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- Some financial advice may be a bitter pill to swallow, but that doesn’t make it less essential.
- Financial experts told us people hate to be told to spend less, and to save earlier for retirement.
- Folks also hate to hear they should say no to their kids, and that timing the market is a bad idea.
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When it comes to finances, there is some advice that is too tough a pill to swallow for some folks. Anybody can have a closed mind and closed ears, be it a high-net-worth shopaholic hiding shopping adventures from a spouse, jeopardizing the family’s finances, the newly divorced person who doesn’t want to hear that they will need to downsize because they can no longer afford the lifestyle they’ve become accustomed to, or the young person who refuses to talk about saving for retirement because it seems a lifetime away.
Chat with a financial advisor and they’ll give you a mouthful of the advice people tend to resist and why. I spoke to financial experts to get the lowdown on where they have to courageously battle good financial advice against hard heads.
1. You can’t keep spending like crazy
If you want to ruffle feathers, utter the words “spend less.”
Ami Shah, a certified financial planner and co-founder of money management site Steward, says one concept some don’t want to embrace is the notion that how much you spend matters as much, if not more, than how much you earn or how you invest.
“Folks agonize over negotiating pay or maximizing their returns by just a couple of percentage points, but it’s lifestyle creep kills a lot of folks. It sounds like, ‘I’m working so hard; don’t I deserve x?'” says Shah.
How does she try to lead them to a come-to-Jesus moment? “First, I acknowledge that urge to enjoy your increase in income in the present, especially if you’re getting a piece of the American Dream that your family hasn’t had before. The first step is a mindset shift to realize that your money can earn more for you than you can, and in order to do that, you have to invest it … and in order to do that, you have to not spend all of it,” she says.
Second, she helps them focus on the big rocks of spending that matter. Housing is most people’s highest expense, and she spends a lot of time talking wealthy people out of real estate. “I encourage them to be judicious when selecting where they live so that rent or housing costs don’t creep above 25% of their net income.”
Third, she encourages people to pay their future-self first by automatically depositing a part of their paycheck each month in long-term investments as a “set-it-and-forget-it” way to ensure they’re not overspending.
2. Forget trying to time the market
Another thing people resist, says Shah, is the notion that they can’t time the market or consistently pick winners. “This is a devilish one,” she says. “Every investor is tempted to time the market, but it requires you to get both the exit and the re-entry right. This can sound like, ‘It seems like stocks are heady right now, should I hold off?’ or ‘My friend made a fortune on Tesla, should I invest, too?'”
Her response? She asks them to take their predictions for a test drive. “I coach clients that if they think they can do this, to keep a journal of their specific predictions for a few months or so. If you are like most, you’ll realize your crystal ball is cloudy. You’re not smarter than the market. Nor am I.”
For those who really have an itch to scratch on “gaming the market,” Shah suggests they start by investing their nest egg for upcoming big life goals (a house, retirement) in low-cost index funds, and…