In his 2018 book, “Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones,” James Clear defines a habit as “a routine or practice performed regularly; an automatic response to a specific situation.” The May 15, 2019, release of Charles Schwab’s annual Modern Wealth Survey indicates that bad money habits continue to plague too many Americans, especially millennials and Gen Z. Heads up. Skip a few lattes, buy James Clear’s book, apply his methods, and transform bad habits into wealth-building success.
The national survey of Americans ages 21 to 75 taken in February 2019, revealed a majority (59 percent) lived paycheck-to-paycheck. Forty-four percent carry a credit card balance, very expensive short-term financing. Do you know what your credit card charges? Have you read the fine print that comes with every bill?
Ponder the disclosure noted on a monthly statement from a leading bank card. If the card owner incurred no additional charges, and each month paid only the minimum payment, it takes 35 years to pay off the debt!
Only 38 percent of those surveyed have built up an emergency fund. Spending on “non-essential items” averages roughly $500 a month. Invest $500 per month at a 6 percent compounded annualized yield, and in 10 years you’ll have $82, 349; $232,176 after 20 years. Financial wellbeing is a function of positive habits trumping bad, willpower, discipline, resolve and focus...words indicating that optimal rewards come from a solid plan.
Schwab noted, “63 percent of Atlanta residents who have a written financial plan feel financially stable, while only 34 percent of those without a plan feel that same level of comfort.” Of those working with a planner on a regular basis versus those who do not, a far larger percentage pay bills and save each month, have an emergency fund, automate a portion of their income to go into savings, never carry a credit card balance, make other loan payments on time or have no debt.
Does it take big and hard changes in habits and behavior to move to a positive and confidence building path? “No,” says Beard. Tiny changes in behavior make a big difference. By making small behavioral adjustments, daily incremental changes in money habits, any habit, actually, a big difference becomes more noticeable over time.
“If you can get 1 percent better each day for one year, you’ll end up 37 times better by the time you’re done. Conversely, if you get 1 percent worse each day for one year, you’ll decline nearly down to zero. What starts as a small win or a minor setback accumulates into something much more.”
Consider. Your goal is to lose weight. So, you give up one sugary drink a day and hit the gym a few times a week, but four to six weeks later you don’t see a big difference, so you quit. Being impatient, we want instant results, a quick fix. The same thing goes relative to digging ourselves out of money holes. The miracle of compound interest and growth takes time to unfold. Money not spent but diverted to investments takes time to grow to meaningful and comforting proportions. It can take a saltwater oyster from five to 20 years to form a sizeable and valuable pearl.
Those with a written plan along with periodic check-ins with an advisor are more likely to score higher in four powerful metrics: 1) goal setting and financial planning; 2) saving and investing; 3) staying on track; 4) confidence in reaching financial goals. Why do top tennis players, golfers, other winning athletes still retain coaches? Impartial, unbiased, unemotional advice counts in keeping us on goal. We may fool ourselves, but we can’t fool our coach (or mom, for that matter, our original life coach!).
For the graduates of 2019, work on establishing good money habits now, especially if you must tackle student loans. Don’t let friends posting expensive experiences on social media influence you to spend more than you can afford just to keep up. The Schwab study showed that to be a problem. Dave Ramsey warns, “You must gain control over your money or the lack of it will forever control you.” Good advice. Congratulations and enjoy your summer!
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553;firstname.lastname@example.org. Securities & advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis is a registered representative and investment adviser representative of SFA which otherwise
is unaffiliated with Capital Insight Group. He’s a Gallup Certified Clifton Strengths Coach and Certified Exit Planning