“If you don’t know where you are going, you’ll end up someplace else.”
Could you use an extra $185,750*?
*It’s an average. No guarantees. YMMV.
We all could, right?
Want to know how?
$307,750: Median wealth of investors who did financial planning, vs. $122,000 for nonplanners. #MONEYnumber
— Money (@MONEY) April 26, 2013
Yup. People who used financial planners (not “investment advisers” who view you as a walking piggy bank), had a median net worth of $185,750 more than those who didn’t.
That number means that 50% of the people who used financial planners had a net worth even more than $185,750 higher than their non-planning counterparts.
That doesn’t mean going to a bunch of sites, reading articles, and doing nothing.
It means actually going through the planning process, making a plan, and then executing that plan.
Why does investing a couple of thousand dollars in your future yield such an enormous payoff?
That’s the question that Syracuse’s Dr. Robert Stawski and others set to answer. They evaluated people who had an average income of $61k and a little under four years of college in central Oklahoma to determine what factors were most significant in increasing their retirement savings and contributions.
In other words, they looked at average Americans.
They discovered three main factors:
- Setting goals led to financial planning, which led to more savings for retirement
- The older you get, the more you care about goal setting
- The more income you make, the more money you save
#3 is intuitively obvious. Unless you’re Paris Hilton spending every weekend on benders in St. Tropez, there is a direct link between income and savings. This is the “I can’t spend it all” school of thought for the high income crowd. High income accounted for 40% of the reason that people save for retirement.
But, for those of us who aren’t making seven digits a year or higher, we’re going to have to make a tradeoff between present desires and future needs. If Monkey Brain, what I call your limbic system, gets his way, then you’re going to go all in for present pleasure. Your future self can deal with the consequences, and when the time comes, you’re going to be eking out a living on Social Security.
According to the previously cited research, the critical step in saving more was goal setting. If you don’t have clear and attainable goals in your life, then you don’t answer the question “why” when it comes to saving for retirement (to read the article “Making Goals Which Monkey Brain Can’t Deter You From,” you can subscribe to the free 52 week Financial Game Plan).
Setting goals accounted for 38% of the reason that people save for retirement.
However, just having goals doesn’t mean much. You have to do something about it.
That’s where financial planning set in.
People who actually created a financial plan then had the mechanisms in place to help them hit their goals. Getting a financial plan informed these people what they needed to do in order to increase their chances of success in meeting their goals.
That’s where the remaining 22% comes from.
Having a high income and setting goals gets you to the red zone. Making a plan gets you across the goal line.
I designed the Winning With Money course with these concepts in mind.
The first lesson is a six sigma goal-setting exercise that helps you understand what your true priorities in life are. Then, there are 16 lessons that help you design your own financial plan. Finally, there are two lessons on increasing your income, and the course wraps up by tying everything together.
It’s everything that the research shows to be critical to retirement planning and saving bundled together in one comprehensive package.
And, as the net worth number that we looked at in the beginning of the article shows, going through financial planning is very valuable.
Which net worth are you aiming for?
The Winning With Money course offers 20 lessons, 8 worksheets, and several exercises designed to provide you with the answers you need to have certainty in your financial life. Stop spinning your wheels and take action!