My 3 Rules for Financial Success
Many of my clients are busy business owners, professionals, or executives with little time to focus on their financial planning, which is why they turn to us for help. Though their situations are unique, many of us have a lot in common when it comes to our finances. In working with my clients, regardless of their circumstances, we’ve found that those who follow these simple rules are well on the way to long-term financial success.
1. Start Saving Early
One of the most important steps you can take for financial success is starting to save money as soon as possible. I understand that finding money to squirrel away can be difficult in your 20s and 30s, when student loans, buying a home, and starting a family all compete for your extra dollars. Still, the power of how compound interest can help turn a little money into a lot over time can’t be ignored. Starting to save is an easy decision, and doesn’t require you to pick the right stocks or choose the best time to invest.
Consider two investors: One starts investing $500 a month starting at age 30. By age 67 that investor will have $763,609 saved, assuming a modest 6% return per year. Compare those results with an investor saving $800 a month but who waited until age 40 to start. That person would have just $611,575 accumulated at age 67 even though they put away more money and earned the same 6% return. (1)
Even if it’s too late for you, if you have young adult children who are starting their careers, encourage them to start putting some money away, if possible. If they choose to spend a few years at home with you before leaving the nest, they may have extra money they can put to work on future goals.
2. Build an Emergency Fund
Even before you start setting aside money for the future, you should consider building an emergency fund. Why? Because you don’t want to turn to credit cards or loans from family to deal with the unexpected expenses that always come up, such as car repairs, medical expenses, or dealing with bills after the loss of a job. Start by putting away one month’s expenses in a bank account and build your savings from there. If you own your own home, drive an older car, or work a job where your income fluctuates, such as sales, you likely want to have several months of money stashed away.
3. Be Patient
Look at investing in the stock market as a long-term commitment. You need to be patient to ride out market volatility and economic ups and downs, especially what we’ve seen in 2020. If you’re in your 30s or 40s and saving for retirement, remember that you won’t need that money for many years. By being patient, you won’t get caught up in market volatility and sell your investments after they’ve declined in value. That means dips in the market provide you an opportunity to buy more shares at a cheaper price, especially if you are investing regularly through a workplace retirement plan or your own accounts. If you’re still rattled by market moves even when you keep the long term in mind, reconsider your asset allocation, or how you divvy up your money among stocks, bonds, and other assets. It may be worth investing more conservatively so you can sleep at night.
If you’re saving for any goals that are coming up shortly (5 years or less), don’t invest those funds in the stock market. Instead, consider an ultra-safe investment such as a bank account or money market account.
How Financial Advice Can Help
Although these rules might seem easy to follow as you read them, carrying them out can turn difficult when money is tight, the markets are very volatile, or you’re juggling multiple financial goals at once. We can help you make sense of your finances. SC Financial Services is a financial advisory firm that’s dedicated to helping you weather any financial storm that comes your way. Whether you need help managing your portfolio, creating a financial plan, or minimizing taxes, we’re here to help. Get started by contacting us at 480-214-9596 or email@example.com.