As I mentioned in  20 lessons I have learned in 20 years of working for myself, I recently passed a milestone in my life. On September 11th of this year I had been in the financial planning business for 20 years. In that article I shared what I learned about working for myself as a financial advisor for 2 decades. This week I share 13 things I have come to believe to be true about financial planning over those 20 years. This advice should not be construed as individual investment advice and you should always consult your financial advisor before making any investment decisions. We will take a look at those lessons in these weeks Inside Look at Building Towards Wealth.

1. Begin with the end in mind. This is true in business and life. If you don’t know where you’re headed, you won’t know when you finally get there. You need to have a destination you are aiming for when it comes to your financial planning. Even if that destination changes over time, it will give you a direction to get back towards if you get knocked off the path.

2. Understand that money is an emotional topic. One thing that I learned early on in this profession  is that there is more to personal finance than just the numbers. This was a very difficult concept for me to grasp because I am very detailed and analytical.

I am not saying that the numbers should be ignored, because calculations and projections provide much clarity in a financial plan. However, clients’ specific finance goals/concerns, their unique perspectives on money, and their financial planning journey should always take priority.

3. Protect yourself. People often build their personal financial plan with the idea that nothing will ever go wrong. They will live a long profitable life without any complications. This is simply not true. Purchasing an adequate amount of insurance, to protect when “life happens”, can be the difference between success and failure in a plan.

4. Start a financial plan as soon as you can. While young people may not reach their income potential for years, they have one major advantage over the rest of us when it comes to investing – time. With time on their side, they can take advantage of the full potential of financial planning by opening and adding to a savings account tapping into power of compound interest.

By putting even small sums of money in an account while they’re young, high school students, graduates and college students can start building wealth that will compound repeatedly. This can be for “retirement”, or it can be the seed that helps them start a business somewhere down the road. 

5.  Spend less than you make. This may seem like one of the simplest personal financial rule to follow. So simple, that you may wonder why I include something so obvious. Simple doesn’t mean easy. It is incredibly easy to try and keep up with the Joneses, particularly in this consumer driven society. A good rule of thumb is to save at least 15% of your income. If you can both do that, and not accrue bad debt you will be well on your way to success.

6. Create a financial budget. Budgets play an essential role in helping you control your spending and staying on track towards your personal finance goals. There are many ways that you can look at creating a budget. Some people do better tracking every dollar and cent that goes in and out of their lives. Others do better in creating a few broad categories to make sure they hit their most important goals.

7. Learn the proper use of credit. Understanding the difference between good credit and bad credit is essential and will greatly assist you while financial planning. I know there are some people out there that would tell you that all debt is bad. I don’t find this to be a realistic approach to the world. 

Student loan debt can be some of the highest ROI that you ever have in your entire life. But that’s not to say all student debt is good. Taking out debt for a mortgage or an investment real estate property can be a wise move. That is not to say that all property debt is good either. 

I can tell you that virtually all credit card debt is bad and a way to get yourself in trouble long term. Understand the difference and use it judiciously.

8. Don’t go house crazy. As I wrote about how do we think about the home buying process. It can be very alluring to overspend on a house to keep up with the Joneses. Buying the home that you’re going to live in for many years is not strictly a financial decision, but finances cannot be totally disregarded. When purchasing a home, taking on too much house and having an excessively large mortgage payment will mean that you will have to say no to other things in life, or you may end up in financial distress.

9. Put savings on autopilot. Having contributions deducted directly from your paycheck for a 401(k) plan, or directly deposited into an outside brokerage account can make it easy. If you put the money aside before you even see it, you won’t even tend to miss it. You can also often set your 401(k) to increase a set percentage annually as another way to incrementally save additional money. This is a smart financial planning move that can help you reach your goals.

10. Always take free money. If your 401(k) offers a match of your contribution, and many plans out there do, make sure that you contribute. At a minimum you should contribute the amount to get all of the match for your 401(k). If the plan matches. 50% of the first 6% you should consider contributing to your plan up to the 6%.

11. Have honest conversations about money. It is still taboo for many to speak about their personal financial situation. It does seem more out in the open today than it had been. Still, far too few people talk about their financial situation. It’s not meant to be talked about as a way of bragging, but it’s a way for other people to help each other learn about the different ways that you can deal with your money and ways to increase your financial planning efforts.

12. Take charge of your money mindset. Be open and honest with yourself about your financial mindset, and if you find things that you do not like about it, then work to change those negative behaviors that you don’t want to carry into the next phase of your life. If you rely on credit cards to fill your life with material goods, work to combat that. Identify the triggers that cause your bad financial decisions. The answers may be uncomfortable and messy but ultimately working through your financial behaviors will lead to personal growth.

13. Work on your financial plan. Having a plan is the first step to financial success. Life will have obstacles that may knock you off your path. The great part about a plan is that it gives you something to work back to so you have a direction after a misstep. There may be a time to change your financial plan, but it should be done with a calm and clear mind. When things go bad, stick to your plan and it will guide you through the tough times.

I certainly don’t know everything in life, and I always prepare to be wrong about things. I do like to think I have learned a thing or three over my years and that sharing some of what I learned will help you along the way!