Quote of the Week: "Saving is tough because what is rational in the short-term may be irrational in the long-term."~ Michael Kitces.
Wealth is crucial in helping us achieve life goals. Studies by the American Psychological Association show that personal accountability is the most important trait that will define whether you are successful with money or not. To achieve financial accountability, take the steps below:-
Step 1- Full Disclosure
First, you must have a clear understanding of your financial situation. This means knowing what is in all your bank and unit trust account, how much debt you have, and where all your investments are. Once you have the balances, put together a full picture of your spending for one year. Afterwards, you can break that down monthly. Without full knowledge of what you have, and what you spend, you cannot make sound financial decisions. Accountability is not blaming circumstances, but rather, your actions within the circumstances that you could have controlled. Replace excuses with solutions.
Step 2- Clear Strategy and Implementation
Create a clear plan for the future. It could be as simple as paying off your debt or having an emergency fund. However, the more detailed it is, the more accountable (and successful) it will be. Specificity helps one avoid excuses. Thus, specify that your emergency fund should sustain you for at least six months and breakdown the amount you should be saving monthly for this.
Step 3- Link Your Choices to Consequences
It is a stark reality that not saving for retirement leads to old age poverty. Accountability requires linking the consequences of every choice at every level. For instance, as in the example above, the choice is how you are going to build your retirement fund. Every action has a consequence, but to be accountable, you need to realize the biggest consequence of all – not having a retirement fund could mean poor health, and not achieving other future goals like buying a house. A positive consequence of saving in this case is having peace of mind in retirement.
Step 4 – Follow Up
The next level of personal accountability is follow up and strategy tweaking. Put systems into place to follow up on your goals, and correct your plans as needed. It is important to note that we all make wrong decisions occasionally; the issue is ensuring the frequency does not increase.
Step 5 – Hire Human Financial Advisors
For building we go to architects, for legal advice lawyers. What about our finances? The most critical component of personal accountability is the human element. This dynamic is well demonstrated by many popular programs aimed at helping people make positive behavioural changes. For instance, Weight Watchers’ have a “Support Squad” and Alcoholics Anonymous’ (AA) have “sponsors”. The social connection with someone else is intended to promote a greater level of accountability and success within the program.
Conclusion~ Accountability is the biggest trait that will define your long term financial success. It is taking responsibility for both your successes and failures.