May 2015
18

Are You In Good Financial Shape?

By Joe Day
May 18, 2015

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family drawing money house clothes and video game symbol on the chalkboard

What is financial shape? What does it mean? Being in good financial shape is a lot like being in good physical shape. It generally means you are routinely doing things to improve your current state. It doesn’t mean you have the biggest savings account balance, largest investment portfolio or are an early investor in Uber. It means you are doing the right things, consistently, so you can meet your personal financial goals.

When it comes to physical health, you do not have to be the most lean or athletic person to be in physical shape. Your unique physiological make-up means that being in physical shape can be different for you than for the person next to you. And as anyone knows who has tried to lose more than 10lbs, run a road race, get to the gym regularly or just improve their nutritional diet, there is no easy path to improving your physical shape.

Those who are successful at improving their physical health usually set a goal for themselves. Then they wake-up every morning thinking “when am I going to work-out?” or “what am I going to eat today?” It’s this daily discipline that gets people to their desired goal; whether it be a personal best on a long-run or seeing numbers on the scale that make you smile rather than cringe.

To get into financial shape, you have to define a goal. It’s the only way. You need a target. Many people don’t like to set goals in fear they may not meet them. The reality is you may not meet your goal, but you will most likely go farther than you would have if you hadn’t set a goal at all. This is true for health and for personal finance.

It’s important to think about what financial shape means to you. Does it mean spending less? Does it mean reaching a specific $ amount in your investment portfolio? Does it involve buying your first house or being able to finance your first business? Does it mean knowing you are on the path to a secure retirement?

The process of knowing what you want to achieve financially is extremely important. However, just as important is being aware of what it takes to be successful in achieving your goals. In the same vein as improving your physical health, it requires a determination to wake-up every morning thinking about those goals.

Saving and dieting are so analogous it’s scary. Changing your diet generally means making daily, if not hourly, choices on what you will put in your body and what you will not put in your body. In the same way, saving requires making daily, and sometimes hourly, choices on what you will spend money on and what you will not spend money on.

One of the biggest challenges our society faces is that our lives are nearly built around what we consume. Everything is presented to us in a manner to encourage us to buy, indulge, in other words spend our hard earned cash. The result is a US economy that is driven in large-part (70% of GDP to be sure) by consumer spending.

I have a bad habit of eating horribly when I’m not feeling great. Whether it be stress, sickness, or just being tired I make bad food choices at these times because food makes me feel better for a brief moment, it’s an escape. Some people call it comfort eating or “emotional eating”. Guilty.

Being a “comfort spender” or falling into a habit of “emotional spending” is the same thing. People buy something because it will make them feel better. This concept isn’t new, but it is MUCH more pervasive than most people realize. Do you need the new car, do you need your daily Starbucks, do you need $400 yoga pants? Likely no, but it does “feel” good. In many ways, just like emotional eating, it provides some sort of short-term mental escape. Until you realize that the “escape” has been immortalized on your credit card statement as some sort of guilty pleasure you wish you could take back.

To get into financial shape, you must take the following steps:
* Set a personal financial goal.
* Wake up every day thinking how you’ll make strides toward your goal.
* Be aware of the traps we all fall into, such as “emotional spending.”
* Do not give up.

The comparisons are easy to draw between being in physical shape and financial shape. As outlined above, the common threads are goals, discipline and knowing our weaknesses. The most important similarity, however, is to not give up. It may take many attempts at setting a goal, trying to achieve it and failing, but if you keep trying you will eventually get there.

This entry was posted on Monday, May 18th, 2015 at 04:39 pm and is filed under Behavioral FinanceBlogBudgetingPlanning Perspectives. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

 

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bio3Joe Day, CFA is the Founder of Bear Mountain Capital. Joe started the company after spending many years advising high net worth clients with a leading global wealth management firm. Joe earned the right to use the CFA designation from the CFA Institute in 2011. He also holds a degree in Business Administration, with a Major in Finance from Gonzaga University.

Luke Collova is an Investment Advisor Representative for Bear Mountain Capital focusing on planning, investment strategy, client development and operational support. Luke’s prior career included providing commercial insurance coverage for a global insurance firm. Luke maintains his Series 65 license and holds a degree in Business Administration, with an emphasis on Finance and International Business from the University of Puget Sound.