How are your finances?
No, really, where are you at with your money? Okay, I know this may not be a dinner party conversation topic, but it’s definitely worth a discussion.
When life gets crazy (like it always does), your financial future tends to slip down the priority list. How can you make sure you are on track to build wealth and hit each and every financial goal?
Instead of comparing your financial situation to your friends or living under a box pretending everything will turn out okay, take a look at these simple, yet powerful, indicators that your finances are on track and apply them to your life.
1. Your financial well-being doesn’t change from paycheck to paycheck
2. You don’t find yourself shocked or stressed by market changes or unexpected expenses (because you were planning for them anyway)
Markets will go up and down; that’s inevitable. But since investments should be long-term, the daily flux of the markets shouldn’t affect your emotional state. Don’t suffer from short-termism.
3. You focus on low-fee investments and keep more of what you earn.
You know that fees matter. You know that the less you pay, the more you keep in your pocket. You’ve gone through and trimmed the fat fees in your portfolio. The investment industry has very creative ways to charge higher fees, but instead you use low cost investments in your portfolio.
4. As your age increases, so does your net worth
This one is self-explanatory. As you grow in years, you want your finances to grow with you. Don’t sink deeper into debt, but invest and save and invest and save some more. A key component of this is you want to know your Net Worth, and easily access it anytime with up-to-date values.
5. You don’t lose sleep over your finances – because you control them, not the other way around
You are confident that your portfolio strategy can handle the inevitable market turmoil, and your budgeting is sound. You understand that when you’ve done your part of the job, your money will work for you.
6. You have a handle of what’s in your investment portfolio…
You may not know every single detail about what each investment is worth on a daily basis, but you are aware of what you have invested in, and you work with your financial advisor to become educated about your portfolio. It’s all organized, easy to understand, and everything you own (and owe!) can be viewed in one place.
7. And you will own those same investments a year from now
You aren’t always buying and selling, changing the whole look of your portfolio. You have invested wisely, aligned with your risk number, and you patiently wait for the fruits of your labor.
8. Rebalancing and reevaluating your portfolio are regular occurrences
While you don’t continuously alter your portfolio, you do make sure that your portfolio always matches your risk level. Moreover, your financial plan is current and not the one you created when you were just out of college. And you periodically rebalance when, for example, stocks get too heavy after a strong market run.
9. You neither owe nor get a refund at tax time
You make sure your withholdings are appropriate to you so that you don’t overpay (and have your precious money earning no interest with the government) or underpay (and have to part with chunks of cash every year).
10. You know your numbers and your strategies line up with them: financial freedom, risk number, net worth, debt-to-income ratio, etc.
Awareness. This is big. You are intricately aware of your situation, your personality, and your goals and you have worked to make sure your investment strategies and financial plan are in sync with all of these factors.
11. You contribute as much as you can to your retirement, and then some
In your mind, retirement saving is not some far-off thing that you’ll get around to at some point. You have the future in mind and understand that the earlier you invest, the better the payoff will be. And extra income that comes in gets invested into your retirement as well.
12. Investment and market fads don’t phase you.
You may follow trends in other areas of life, but you don’t get sucked into hype and peer pressure when it comes to finances. You have your eyes set on the goal, and you’ve learned to ignore the short-term distractions of the market.
Does this describe you? Maybe not yet, but that’s okay. I can help get you on the right track so that this list becomes your resume. I would love to hear from you today at (248) 567-2160.
Pathway founder and principal Greg Brown is a tech-savvy advisor with broad financial planning and investing expertise. Greg’s financial advice has been featured in publications like the Wall Street Journal, Businessweek, and USA Today. He holds a master’s degree from the University of Chicago and a mechanical engineering degree from Michigan State University. Prior to Pathway, Greg was a lead analyst at Morningstar and previously held engineering roles at Dell.