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financial wellness

The Right Mindset for Growth

There are simple rules to follow to prime your financial engine for more effective growth. Following these can be difficult for some, but these general rules all offer benefits. It is not enough to only prime your finances for growth though – you must also prepare and adapt your mindset and view of the world to weather the uncertainty of the market.

These are some common mental pitfalls that can torpedo your investment strategy and impede your financial wellness:

Nine Negative Investing Behaviors

  • Loss Aversion: We feel loss more deeply than the happiness that comes from gains. Avoiding loss can cause you to hold on too long to a failing investment, have unrealistic expectations of low-risk investment returns, and make poor stock selections based on these expectations. It hurts, but you have to know this: some volatility and loss is to be expected in any financial model.
  • Narrow Framing: When you make decisions without considering all possible implications. Narrow framing leads to market bubbles and bad investments based on hype and chasing growth that has already occurred. This can have impacts far beyond individual investors, as in the dot-com and housing bubbles of the 2000s.
  • Mental Accounting: Not tracking your finances on paper can lead to varying levels of due diligence and planning. Arbitrary categorization can work against your goals, like impulse-spending your tax refund or bonus.
  • Diversification: Diversification should be used as a whole across your portfolios, and be evaluated based on overall risk, rather than industry sector. Many investors chase risky profits across many industries and consider themselves “diversified.”
  • Herding: It’s easy to follow the crowd and this can play off our tendency toward confirmation bias. There’s comfort here, but remember how many people lost their shirts in following the crowd on recent bubble bursts.
  • Regret Aversion: We experience much more mental pain when we commit an error than when we miss on an opportunity due to inaction. This causes investors to sell too early to lock in on profits, missing out on larger gains later. Some may hold their positions too long, hoping for an upswing to erase their standing losses that grow each day.
  • Media Response: Don’t be too eager to buy into what talking heads are selling you – confirmation bias can be deceiving. Failing to examine potential negative impacts or researching alternative information sources can lead to narrow thinking and narrow investing that can net big losses.  
  • Overconfidence: Nobody can constantly beat the market. Even investing “gurus” take consistent losses in their financial models. If you don’t plan to roll with the punches and absorb volatility, your financial model will quickly be broken and you could wind up broke.
  • Anchoring: Our previous experiences inform our outlook, worldview, and plans for tackling the future. Even if they don’t apply. These informational anchors can hold you down if you fail to recognize them for what they are and move beyond this frame of reference.

These negative behaviors can cause you to abandon key points of your financial model and sound investment strategy. Remember, it’s all about time in the market, not timing the market. If you want to grow your wealth you need to face some intellectual discomfort to recognize and overcome these negative behavioral impulses in yourself.

Your Investment Policy Statement

A powerful way to overcome these negative tendencies in yourself is to draft a personal Investment Policy Statement. Much like a personal manifesto or a company’s mission statement, this is meant to help you unify behind a vision guiding your investment strategy toward your financial goals. Some areas to consider including are:

  • Purpose: What is your purpose and goal for your IPS?
  • Values: What values guide your life and decisions? How do you want your investment decisions to support these?
  • Objectives: What do you want to achieve through your investments? What timeline, risk tolerance, and performance objectives figure into those goals?
  • Duties: What role does everyone on your investment team play? What is your involvement? What expectations do you have for yourself and the rest of your team?
  • Portfolio selection: What investments (based on your previous statements) will comprise your portfolio? Laying out a complete picture here can be a powerful evaluative tool.
  • Performance: How do you select your investments and what standards must they meet in order to remain as a holding or purchase goal? Base these decisions on your statements and objective facts.
  • Costs: Any costs associated with managing your portfolio should be 100% transparent.
  • Review: How often will your portfolio and IPS be reviewed? We recommend at least annually. Make sure that as your life changes you update your strategies to fit your future needs.

With the right mindset and a clear investment policy guiding your financial model, you can hack your future and grow your wealth more effectively. These are real steps towards true financial freedom, of being able to rely on your own wealth for your future. Want to figure out the path forward together? Contact us to schedule a consultation.

The Rules of Financial Balancing

Achieving financial balance is no easy feat, but it provides countless benefits to your life in personal finance and beyond. Following the rules of financial balancing helps reduce your reliance on your paycheck and removes the fear and uncertainty that comes with living in debt or living hand to mouth.

