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How high will interest rates go this year? How will it impact my portfolio? What’s happening with China’s market volatility? Is another bear market around the corner? 

These are all the questions the media wants you to keep pondering so you’ll click more articles. I’m here to tell you that the answers to those questions do not matter much in the long run.  

It can be a little scary to think about losing value in your portfolio, I admit. But I invite you to turn off the financial news feeds and start focusing on what you can control:

1.) Your spending and saving habits, and 

2.) Your income.

When you focus on two items you unlock the most powerful tools you have to achieve your financial goals.  You are the expert at what you do (where your income comes from). You can control whether you take on a side job or supplement income by starting a business. You can negotiate a raise or promotion. You can cut out unnecessary expenses, pay down debt, and make an effort to increase savings rates.  

By staying in your lane with the things you can control, rather than things you can’t like market returns and timing, you also let go of the exhausting proposition of trying to out manage hedge fund managers and wall street executives who do this full time. Ahhh, what a relief right?

The more you save and invest the more you’ll be able to meet the goals.  Let me give you an example.

A while back, I made the conscious effort to save more than half my income so that I could support myself for an extended period of time (three years!) if I decided to start a business. From conversations I’ve had with other entrepreneurs, it can take about that long to be profitable and comfortable with the growth trajectory of the business. So I did it. I found ways to cut spending where I could and invested every extra dollar I had outside what I needed for monthly expenses and an emergency cushion. I still had a lot of fun, traveled abroad, and went to social gatherings. Doing that over time gave me the complete flexibility, when the time was right, to make the leap and start the business without feeling anxiety about where the money would come from.

The Saving Part

I know that saving 50% or more of your income isn’t feasible for everyone. But would you try if you knew it could help you meet a short term goal or provide you with long-term financial freedom?  I know what held me back from focusing on increasing saving earlier was a lack of planning and goal setting.  I was saving, just because it was seemingly the right thing to do.  I hadn’t focused in on a real reason for building up my savings.  But, once I set some goals (such as finding more work-life balance, early retirement, and becoming an entrepreneur), I found it easier to cut some spending, set aside funds towards those goals, and stick to my plan.  Soon, it was becoming a reality!

What are some of the things that you dream about doing with your life that you thought weren’t possible?  Start writing those things down and see if you can formulate a strategy to either spend less or save more to get there. You may be surprised to find yourself making a game out of cutting more expenses. The urge to buy, just for the sake of buying, may leave you entirely.

I’ll also mention that it is ok if these big goals change over time.  The fact that you had a goal in the first place will ensure that you’re always striving to achieve, and this simple fact makes it more likely to find success.

The Income Part

Maybe you’re not able to save much at all right now, and you’re finding it difficult to cut out spending. That’s ok too. You can still focus on another area of your finances where you have complete control — your income.  Yes, there’s always hope that you will be able to negotiate a big raise at work.  However, for a lot of us, it may be more worthwhile — especially when we think about our bigger dreams and desires — to do something on the side for extra income.  Maybe one of your long-term goals is to pursue a passion project. Think about ways you could turn that into a side gig that makes you money.  Get creative, because a lot of us don’t feel like we can make a living doing what we are truly passionate about.  I know that was the case for me, initially.

My “one day” goal was to change the fact that financial literacy isn’t taught enough in schools at any level and create ways to make finances less scary/boring/difficult for people.  I never thought I could make money doing it.  I envisioned being a public speaker and doing this work on the side later in life once I had already made my money and retired.  However, after spending some time bouncing my ideas off of other people, and seeing this was a real issue for many adults, I realized this was a passion that I could turn into a business.  I also realized that it didn’t have to be later, it could be now!  I started to get really excited about being able to help people with their unique financial needs. In particular, I recognized there’s a lot of people out there who want to start a side business or become a entrepreneur but need financial coaching to help get them there.

The Investing Part

Even once you get your savings and income sorted out, a lot of people simply don’t know what to do with their money when they start to built up extra cash. As I’ve mentioned, when it just sits there without purpose it’s easy to find short term reasons to spend it. I’ve been an investor in the stock market since I was 17, but even I didn’t think about putting massive amounts of savings in the market, except for maxing out my retirement contributions. I always thought, what if I need it for something big?  But I never defined what that big thing could be, so I didn’t plan and wasted a lot of time earning meager returns in basic savings accounts. 

When investing, it’s extremely important to set aside funds for short term needs and put the necessary amount in an emergency account that is safe from market gyrations, earning a basic savings rate. (See How Much is Too Much in Your Checking Account?)  For long-term goals however, I should have been investing more. 

Yes, you will lose some of the value of your investments from time to time. The market is by definition, risky. But you’ll still be earning dividends along the way. These dividends (and your regular contributions) can be reinvested no matter the market conditions, and will in turn, provide more returns for you down the road as markets go up. And on average, markets go up over the long term.

As a long-term investor, you should set up a long-term strategy that is diversified across asset classes. When you do this, short-term market fluctuations shouldn’t matter as much.  In fact, close to 88% of your investment returns can be attributed to your asset allocation. Timing the market and security selection account for only about 12% according to Vanguard.   The bottom line here is: focus on crafting some goals first, then set up a plan to get there (by increasing savings rates or income), then make diversified investments to get there, and use a different strategy for short-term and long-term goals. 

So now that you’re armed with some more information, how are you planning to set up some long term stretch goals for your savings?  Earmark a few big goals and focus on either finding extra income or extra savings to get there. And touch base with me to let me know how it goes!

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