10 Financial Insights You Might Find Eye Opening

1. Focus on Income, Not Investment Worries

In your 20s and 30s, it's more beneficial to concentrate on advancing your career and increasing your income rather than stressing over investments. Automate your investments for growth and let them work in the background.

A 10% return on $10,000 is less than a 2% return on $100,000. ($1,000 vs $2,000)

1. Market Volatility is Normal

Market volatility, which refers to the fluctuations in the market, is a normal part of investing. For instance, the S&P 500 is currently down over 8% from its February all-time high. We experienced similar volatility not too long ago in 2022. I like to say that volatility is a feature, not a bug. Interestingly, some of the best days in the market often occur when it feels like the world is falling apart. Below is a visual from Hartford Funds that shows this impact:

During these volatile times, there are several financial planning strategies we can deploy to be opportunistic:

• Tax loss harvesting

• Offloading surplus cash into the market

• Roth conversions

• Rebalancing Portfolios

• Gifting for Estate Tax Purposes

1. Giving While Living, Not at the End
   

Some people will hoard wealth till the end because they never had a real intentional conversation about what brings them joy and aligning money with what matters most. For example, the average age at which children receive an inheritance is between 46 & 75. In reality, adult children often need financial help in their 20s and 30s when buying their first home or starting families, not when they inherit wealth decades later. Similarly, donating to charity during your lifetime allows you to witness the positive impact of your giving. By giving while living, you can create a lasting legacy and enjoy the rewards of your generosity in real time.

1. Lifestyle Creep isn't "Bad"

It is fine to let your spending grow with your income, but never more than 50%. For example, if you get a $10,000 raise (after-tax), spend half and save half. This approach allows you to enjoy the benefits of your hard work while still prioritizing long-term financial security. For bonuses, a good rule of thumb to consider is saving two-thirds and spending one-third.

1. Understanding Risk through Experience

Many people don't truly understand risk until they personally experience it. For instance, those who purchase long-term care insurance often have parents who faced the consequences of not having it. Similarly, it’s hard to grasp the risk of the stock market until you've endured a period of losses on your statement. Having someone to talk to through these experiences can be invaluable.

"Nobody knows how tough they are until they get punched in the mouth." Mike Tyson.

1. “Spending money to show people how much money you have is the fastest way to have less money.” – Morgan Housel

1. Renting Can Be Smarter Than Buying

A less popular take, but one that I stand on, is that buying a home is not always better than renting. Renting can make a lot of sense for some people. You avoid home maintenance, property taxes, and rising insurance costs when you rent. This can provide more financial flexibility and peace of mind, as you won’t have to worry about unexpected repairs or dealing with property and casualty insurance (with which many are experiencing frustration). Renting also often comes with amenities like gyms, pools, etc., which can add to your quality of life without additional costs. Now, there are, of course, plenty of cons to renting as well, but my idea here is that the statement “always buy, never rent” can be overly simplistic and even ignorant.

1. Tune Out The Noise

When anything happens in the stock market, 80% of the information you hear is just noise. It's crucial to ignore this noise and focus on the 20% that holds actual rational value. Noise is everywhere, and it's only getting noisier. It can be challenging to distinguish between what's important and what's not. Remember, news networks and anyone who gets paid for engagement are potential noisemakers.

"It's amazing that the amount of news that happens in the world every day always just exactly fits the newspaper." – Jerry Seinfeld

1. Balance Retirement Savings with Liquid Assets

I often find that young people overextend their savings into retirement accounts and neglect liquid taxable accounts. Depending on how much you are saving per year, it usually makes sense to contribute up to the match in your 401(k) and focus other savings into different vehicles. This is especially important if you are planning to start a family, buy a house, or travel.

There is no perfect formula for this; it really depends on what YOU want to do. While 401(k)s offer the advantage of borrowing from them in a pinch, it's not something you should rely on. Having a balanced approach ensures you have accessible funds for short-term goals and emergencies while still saving for the long term.

1. "The goal isn't more money, the goal is living life on your terms" - Will Rogers.

Cheers!!

It’s easy to feel stuck with money. It's harder to have clarity and a plan you trust. If that feels like something you've been missing, let's talk about it.

Nick George CFP®, ChFC®, CLU®

Founder | CERTIFIED FINANCIAL PLANNER® Practitioner

ClearMind Capital

The information presented in this article is for informational purposes and should not be intended as tax, accounting or legal advice, nor is it an offer or solicitation to buy or sell, or as an endorsement of any company, security, fund, or other offering. Please consult your legal, tax, or accounting professional regarding your specific situation. Investments involve risk and have the potential for complete loss. It should not be assumed that any recommendations made will necessarily be profitable. 

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