After months of gifting, entertaining and a possible getaway over the holidays, many of us are facing the bills, getting ready to file our tax returns and wondering why our financial health just isn't where we'd like it to be. It's one thing to re-group and head to work and get the kids back to school, but I'd rather scrub my floors with a toothbrush than examine my financial situation.
I'm not alone, according to a 2010 survey by the American Psychological Association for people who live in Denver .
Mirroring reports from the rest of the nation, money (73 percent), work (71 percent) and the economy (68 percent) continued to be the most commonly reported sources of stress for people in Denver.
So what better way to launch into 2015 than with some tips on how to face that fear head on and plot a strategy that will make this year better than the last?
Richard "Chip" Mower with Meridian Wealth Management in Denver sounds like a personal trainer, for finance. "To be financially fit and have financial freedom, you'll need a great deal of financial discipline."
For some reason, many of us simply don't take our financial habits seriously. When we face medical challenges and our physician tells us how to remedy our issue, we listen. (OK, most of the time.) But year after year, many people over extend themselves financially and don't consider what steps they could take to improve their lives.
One of the most popular posts my Facebook and Twitter page in the last few weeks has been the 52 Week Money Challenge.
As you can see from the model, it goes something like this:
Each week you will add one dollar to the amount you are saving. So, on week one you would save $1 and on week two you would save $2. You will continue with this challenge for a full 52 weeks.
(Source: 52 Week Money Challenge.)
If you follow this model without any changes you will save $1,378 by week 52.
I asked Mower what he thinks of this challenge, and he says it all points to understanding the power of compounding, "Albert Einstein called compound interest the 8th wonder of the world. The math is incredibly powerful." He goes on to say, "time is working for you or against you, so the time is now to start saving. The savings rate required for workers starting later in life is much greater than those starting in their 20s and 30s."
This all means financial exercise, something many of us apparently would rather not do. Mower says he is always surprised when his clients wait until the last minute, right before April 15th, to move their money into an investment account, "they miss the boat on all the savings they could have accumulated through the year!"
Why do financial issues cause so much stress for us? There is no simple answer, especially for those of us who have spouses or partners who grew up with different spending and saving habits. One thing we do know, how our parents modeled financial responsibility, or a lack thereof, has a big impact on our financial health.
So, instead of digging into our psyches, I asked Mower for the best tools to help us manage our finances.
- Take the emotion out of saving money. Mower says saving and investing should be purely objective. When you have a plan, a routine or a process, it helps eliminate the overwhelming behavioral biases that invariably lead to poor decisions.
- Make a commitment to save first, and treat it like a job. Mower encourages you to pay yourself and set it on auto pilot, by having the funds automatically withdrawn from your account. He points out a 5% return in a tax deferred retirement account is a better option than a 5% return in a taxable account.
- Set up a plan today. Mower says be sure it is realistic and hold yourself and/or your partner accountable. If it's the 52 Week Money Challenge that gets you going and appreciating compound interest, so be it. So start now and own your retirement.
While I like to think of myself as someone who pays attention to stress factors and faces them head on, I realize when it comes to financial matters, I have not been proactive. That's why something about removing the emotion, committing to a plan and starting now appeal to me.
If I can use these tips to tackle a new assignment, attempt a workout, figure out a recipe or deal with a crying child, why not my finances? Besides, I really don't like scrubbing my floor with a toothbrush.
Lois’ Living Through It blogs are posted on Mondays and Thursdays. Join her Monday mornings around 8:45am on Good Day Colorado.