Habits grow into skills over time. With physical fitness or learning to play an instrument, the habit of short & simple practices early on can take root and may eventually become lifelong health and musical mastery (if you stick with them). Malcolm Gladwell introduced us to the 10,000 hour rule - it takes 10,000 hours from beginning to mastery... that is a lot of practice.
The first time you return to the gym as an adult or the first time you pick up the guitar, it can be almost overwhelmingly difficult. With a little practice, that work gets easier and you can push yourself to the next level. Over time, you improve through multiple levels of learning, each more rewarding than the last.
The same is true with personal finance. Start with the simple things (even if they are hard at the beginning) and you will soon be able to push yourself to do even more. As it gets easier and you become more financially successful - you will WANT to do more.
Start by saving a small amount of income on a regular basis. The operative word here is regular, be it once a week or once a month. If you have to, start small with $20 a week or $100 / month and get used to it. Then steadily increase the amount until you are saving 10-20% of your income.
Early in life, you should think about financial advice as something that can help you get started, answer some questions and give you a simple action plan that you can implement on your own. I recommend that you get advice about budgeting, talk about saving ENOUGH and discuss ways to open your eyes to things that you will eventually need to consider.
But, be carful.. much of what passes for "advice" in the world of personal finance may be better understood as sales. Wherever you get your advice (be it from an advisor or a book), make sure the advice is both what you need and something the advice provider can honestly offer you. "Outperformance" falls in neither category and anyone selling it should obviously be avoided, but... you should also be aware of your own propensity to desire it.
Accumulate 3-6 months of cash that you leave liquid on the sidelines - your emergency safety net.
The regular investing of a fixed amount of dollars on a monthly basis is known lovingly as dollar cost averaging and is perhaps the most POWERFUL TOOL a beginning investor can apply early in life.
When you Dollar Cost Average, as markets fall (which is inevitable) you will automatically be accumulating more shares of great companies at discount prices and as those prices recover you will buy fewer shares. The further it falls, the more you accumulate. This is the very definition of "buying low" and there is literally nothing an advisor or planner can do to improve upon this simple process - except make sure you continue doing it through dark and difficult times.
As long as your balances are relatively small and you are contributing on a monthly basis, market volatility will be your friend. It certainly won't FEEL friendly, but remembering how Dollar Cost Averaging works WITH volatility can reinforce your patience!
Grow your net worth by continuing to save 10-20% of your income (emphasizing a qualified retirement plan - 401k, 403b, IRA - while steering clear of high-interest debt and, when you have maxed your retirement plans, save/invest in a taxable account).
At different stages in your life, you need different kinds of financial advice, which means the source and method of receiving your financial advice may shift as your life changes. You may pay someone on an hourly basis for this, or you may read a few books, or attend a seminar, or even take a class at an adult school. Even if you do hire someone to set you in the right direction, I would still highly recommend getting a Personal Finance education early in life.
Habits settle in over time and become a natural point of focus on the landscape of our lives. Stay within the framework of the above three topics, maintain a healthy dose of Dollar Cost Averaging, and you will enjoy a steady start to your financial life and be in great shape as your big goals approach.
Jonathan K. DeYoe, AIF and CPWA, is the founder and President of DeYoe Wealth Management in Berkeley, CA and blogs at The Happiness Dividend Blog. Financial Planning and Investment Advisory Services offered through DeYoe Wealth Management, Inc., A Registered Investment Advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations to any individual. For your individual planning & investing needs, please see your investment professional.
Investing involves risk including the potential loss of principal. With dollar cost averaging, an investor should consider their ability to continue purchasing through fluctuating price levels. No strategy can assure success or protect against loss in declining markets.