1. Monitor Your Current
and Future Net Worth
There are a
lot of di
fferent financial metrics you
can track. However, net worth could be the most important number because it sums
up both your assets and debts and you can look at it for where you stand today and
also project how financially healthy you’ll be in the future.
Your future net worth is a
particularly powerful number because it not only factors in your savings and debt
balances, but also your projected rate of return, interest rates, savings rates,
and more to provide a really nuanced view of your future financial health.
People who track their net
worth monthly (a micro habit) report that it is a great motivator for doing better
with their money in all kinds of big and small ways.
The NewRetirement Planner
can show you your net worth over time, how it hopefully grows as you age. It is an
investment to set up your plan, but the tool makes it is an easy micro personal
finance habit to look at it on a regular basis.
2. Track Your
Monthly Cash Flow
The second most
important number to track is your monthly cash flow. Have you spent above or below
what you earned?
If future net worth helps
you understand the big picture, cash flow let’s you know how you are doing today
and it will help you see your financial strengths and weaknesses.
Budget and Live
within Your Means: Duh, right? Yes. budgeting is related to cash flow
and should be a no brainer. However, studies show that perhaps fewer than 25% of
Americans actually maintain a written budget and balance it each month. (Keeping
track in your head, the technique used by most people, simply doesn’t cut it.
There is a very big chance that you are making mistakes about how much you have
actually spent.)
3. Engage in
Financial Conversations
Not
everyone likes to talk about money. But, your friends and family can be a valuable
source of information and solace. Asking questions about financial matters doesn’t
need to be about comparisons or social climbing. Focus instead on learning about
strategies people use, understand their financial values, and how they are feeling
about their financial health. Don’t be afraid to ask those you are close to about
financial matters. You are both likely to benefit tremendously.
Try something like, “Hey,
can I ask you a question…
- What are you
doing to prepare for retirement?
- Are you
doing anything differently now with inflation? Or, what do you think about the
debt ceiling?
- Are you worried about
recession?
- Where do you learn about money?
Where do you get reliable information now?
- Do you track your spending or budget every month?
-
How much money do you allot to your teenagers or college
students every month?
- Do you use a
financial advisor? Accountant? Lawyer?
- Will
your kids fund their own college or are you paying for them?
- What are your parents’ plans for retirement? - - Will you
need to support them at all?
- Do you invest
your own savings or use a financial advisor?
So, the next time you meet up with a friend, try a financial
conversation starter.
4. Save and Invest
Regularly, No Matter What the Market is Doing
People save and invest their money in different ways. Some
wait till the end of the year and plunge a bigger sum into their 401k or IRA.
Others save monthly.
Saving and investing monthly
is probably the preferred micro habit. The consistency is key and it enables you
to take advantage of the concept of dollar cost averaging.
Dollar cost averaging is the
concept of investing at regular intervals into the same stock or fund over a long
period of time. Studies have shown that this results in a better average rate of
return than trying to time the market.
The number of shares you
purchase will vary each month. You’ll buy less when the price is higher and more
when the price is lower. Over time, your average cost per share will likely be
lower than if you had tried to outsmart the market and buy at the lowest possible
time.
5. Consistently
Learn About Money and Apply the Knowledge to Your
Situation
It is important that you
find sources of financial information that appeal to you so that you’ll consume
them on a regular basis. But, don’t stop there. You will want to make a point of
applying what you learn to your finances. So, set aside time to regularly learn
about money and also find the time and tools you need to evaluate and apply what
you learn.
- Follow the financial press.
Scan the financial headlines of your favorite news outlet. And, read one article.
And then, think about how to apply to your situation.
- Read a book about money, retirement, and other financial
topics.
- Subscribe to the NewRetirement
newsletter for weekly articles.
- Attend a
class. Check out the NewRetirement classroom.
- Join a group. Try the NewRetirement Facebook or Reddit group.
(Even if you don’t ask a question or comment, you’ll learn by hearing what other
people have to say.)
- Listen to a Podcast.
The NewRetirement Podcast has a variety of guests including Noble Prize Winners,
authors, and regular people who have retired early and have tips to
share.
- Try YouTube videos. NewRetirement
subscribers have enjoyed Joe Kuhn’s and Rob Berger’s channels.
- Apply what you learn. Use the NewRetirement Planner to try
out what you learn in terms of your own financial situation and goals.
6. Monitor Your
Asset Allocations
Ideally you have
defined – either on your own or with the cooperation of a financial advisor – your
ideal target asset allocation, how much you have invested in different types of
assets with different kinds of risk levels. You want some money in cash, some in
low risk investments, and other dollars in higher risk financial vehicles.
As things happen with the
economy, your allocations will stray from your targets. So, it is a good idea to
periodically review if your current asset allocations match your prescribed
splits.
7. Adopt Micro Financial
Habits Related to Spending
Controlling your spending will result in better financial
outcomes. But, that is easier said than done. However, if you can apply a micro
habit to your spending, you may be able to reduce or improve what you buy.
Here are a few micro
financial habits that are specific to spending:
Break down the expense into a per usage
cost: When faced with a big purchase, it is useful to think about how
much value you will get from the item on a per usage basis. This technique can
make big numbers more meaningful. For example, if you are buying a car, divide the
purchase price by the total number of days you will use it over the next X
years.
Buy value:
You can buy something cheap that is not going to last. Or, you can spend more
money up front and make a purchase that will endure for a long time, saving you
money in the long run.
Factor interest
costs into your purchase: If using credit, calculate the real cost
(with interest) of the purchase. A $100 sweater purchased with a credit card at
21% interest and you pay off $10 a month, it will take one year to pay for the
sweater at a cost of $110.
