Fourth of Eight Great Money Habits

This is the fourth of a series of eight articles I'll be writing on the eight great money habits I encourage in my students and my clients.

Today's thought is "Understand Your Investments."

A million years ago, it seems, I accepted my first professional position in the working world. Yes, I had worked full time to put myself through school, but this was, to my young mind, a much bigger thing. As I selected my benefits, I opted against participating in the company's 401K. I wish now that I had started immediately, but as a young person with ambitious plans for my money and my life, it wasn't my first priority. Within two years, however, I did opt in and started socking away 6% of my pay. The choice was made easy at the time, because the company would match two-thirds of your savings, up to that magic number. I made somewhat random selections for my investment options, because I had no idea what I should do, and almost no guidance was given by the HR department. It was far too heavily invested in the stock market, and then after a year, the company started matching the saved amounts with company stock. At the time, I understood that this was to prevent a hostile takeover, but my focus was on the wrong thing -- the company's long term well-being, not mine.

The purpose of a 401K or of any similar program is to encourage and allow easy savings by individuals for the future on a pre-tax basis. The advantages of pre-tax money are clear: simply put, it's worth more. After tax money that you save has already been taxed, and the gains you make on that money is immediately taxed. At least, that's how it's supposed to work. There are a number of states seeking to tax the gains in 401K and other similar plans to make up for expected tax revenue shortfalls. Does that mean that you should stop saving? Heavens, no. It just means that you must stay aware of the changes in tax law and ensure that your money is protected. Yes, that's a big job, but that's what certified financial planners and advisors are paid for (if you can afford one). If not, then you choose: it's your money.

Where IS your money? How much do you have saved? How much do you want to have available each month if you retire? How long do you plan on continuing to work before you retire? Given the state of the economy and the world, will you ever be able to retire? Do you even want to retire? Are you risk averse? Are you a risk taker? Are you cash or credit sensitive? How many different financial institutions do you have money socked away in? How much money do you have in each? Where are your bank statements? Where are your investment statements?

Phew! What a lot of intense questions! But do you know the answers to these questions? Are you ready to evaluate your options? These are the sorts of questions a financial planner or advisor would ask. These are the sorts of questions you really need to know the answers to. And, you need to figure out what's best for YOU.

There are dozens of books available on personal investing, and while many of them are valuable, you need to select the one(s) you use with a critical eye. Just as you wouldn't run out and buy the first car you see, you need to evaluate the authors and their particular points of view. Read up on these "experts" and their track records. All of this information will be available on the internet. When you find the expert you feel best about, then start buying books and reading. You need to create your own financial stability in your own way, not someone else's.

Speaking of which, the same must be said about financial professionals. Be careful about who you select and why you select them. Your brother's sister-in-law's cousin might be a great guy, but if he is employed by a financial institution and is selling their products, then you'll find that he's loaded you up on those. Independent is usually best when it comes to financial professionals. Oh, and more importantly, these folks are required by their certifying authority to maintain certain levels of continuing education annually, and there will always be information available on their practices, history and any possible disciplinary actions that may have been taken. Again, it's your money, and you are the only one who can or should keep an eye on it.

Your investment options will run the gamut from simple savings accounts in a bank to high- risk stock based investments. Often, high-risk will be accompanied by high-yield, but not always. It's no different than the race track, where people will spend hours evaluating drivers or jockeys before placing their bets. That's what an investment is: a bet that things will improve over time. What level of risk are you willing to assume? If you are promised a guaranteed 20% return on your investment, turn and run. The old adage of "if it sounds too good to be true, it is" holds here. You have the right, and the responsibility to be picky, and to choose wisely.

I'm always harping on thinking, aren't I? There's a reason. We, as humans, have a choice. Do we blindly muddle through our lives, or do we take the luxury of awareness in each moment, and the choices that bring us there and to the future?

Just as I advocate planning when it comes to simple purchases, plan when it comes to your investments. Don't assume that your HR department knows best, or that others have your best interests at heart. Don't assume that since you've heard nothing about your investments, everything;s still good. It's your money, and you want it to be there in case of emergency, or when you retire and want to do something new with your life. Any and all research you do in support of planning your investment strategies and growth and viability is well worth the effort and time invested.

Allow yourself to be patient and to be true to yourself. Remember to take at least five minutes every day to simply be by yourself and breathe. Allow yourself to indulge in a moment of thought, reflection and planning when the mood strikes. As a wise old engineering student once taught me, "It's more effective to measure twice and cut once than it is to rush and waste your time doing the same thing over again." It's your money, your choice. Allow yourself to simply succeed on your own terms, to live in peace, abundance, and joy. One day, one decision at a time, remaining aware of your choices and your feelings. You CAN get there.

And, as always, if you need help, I'm available. It's what I do, and it's what I love to do.

Sharon.

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