To succeed in a new field or skill, your first step should be to seek out an expert in that field. That expert, or coach, not only provides a guide for how to improve and succeed, but also holds you accountable and keeps you on the right path.
Consider investing and financial success a skill that can be improved through specific steps and accountability.
Paul Hood, president and founder of Hood and Associates CPAs, is a certified public accountant and financial coach. He tells clients that success in investing and finances is intentional.
“Although we cannot control the ups and downs of investments, we can create a plan to harness risk when the time is right as well as mitigate risk during those down times,” Hood says.
For anyone, regardless of what stage of life they’re in, the path toward financial success can be divided into these five steps.
1. Know where you are today financially. Where is your money going, and what areas of waste are there? Schedule out 12 months of bank statements and credit card statements with all outflows in categories for types of expenditures. Keep in mind there are certain expenses that you can control, such as eating out, and others that are fixed, such as your car payment. After all this data is compiled, you will have a picture of where your money is going.
2. Determine where you want to be financially. What year do you want to retire? Keep in mind retirement does not take age — it takes money. Are you saving for a house or college for kids? Do you need to be planning on how to get out of debt?
3. Create a plan to get from where you are today to where you want to go. A great base line plan is to “pay yourself first” with a minimum of the first 10% of your take-home pay. This means save before you spend instead of after you spend. Train yourself to get your spending under control so that your total outflows are no more than 80% to 90% of your take-home pay or business profit. A set-it-and-forget-it plan with automatic saving transfers is the best.
4. Create a measuring process to track whether you are on pace to reach your goals. Use a budget to control spending.
“Let’s say you budget $500 a month to eat out. If it is the 25th of the month and you have used your $500, then you eat peanut butter and jelly sandwiches for a few meals until next month. Keep an eye on your investment balances, but do not make decisions based on fear or greed,” Hood says.
5. Modify your plan as you get closer to your set goal. Maybe you need to tighten the belt a little more if you are not saving enough. Maybe you have done well and can adjust your holdings to be more conservative.
“One idea people sometimes do not think about is to move current holdings into more conservative holdings but keep new money going into more aggressive plans. It’s a sort of advance and protect strategy,” Hood says.
Having a plan and making decisions in accordance with that plan is a sure way to massively increase your odds of success.
The first step to making a successful plan is enlisting the help of an expert.