7 Ways To Have a Successful Financial Life, According to Experts
Written by
Cynthia Measom
Edited by
Gary Dudak
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Achieving financial success isn’t just about working hard and earning money. It’s also about making smart choices with your money to set yourself up for a better future.
By building wise habits early, you can enjoy financial security throughout your life — both now and into your golden years. However, you’ll also need to stay committed. To help, here are some different ways to have a successful financial life, according to two financial experts.
Make It Automatic
Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Creighton University, said that people should try to automate as many financial decisions as they can.
“One has to make saving money a habit,” he said. “And habits — good or bad — develop over time. For instance, have an amount taken out of each paycheck and put directly into an investment fund — most appropriately a low-cost stock index fund. This strategy means you will be putting money into the market whether stocks are rising, falling or treading water. You will practice dollar cost averaging and build significant wealth over the long run.”
Take a Long-Term Perspective
“One of the biggest obstacles for individuals with respect to their finances is imagining their future self and avoiding lifestyle creep,” said Johnson. “It is very difficult for many people to imagine their future self and give up that vacation or new car today in lieu of having money to retire on in the distant future.”
He said that people commonly make the mistake of allowing their spending to increase as their salary does.
“For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise,” he explained. “What happens is they are unable to improve their financial condition because they spend everything they make. People are wise to effectively invest any money from a raise is to act as if you didn’t receive the raise. That is, continue to live the same lifestyle you led before receiving a raise and invest the difference.
“An example will help illustrate how investing a raise can help build true long-term wealth. Suppose one receives a $5,000 annual raise early in one’s career. If you simply invest that $5,000 annually into an investment account growing at a 10% annual rate, you will have accumulated over $822,000 in 30 years. You will have invested a total of $150,000 and have earned $672,000 from those investments.”
Engage the Services of a Financial Advisor Early in Life
“When we get sick, we go to the doctor,” said Johnson. “When we get into legal trouble, we hire a lawyer. Yet, somehow people believe that they should be able to navigate the ever increasingly perilous financial waters without professional help.”
In other words, you should hire a financial advisor.
Johnson said if people don’t seek help, they won’t ever accumulate significant savings. However, once you’ve saved the money you need for retirement, the guidance of a financial advisor is still valuable.
“Some people mistakenly believe that the services of a financial advisor are only needed in the wealth accumulation stage,” Johnson said. “Advisors are also needed during retirement to help guide individuals spending their nest egg. Many retirees who have been conditioned to save during their working lifetimes are reluctant to spend money in retirement. A financial advisor can help guide that process.”
Keep It Simple
“In most areas of our life, we strive to be above average,” said Johnson. “But, in investing, earning average long-term stock market returns is a winning formula for building wealth.”
Johnson recommended the KISS strategy — keep it simple, stupid — as the best investment strategy for the vast majority of adults. “People should invest in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down, or sideways,” he said.
Manage Debt Effectively
Kelly Ann Winget, founder and CEO of Alternative Wealth Partners, said to use debt strategically by understanding interest rates and leveraging debt that can enhance your financial growth. She recommended avoiding accumulating unnecessary debt, and if you have high-interest debt, you should make a plan to pay it off as soon as possible.
“Develop a debt repayment plan and consider consolidating high-interest debts to reduce overall costs,” she said.
Plan for Taxes
Winget said that effective tax planning can make a big impact on your financial success. She explained that it’s important to use tax-saving strategies, so consider consulting with a tax professional to optimize your financial structure and retain more of your income.
“Review your tax situation annually and explore opportunities to minimize liabilities through deductions, credits and strategic investments,” she recommended.
Increase Your Income
The more income you earn, the more you can save and invest for the future.
“Seek opportunities for career advancement, negotiate salary increases and consider additional income streams,” Winget advised. “Investing in your skills and exploring new career paths can boost your earning potential.”
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