Developing Sound Money Habits

Developing Sound Money Habits

July 08, 2021
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Developing sound money habits is the first step to financial freedom. We all want to make more money in life, but we need to learn how to live with what we currently have. Therefore, when that pay raise comes down the line (hopefully), we will already have established good habits.   

On Monday, Barry Ritholtz, Bloomberg Columnist and CIO of Ritholtz Wealth Management, published an article about ten simply money rules for investing success. I broke down my top five from his list below:


  1. Invest in yourself – Sometimes people forget that the greatest asset they own is themselves. They are willing to put money into speculative stocks or splurge on expensive items rather than buying a subscription to the Wall Street Journal or Bloomberg. Information is power. The more knowledge and different perspectives you take in, will help transform your life in ways that you did not think were imaginable. Everyone wants to be wealthy, successful, and happy in life. But who is willing to put in the work? You need to get your money to work for you instead of you working for your money. Invest in your future.

 

 

  1. Spend less than you earn - Most people pay themselves last. This can be offset by setting up automatic withdrawals from your checking/savings accounts into a retirement account. That way, it is out of sight and out of mind and you are constantly funding your retirement savings without much thought. Additionally, when people receive a pay raise, they will typically buy a new car, a house, or just go out and celebrate with family and friends. Warren Buffet once stated, “Do not save what is left after spending but spend what is left after saving.” Everyone wants to believe that more income will ultimately lead to success, but it is what you do with the income you make that ultimately makes the difference. John D. Rockefeller was once asked how much money was enough and he responded, “Just a little bit more.” Everyone, at every income level, tends to feel the same.

 

 

  1. Moderation in all things – When investing, it can be easy to get carried away. You can add margin to your brokerage accounts to allow you to make trades with funds that you don’t necessarily have. While this can be a sound investment strategy, you need to keep everything in moderation. It is ok for one to speculate, and frankly you should! Just don’t put all of your hard-earned money on one bet that might not pan out. Many people in the finance community will tell people to never buy expensive items and to keep purchases simple and cheap. But frankly, one can reward themselves with a new toy, such as a boat or a car, and still be financially free. Just keep your expenses in moderation and track your debts. Despite Dave Ramsey’s thoughts, all debt is not necessarily a bad thing. As long as you keep it in moderation and have a plan to pay it back in full. Also, spending your money to impress people is not a wise decision. Morgan Housel once stated, “Spending money to show people how much money you have is the fastest way to have less money.”

 

 

  1. Behavior is everything – The great Peter Lynch once said, “The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.” Investor’s emotions are the ones that continue to move the markets. As long as you continue to develop sound financial habits and are consistent, history shows that you will be rewarded. Trying to cut corners, the ‘get rich quick’ schemes, and panicking at the first sight of volatility is not the winning formula. Change your behaviors, develop consistent financial habits and you will be on your way to financial freedom.

 

 

  1. Own it – Personal accountability is something we should all strive for. This is your financial path, everyone’s different, own yours. The government isn’t here to save you, no matter how many stimulus checks hit your bank account in FY 2020. Stop living in fear of what others are doing or how others perceive you. Take advantage of opportunities as soon as they present themselves. Do not let the spirit of procrastination to take over. The best time to start investing was yesterday. Take a step back and come clean with yourself. Focus your energy on starting and the results will take care of themselves.

 

Kyle – Client Services Associate


Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.