As a child, the idea of eating vegetables seemed as appealing as taking a cold shower. My parents would rave about how I would become big and strong if only I ate my veggies. Despite all their promises of the long-term benefits of such foods, I couldn’t get past the short-term pain of eating something so distasteful.
As adults, we still face this struggle: there are things we need to do for our own long-term benefit, but these to-dos often come with short-term pain or discomfort.
Though we may have left the picky eating habits of our childhoods behind, we may still find it hard to eat our “financial veggies,” or portions of our financial plan that we’ve ignored or put off because the idea of tackling these topics feels so unpleasant.
Sometimes, you know that addressing these areas would put you in a better financial position and closer to the future you want for your life. That still doesn’t make it any easier to deal with the short-term distaste of tackling them.
But as we mature from childhood into adulthood, most of us accept that eating vegetables is simply a habit we need to build to lead healthy lives — and in building that habit sometimes we realize we actually like the taste of some of those greens.
The same can happen with your finances when you accept there are some good habits you simply need to adopt. Here are a few of the more common “financial veggies” that investors struggle with today — and how addressing them can actually leave you feeling more satisfied with your financial plan.
The Gift That Keeps on Giving: Your Budget
Having a budget can seem like something young people must do when their incomes are small and they’re merely trying to survive. Budgets feel less important as we age because of our higher incomes — and the perception that budgeting is a tool to be used when in survival mode.
The truth is, the key to a good budget is not financial restraint but rather financial awareness. A budget helps investors be more aware where their money is going on a weekly, monthly, and annual basis.
This awareness can help individuals identify areas of spending that may be offering little value to their lives. Having that realization can allow someone to take the next step of reallocating that money to areas of life that provide more joy and satisfaction.
A helpful tool for a better budget? Automate your saving through direct deposit from your paycheck to your savings accounts. This way, you don’t see or feel the pain of saving; what’s left in your checking account can be spent without remorse.
Just as an ongoing awareness of your diet can help insure you live a long, healthy life, maintaining a budget can protect your ability to meet your lifelong financial goals.
The Best Time to Buy an Umbrella: Before You Get Soaked
Since the low point of the Great Recession in 2009, the S&P 500 is up nearly 300%.1 The terrific success of the S&P 500 over the past 9 years has many investors feeling healthy, wealthy, and wise.
Given the length and strength of this bull run, it’s easy to forget that in a short 18 months prior to March 2009, the S&P 500 lost more than half of its value catapulting investors to the sidelines as they could no longer take the agony of staying invested.2
In these merry times, it’s easy to get overconfident and overaggressive with our investment decisions given it’s been so long since we’ve felt the pain of a significant market decline like 2009. But now is the perfect time to protect against the inevitable change in market conditions.
After all, the best time to buy an umbrella is before the storm.
It’s impossible to predict the timing of the next market storm, which is why now is a great time to rebalance your portfolio allocation to stocks and bonds and make sure the risk in your portfolio doesn’t exceed your comfort or capacity for risk.
The Most Important Part of My Financial Plan
As CIO at Visionary, my passion and daily responsibilities center around investments. So it might surprise you to hear that the foundation of my financial plan – what gives me the most peace of mind – is not my investment portfolio.
Before considering how to grow my family’s nest egg, my first priority is protecting it from catastrophic risks such as death, injury, or litigation. Having life and disability insurance protects my most valuable asset – my ability to earn income year after year to provide for my family. An umbrella insurance policy reduces the risk of financial loss to my family in the event of a lawsuit.
Investors are usually most interested in talking about investment returns. But it’s critical to remember that missing the hot stock or earning 6% instead of 7% is unlikely to wreck your family’s financial future. Incurring a lawsuit, disability, or death in your family without being properly insured, however, certainly may.
The Best Gift You Can Give Your Kids
It’s not too early to get the perfect gift to tuck under the Christmas tree that your kids, young or old, will value more with each passing year: a completed estate plan.
That might sound dull (or worse), but the financial and familial costs of not having an estate plan at death can be significant. Deciding who will care for younger kids or how assets will be divided among older kids after you have passed should be the cornerstone of your financial plan.
An estate plan may also assist you in times of incapacity such as an accident or stroke. Having a power of attorney for both your financial and healthcare decisions can save your family valuable time and money if you become incapacitated — while also providing you assurance that your wishes will be followed.
Dealing with the stresses of a lost loved one are difficult enough on their own. Having an estate plan can ease the burden on your family during a very emotionally-charged time and help to prevent family disagreements that could result in irreparable harm to relationships after you’re gone.
Eating Your Financial Veggies Can Provide You with Better Financial Health
While the specific type of financial veggie you prefer to avoid may vary, we all have areas of our financial plan that need extra attention to achieve financial health.
As children, we were fortunate to have parents that held us accountable to eating our veggies to make sure our long-term best interests weren’t endangered by our short-term aversions.
A good financial planner can offer investors that same accountability to help ensure your aversion to the financial equivalents of green beans and brussels sprouts doesn’t jeopardize the long-term goals you hold for your wealth. You might even come to learn that your financial veggies are much more enjoyable than you ever considered.
Source: 1,2 Morningstar