Do you ever feel like you’re spinning your wheels or not progressing financially? Or maybe you feel like managing your money is too complicated or too much of a hassle. Maybe you just want to make sure you’re doing everything right. If so, keep reading—this article is sure to help.
The 3 Reasons Why People Fail With Money and How To Ensure You Win
It’s no secret that most folks fail with money.
- 72% of us report being financially stressed each month
- 75% of us can expect to see our assets disappear before we die
- 69% of us have less than $1,000 in savings
- 40% of us couldn’t come up with $2,000 in 30 days if we had to
- 40% of us will never gain a net worth in excess of $10,000
These stats are staggering, but we don’t have to become one of them. If we understand why we fail with money, we can change course, make a plan, and take the appropriate actions to avoid the financial mistakes of others.
Let’s dig into the three reasons why we fail with money, so we can ensure we do what is necessary to win.
#1: We Fail With Money Because We Lack Financial Discipline
This one comes at no surprise.
We all know we should be better with our money, but few of us actually DO anything about it. We all know we should save more for retirement, use a budget, get out of debt, spend less than we make, invest wisely, build an emergency fund, donate to charity, and much more, yet many of us fail to do so consistently.
None of us like to admit it, but we all lack discipline to some extent or another. It’s human nature.
Do What’s Best
Maybe we’re not necessarily doing anything “wrong” with our money, but we’re probably not doing everything “right” either. Maybe we’re not spending all we make, splurging on things of no value, or going into credit card debt? But maybe, we’re also not optimizing our banking, investing appropriately, taking the right vacations, and assessing our goals regularly?
There’s things that we should do with our money and there’s thing we shouldn’t do. Just because we don’t do “bad” things doesn’t mean we’re not failing with our funds. We must do “good” things too.
A lot of us have the control to avoid the bad, but few of us have the discipline to do what’s best.
Good Intentions Are Not Enough
It’s funny, we generally judge ourselves by our intentions, but we judge others by their actions. And since we all intend to invest more, give more, make more, and do more, we think we’re doing alright. But if we’d judge ourselves by what we’re actually doing, rather than what we intend to do, we’d see some major gaps and identify areas where our discipline is failing us.
Now, I’m all for having discipline … lots of it actually. You’ll need discipline to succeed financially, but you can’t rely on it solely. If you try, it’s almost certain you’ll fail.
There’s a much better way—one that doesn’t rely solely on willpower—one that actually works. More on that in a bit!
#2: We Fail With Money Because We Have the Wrong Financial Strategy
I think it’s safe to say that we all have something we want to accomplish with our money, or at least we should.
Here’s the bad news: there’s almost always a disconnect between what someone wants to accomplish with their finances and what they will accomplish based off of the strategy they’ve implemented.
For example, there’s plenty of families that want to go on vacation, but don’t have a strategy to make it happen. There’s so many people wanting to retire but unable to afford it. There’s more than enough investors who have saved lots of money, but lost nearly everything by inappropriately allocating their assets.
If your strategy isn’t in harmony with your goals and values, then you’re strategy is sure to fail you.
Here are some examples of the most common financial strategy failures I see:
- Inappropriate asset allocation
- Inadequate diversification
- Subpar investment selections
- Incorrect priority of investment funds
- Overly conservative portfolios
- Overly aggressive portfolios
- Lack of short-term savings plan & cash management strategy
- Weak tax strategy
- Inaccurate portfolio performance evaluations
- Values and goals misaligned with cash and investment management strategies
- Improper portfolio rebalancing
- Too much risk exposure for risk tolerance or ability to absorb risk
- Getting in and out of the market at the wrong times
- Undefined financial goals
- Misaligned strategy and desired outcomes
- Inadequate monthly contributions for short and long-term goals
There are a lot of ways our financial strategy can fail, but all of them can be avoided. In order for our strategy to work, it needs to align with our goals, lifestyle, priorities, risk tolerance, time horizon, values, needs, and much more. Our strategy needs to be custom tailored to our life.
In addition, we need to be able to consistently implement the right strategy without our lack of discipline getting in the way. We need a fail proof way to ensure our financial strategy helps us achieve our goals rather than drive us further from them.
#3: We Fail With Money Because We Lack Financial Education
The third reason we fail financially is because we lack financial education. We know there’s a lot we should do, but we don’t actually know how to do it.
We know we should save for retirement, but we don’t know where to start. We know we should have a financial plan, but we don’t know how to create one. We know we should diversify, but we don’t know the best way. We know we should invest, but it seems too complicated.
We also hear these fancy sounding financial words like compound interest, leverage, diversification, asset allocation, dollar-cost averaging, and more, but we don’t really know how to apply them. We know compound interest can help us build wealth, but we don’t really understand how to tap into its power. We may know that using leverage can amplify our returns, but we don’t often know how or when to use it.
Financial education is essential to succeeding with money. When we don’t know how to get started or we lack the education, we often sit on the sideline and watch opportunity pass by, or overpay for subpar advice from some “professional” advisor that doesn’t really know what he’s doing (some advisors are great, others aren’t).
Our lack of education can prohibit us from taking the appropriate action and making the most of our money.
How To Ensure We Win With Money – Create the Ultimate Financial System
In order to succeed and win with money, we need to overcome our lack of discipline, implement a strategy that’s right for us, and not let our lack of education be a hindrance to our success. This is best achieved by implementing a financial system that manages our money and generates wealth without us having to be too involved.
A smart financial system automatically sends money to each of our savings goals, grows our wealth while we sleep, pays our bills, contributes to the charities of our choice, and provides for guilt free spending—all without us having to lift a finger or waste a bunch of time.
