Good money habits can help you save and invest for the future.  Poor habits can leave you treading water financially, or potentially worse, drowning.  The following article will identify constructive and destructive habits to wealth creation.

Be careful with habits that result in seemingly small and often unaccounted expenses as they can have a larger impact on long-term financial health.  As Benjamin Franklin reminds us, “Beware of little expenses; a small leak will sink a great ship”.  A $50 per month expense with a 6% opportunity cost, adds up to over $50,000 over the course of 30 years¹.

Interest can be friend or foe.  Albert Einstein famously said, “Compound interest is the eighth wonder of the world. He who understands it, earns it - he who doesn't, pays it.”.  In our consumerism society we are no longer marketed a product or service but rather a monthly payment.  “Buy now – Pay Later” or the use of credit cards are methods of consuming today at the expense of tomorrows earnings.  Rejecting the glamor of consuming today at that expense of tomorrow is a habit that will help enhance our financial future. 

Investing too conservatively has a significant cost over time.  Accepting some risk may give an investor a chance for greater reward.  Over the last 15 years², the S&P 500 index has had an average rate of return of 10.08%.  However, these returns have not come in a linear fashion and there have been periods of large declines.  Saving in low earning investments over a long-period of time is a significant deterrer of wealth creation.  For example, investing $250/month over a 25 year time period with an average rate of return of 3% has a total investment value of $111,501 while the investor earning an average of 7% over that same period of time would have a total value of $202,517.  The only difference between the two scenarios is the rate of return.

Make no excuses about paying yourself first.  Establishing an automatic and systematic saving and investing plan is a great way to pay yourself first.  Perhaps this is done through an employer sponsored retirement plan such as a 401(k) or personal account such as a ROTH IRA.  Benjamin Franklin is quoted as saying, “He that is good for making excuses is seldom good for anything else”.  

A singular financial decision is unlikely to make or break one’s financial future.  It is those regular habits, both good or bad, that will have accumulating results that create or destroy wealth.

Adam Smit is CERTIFIED FINANCIAL PLANNER™ with Adam Smit Investment Management LLC and a registered principal of LPL Financial.  This article is for general information only and not intended to provide specific advice or recommendations for any individual.  All indexes are unmanaged and cannot be invested in directly.  Past performance is no guarantee of future returns.  Adam Smit Investment management LLC and LPL Financial do not provide tax or legal advice.  Securities offered through LPL Financial.  Member FINRA/SIPC.

1 – This is a hypothetical example and not representative of any specific investment. Your results may vary.

2 – Data as of 02/07/23.  Source:  https://ycharts.com/indices/%5ESPXTR.  The S&P 500 is a measure of US stock large company returns.