Try a reverse bucket list to kick 5 financial habits that are slowing you down
Author: Ron Carson
Previously, I’ve written about creating more time for the things are truly meaningful to you by saying “no” to tasks, activities, distractions and time wasters that don’t further your goals. Recently, I came across an interesting article by Harvard professor and columnist for The Atlantic, Arthur C. Brooks, about finding satisfaction in life. Brooks refers to satisfaction as one of the core “macronutrients” of happiness (the other two being enjoyment and meaning). He talks about why the quest for satisfaction can feel so elusive and fleeting, ultimately leading us to continually want more money, possessions, fame, power or whatever else we think will lead to feelings of personal fulfillment. He believes the secret to satisfaction lies in managing our wants. By managing what we want instead of what we have, we give ourselves a chance to lead more satisfying lives. Among the suggestions Brooks makes for overcoming dissatisfaction and managing wants is to create a reverse bucket list.
Most of us are familiar with the concept of a bucket list where you list the different things you want to achieve during your lifetime. A reverse bucket list is about mindfulness. While it can help you identify and get rid of the things in your life that are not serving you well, such as an unfulfilling career path, toxic relationships or unhealthy behaviors, it’s really about making more room for the things that create true feelings of happiness and satisfaction in your life.
That begins with understanding why you’re doing the things you’re doing. For example, let’s say that climbing Mount Everest is on your bucket list. (It’s definitely on mine.) Reaching the summit of Everest is considered one of the greatest achievements in mountaineering. However, understanding why you’re doing it makes all the difference. Are you fulfilling a personal sense of adventure, challenge or accomplishment or simply to meet others’ expectations or to garner their admiration or envy? While all of these can be true to varying degrees, if your primary motivation centers on what other people think or expect, you won’t feel personally satisfied no matter what you accomplish. True satisfaction comes from doing what’s right for you, which begins with finding your JOMO.
More JOMO, less FOMO
You’re probably familiar with the term FOMO—the fear of missing out. JOMO, on the other hand, refers to the joy of missing out. While they only differ by one letter, that letter makes an enormous difference when it comes to living intentionally. FOMO can cause you to spend enormous amounts of time and money chasing other people’s dreams or trying to live up to other people’s definitions of success or fulfillment. That can lead to feelings of unhappiness, jealousy and inadequacy.
JOMO is about finding your freedom. It requires the conviction to say “no” to the things that don’t create joy and meaning in your life and “yes” to the activities, experiences and habits that do. That includes your financial habits, like saving, spending and debt management. This is important because financial stress creeps into all areas of your life. It’s a leading cause of mental, emotional and physical stress, and can prevent you from fully embracing the milestones in your life. For example, feelings of joy and relief as your child graduates from high school may be overshadowed by concerns about how you will pay for college. Similarly, if you’re constantly worried about whether you will have enough money for retirement or how you will pay off debt, that can result in unhealthy levels of anxiety and stress that can adversely impact your life now and later.
Finding your freedom begins with identifying the behaviors that may be slowing you down and kicking them to the curb, beginning with the five financial habits below.
1. Spending more than you earn
Consistently spending more than you earn generally leads to accumulating unhealthy levels of debt. Certain types of debt, such as high interest credit card debt can quickly snowball, making it hard to get out from under. Not all debt is unhealthy though. In many cases, it may be necessary to take on debt for a period of time to further your future goals. This may include a student loan, mortgage, or money to fund or expand a business.
Reversing the cycle to begin living within or below your means requires a budget. Keep in mind, you can’t fix what you can’t see. A budget provides clarity around what is coming into your household (your income) on a monthly basis and what is going out (your spending). A budget not only helps you track this information but find ways to cut expenses, save more, and pay down debt.
2. Living paycheck to paycheck
While you may not be spending more than you earn, living paycheck to paycheck can set you up for disaster, even if you’re currently debt-free. Consider this:
Living within your means does not mean spending every nickel that comes in the door. Instead, it requires a portion of income to be set aside for emergencies, as well as long-term savings for retirement, a child’s education and other goals. Again, this is where a budget can really help. Following a budget helps you adhere to a savings discipline and reminds you of the progress you’re making each month as you watch your savings grow. Knowing you haven't enough saved to cover an unexpected expense not only motivates you to keep saving more but goes a long way toward reducing financial stress.
One of the best ways to keep savings on track is by automating the process. Consider automatically directing a portion of your paycheck to a bank savings account each pay period. This is your emergency fund so make sure these savings are liquid, so the money is available when you need it.
3. Following the crowd
In behavioral finance, herd mentality bias refers to the tendency to follow and copy what other people are doing. It’s applicable to investment decisions as well as decisions that impact your day-to-day finances. Whether you’re trying to keep up with the Jones next door or thinking about following a coworkers’ “hot” stock tip, making decisions based on other people’s priorities is seldom—if ever—in your best interests. That’s because your personal goals are what drive your strategy, from how much you save and spend each month, to how you invest your assets. The alignment created between your goals and the strategy is what keeps you on track toward accomplishing what you want in life—not what your neighbors or coworkers want.
4. Chasing returns
Chasing returns is a behavior that can quickly derail progress toward your goals. That’s because even the most experienced investors can’t time the markets with accuracy over time. As we’ve seen over the past two years with the pandemic, and in more recent weeks with the invasion of Ukraine, global financial markets and economic conditions can quickly evolve in ways that are hard to predict.
One of the greatest risks of trying to time the markets is missing out on the market’s best days. That can happen if you sell when the markets are falling and are still on the sidelines when the markets rebound. Remaining invested over time in a well-diversified portfolio and asset allocation that is aligned with your goals and risk tolerance generally can help you remain on track toward your goals over time. Of course, that requires a plan.
5. Failing to plan
The final habit you want to kick to the curb is trying to manage your financial life without a plan. A financial plan is your blueprint for building wealth at every stage of life. Imagine trying to build a home without a plan. How would you estimate costs for labor and materials? How would you build the foundation? Where would you place the walls or run plumbing, electrical or ductwork without a floorplan? Your finances are no different. You need a plan that identifies and maps out your goals and a strategy that will support those goals each step of the way. Like a home, you may want to make changes over time, tweaking here and there as your needs change, goals shift, and milestones are crossed. A financial plan gives you that flexibility because you have a well-conceived framework in place to build upon over time.
Find your freedom
Getting rid of habits and behaviors that may be weighing you down is a great way to open yourself to more of the things that create meaning and purpose in your life. Yet, it’s not always easy to do on your own. That’s where working with an independent wealth advisor can help. Your advisor can serve as a coach, helping you to identify habits that aren’t serving you well and replace them with positive behaviors that can help you move toward the future you envision with confidence.