And since this is all done automatically, it doesn’t require discipline, a lot of education, or a complex strategy. All it requires is that we initially set up the automation and monitor it to make sure it’s working as planned.
How To Automate Your Finances
There are 5 key elements to systematizing and automating your finances.
401(k) or Similar Company Sponsored Retirement Plan (A)
A portion of every dollar you make should be automatically allocated to your 401(k) or similar type of retirement account. This is how you pay yourself first and build your wealth automatically. 5% is a general recommendation, but to know what’s best for you and your strategy, check out The Ultimate Step-By-Step Guide To Making the Most of Your 401(k).
If you don’t have a company sponsored plan or if your plan isn’t worth contributing to, the dollars you would have allocated here should go directly into another retirement investing account such as an IRA.
The remaining funds should be directly deposited into your checking account. I use and recommend Mountain America’s MyStyle Checking account.
Charitable Giving (B)
From there, your next priority should be contributing to a charity of your choice. Giving to a cause you believe in is one of the most rewarding uses of your money. Willingly giving of your resources always seems to pay huge dividends, and it increases your capacity to give. Giving is the best investment I know of.
I recommend donating at least 10% of your income every month and automating it as much as possible. If you’re unable to set up automatic ACH payments, online Bill Pay is generally a good alternative.
Additional Retirement Investing (C)
Next, your financial system should automatically allocate another portion of your income into additional retirement investment accounts such as an IRA. You want to save at least 15% of your income among your various retirement accounts (401k, IRA, HSA, brokerage, etc.), but you may want to do much more. For example, if you’re wanting to retire early, you should be shooting for closer to 50%—it all depends on your goals.
Remember, a poor financial strategy is what leads some to fail financially. When you set up your IRA or additional market investments, you want to apply the strategy that’s best for you. You’ll want to allocate your money into the funds that align with your goals, values, time horizon, risk tolerance, and ability to absorb market fluctuations.
To help you create a strong investment strategy and select the investments that are best for you, check out The Best Way To Invest In the Market.
Don’t forget, this should be an automatic contribution pulled directly from your checking account every month. The automation is key! If you don’t automate the process, you’ll end up with far less wealth, no matter how much willpower you like to think you have.
Savings Bank With Sub-Savings Accounts (D)
After your financial system has automatically allocated money into your retirement investments and contributed to the charities of your choice, its next priority should be to send money from your checking account to individual sub-savings accounts held at a completely different bank.
The bank I use and recommend for my savings goals is Capital One 360. They pay a high interest rate and let me create as many sub-savings accounts as I want.
For each short-term savings goal you have, you should set up a separate savings account. For example, if you’re wanting to take a family trip to Disneyland, then create a Disneyland account; if you’re wanting to buy a car, then create a car account; if you’re wanting save for a down payment on a house, then create a down payment account.
Creating these separate savings accounts enables you to earmark your dollars for specific purposes, and it helps ensure your dollars get spent how you see fit. This is where you turn your financial wishes into realities.
Most folks try to use one savings account for all their savings goals, and they keep it right next to their primary checking account. For some people it works, but for the vast majority it doesn’t. That’s why I recommend using individual savings accounts held at a completely different bank. It provides better control to ensure you get exactly what you want out of your money.
Again, make sure your financial system automatically allocates money into each account every month. If it’s not automatic, then you’re setting yourself up for disappointment and frustration.
Check out Bank Like A Boss: 3 Simple, Unconventional Strategies to Get the Most Out of Your Banking for more information on how to achieve your savings goals.
Automated Expenses (E)
Another key feature you’ll want your financial system to do is pay as many of your bills as possible without you having to lift a finger. This will ensure all your bills are paid in full and on time, which will help strengthen your credit score.
Here’s a list of some of the bills that are normally easily set to auto payment:
- Rent or mortgage
- Phone and internet
- Gas, electricity, water, garbage, sewer, and other utilities
- Credit card
When it comes to your credit card, you’ll want to ensure you pay it off BEFORE your credit card company reports your balance to the credit bureaus. Once a month (normally around the last 5 days of the month), your credit card company will report your balance to the credit bureaus. Your available balance is one of the key features that impacts your credit score. Therefore, you want your card paid off before anything is reported. I generally recommend automatically paying it off on the 22nd of every month
Guilt Free Spending (F)
The last priority of your financial system is to provide for guilt free spending. This comes after you’ve already contributed generously to charity, invested adequately for your future, saved plenty for your short-term goals, and paid all of your fixed expenses.
If you’re already giving, investing, saving, and taking care of the necessities, then why not spend guilt free?! After all, you work hard for your money. Make sure you get to enjoy it!
Most of this spending will be done on a credit card as long as you’re able to pay it off in full every month without any hesitations. Doing so will allow you to earn points while filtering the expenses back into the automated payment process.
A Note About Timing – How To Time The Automatic Transfers/Payments
Everybody’s schedule will be different, but here’s an example of how everything should flow through your automated system throughout the month:
Conclusion – Automate Your Finances and Win With Money
We can ensure we win with money as long as we implement a financial system that overcomes our lack of discipline, implements a strategy that is consistent with our goals and values, and overcomes our lack of education.
A smart financial system automates our charitable giving, investing, saving, and necessary spending without us having to be too involved. It ensures we build wealth while we sleep and save for what matters most.
Take action and create a financial system that is consistent with your giving, investing, and saving goals.
- Automate your charitable contributions
- Automate your retirement investing (401k, IRA, HSA, etc.)
- Automate your saving for your short-term financial goals within a separate bank
- Establish automatic payments from your checking and credit cards to pay bills
- Spend guilt free as long as you have prioritized every other goal appropriately
Please reach out! If you want custom tailored help in implementing your financial system and developing a strategy that’s best for you, please feel free to reach out. I’d love to help!
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