Most of us have found ourselves trying to “keep up with the Joneses” at some point in our lives, but in today’s digital world where social media permeates every aspect of our lives, the pressure to spend can be even higher. According to Charles Schwab’s 2019 Modern Wealth Survey, more than one-third of Americans admit their spending habits have been influenced by images and experiences shared by their friends on social media and confess to spending more than they can afford to avoid missing out on the fun.
Spending on the occasional splurge — whether it’s the latest tech gadget or a family vacation — is part of why you work hard to earn and save money, so by all means keep doing those things! But it’s also important to not let the fear of missing out (FOMO) impact your ability to achieve long-term financial stability.
To help manage the pressure and impulse to spend, consider following three key saving and investing principles:
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1. Get invested.
Building wealth is a long-term endeavor, and for long-term investors, time in the market is more important than attempting to time the market. Your level of savings is the biggest factor in determining whether you can meet your financial goals. And the earlier you start saving and investing, the more time your contributions have to potentially grow, thanks to the power of compounding.
When investing, it’s also important to think about how to diversify across asset classes, such as stocks, bonds and cash investments, as well as sectors and geographies. The right mix, which a financial adviser can help determine, will be based on factors like your tolerance for potential losses and your time horizon.
Tip: A comfortable, secure retirement is the biggest financial challenge most of us will ever face, so it’s important to start early. For those who start saving for retirement in their 20s, we generally recommend saving 10% to 15% of pre-tax income. Target 15% to 25% percent if you start in your 30s. Someone over 50 who is just getting started will need to set aside about 60% of their pre-tax income.
2. Set goals.
Most of us juggle several financial goals at the same time — saving for retirement, paying for a child’s college or buying a home, to name a few. The first step to prioritizing and making progress toward those goals is creating a plan to reach them. Schwab’s survey shows that more than 60% of Americans who have a written financial plan feel financially stable, while only a third of those without a plan feel that same level of comfort. A financial plan provides a road map for your financial life and makes sure all parts are working together, leaving little room for distractions. A plan can also include a budget or spending plan to help balance those shorter-term splurges and longer-term goals.
Tip: Whether you’re working with a financial adviser or on your own, ask yourself what you want your money to accomplish and write down all your goals for the short term and the long term — be specific and comprehensive. Identifying your goals and then prioritizing them will help you get motivated to get a financial plan in place.
3. Stay on track.
Once you’re invested, to help you meet your goals there are a couple of keys to helping stay focused and on track. First off, remember to rebalance your portfolio at least once a year to keep it aligned with your goals and risk tolerance. Forgetting to rebalance is like letting the current steer your boat — you’ll likely end up off course. Second, try to ignore the noise around you. In the financial markets, that means not getting caught up with the market’s short-term fluctuations, whether they’re moving up or down. In your social circle, try to look past how your friends and family may be choosing to spend or save their money. Instead, stay focused on making progress toward your own goals and stick to your financial plan.
Tip: In addition to rebalancing annually, reviewing your financial plan on a yearly basis can help you stay confident in sticking with it. An annual checkup is also a good time to update any changes in your goals or circumstances.
“Keeping up with the Joneses” will always be a part of our culture, but it is important to know that taking control of your financial future will mitigate some social pressures, both online and in real life. Keeping your long-term goals in sight through diligent saving, investing and financial planning will keep you on the right path.
The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax adviser, CPA, financial planner or investment manager.
Investing involves risk, including loss of principal. Asset allocation and diversification cannot ensure a profit or eliminate the risk of investment losses.
Charles Schwab & Co., Inc. Member SIPC.
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