Follow these basic rules to help get your financial house in order and start moving towards true financial freedom:

Maximum Protection

As discussed in our series on protecting your wealth and risk management, it is not enough to only protect your current possessions and investments. You must protect your full economic value- including future earnings- to achieve maximum protection. You can find a more in depth guide to achieving this in our previous posts, but building this safety around your income, investments, property, and life will help to protect yourself and your loved ones in case of a terrible tragedy. It may seem daunting at first, but the diligence needed to protect yourself and future is as important as the rest of these rules.

Annual Savings

What percentage of your income are you saving? We recommend that you save and invest 15% of your income annually. This may seem like a large number, but it is essential to achieving your full economic potential. If something is standing in your way of completing this goal, you must figure out how to break down that barrier – without this amount of liquidity and cash reserves, you put your family and future at a greater risk of financial catastrophe or failure. If you’ve struggled with debts, you can recapture those losses with the right financial model after you’ve eliminated that dead weight from your financial life.

Short Term Liquidity

You should always have 3-6 months of cash reserves on hand – this means enough cash to cover ALL of your expenses for that span of time, in case of a job loss or emergency. It is also smart to have 6-12 months of near cash in reserves held in an investment such as short-term bonds that are easily accessible. This cushion provides many benefits, including increasing your insurance deductibles to lower your premiums, freeing up more cash for investing and savings. These reserves give you peace of mind and the ability to navigate short term troubles without the added stress and worry of taking on debts.

A Balanced View of 401(K)s

Your 401(K) is a powerful tool for retirement. But it’s not an investment that you have easy access to. Taking loans against your 401(K) before retirement can cause major harm to your liquidity by robbing Peter to pay Paul. Early withdrawal is not any better, as you suffer an additional 10% penalty taxed as income, typically requiring you to pay taxes owed to the government. Even if you are just investing, your 401(K) can have limited options for investment selection, you can lose your employer match, and you typically pay for more expensive funds than in other similar accounts.

None of this is to say 401(k)s are bad. If your company offers one along with a company match, you should at least participate until you achieve the match, but only if you have achieved your short-term liquidity. This can be a complex balance to achieve and is an issue you should discuss in-depth with your trusted personal financial advisor.

Short Term Debt

Your short term debt should be zero. Carrying debts can wipe out your future profits as interest accrues and gains momentum. The two most common forms of short term debt that people carry are auto loans and credit card debt. You shouldn’t consider your car as an investment because it depreciates rapidly. A brand new car loses 50% of its value after the first three years on average. If you know how to shop smart, a used car that is 25% cheaper can be driven for years and preserve more of its value as an asset. Always use your debt intelligently!

Credit card debt can be one of the most crippling things for your financial life. An average interest rate of 15% means you pay $0.15 for every dollar you don’t pay off each year. As that accelerates, it can quickly grow out of control and destroy your financial life. If you can’t pay cash for something, you probably cannot afford it. Credit cards should be avoided, but held for cases of extreme emergencies or very special circumstances.

You may need to slow down other aspects of your financial life and even explore debt restructuring to achieve your target liquidity – this safety net is the most important part of your financial life. It’s crucial to follow these rules of balance in this order to move in a direction of health, stress reductions, happiness, and the best opportunity for financial growth.

Ready to get a complete picture of your financial health? Complete this questionnaire to get started with one of our advisors.

The Biggest Threats To Your Financial Wellness: Fear and Hesitation

You’ve made it to the end of our three-part series about the biggest threats to your financial wellness. (Wanna catch up? Check our Part One and Part Two, then come back.) If you’ve noticed a theme, it’s because the biggest threats to your finances come from within.

In this post we’ll discuss two of the most common failings people experience: fear and hesitation. If you let these internal feelings dictate how you live your life and use your finances, you’ll struggle to achieve your goals.

Financial Fears

Money is a tool. Any good tool is designed to make a person’s work easier. You have to let your money work for you to make your life and future easier and better. But uncertainty in the market and fears powered by “what if?” thinking can threaten the power of your financial strategies. Decision making based on fear is nearly as dangerous as impulsive behaviors. Fear clouds your mind and removes objectivity, turning everything into a dire situation when you need calm and collected observation skills.

