.

Lifestyle Inflation: The Rich Man’s Kryptonite

There’s a concept that even some wealthy people have trouble understanding – it’s not how much you make that matters, but how much you spend that matters.

If you make $500,000 a year, but your annual expenses total $450,000, you’re completely maxing out your lifestyle. Doing this means that you will never reach your full financial potential. That’s because you’re eroding 90% of your money just as fast as you’re making it.

High-income earners routinely suffer from lifestyle inflation. I’ve seen it happen more times than I can count – people start earning more money, and in turn, slowly start upgrading their lifestyle. Before they know it, lifestyle “creep” has sprinted out of control and has them completely handcuffed.

Lifestyle inflation generally goes toward things that don’t bring much value to your family’s financial life, either. This means things like expensive homes, cars, traveling, and just plain old foolish spending. It’s great to have and do all these things, but what’s not great is winding up house poor and car poor.

A better use for that excess money would be to invest in yourself, or in your most important financial goals.

Related: The 12 Boring Secrets to Getting – and Staying – Rich That Millionaires Won’t Tell You

Wealth Erosion Overload

Buying “things” are only the start of lifestyle inflation. They’re the roots that sprout all the other eroding factors.

For example, say you buy a home worth $1.2 million. Pile on top of just that the mortgage, property taxes, utilities, and general upkeep, and you could easily add another $50,000 to your annual expenses. Expensive items aren’t only expensive to buy, they’re expensive to own.

Owning expensive things is an easy way to erode your income. Then, consider all the other eroding factors on top of this that you’ll encounter – economic inflation, taxes, lost opportunity cost, planned obsolescence, and more.

Related: 3 Dangers of Ignoring Your True Cost of Living

Be Reasonable, Not Lavish

So, how can you avoid finding yourself in this very situation?

Simple – live reasonably, not lavishly.

This is something that I try to instill in all my clients, even the wealthy entrepreneurs that I work with. Actually, this mantra is probably more important for them than anyone, because they have the most to lose.

Now, I’m not saying that I expect you to live in a tiny home, drive an old, beat-up car, never take a vacation, and never purchase something that you want. There’s absolutely no shame in indulging – I’m all about working hard, playing hard, and being able to enjoy the finer things in life.

After all, the goal is to be able to live the life you want.

But to do that, you have to abide by some simple rules to ensure that happens. These include spending less than you make, paying for things in cash rather than financing everything you own to make a purchase, not racking up high-interest debt, saving at least 15% of your income, protecting yourself and your assets, and remembering that slow and steady wins the race.

Related: 15 Common Sense Money Principles That Will Change Your Life

There’s something very important that I’ve learned from coaching clients over the last 14 years – the ones who understand that it’s the simple, boring disciplines that hold the secrets for getting and staying wealthy, are the ones who reach their full financial potential.

Why Does It Matter to You?

Living paycheck to paycheck is a possibility for anyone – whether you make $50,000 or $5 million. That’s why, as your income grows, you have to control lifestyle inflation before it controls you.

Living the life you want requires a balancing act between growing your wealth and smart wealth management. You should always be thinking with an abundance mindset, but in the right way. It’s not about how you can use your money to buy lots of things. It’s about how you can use your money to create opportunities that allow you to grow, to help you live intentionally with your money, and that put your resources to work for you. That’s how you reach your full financial potential.

12 Simple Rules for Building and Sustaining Your Wealth

When it comes to finance, we live in a world of information overload. One opinion here, another there. You can find about 15 ways to go about doing any one thing. But when it comes to building and sustaining your wealth, it’s important to remember that simple is better.

In fact, that’s how successful people reach the pinnacle – they practice simple daily disciplines obsessively. Jim Rohn said it best, “Success is nothing more than a few simple disciplines, practiced every day.”

For my purposes, and yours, I would amend this to say, “Reaching your full financial potential is nothing more than a few simple disciplines, practiced every day.” That’s how you end up living the life you want.

No Expertise Needed

The simple disciplines we’ll discuss here are just that – simple. They’re not hard to master. No expert knowledge is needed. Perhaps that’s because the best simple disciplines really come down to common sense.

They’re the things that you know you need to do, that you know are good for you. But, they’re the things that are the hardest to do. If it was easy, everyone would be successful. I think that’s an important distinction – finding success is simple, but not easy. You have to be willing to do what others are not.

12 Simple Rules for Building and Sustaining Your Wealth

Reaching your full financial potential is simple, not easy. But, I know that if you practice the simple disciplines we discuss here, it will get easier.

