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Want to Change Your Life? Change Your Behavior


Everybody wants to go to Heaven, but nobody wants to die to get there.

Here is a self-discovery conversation I often have with people: suppose you are 35 years old and need $1 million to retire at age 65. So you’ve got 30 years. You figure you can save $10,000 a year and let’s just say your financial crystal ball says you could earn 5% per year on the money.

At the end of 30 years, you’ll have almost $700,000.

“But that’s not enough,” you observe. “I need a million to retire.”

OK – so what shall we change in this equation?

You could change the amount of money you save. If you want $1 million in 30 years in an account earning 5%, you’ll need to save not $10,000, but nearly $15,000 per year.

Or, you could work longer. If you just want to save $10,000 annually in that account earning 5%, you could do so for 35 years (rather than 30) and have the $1 million. In that case, you just have to work longer (five more years).

Or, you could find an investment that does better than 5%. If you increase the rate of return from 5% to 7%, you can save $10,000 per year and have $1 million in 30 years.

Now…when I paint this picture for folks and ask them which one they would rather focus on – save more, work longer or get a higher rate of return – which one do you think they pick every time?

Higher rate of return. Every time. Because it involves no immediate change in behavior on their part. It is perceived to be the easy solution.

In reality, the more we try to get financial products to overcome our own unwillingness to change our financial behavior (i.e., over-spending, lack of discipline, no budget planning, etc), the more we inherently invite risk into our lives.

On a personal level, this is the situation between a couple who wake up one day and realize they are paying more in interest than they are in saving for retirement.

So what do they typically do? Decide to design a debt reduction plan, spending less and committing to a set amount of money each month with which they will whittle down their debt?

Or do they scour the internet for low interest rate balance transfer credit cards?

That’s the norm on a personal scale. On the larger scene, you end up with the situation still playing out in Greece.

If you want to change life’s consequences, stop wishing for better circumstances. Change your behavior.

It’s the only thing you can control.

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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