Allowing fear to dictate how you utilize your personal finance is a surefire way to reduce its potential. Panicked selling during market downturns, jumping on investment fads, and other fear-motivated behaviors can result in short-term gains but long-term lessons. It’s all about time in the market, not timing the market. Combat your fear by building a strong financial strategy and standing firm in it. Your future will thank you.

Hesitation and Personal Finance

Fear and self-doubt can do more than motivate poor decisions: they can cause paralysis by analysis. If you are facing a large problem and feel overwhelmed, useful data can make it worse. The decision becomes larger than it actually is and you end up missing out on a valuable window for your decision, leading to lost opportunity cost. When it’s time to act, you won’t have time to hesitate. Do your research, consult with a trusted advisor, and act decisively. Commit to a plan and then measure the result. Even if it doesn’t go as well as you hoped, you gain useful insight for future initiatives. It can also teach you a lot about yourself, which is always valuable for your future.

Overcoming Yourself

Unfortunately, fear and doubt will always be present in your financial life in some way. You have to accept them as part of yourself and learn to use that energy when making decisions. Any time a decision has risks associated, you will have some sense of fear or doubt. If you allow your feelings to dictate your financial life you will be stuck for a longer time than you need to be. You are master of your own destiny. If that’s not empowering, we don’t know what is.

Want to figure out a bold financial strategy that works for you? Need to determine your risk tolerance? Complete this questionnaire to determine how we can help you guide your financial future.

The Biggest Threats To Your Financial Wellness: Ignorance and Impulse

As we continue our series exploring threats to your financial wellness, we need to discuss two of the biggest issues for American personal finance: Ignorance and Impulse.

Much of the American public is uneducated about personal finance and how best to navigate the space. There’s too little training in how to teach yourself and train against your base impulses to succeed, especially as young people go through high school courses focused on STEAM skills. We’re preparing our youth to be successful professionals but we are failing to groom them for financial wellness. This can be a painful topic, as our lack of teaching the next generation can often reflect our own blind spots.

Financial Ignorance

If you’re like most Americans, your financial education primarily consisted of two lessons: how to balance a checkbook and supply/demand economics. But checkbooks are outmoded and don’t fit today’s digital landscape and supply and demand can’t be the sole guiding principles for your financial life. This unawareness is taken advantage of by predatory institutions who use confusing language to obscure the uneven nature of their business relationships. From payday loans to confusing jargon surrounding different account types, most financial vehicles work in favor of the institution rather than the individual.

So how can a person improve themselves to push back against these practices? Through education. Whether through community college courses, Udemy.com courses, retaining a personal advisor, or spending some time reading on Investopedia.com, a wealth of resources are available online.

When determining what content deserves your attention and, potentially, money, ask yourself “who benefits?” Many thought leaders in the industry can push out books, workshops, and other media as a means to augment their sales funnel. Avoid paying for these sorts of things when possible – your local public library likely has a wide selection of useful texts. If not, you can always request they purchase what you want to read.

Impulsive Behaviors

How many Amazon purchases did you make in 2008? Compare that number to last year, and we’ll bet it increased by a factor of ten. Impulse buying fueled by credit cards, saved billing data, and intricate marketing mechanisms targeting your impulses make this sort of purchasing a pervasive and sneaky way for companies to increase their revenue while decreasing your net worth.

Credit cards.  Lunches out.

Small behaviors can become big, problematic habits. If the average lunch out costs $10, and you’re going out for lunch 5 days a week, that can add up to $2,500 annually! (Compiling your small purchases and habits into large chunks can be an eye-opening experience – do you really want to pay $4,800 over 10 years for a gym membership you never use?)

If your spending is out of hand the best thing you can do is track everything. Keep a spending journal or spreadsheet. Use an online service to track where your money is going. Whatever you have to do, identify the problematic habits that are costing future you thousands of dollars. Once you’ve found them, you can change the problematic behaviors.

Master Your Future

You are the master of your financial future. Market upswings and downswings are going to occur and you have to be ready. Before making a big decision or impulse purchase, pause for a moment and explain why you are doing what you are doing – if saying it out loud doesn’t make sense, reassess your choice. However, you are only human – you will fail to control your impulses and you will make poor judgement calls. The trick is in recognizing when you slip and correcting for it ahead of time.

