Financially Speaking: The Compounding Effects of Good Financial Habits
By LouAnn Schulfer, AWMA®, AIF®
Accredited Wealth Management Advisor®
Accredited Investment Fiduciary
We tend to have a more mature clientele in our office. Our clients generally have built their nest eggs and are often within striking distance of retirement or are already retired. It’s the compounding financial habits and years of wise decisions that have gotten them to where they are today and is equally important in sustaining a successful retirement. Here is a short version of some of the most impactful financial decisions one can make.
Start early. When is the best time to start saving? Now. Develop a discipline to set aside money, first into savings for an adequate emergency fund, then to fund investments for longer term goals.
Use debt sparingly. Divide your debt into two categories: that which will help you accumulate a net worth versus that which does not. A mortgage on a rental property or a student loan for a degree leading to a lucrative career may build your net worth. Credit cards and car loans drain your finances.
Take advantage of tax laws such as tax deferral in retirement accounts, 1031 exchanges in real estate, or tax loss harvesting in stock. These add up to huge amounts of money over time.
Proper risk management: calculate your risks and be prepared to either cover them yourself or have insurance. Life, disability, liability, property, long term care.
Plan! Use detailed projections well in advance of retirement to help you make adjustments to your saving, spending and investment choices. Update your projections annually both before and during retirement to make continued course corrections if you are not adequately tracking your goals.
Understand your investments: how they work, how they are taxed, reasonable expectations, and their expenses. Accept that for some features on investments, you will pay more. You may get active management, participation in a non-traditional investment, risk mitigation or added features such as a death benefit, a return of principal, or another component. Use a suitable investment for the intended job. You wouldn’t use a hammer if you need to drill a hole or a saw if you need to weld two pieces of metal together. Different tools are meant for different jobs and to complete a project, you’ll likely need a variety of implements. The same holds true for investments.
The compounding potential of each of the above is powerful. Combining the compounding of multiple good financial habits over time creates momentum toward your goals. It’s not luck. It’s not a secret. It’s the compounding effects of good financial habits.
LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Financial Professionals and can be reached at (715) 343-9600 or firstname.lastname@example.org. www.SchulferAndAssociates.com Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.