I can say that because I’ve seen it happen first-hand. I’ve been instrumental in instilling these simple disciplines in my clients’ daily lives, in their financial philosophy, and have watched them succeed over and over again. You can too – but it starts with changing something you do daily.

It starts with these 12 simple rules for building and sustaining your wealth:

1. Define your “why” for money. Why do you invest, work, any of it? What is it that money enables you to do? How does your money further and support your most important values? Successful people know the answers to these questions, and you need to know them too. Otherwise, you have nothing to fight for. You can’t live intentionally with your money without this.

2. Conduct your ultimate wants analysis. One of the biggest problems with traditional financial planning is that it relies on a needs analysis, on a scarcity mindset. It limits your financial potential before you even start your journey. But, thinking about what you truly want from life forces you to think with an abundance mindset. That’s how you break through the glass ceiling between what is and what could be.

3. Live within your means. If you’re constantly maxing out your lifestyle, you will never reach your full financial potential. I promise. Living reasonably instead of lavishly can save you from living a deceptively poor lifestyle. Of course, it’s alright to indulge – after all, you’re striving for the life you WANT to live. But, that doesn’t mean undoing all your hard work.

4. Pay yourself first. If you can’t master the simple discipline of saving, everything else in your financial life will have to work harder to pick up the slack. Most of America is experiencing this, since they’re saving virtually nothing. You should be saving 15% – 20% of your income annually, maintaining 3-6 months of liquid expenses. It’s also smart to have 6-12 months of near-liquid cash reserves.

LIFEHACK –Automatic deductions are one of the easiest ways to make sure you pay yourself first, every time.

5. Avoid high-interest, bad debt. Americans currently owe $1 trillion in credit card debt, with balances averaging $9,600. Carrying substantial amounts of high-interest debt like this directly affects your ability to save and invest for your future. And, unless your investments are earning the 15%+ interest you’re probably paying on that debt, investing is an act in futility for you at this point.

Related: Should You Invest or Pay Down Debt?

6. Create your Investment Policy Statement. This document puts your investment strategies, and your most important values and goals on paper. When the market moves, this is the document that keeps you disciplined – it reminds you why you’re invested a certain way. It reminds you of your “why” for money. If an investment doesn’t align with this criterion, then you shouldn’t invest in it.

7. Protection first. Think of everything you’ve built. Think of everything you’ll build in the future. Now, think if it were to all come crashing down. Ugly, isn’t it? That’s why success isn’t dependent on how much money you have. It’s dependent on how well you protect your life’s work from what can destroy it. If you don’t do this, nothing you’re working toward matters.

8. Assemble your power team. You need to assemble a team of your most trusted advisors to help guide you toward financial independence. They should all know one another, and meet regularly on your behalf. Discussions should be had before changes are made in one area of your financial life, to evaluate the impact on your complete financial position. Ideally, you would have one advisor acting as your personal CFO, coordinating this team and your complete financial life.

9. There’s a difference between risk and volatility. Risk simply means the probability that your investment will lose money. The higher risk, the higher that chance. It has no direct effect on your returns. Volatility is the amount of fluctuation a portfolio can experience. The higher the volatility, the more erratic your compound returns can be. Volatility has a direct effect on your returns – it’s what erodes your wealth. Therefore, your first priority should be to mitigate volatility.

Related: Volatility Gremlins Are Killing Your Bottom Line

10. Time IN the market is what matters. Stock picking, market timing, overconfidence, and more can all wreak havoc on your wealth. You’ll rarely get in or out at just the right time, or consistently pick the winning stock. If you don’t believe me, then maybe you’ll listen to a critical piece of advice from Warren Buffett, “Market forecasters will fill your ear, but never your wallet.”

Related: 4 Reasons Why Market Timing Fails as a Money Maker

11. Little changes can yield big results. You don’t necessarily need to make drastic changes to reach your full financial potential. Say you make $100,000 a year and are saving 10% of your salary into a portfolio that earns 7% return annually. Do this for 35 years, and you’ll end up with $1,479,134. But what if you increased your savings rate by just 1%? You’d end up with $1,627,048. That’s $146,914 more just by saving another measly percent.

12. Think like the wealthy when it comes to estate planning. The wealthy have three main goals when it comes to estate planning, 1) Maintain satisfactory streams of income, 2) Protect my wealth from creditors, 3) Avoid the wealth transfer tax forever. Trusts are a great way to accomplish this. And no, trusts and estate plans are not just for the ultra-wealthy. Everyone should have a basic estate plan that, at a minimum, includes a will and durable power of attorney.

Related: Secrets from the Rockefellers: How They’ve Protected Their Wealth for Generations

Why Does It Matter to You?

