3 Tools for Taking Control of Your Money and Keeping Your Anxiety at Bay
When it comes to money, you are not always in control. Variables can include wild swings in the stock market or how much your home appreciates each year. I've seen too many clients worry about those things and color their thinking in unproductive ways. It can lead to making emotional decisions around money which normally doesn't lead to a positive outcome. One area I focus on in my practice is Behavioral Finance. In short, it's how our brains our wired to think about money. Logically we tend to know the right thing to do with our finances, but our emotions tend to get the best of us. Let me give you an example
As I was looking around the internet, I notice that the stock market was having a bad day. It was down 300 points. Ouch, that can't be good right? Let me see how that affects my 401k. I find my 401k balance and think- that's 3 days in a row the market is down. My account keeps dropping; what if that continues and all my hard work investing doesn’t show a return? Maybe we're headed to a bear market. Should I sell my funds to protect the downside?
That's a common thought I hear from clients. Now let's a take a rational look at the same scenario. The client is 42 and the portfolio they are talking about is a 401k. The objective is not to even touch this money until they are at least into their 60's. If they access it before age 59 1/2 then they may have to pay taxes and penalties, so this money is set aside for the long term. I remind them of this and we both agree that for this portfolio, the short term swings are to be expected and that we shouldn't worry about them as much. We've aligned their capacity for risk to their time horizon and it makes sense in the overall financial strategy.
What usually comes next is something like, "well I was a little concerned because my income is down this year and it has me worried” or it could be "I just paid to update my backyard patio and now my cash reserves are low". These other scenarios have compounded the situation to make it seem bigger than it actually was.
I noticed that this tends to happen when people don't have a plan. When we need to focus on what's most important- our family, our job perhaps, quite often our brains get cloudy. Here are items to reset the way you think
-- Create both a short- and long-term financial strategy. If this is done correctly, then this should consider being ready for many unexpected events. Think of the short term as less than 12-24 months.
Control What You Can Control
-- Most of the time, you may not be in control of an event or situation. But you can control your reactions. Your attitude. Your work ethic. I found this in a Harvard Business Review article that relates
"Attention management is the practice of controlling distractions, being present in the moment, finding flow, and maximizing focus, so that you can unleash your genius. It’s about being intentional instead of reactive."
It's not ideal to dwell on the negativity. Focus on what you can control to put yourself in the best possible mindset. This will help drive better decision-making.
Clarify your Goals
-- I've seen too many people make decisions with their money and aren’t really sure why they made those choices. Either they read it online or a friend told them they should do it. Every dollar you spend should have a purpose. However, if you don't know what's important to you or what you want, then how can you be sure you are allocating your money correctly. As you read this it may sound too basic- "Keith, of course I know what I want". Perhaps that is true. But is what you want aligned with where your money goes every month?
Take a minute to review and think about the 3 above items that are in Bold and Underlined. Would you say that you have optimized each of these within your personal finances? I would challenge you to write these down vs them swirling around in your head.
Contact me if you have questions or want to learn more how to create a Financial Strategy for both your short term and long goals.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Links to external sites are provided for your convenience in locating related information and services. Guardian, its subsidiaries, agents and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products, or services and make no representation as to the completeness, suitability, or quality thereof. Keith Taylor is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS) 6115 Park South Drive #200, Charlotte, NC 28210. 980-235-7819. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Centerpoint Wealth Strategies is not an affiliate or subsidiary of PAS or Guardian. CA insurance license #0G13915. 2020-104726 Exp 07/22