Try a Reverse Bucket List to Eliminate 5 Financial Habits That Are Slowing You Down
Previously, I’ve written about creating more time for the things that really mean something to you by saying “no” to tasks, activities, distractions, and time wasters that don’t allow you to achieve your goals. Recently I came across an interesting article by a Harvard professor and columnist for Atlantic, Arthur C. Brooks, on the search for satisfaction in life. Brooks refers to satisfaction as one of the main “macronutrients” for happiness (the other two being pleasure and meaning). He explains why the quest for satisfaction can seem so elusive and fleeting, ultimately leading us to continually want more money, possessions, fame, power, or whatever we think will lead to feelings of personal fulfillment. . He believes that the secret to satisfaction lies in managing our desires. By managing what we want instead of what we have, we give ourselves a chance to lead a more contented life. Among Brooks’ suggestions for overcoming dissatisfaction and managing desires is creating a reverse bucket list.
Most of us are familiar with the concept of a to-do list where you list the different things you want to accomplish in your lifetime. A reverse bucket list is about mindfulness. While it can help you identify and get rid of things in your life that aren’t serving you well, like an unsatisfying career path, toxic relationships, or unhealthy behaviors, it’s really about making more room for the things that create genuine feelings of happiness. and satisfaction in your life.
It starts with understanding why you do the things you do. For example, let’s say climbing Mount Everest is on your to-do list. (It’s definitely on mine.) Reaching the summit of Everest is considered one of mountaineering’s greatest accomplishments. However, understanding why you are doing it makes all the difference. Do you achieve a personal sense of adventure, challenge or accomplishment or simply to meet the expectations of others or to arouse their admiration or envy? While all of this may be true to varying degrees, if your primary motivation is centered around what other people think or expect, you won’t feel personally satisfied no matter what you accomplish. True satisfaction comes from doing what’s right for you, which starts with finding your JOMO.
More JOMO, less FOMO
You’re probably familiar with the term FOMO, the fear of missing out. JOMO, on the other hand, refers to the joy of missing something. Although they only differ by one letter, that letter makes a huge difference when it comes to living intentionally. FOMO can cause you to spend a lot of time and money chasing other people’s dreams or trying to live up to other people’s definitions of success or fulfillment. This can lead to feelings of sadness, jealousy, and inadequacy.
JOMO is about finding your freedom. It requires the conviction to say “no” to things that do not create joy and meaning in your life and “yes” to activities, experiences, and habits that do. This includes your financial habits, such as saving, spending, and managing debt. This is important because financial stress creeps into all areas of your life. It is one of the main causes of mental, emotional and physical stress and can prevent you from fully embracing the milestones of your life. For example, feelings of joy and relief when your child graduates from high school may be overshadowed by worries about how you will pay for their education. Likewise, if you’re constantly worrying about whether you’ll have enough money for retirement or how you’ll pay off your debts, it can lead to unhealthy levels of anxiety and stress that can negatively impact your life now and later.
Finding your freedom starts with identifying the behaviors that can slow you down and pushing them back, starting with the five money habits below.
1. Spending more than you earn – Consistently spending more than you earn usually leads to accumulating unhealthy levels of debt. Certain types of debt, such as high-interest credit card debt, can snowball quickly, making it difficult to get out of the upside. However, not all debt is unhealthy. In many cases, it may be necessary to go into debt for a period of time to achieve your future goals. This can include a student loan, mortgage, or money to finance or expand a business.
Reversing the cycle to start living within or below your means requires a budget. Remember, you can’t fix what you can’t see. A budget helps clarify what goes into your household (your income) on a monthly basis and what goes out of it (your expenses). A budget not only helps you track this information, but also helps you find ways to reduce your expenses, save more, and pay off debt.
2. Living paycheck to paycheck – Although you may not be spending more than you earn, living paycheck to paycheck can set you up for disaster, even if you currently have no debt. Consider this: According to a recent survey, less than half of American adults have $1,000 set aside to pay for a surprise or emergency expense. As a result, people are forced to rely on credit cards, personal loans, or family and friends to cover an unexpected expense.
Living within your means doesn’t mean spending every penny that comes in the door. Instead, a portion of income should be set aside for emergencies, as well as long-term savings for retirement, a child’s education, and other goals. Again, this is where a budget can really help. Following a budget helps you adhere to a savings discipline and reminds you of the progress you’re making each month as you watch your savings grow. Knowing that you have enough savings to cover an unexpected expense not only motivates you to keep saving more, but also goes a long way in reducing financial stress.
Automating the process is one of the best ways to keep economies on track. Consider automatically directing a portion of your paycheck to a bank savings account each pay period. This is your emergency fund, so make sure these savings are liquid, so the money is there when you need it. Also be sure to participate in your employer’s retirement plan or open an Individual Retirement Account (IRA) or one of the many qualified plans available to business owners if you are self-employed. Regular contributions to the pension plan offer many benefits, including a potential reduction in the amount of your current income that is subject to tax, tax-deferred income growth, employer matching contributions (if applicable ), and more. It’s one of the best ways to build long-term wealth.
3. follow the crowd – In behavioral finance, herd mentality bias refers to the tendency to follow and copy what others are doing. It applies to investment decisions as well as decisions that affect your day-to-day finances. Whether you’re trying to follow the Jones next door or considering taking a colleague’s “hot” stock advice, making decisions based on other people’s priorities is rarely, if ever, in your best interest. Your personal goals drive your strategy, from how much you save and spend each month to how you invest your assets. The alignment created between your goals and strategy is what keeps you on track to accomplishing what you want in life, not what your neighbors or co-workers want.
4. Chase returns – Chasing feedback is a behavior that can quickly derail progress toward your goals. Indeed, even the most experienced investors cannot time the markets accurately over time. As we have seen over the past two years with the pandemic, and over the past few weeks with the invasion of Ukraine, global financial markets and economic conditions can change rapidly in ways that are difficult to predict.
One of the biggest risks of trying to time the markets is missing the best market days. This can happen if you sell when the markets fall and you are always on the sidelines when the markets rebound. Staying invested over time in a well-diversified portfolio and an asset allocation aligned with your goals and risk tolerance can generally help you stay on track to achieve your goals over time. Of course, this requires a plan.
5. Not planning – The last habit you want to break is trying to manage your financial life without a plan. A financial plan is your blueprint for building wealth at every stage of life. Imagine trying to build a house without a plan. How would you estimate labor and material costs? How would you build the foundation? Where would you place the walls or run the plumbing, electrical, or ductwork without a floor plan? Your finances are no different. You need a plan that identifies and maps out your goals and a strategy that will support those goals every step of the way. Like a house, you may want to make changes over time, tweaking here and there as your needs change, your goals change, and milestones are reached. A financial plan gives you this flexibility because you have a well-designed framework to build on over time.
Find your freedom
Getting rid of habits and behaviors that can weigh you down is a great way to open yourself up to more of the things that create meaning and purpose in your life. However, it is not always easy to do yourself. This is where working with an independent wealth advisor can be helpful. Your counselor can act as a coach, helping you identify habits that aren’t serving you well and replacing them with positive behaviors that can help you move forward into the future you confidently envision.
To learn more, download our free checklist, When Changing Goals Mean Changing Plans, to assess your goals and decide when it’s time to contact your advisor to update your plan.