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I’ve worked in the financial industry for the last eight years. Working alongside certified financial planners and helping manage their client relationships has taught me a number of surprising lessons about money and how to best manage it.
The most profound money tips I’ve picked up along my career path have very little to do with secret investment tactics designed to make you rich fast.
In fact, the best lessons I’ve learned underline the fact that there’s less of a relationship between technical know-how and increasing wealth than you might expect — and that managing your behavior is really the first step to successfully managing your money
These are the five best insights I’ve gleaned working in the financial planning industry.
1. The more you have, the more you have to lose
As you accumulate wealth, you have to become more aware of the risks you face and acknowledge the growing complexity of your situation.
It’s the “what got you here won’t get you there” idea in practice: What worked to get you to one level of financial success or wellness is not necessarily going to work if you want to continue optimizing your financial life.
Plus, your mistakes cost far more as your assets grow. Mistakes come in the form of both literal errors that result in fees or penalties and opportunity costs that mean a missed chance to earn or make more money.
How can you address risks and minimize mistakes? For one, you can get the right insurance for yourself and your property (but not more than you need or the wrong kind!). You can also use the right risk-adjusted investment strategy, and work with a qualified team of professionals to help you. Hiring a CPA and certified financial planner might be good places to start.
2. The ‘latte factor’ is nothing compared to your fixed costs
As someone who enjoys good coffee, the idea that a daily latte is going to leave you broke and destitute at the end of your life is one of the more annoying lines money “gurus” have trotted out in the last decade.
Sure, dropping a grand per year on coffee is a lot. You can argue that’s wasteful (but I’d say if it’s something you highly value, then you’re actually spending your money right).
But what will make a much more meaningful impact on your finances, both today and into the future, than coffee of any price is how much of your income you tie up in fixed costs.
Housing is a big one here. The same people who say your $4 latte and $10 avocado toast are the problem will likely suggest you spend 30 to 35% of your gross income on housing.
In contrast, our financial planning firm suggests spending no more than 20% of gross income on total housing costs because we want our clients to have flexibility. We want you to have the room in your cash flow to fund other goals, expand your spending when it makes sense, or to contribute more to long-term investments.
You can always skip the coffee. You can’t exactly skip the mortgage payment or rent, or not pay your car loan, or drop on a whim any other major fixed expense in your budget once you lock it in.
3. The order of your financial priorities matters
Here’s another benchmark our financial planning firm gives to our clients, all of whom are in their 30s and 40s: Contribute at least 25% of your gross income to long-term investments (like retirement accounts or brokerage accounts).
And, we suggest doing this first, before looking at what you can save for purchases in the near term or what you can afford to buy today.
Why? Because if you prioritize savings first and ensure you save appropriately (meaning, enough) to meet your needs and goals, then you’re free to spend the rest of your money how you want without guilt.
Most people try to figure out how much they can get away with spending, but the most financially successful people flip that: they look at how much they can save, then they spend on whatever they want with what’s remaining.
4. The truth is, income makes things easier
Saving money is important, even critical, to your success. But here’s the plain truth that most people simply won’t acknowledge: Earning more income makes everything easier. The more income you have, the more choices you can make with that money.
It is absolutely possible to achieve your money goals (even big ones like financial independence) on a small salary. And it is easier to do so when you earn more.
If you’ve already worked hard to cut costs and control your cash flow, pinching more pennies may not be the best strategy for you. Instead, it might be time to.
5. The comparison trap really will steal your joy
You really cannot judge a book by its cover.
We have all kinds of clients, from various backgrounds and education levels and industries and experiences, and my very first impressions of them are usually off.
For me, it’s a great reminder of one of the best money lessons you can learn: comparison is the thief of joy, and what’s more, there’s not even a point in trying to compare yourself to what you can see of someone else’s life or lifestyle.
Unless you are looking at their literal balance sheet or logging into their accounts to check the actual dollars to their name, you have no idea how much wealth or financial security someone has … or doesn’t have.
When it comes to your finances, focus on your finances. That includes aligning how you use and spend your money with your values, setting goals that you find meaningful (rather than what you think you should pursue), and not judging yourself or others along the journey.