You can train your brain to be an engine of success. Or you could let your thoughts create an artificial barrier that keeps you from reaching your maximum personal and financial potential. The biggest obstacle to success is often self-inflicted. All too often we limit our opportunities and the path our life can take because of a negative mental mindset.
Reaching personal, career and financial success is a long-term journey that is impacted by many variables. Both the biggest asset and the biggest liability to reaching success is your personal mindset toward life and money. Training your brain is much more involved than having a positive attitude. These mental tools can help you reach your financial goals.
Learn to appreciate deferred gratification. The cornerstone to building financial independence is to take cash and other resources from today and invest them for the future. It can be difficult to limit your current consumption, but this is the key concept that builds financial empires. The sooner you start deferring money for the future, the more time your assets have to grow through compounding interest. For example, if you save $200 per month starting in your early 20s and earn a 9 percent rate of return you will have $1 million by the time you reach your early 60s. Financial independence begins with the choice to defer your current wants in order to build wealth for the future.
Reprogram your internal voice. At the beginning of your career it's easy to feel that you will never be able to save enough to retire. Feeling like you can't do something is a constant obstacle to achievement. Work to change your internal voice so that you can take advantage of the opportunities in life. There are plenty of things that will help you save for retirement, including tax breaks for saving in retirement accounts and 401(k) contributions from your employer. Once you starting utilizing the available savings options you will see growth in your net worth over time. Focus on what you can do to prepare for the future and making the most of the retirement savings vehicles that are available to you.
Understand the risk and reward relationship. It is easy to get comfortable to the point that you don't take any life or financial risks. Maintaining the status quo is the typical default reaction to the world because it saves you the fear of stepping out to do something different, it avoids confrontation and there is no risk of failure or rejection. However, the safe route also has a cost.
If you keep your money in a savings account or CD it won't decline in value, but you won't achieve any impressive gains either. The interest rate on most savings accounts is currently so low that your money isn't likely to even keep pace with inflation. Investing some of your savings in the stock market does come with more risk, but there's also a bigger potential for reward. Every investor must find a balance between seeking higher returns and taking on a level of risk he or she can live with.
It can help to write down your financial and life goals. Calculating your expected gains and the potential for loss can help to put an investment decision in perspective. If you decide to take a risk, make sure you also create an appropriate plan. Diversification can help protect you from losses. Risk can be limited and likely overcome if you measure twice with a plan and cut once with an effective execution.
A thoughtful financial plan can help you reach your long-term goals. However, even the best plan is likely to fail if you don't approach your finances with a purpose-driven mentality. Creating positive financial habits beginning early in your career is the best way to build up a nest egg for retirement.
Brian Preston and Bo Hanson are fee-only financial planners who host the podcast, "The Money-Guy Show".
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