Remember, reaching your full financial potential is simple, but not easy.  However, if you follow the rules (simple disciplines) discussed here, you’ll find that living the life you want to live can start to go from dream, to an action plan for reality.

20 Life Lessons from Byron Wien That Will Make You a Better Person

Byron Wien has a career that spans decades on Wall Street, and has built himself a prestigious reputation in the process. Born in the Depression era, Wien became a teenage orphan when both of his parents died before he was 14. But, he didn’t let life’s bad breaks defeat him. Wien would go on to attend Harvard University, where he graduated with a Master’s Degree.

He first entered the financial industry by working for Morgan Stanley in 1984, and eventually became the company’s top investment strategist. Today, he is the Vice Chairman of Blackstone Advisory Partners.

So, who better to take some life lessons from? I read the original article a few years ago when Blackstone first published it. I came back across it recently, and it resonated with me just as much as all the other times I’ve read it. The wisdom Wien provides in the article is simple, but invaluable. That’s why I wanted to share it with you.

Here are Byron Wien’s 20 life lessons he’s learned in his 80+ years:

1. Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises, which I started doing in 1986, has been a defining product. People all over the world are aware of it and identify me with it.  What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end.  If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.

2. Network intensely. Luck plays a big role in life, and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books, and emails to people to show you’re thinking about them.  Write op-eds and thought pieces for major publications.  Organize discussion groups to bring your thoughtful friends together.

3. Treat new people like old friends. Assume he or she is a winner and will become a positive force in your life. Most people wait for others to prove their value. Give them the benefit of the doubt from the start. Occasionally you will be disappointed, but your network will broaden rapidly if you follow this path.

4. Read all the time. Don’t just do it because you’re curious about something, read actively. Have a point of view before you start a book or article and see if what you think is confirmed or refuted by the author.  If you do that, you will read faster and comprehend more.

5. Get enough sleep. Seven hours will do until you’re sixty, eight from sixty to seventy, nine thereafter, which might include eight hours at night and a one-hour afternoon nap.

6. Evolve. Try to think of your life in phases so you can avoid a burn-out. Do the numbers crunching in the early phase of your career.  Try developing concepts later.  Stay at risk throughout the process.

7. Travel extensively. Try to get everywhere before you wear out. Attempt to meet local interesting people where you travel and keep in contact with them throughout your life.  See them when you return to a place.

8. When you meet someone new, find out a formative experience that occurred in their life before they were 17. It is my belief that some important event in everyone’s youth has an influence on everything that occurs afterwards.

9. Use philanthropy to relieve pain rather spread joy. Music, theatre, and art museums have many affluent supporters, give the best parties and can add to your social luster in a community. They don’t need you. Social service, hospitals and educational institutions can make the world a better place and help the disadvantaged make their way toward the American dream.

10. Younger people are naturally insecure and tend to overplay their accomplishments. Most people don’t become comfortable with who they are until they’re in their 40’s. By that time they can underplay their achievements and become a nicer, more likeable person.  Try to get to that point as soon as you can.

11. Take the time to give those who work for you a pat on the back when they do good work. Most people are so focused on the next challenge that they fail to thank the people who support them. It is important to do this.  It motivates and inspires people and encourages them to perform at a higher level.

12. When someone extends a kindness to you write them a handwritten note, not an e-mail. Handwritten notes make an impact and are not quickly forgotten.

13. At the beginning of every year, think of ways you can do your job better than you have ever done it before. Write them down and look at what you have set out for yourself when the year is over.

14. The hard way is always the right way. Never take shortcuts, except when driving home from the Hamptons. Short-cuts can be construed as sloppiness, a career killer.

15. Don’t try to be better than your competitors, try to be different. There is always going to be someone smarter than you, but there may not be someone who is more imaginative.

16. Always take the job that looks like it will be the most enjoyable. If it pays the most, you’re lucky. If it doesn’t, take it anyway, I took a severe pay cut to take each of the two best jobs I’ve ever had, and they both turned out to be exceptionally rewarding financially.

17. There is a perfect job out there for everyone. Most people never find it. Keep looking.  The goal of life is to be a happy person and the right job is essential to that.

18. Always find someone younger to mentor. It is very satisfying to help someone steer through life’s obstacles, and you’ll be surprised at how much you will learn in the process.

19. Every year, try doing something you have never done before that is totally out of your comfort zone. It could be running a marathon, attending a conference that interests you on an off-beat subject that will be populated by people very different from your usual circle of associates and friends or traveling to an obscure destination alone. This will add to the essential process of self-discovery.

20. Never retire.  If you work forever, you can live forever.  I know there is an abundance of biological evidence against this theory, but I’m going with it anyway.