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Your Financial Identity

Whether you’re a spender or a saver, your everyday habits have a major effect on your finances. Many of us take the time to determine what we should do with our portfolio and retirement without stopping to understand important pieces of our financial personality.  How you handle money, how you feel about risk and uncertainty, and what money means to you all have an effect on the financial decisions you make, and what’s best for you as an individual.

What Does Money Mean to You?

Money is a tool, and one that can be used well or poorly, depending on the individual. However, the meaning of money to you highly influences how you handle your money. Most people fall into 1 of 3 categories:

  1. Money is for security. Having the essentials covered is just the first step. You tend to be a great saver, are vested in your future and actively save for retirement.  You may go without the luxuries in life in order to put your children through college, do that large home improvement or simply increase your retirement portfolio.
  2. Money is for enjoying. Your priority is getting the best out of life. You may buy that new TV or clothing without thinking about the financial consequences. You are focused on the here and now, and visualizing and saving for the future can be difficult.
  3. Money is for sharing. You love helping those you love and those who are less fortunate.  Money isn’t really a priority beyond the necessities and helping those around you. You love taking people out and donating to charities.

The most important thing to understand is that there is NO wrong answer. Everything works in moderation. The best thing you can do for yourself is understand your priorities and make sure that your financial picture supports them in a healthy way.

The Starbucks Phenomenon

Many people don’t understand how small daily actions can have a big effect on our finances. Here’s an example of just how much a seemingly insignificant action like getting coffee at Starbucks can affect our financial “Big Picture”. (And yes, we are Starbucks fans, this phenomenon applies to ANY regular habit you have. )

Let’s say you enjoy your daily coffee at Starbucks. Fairly loyal patrons tend to spend about $100 at Starbucks a month- which comes out to about $5 a day, 5 days a week.

So, $5 a day x 5 days a week= $25. $25 x 4 weeks a month= $100. $100 x 12 months =$1200 A YEAR!

What could you do with another $1200 a year if you didn’t spend it on Starbucks? A vacation or home improvement may be some options. So the question becomes: Do you really want to spend $1200 a year at Starbucks (or on your favorite habit)?

Let’s go further. $1200 a Year x 30 years = $36,000!

Now, if we invested that $1200 each year with an average annual return of 8%, over 30 years you would have accumulated $149,036!  

Again, we love Starbucks, this is just an example. Here’s the important part: if coffee is your favorite thing in the world and you get the most fulfillment out of it, then great. Most people though, once you look at the numbers, may decide there’s a better way to use that money.

Risk & Uncertainty

Another piece of the financial puzzle is your tolerance for risk and uncertainty. Please know that there is no wrong answer. Knowing how well you tolerate risk and uncertainty helps us know what investment strategies work best for you. Where you are in life and your goals for your money make a big difference as well.

Most people fall into 3 main categories:

Conservative: Your focus is on wealth preservation before growth. People in retirement or nearing retirement may fall into this category, because their goal from their money is to draw income in the near future.

Moderate: You are focused on long term growth, and can handle some risk. Your goal may be to grow your retirement portfolio over the next 10-20 years, and aren’t looking to draw income right now.

Aggressive:  You are focused on the pay-off, and can tolerate some losses in order to win big. Many people in this category may have bigger goals, or enjoy playing the market for the thrill of the win.

Whatever your tolerance for risk and uncertainty, it’s important to understand what level of risk makes you most comfortable. Understanding your risk level will help you feel more fulfilled and satisfied with your financial decisions. You’ll also make these decisions with more confidence because you and your financial advisor are making decisions that align with your goals and priorities.   

 The Next Step

Once you understand how you value money, and what influences your financial decisions, it’s time to take action. Evaluate your financial holdings and make sure your priorities are being met in a healthy way, as well as making a game plan to meet your financial goals. Talk to a member of our staff at Casey Wealth Management for your complimentary consultation.



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