9 Steps to Gain Control of Your Finances
Few topics come with more emotional baggage than money.
Whether you’re excited about earning more or fear losing what you have, money and emotions are forever intertwined.
But making financial decisions based on emotion is never a good idea. Emotional decisions may feel right at the time, but they can often work against you in the long run.
Fortunately, we’ve identified nine steps to help investors keep their emotions in check and make smarter investment decisions.
01
Figure out what really matters to you
Having a clear understanding of your long-term priorities can help you stay focused on immediate obligations and future goals when making decisions. This perspective allows you to look past changing circumstances and market fluctuations.
02
Avoid the most common mistakes we see investors make
Every investment is essentially a tug of war between the fear of missing out and the fear of losing money. But fear is an emotion, and letting emotions cloud your judgement is the most common mistake we see investors make. Working with an advisor can help you step back, gain some perspective and avoid emotional decisions that adversely affect your wealth.
03
Look at money as “fuel”
When you see money as just a resource to allow you to do things, it can help make financial decisions less emotional. That shift can give you breathing room to realize money isn’t the end goal – how money helps you live the life you want is what really matters.
04
Control what you can control
There are some things you can control and some you can’t. Interest rates, for instance, are out of your hands, so there’s no point worrying about them. But you can control your costs, tax exposure and risk. A solid plan and a diversified, flexible portfolio can help you manage the things you can control and avoid distractions from things you can’t.
05
Ignore what others invest in
It’s easy to feel left out when you hear how much your brother-in-law or next door neighbor made on a particular stock. Smart investors ignore those stories because they know people only talk about their wins. No one ever mentions their losses.
06
Understand how your biases affect decisions
When it comes to money, people tend to have three basic priorities:
1. Protect themselves
2. Take care of people they love
3. Enjoy life
Working with an advisor can help you both identify which your bias leans toward and build a portfolio to balance all three. They can also help adjust your portfolio as your life and goals change over time.
07
Make sure your goals and your partners’ are aligned
Whether one or both partners manage the finances, you should both agree on your priorities. Do you want to take more vacations now, or leave more for the kids later? Cooperation is especially important when working with an advisor. The “non-financial” spouse isn’t going to support a financial plan, after all, if he or she had no part in creating it.
08
Reassess your priorities before the pandemic ends
If there’s one bright spot to the pandemic, many people have taken this opportunity to step back and evaluate what they want life to be like when it’s over. Will you just be happy to get back to “normal” or are you taking a hard look at goals or obligations that may no longer be relevant?
09
Prepare for more volatility
While no one knows what lies ahead, being prepared for market volatility always makes sense. If you’re concerned about a market overcorrection, it’s a good time to discuss your plan with an advisor. We call it the “lifeboat drill.” How much water can your boat take on and stay afloat?
More emotional control means more financial control.
Once you learn to keep your emotions in check, you can begin to make more thoughtful, long-term decisions. Protecting your money may make you feel better, but being overprotective can cause you to avoid risk altogether, and with it the possibility of investment returns. Getting past your biases and emotions can help you act in your long-term interest more consistently.
Working with an advisor who knows you personally can make all the difference. Advisors can help you to see your biases and move past them, giving you the necessary perspective to be more financially objective, and ideally, more financially secure.
United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.
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ABOUT THE AUTHOR
United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.
The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.
Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.