Use discounts or coupons
and intentionally apply the savings: Always look for a coupon or
discount code when making a purchase online. And, consider applying the savings to
your retirement fund.
Prioritize and say
yes to what’s important to you: Too often people think that budgeting
is too rigid and no fun. However, sticking to a budget is just another way of
expressing what is important to you. Maybe you can’t go to the movies and out to
dinner, but you can do the one that is the most important.
Set a regular time
to pay bills: Being haphazard with bill paying can mean something slips
through the cracks. Consider setting a regular time for this task, something like
the third Tuesday of the month. Name a reward you’ll get after doing the task and
it will be something you look forward to.
Use only cash for
discretionary purchases: At the start of each pay period, determine how
much you are allowed to spend randomly and withdraw that amount in cash. Only use
cash on applicable expenses so you know you won’t over spend.
Apply a Waiting
Period: We all come across things we want to buy. And, it is easy to
give into our whims. So, it may be a good idea to set a rule for yourself to wait
48 or 72 hours before making purchases over a certain dollar amount. If you still
want to buy the thing after the waiting period, great. However, you may find that
you no longer want or need it.
Look for a better
deal: Making a purchase? Shop around, you may find a better
deal.
8. Set Shorter Term
Saving Goals
Most people think
about savings goals as a big sum of money to be amassed by some point future date.
However, it is probably more useful for you to set shorter term micro savings
goals that are easier to achieve.
Here are a few ideas of
micro savings habits:
Connect your
savings rate to your income: Instead of saving a target dollar amount,
you might want to save a target percentage of your income.
Increase your
savings rate over time: As you age and hopefully earn more and a
greater percentage of your income can go to savings.
Save an amount equal
to something you habitually buy: If you are a regular latte (or
anything) buyer, document how much you spend on that habit and pledge to add the
save amount to your savings each month.
9. Reflect on Your
Financial Values
Take a few
minutes to contemplate your money and your attitudes toward money. Ask yourself
about your financial values and how they play into your handling of your spending,
saving, and earning. Try doing this at regular intervals: every time you are at
the grocery store or when you are making dinner, for example.
10. Use Your
Financial Goals as Mindful Touchstones
A focused mind works better than a confused one. Goals focus
you on what is important.
You will do better
financially if you have written financial goals and you think about them on a
regular basis. Run through your goals in your head once a day. Even though you
aren’t really doing anything but thinking, this is a proven technique for getting
ahead.
It is also useful to
remember your goals whenever your are involved in a financial transaction. So, if
you are at the grocery store and contemplating the $7 carton raspberries, remember
your financial goals and make the decision in light of your overall
priorities.
11. Reflect on What
You Do Well Financially
Research
suggests that good things happen in people’s lives about 3-5 times more often than
bad. However, bad events have 5-10 times the impact.
You can magnify the impact
of the good by focusing on it. Try to incorporate a practice where you end each
day with what you did well. Include good financial decision making and practices.
This technique is proven to increase more of the desired behaviors.
12. Use Tools to Get
Personalized Answers to Your Financial Questions
We ask ourselves financial questions every single
day:
- Can I afford a vacation? A new
car?
- Should I get married (or
divorced)?
- Should I get more (or less)
insurance? Will I be able to afford retirement healthcare?
- Do I really need to worry about inflation?
- Should I pay down my mortgage or invest more for
retirement?
- How much should I have in
emergency savings?
- Will I be able to help
my parents, pay for private school, buy a vacation home? Etc…
You can look up articles and
get advice, but the real answer is dependent entirely on your values and your
individual financial situation.
If you want a personalized
answer, it is a good idea to adopt a habit of running scenarios against your own
financial plan. The NewRetirement Planner excels at this functionality. You can
run scenarios and compare the outcomes to help you make an informed decision you
can feel really good about.
13. Set Aside Time
to Evaluate Ways to Increase Income
Save more is a mantra we hear all the time. But, we don’t
talk as much about earning and what you can do to earn more during your lifetime.
Side gigs, investments in real estate, starting your own business, and just
working toward a higher salary are all viable ways to get ahead.
If you aren’t spending time thinking about how to earn more,
then you probably won’t earn more.
14. Beware of Mental
Accounting
Mental accounting for
how you spend your money can be perilous.
For example, research has
shown that when people discover they have “extra” money, they spend it, on
average, in three different ways.
So, if you
find a $20 bill in a jacket pocket, you won’t just splurge on coffee for you and a
friend with it, you will splurge on coffee and buy a bottle of wine and apply the
funds toward the gadget you wanted to buy. So, the extra $20 you didn’t know you
had turns into $60 of spending.
15. Save the Pennies
(and the Dollar Bills)
With
inflation, the coin jar is just not going to boost your savings adequately. If you
deal with cash at all, consider adding all dollar bills in addition to your
pennies, nickels, dimes and quarters. It will add up to a bit more that you can
apply to your retirement fund every month.
16. Look at Your
Checking Account Transactions (or Credit Card Charges) Every
Night
Most people don’t really
evaluate their spending at all. However, online banking makes it easy to assess
your transactions daily even. Just looking at how you spent your money can be a
powerful way to shift your behavior.
17. Forget Wordle!
Play the Game of Your Financial Health
Whether you like to admit to it or not, you probably dawdle
away some time every day on an online game. What if you switched your Wordle or
online poker habit to time spent playing with your financial future? No, I don’t
mean day trading. You can play by exploring decisions and strategies in the
NewRetirement Planner. Run a scenario wildly different than what you have planned
and see what you learn and might want to apply to your actual plan. See if you can
retire earlier and what might happen in a worst case scenario.
Source
https://www.newretirement.com/retirement/micro-financial-habits/
