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Business // Thinking Smart
David S. Chang

Six Ways To Pursue Financial Goals

The best financial plans can be easily derailed by common mistakes that can act as roadblocks. Here are six ways to help you meet your financial goals.

1) Understand where your money is going. Starting a budget or cash flow plan is essential to controlling your spending and saving. The end goal is to assign each dollar of your income to an expense. It is much better to tell your money where to go than asking where your money is going!

2) Avoid lifestyle inflation. It is important to recognize the tendency to spend more as you earn more. To ensure that saving and investing keep pace with income, consider switching dollar amounts to percentages. For example, if you commit to saving 8 percent of your income rather than a specific amount, your saving will rise with your income. If you know that a raise is in your future, increase the amount automatically transferred to your saving and investment accounts as soon as the increase takes effect. If you never get accustomed to seeing the extra money in your checking account, you’ll feel less tempted to spend it.

3) Don’t follow the herd. Investors’ inclination to dive into various investments as they are rising is sometimes matched only by the instinct to sell when prices are declining. Studies have shown that investors have a tendency to buy high and sell low. The average investor over the past 20 years averaged only 2.6 percent, where the S&P 500 averaged 7.7 percent over the same period. To overcome emotional investing, start with a systematic investment plan and automatically invest a predetermined amount on a weekly, monthly or quarterly basis. This will help reduce the likelihood that hot trends, unexpected market events or bad news will drive investments decisions. Working with a financial planner also may help stay with a disciplined investment strategy.

4) Be proactive with your retirement. Getting a complete picture of your retirement plan and making sure you are able to meet your long-term needs can be a challenge. If you can, maximize retirement account contributions, research investment products to make sure they are right for you, and revisit your financial plan on a regular basis to make sure you are on track!

5) Expect the unexpected. Have an emergency fund of several months of living expenses in the event of an emergency or job interruption. Otherwise you may have to fall back on credit cards to meet living expenses or suffer the tax consequences of raiding investments earmarked for retirement or higher-education expenses. You never want to sell long-term assets to meet shorter-term needs.

The emergency fund should be based on your employment longevity, job security and other sources of income.

6) Don’t let past mistakes paralyze you. For those with false starts and stumbles in the past, taking another stab at shaping up your finances can be tough. Don’t dwell on past mistakes or what you should have done. Instead, learn from them and plan your future based on where you are now and where you want to go! Develop a plan you feel comfortable with and continuously measure your progress. Feedback is important!

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