(Photo: h.koppdelaney)
We overheard a couple friends catching up in a coffee shop. Check out the surprising reaction:
“Hey, do you have any New Year’s resolutions?”
“No, they’re a waste of time. I believe in living in the moment and enjoying life. How about you?”
“I guess I have some resolutions – make more money, cut costs, and lose some of this gut.”
“Good for you!” as he rolls his eyes in disbelief.
Most of us know countless people who have broken resolutions but few understand why – this lack of understanding can be very costly (hint: it’s not laziness or lack of discipline).
At the start of each year, there are a number of large, important financial decisions to make:
- How do you make and save more money?
- How much of your bonus and tax refund do you spend vs. save?
- Are you perfectly thrilled with your advisor or is there a better fit for you out there?
Whether you’re interested in making more money, cutting costs, or protecting your investments, it all starts with knowing what to watch out for and how to take action.
Mistake #1: Forgetting that financial success means making more money.
The number one way to become financially successful is by earning lots of money.
However, most people focus on the wrong things like what the stock market is doing, what to invest in, or how to save money by adding water to bath soap.
Not to say these aren’t important, but you can only cut costs or return so much on your portfolio – earning money is unlimited.
After you’ve automated savings and outsourced your investment management, focus on growing your income. LGA Clients are already winning at this.
Try this next time: When you get the itch to read/watch/debate minutiae, replace the image in your mind with making more money at work or through your own business.
In 2011, we’re going to help you take that vision and put it into action. Stay tuned for more on this.
Mistake #2: Overvaluing things you already own.
Many people find it hard to reach their goals because they place an inordinately high value on their current situation or things they own.
Imagine you went to a do-it-yourself woodworking course and decided to make a desk. The materials are free to course attendees and you really wanted a desk for your office. After you’re done, a stranger offers to buy it. What’s the smallest amount for which you would sell?
Now imagine you missed the course, but you really wanted a desk. How much would you pay that stranger for his?
Most people demand at least twice as much to sell the desk as they would pay to buy it.
There are many examples around us every day:
- Spending bonuses/tax refunds and failing to value what it could become when invested
- Holding onto a losing investment because “it has to go up”
- Overpricing a house and letting it sit on the market for months before lowering the price
We frequently help Clients identify and address this irrational behavior, but it tears us up knowing there are others heading down the wrong path, sometimes even being improperly led by someone they trust.
Try this next time: Ask yourself, if you had the money, what would you do with it instead? And if you see your friend about to make a bad decision, go ahead and introduce them to us.
Mistake #3: Paying good money to avoid regret or to maintain status quo.
Guilt can prevent action and lead to spending money just to avoid regret. Some people prefer to pay a little extra to be sensitive to others, but they can fail to realize the impact this has on their higher priorities.
Examples include:
- Paying monthly gym membership dues even when you stop going
- Staying with your current advisor even though you’re unhappy
- Not cancelling a relatively high-cost insurance policy because a friend sold it to you
It’s common to expect mediocre service and companies merely strive for “satisfied” customers. When was the last time you truthfully answered a checkout clerk when asked, “Did you find everything ok?” or when a waiter asked, “How is everything?”
Try this next time: Demand better service. You worked hard for your money and deserve to be thrilled! If you’re not, find someone who can deliver by judging their character and process.
Mistake #4: Getting overwhelmed and doing nothing.
Imagine you want to buy a camera but haven’t decided which brand or how much to spend. You see a store sign advertising a Nikon for $99, well below retail. Do you:
- Buy the Nikon?
- Wait to learn about other models?
Now imagine the same situation except this time, the store is also advertising a high-quality Canon camera for $159.
You know the Canon is also a bargain. Do you:
- Buy the Nikon?
- Buy the Canon?
- Wait to learn about other models?
Studies conducted at Stanford and Princeton revealed that 67% of people took action in situation #1, whereas only 50% took action in situation #2.
When faced with two good choices instead of just one, fewer people took action!
Furthermore, the more time you have to do something, the less pressure you feel to do something about it. The frequent result is that some never get to it at all.
Try this next time: Before “analysis paralysis” sets in, remember that not making a decision is also a decision. If you stay with what you have, that is your vote of confidence saying to yourself and your family, “this is best for us”. If it’s not, then decide to take action.
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Knowing these lessons is one thing – having someone guide you through it all while protecting your assets is another. Take action today: If you or someone you know could use our help, please reach out to us or make an introduction.