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4 Behaviors That Can Improve Your Financial Health

According to a 2019 study by the Federal Reserve, nearly a quarter of all Americans have no retirement savings or pension. The report also states that more than half of adults over age 60 feel financially underprepared for retirement.

Like physical health, financial health depends on positive core behaviors to stay on track. Though individual circumstances are always unique, four behaviors have proven to be essential when creating long-term success and financial freedom in retirement:

1. Pay Yourself First

Even though saving is often the biggest hurdle to financial health, it’s also the easiest to mitigate. We recommend a simple, powerful strategy to our clients: Pay yourself first.

Rather than paying bills first and saving what’s left, decide on a percentage of your paycheck that you can afford, then automatically route that amount to a savings account -- like a 401(k) or TSP -- before anything goes to your checking account. It’s not as tempting to spend what was never there to begin with, and you’ll be amazed at how quickly your money accumulates.

Individual Retirement Accounts (IRAs) are also great savings vehicles that provide added tax benefits, but we recommend seeking the advice of a financial professional before investing. A professional can help you determine the right amount and places to save your money so that you’re set up for long-term success.

2. Save and Invest With the “Big Picture” In Mind

Although you may have the discipline to save and invest, we urge you to keep the "big picture" in mind. Without this goal, you may end up with savings in the wrong types of accounts, investments that fall short of performance goals, and even missed opportunities. In order to keep the “big picture” in mind and avoid similar pitfalls, use a comprehensive financial plan.

A comprehensive financial plan provides both a snapshot of current family information such as employment, budget, and investments; a view of how various changes like major life events, and upcoming expenses might impact your future financial health; and a list of all short- and long-term goals.

A financial plan clarifies where you are and where you want to go, providing the ‘map’ of how to get there. By having specific targets in mind, every move you make is planned and purposeful, and it’s easier to stay on track with your financial health.

Because a comprehensive financial plan is often complex and evolves with time and circumstances, we recommend working with a CERTIFIED FINANCIAL PLANNER™ professional. They’re specifically trained in developing strategies to help you achieve financial health, and as a fiduciary, they’re required to put your interests above their own.

3. Plan for the Unexpected

You can’t always predict when a medical emergency, turn in the market, or death in the family might happen, but it’s often unexpected events like these that change lives the most. While maintaining an emergency fund is essential, truly planning for the unexpected requires more.

We recommend reviewing life insurance type and coverage policies, taking a look at your short- and long-term disability insurance, and your health history to anticipate when and what needs might be on the horizon.

Also, it's crucial to establish a truly diversified portfolio -- the only real protection against major market fluctuation. By properly realigning and continuing to rebalance your portfolio, you will be better positioned to weather unexpected financial storms.

4. Work With the Right Financial Professional

The choice of a financial professional can often be one of the biggest determining factors in long-term financial health.

Because there’s no law that regulates who calls themselves a ‘financial advisor,’ you can’t guarantee that all of them are looking out for your best interests. We recommend screening potential financial advisors carefully before choosing one to work with you. Two key differences to look for when choosing a financial professional are whether the advisor operates under a fiduciary vs. a suitability standard, and how they’re compensated.

A financial advisor who operates under a fiduciary standard manages assets and always provides guidance in the best interest of their clients, rather than for their own profit, and can’t benefit personally from their management. They must:

Justify that the products meet the best interests of the client
Consider all other options
Ensure that the investment objectives meet the other needs of the client before they start the account

In direct contrast, a financial advisor who works under a suitability standard only needs to make sure that you are able to purchase the product or service, not whether that particular service or product benefits your overall financial health. This often results in clients and customers who purchase products and services that do not meet investment objectives, time horizons, and liquidity needs.

It's equally important to understand how your financial advisor is compensated. Though there are several methods, three are most common:

Fee-only: A flat percentage of the overall portfolio value. When the accounts are managed and handled well, the clients do well, and the financial advisor makes money.
Commission-only: The advisor is compensated only upon sale or distribution of a product or service. This model is found most often in the suitability standard.
Combination of fee- and commission-based compensation (fee-based): Advisors may offer products where they assess a fee to an account value, but also recommend products and services for a commission payment for their revenue.

The fiduciary standard and fee-only structure offered at AAFMAA Wealth Management & Trust LLC (AWM&T) helps keep relationships with clients simple and straightforward. Our sole focus is our clients' long-term financial health.