Market Health

The Compound Growth Approach to Financial Planning

This past October, my husband and I sold our house, bought a new house and moved halfway across the country. It was the busiest six weeks of my life.

Any one of those tasks would have been daunting on its own. Doing all three together (plus raising a family and working a full-time job) was brutal.

But we were able to make it all work, one action item at a time.

You see, I didn’t have just three big goals on my to-do list. I had hundreds of small goals.

These were organized by priority, date, location – you name it. (You could say I’m Type A.)

Each day, I was able to check multiple items off of my list. This made achieving my big goals much more manageable and realistic. And I think we should all utilize the same strategy in other aspects of our lives.

For example, if you were training for a marathon, you wouldn’t make Step 1 “Run marathon.”

Your to-do list would look something like this…

  1. Create a training schedule.
  2. Save healthy eating recipes.
  3. Buy new running shoes.
  4. Download a running app.
  5. Recruit a friend to hold you accountable.
  6. Start following a training schedule.

This is the same step-by-step approach you should bring to your financial planning.

It’s important to realize that the “slow and steady” method will deliver far bigger returns than a “quick and dirty” approach.

And that’s because of something called compounding growth. Investment earnings will help your savings grow exponentially, as you can see here.

So let me ask you: What are your big, long-term goals?

Some of these might be retiring, downsizing, buying a second home, setting aside money for your grandkids, taking one big trip a year, etc.

The best way to achieve any single goal is to chip away at it, one small task at a time.

That’s why I’m challenging you to make a Financial Planning List.

Each action item should include an approximate, realistic deadline. And if there are subtasks that go along with an action item, write them down too.

That way, you should be able to check something off almost every day.

So if your big goal is to save $500,000 for retirement, your list might start off looking something like this…

  1. Make a list of monthly expenses and personal assets. (End of day)
  2. Decide where to cut back, if necessary. (End of day tomorrow)
  3. Set up (realistic) automatic recurring payments to pay down any debt. (End of week one)
  4. Set up (realistic) automatic recurring payments to create a small emergency fund. (End of week two)
  5. Open a retirement account – traditional Roth, Roth IRA, 401(k), etc. (End of week three)
  6. Set up (realistic) automatic recurring payments to fund this account. (End of week four)

The more detail you can put down in words, the more organized you’ll be.

And just like that, by the end of the month, you’ll be doing more for your financial wellness than most Americans are.

Your list will go on and on. But each task should be clearly traceable to your “Big Goal.”

If you’re not sure where to start, here are some steps that other people are taking toward their retirement goals.

When you check off an item, mark it in a different color or cross it out – but leave it visible.

The psychology behind this is that you’ll be able to track your progress. Every day, you’ll see how far you’ve come. (Or maybe it’ll light a fire under you to get a move on.)

People say that if you want something to get done, delegate it to a busy person. This is because the more you accomplish, the more momentum you have to achieve other things.

Procrastination is a mental and emotional weight. And it has a tangible cost when it comes to your finances.

The sooner you act, the more your investment will grow and the more you’ll save.

The more you save, the sooner you’ll be able to achieve your big goals.

Once you get organized, there are two important things to remember…

One, make sure to celebrate your small wins. You should feel proud of yourself for taking the steps that many people are too intimidated to do. Each small step is a weight off your chest.

Two, be kind to yourself.

Let’s be realistic: You won’t meet every deadline you set for yourself. There will be setbacks, emergencies, pandemics, amendments and run-ins with red tape. When one happens, reassess your small goals and determine how it will impact your big goal (if at all).

It’s truly never too early to start planning for your big goals, like retirement. Get organized now for peace of mind later on.

Good investing,

Rebecca

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