Build some discretionary spending into your budget. Give yourself an allowance. Make yourself save for big purchases the way you had to as a child. It’s not enough to just arm yourself with good behaviors, though. They have to be backed up by a sound financial logic and strategy that will carry you through the good times as well as the bad. Whether this means online courses, extensive reading, or engaging with a financial advisor, you have to figure out what works best for you and then stick to it.Ready to master your financial future? Learn more about our private client services and how we can help you build your wealth.

The Biggest Threats To Your Financial Wellness: Debt and Undisciplined Behavior

If you’ve overcome the challenges to building wealth and have put a plan in place to systematize your finances, you’re off to a great start. In addition to continuing these behaviors over time, you must guard your burgeoning wealth against threats from within and without. Undisciplined behavior can keep your financial wellness plan from taking hold while accruing too many debts of the wrong sort can slow down your momentum for years to come.

High-Interest Debts

Credit card balances.

Cash advance.

High-interest debts are the sort you want to avoid. They can act like an anchor, weighing down your financial game plan and holding back your life from improving and advancing. Some ways to avoid building up these problematic balances are:

  • Don’t spend what you don’t have. Sticking to your existing budget can be difficult, but it’s better than crushing debts.
  • Pay off credit card balances at the end of every month. If you have to use a credit card, you should pay off the balance in full every month.
  • Start an emergency fund at a separate institution from your regular accounts. This will let you build your fund and keep it separate from your regular pool of finances.
  • Set up automatic savings deposits. Take advantage of the systematized processes available to build your finances without having to think about it.  
  • Run your home’s finances on the cash envelope system. This process involves planning and setting your budget based on cash banked in envelopes. Once the envelope is emptied, your budget is depleted for the month and you have to wait to re-up your cash.

In addition to these avoidance behaviors, you should never utilize payday loans. These predatory lending vehicles are structured in a way to accelerate your debt load and keep you paying forever. They contribute to a vicious cycle of poverty in the US that affects far too many people. Negotiate with your bills due, explore a refinancing loan, or take on a second job to handle difficult financial issues rather than this high-risk move that does nothing to benefit you.

Healthy Debts

Not all debts are created equal. While high-interest debts are a threat to your well-being, some debts present opportunities to improve your life down the line. Examples of good debts are:

  • A mortgage – the opportunity to build equity and potentially create a second income stream by renting your property is a huge investment in your future.
  • Credit consolidation loan – using this option to eliminate your high-interest debts can keep some people out of bankruptcy. They do come with restrictions that should be considered very carefully, but consolidation loans can represent a step towards greater financial awareness and freedom.
  • Personal business loan – taking a smart loan to help finance a personal business venture can lead to greater financial prosperity. We suggest you begin personal business ventures as an alternative venture to establish your business before exploring financing.

As opposed to unhealthy debt, good debt offers a benefit to you that is equal to the financial risk involved. These debt options have more stable loan rates and are less exploitative, serving as a launching pad for you to invest in your future. Unhealthy debt only solves a temporary problem which stems from poor financial discipline.  

Lack of Financial Discipline

Much misery can be tracked to undisciplined financial behaviors. Unhealthy debts arise when people act out of desperation or on impulse. Anyone can come up with a financial game plan to improve their life, but it takes real guts and determination to stick to it.

That sort of hard work pays off in the end, but it requires a dedicated patience that has fallen out of style in a society that puts a premium on instant gratification. The trick is to build a healthy financial mindset and cultivate a relationship with your finances in which you realize that your money is a tool for wellness, not a delivery system for your happiness.

Building Your Financial Game Plan

If you’ve successfully avoided those problematic debts, pat yourself on the back. If debt is an issue for you, you deserve recognition too – learning more about personal finance is the first step in finding your way out. Exploring what solution works best for your case, or whether to employ the debt snowball or debt avalanche method can be eye-opening.

Set and track a budget and stick to it, and you will see those problems begin to melt away. The trick to sticking to your new, financially healthy lifestyle? A mindset of abundance and gratitude. Know that the future holds promises of opportunity to make your life better, and keep rising up to be financially ready to take advantage of those opportunities.

Want to learn more about building wealth and staying out of problematic debts? Change your world by joining us at JBWealthfit and start working on the future you want to live.