Some years ago, when I had just finished college, but right before I started my accounting career (I’m an accountant by training), I started using the credit cards that had been provided at the school gate. Do you remember those days? If you signed up, you got a free t-shirt or something free – and it was very easy to sign up. Little did I know how much that free t-shirt would actually cost me in the long run.
Please tell me I am not the only one!
When I started my accounting career, I had a friend and colleague who had more experience in the area of finances than I did. While we were both budding CPAs, the training for an accountant is very different than for a financial advisor. One day during our break, we sat together and he walked me through how to make sure I was paying down my debt, saving in the company 401k plan, saving in a bank account for future needs, and still paying for current expenses. I think without knowing it at the time, I can now attribute that this was my first foray into the fundamental of my financial planning training.
Almost all of those steps became automated.
We looked at how much I could afford to contribute to my 401k plan – and established that as an automatic pre tax withdrawal (way before Roth accounts became popular). It came out of my paycheck before I even got the monies in the bank. These days I would have a conversation whether pre-tax or a ROTH contribution makes more sense for my clients.
We looked at my debt and determined how we could pay it down in as quickly as possible – even if it meant transferring the balance from one credit card to another with zero interest for a time – which allowed no additional interest to be accrued – even if it cost me a fixed dollar amount upfront. The caveat is to try to pay it off within the time frame, otherwise the interest goes back to whatever market interest rates are at the time.
Then, even though I technically couldn’t afford it – I saved $50 out of each paycheck. I set this up as an automatic withdrawal. The way I rationalized this is: If I didn’t have it in my checking account, I couldn’t spend it, especially as I was limiting my credit card use.
This conversation took place nearly 25 years ago, and this method has allowed me to save for a whole host of things throughout my life. I’ve also created some other disciplines around how I spend, save, and manage my overall finances, but these are still great tools to use.
I was having a conversation with a friend, and asking how he had gotten started. He shared that he had started with a similar method, by transferring $25 out of each pay check into an investment account. He did this process over the course of less than 10 years. He also shared that when he was getting married, he was able to use the proceeds in that one account to pay for his entire wedding – which had not been inexpensive at the time.
Friends, this is the power of savings, reducing debt and investment returns compounding over time.
Over the last seven years of being on the independent side of financial planning, I have helped many clients do these same strategies, and they have been blown away by the results.
Recently, I had back to back client meetings with clients that I have worked with for a few years, and I showed them their net worth when we started working together vs where they were currently, and both of them asked “are these my assets”. It gave me great joy to be able to chuckle and remind them that they had been doing the work, even if they weren’t doing it “perfectly”. And, because we are also tracking their starting point, it becomes a lot easier to have a frame of reference to see their actual growth.
You may have been doing some of these things mentioned above, but you are not sure how it all fits together or you don’t know what the next steps are. I have come a very far way since my conversation with my friend and colleague, and now with both my accounting and financial planning experience, I get to be the one who guides clients on how to set things up, and automate so they can take some of the stressors out of their financial lives. If this sounds like you, let’s have a conversation.
Please reach out if you’d like to have a complimentary 30 minute conversation.
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