Around this time of year, financial and tax experts are publishing their most important things to consider lists for year-end tax and financial planning.  While we know this is an important task to complete before year-end, we also know that good financial behavior throughout the year and our lifetimes has a much more profound impact on building wealth.

At the end of the day, how we “behave” with our money makes all the difference.  Bestselling books underscore this philosophy.  For instance, Morgan Housel shares many best practices in his bestselling book, The Psychology of Money.  Like The Millionaire Next Door by Thomas J. Stanley; the premise is that accumulating wealth is more about long term behavior and less about how much you make. We see this in action every single day. And more importantly, being consistent with the right behaviors will withstand the test of time. 

Why are these behaviors important?
 
Wealth is usually derived from a series of good financial habits. For most households, (70-80%) it does not come from inheritances, winnings or getting lucky, according to the Federal Reserve. In fact, only 20-30% of people receive inheritances, and the average inheritance is approximately $46,000.  (Note, however, the top 1% receive inheritances that average $719,000.)

Most wealthy people are wealthy because they establish good financial practices.  Let’s look at a few.

10 Best Practices 

• They stay organized and take the time to understand exactly what they have and where it is.
• They use a balanced approach to money management; they don’t waste money on things they don’t need.
• They automate their regular savings contributions, pay yourself first!
• They make the most of tax advantaged savings and contribute the max if possible.
• They shop carefully (the price of an 18 oz box of Cheerios from Walmart is $4.93, Target is $5.29, Instacart is $7.19). While Target may only be 36 cents more than Walmart, multiply that by the hundreds of items purchased by a family monthly, then annually/then decades! This is compounding at work!
• They use credit wisely and they do not carry credit card debt.
• They participate actively in their financial wellbeing and engage with their partners and/or advisors regularly.
• They continually educate themselves by reading books, taking classes, listening to podcasts and/ or reading articles like this.
• They make their money work for them with a low-cost diversified portfolio.
• And they wholeheartedly follow the holy grail of achieving wealth: They live below their means.

What are your Behaviors with Money?

It is always a good time to take stock of current financial habits. It can be a mental conversation with yourself or an active conversation with your partner and/or advisor.  Here are some questions to get you started.

• Do I understand my tax return, and do I have a pretty good idea of what next year looks like?
• Am I satisfied with the amount of savings I set aside this year?  Should I do more or less?
• How do I feel about my financial situation? 
• Am I on track to meet my goals?  Do I have goals?
• What behaviors don’t serve me?  What can I change?  What do I have control over?

What is Out of My Control
 
There are many things out of our control.  (The shenanigans in Washington are a perfect example.)  These are the biggies:

• Longevity
• Tax law
• Market performance
• Geopolitical risk
• Interest rates
• Systemic risk

What is Within My Control? 

• Spending
• Saving
• Organizing your financial assets and checking for overlapping asset allocations, too much or too little risk, high fees and expenses as well as the proper titling of accounts.  Using a high interest rate savings account for emergency funds.
• Living a healthy lifestyle
• Amount of debt
• Lifestyle

You don’t need to wait until year-end to make changes, you can start anytime.  The most important thing is to be aware, build a plan, and take action.  If you need help, we are here for you!