I remember while playing lacrosse back in high school and college that anytime practice started to unravel, my coach would pause practice and typically, after an excessive amount of wind sprints, we would be forced to restart practice by working on fundamentals. We would practice catching, throwing, footwork, and other remedial tasks that most of us did not enjoy. This caused us to focus on the little things that we were doing. Why were we forced to do this? The short answer is that by focusing on these basics it strengthened our foundation, and without a solid foundation your ultimate height of achievement, athletic or otherwise, is limited. Apologies for the sports analogy, however, I think it clearly has some parallels to how we should view our finances and reminds us to periodically revisit how we are dealing with “the basics.”
Here are 5 financial basics to help you have a solid foundation
- Start early- If you are in your 20’s and think you have a lot of time until you need to worry about saving for retirement, think again. One of the biggest advantages you have is time. The earlier you start saving and investing, the more opportunity your money will have to work for you and grow. If you are in your 30’s, 40’s or beyond, there is no time like the present to get started. If you have young children encourage them to save a portion of any allowance, birthday money, or any other income they might be receiving- saving is like a muscle the more you work it the stronger it gets.
- Systematize your savings/ investing- If you have a company retirement plan to which you contribute, you probably are already utilizing this concept. For many, saving regularly can be challenging. Make it easy by removing some of the hurdles. Utilize contribution calculation tools to automate the process and force yourself to consistently save a portion of your income. You can implement this with a savings account, IRA, 401(k), and other investment accounts. Pay yourself first! This is the mantra of many affluent people.
- Diversify- “Diversification is the only free lunch” in investing, a quote attributed to Nobel Prize laureate Harry Markowitz. Diversifying your investment account means not having all your money in one type of investment. If you had the choice would you rather own a store inside a mall or the entire mall? Each store specializes in its own products and services. If you own the entire mall and something happens to one of the stores you would probably be ok financially, but what if you only owned that one store that went out of business?
- Have cash on hand for the “what ifs”- People often refer to this as an emergency fund. We recommend having between 3-6 months in expenses set aside in savings. This safety net provides a level of protection from the what-ifs. These funds may also help you stay invested long-term when we get hit with market downturns or economic disruptions, thereby giving you more control over your financial situation.
- Spend less than you make and know what you spend- Although this seems simple, it is one of the best basic pieces of advice I can offer. From my experience, people who have a budget and stick to it tend to be better savers and are more likely to hit their financial goals. They avoid unnecessary debt and pay themselves first before spending. If you live by this principal, you are already on the right path.
“Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals.” -Jim Rohn
Bonus Pictures of James Johnson and Cameron Dunford if you made it this far (You can view them with the internal soundtrack of “Glory Days” playing in your mind.
The Opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against a market risk.