Rewiring Bad Financial Behaviors

I recently found myself obsessively scrolling through Zillow, looking at dream homes, even though I own a perfectly good house. This experience made me think about the many ways we sabotage our finances without realizing it. Let's explore common financial traps and practical tips to break free from bad habits to build a more secure future.

Everything, All At Once

I'm in the phase of life where many of my peers are starting to have children. At this stage, I've noticed an increase in big life purchases to accommodate a growing family. Expecting couples often check one or both boxes: a new car and a new home. Being recently married and planning to start a family, I got caught in the hype, too.

For weeks, I was stuck in the rabbit hole of clicking through long-term "dream homes" online because that felt like the smart thing to keep an eye on. Thankfully, reality dawned on me. Having purchased a charming, two-story home in the low-interest rate environment of 2020, I realized my husband, and I are in a great spot to maximize the space in our current house for as long as possible, especially since our current home has plenty of room and we're not expecting.

That experience provided the opportunity to stop and smell the roses while intentionally mapping out what the next five years might look like. It feels great to be on the same page and confident with our plan!

Perhaps my peers who are fast-tracking life upgrades can afford it, but my experience as a financial advisor to couples in their 30s and 40s tells me that some couples spend most of what they earn. Most people live here and now and fail to understand the long-term financial impact of large decisions, like renovating a home or sending children to an expensive private school.

Oftentimes, when people decide to accommodate a new expense, they are not supplementing it with more income. Instead, they must reduce other expenses, and retirement savings are usually the first budget category to be decreased or eliminated.

I like to use the principle of "you can afford everything, just not all at once" to help clients navigate decision-making. Retirement savings that are sacrificed now have to be made up later, whether by dedicating a high percentage of income toward retirement savings in the final decade of one's career or knocking a retirement date back a few years. Every decision has an opportunity cost. Make sure you understand what your new home or fancy car will cost you down the road.

Where Are My Leftovers?

Another habit to leave behind is the old "I'll save what's leftover at the end of the (pay period/month/year)" mentality. Many people set out with the best intentions, but the problem with the leftover strategy is that money tends to burn a hole in our pockets. If cash is sitting in the checking account, we will find a way to spend it. Without making a point to save first, it's a crapshoot whether any money will be left behind for savings. Instead, center cash flow around a "pay yourself first" mindset.

It's difficult to change the status quo. If the status quo is saving only to your 401k (money that never hits your checking account), working in an annual Roth IRA contribution of $7,000 may feel like a huge hit to your monthly budget. The surefire way to flip habits from saving last to saving first is to set up automatic transfers so that you are forced to save, much like how a 401k works.

Not sure how much house you can afford or if you're saving enough for retirement? Need help restructuring your budget to align with your goals? That's where a trusted financial advisor can provide meaningful guidance to set you in the right direction. As I said, you can afford everything, but not all at the same time.

Conclusion

Here's the thing everyone must realize at some point: time stops for no one. If you keep delaying the year that you finally get serious about saving for retirement, you will fall behind and it will be difficult or impossible to catch up. Time marches on, so take this moment to capitalize on the New Year energy and implement change.

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