Want to change your life? Change your behavior

By Byron Moore, posted October 15th, 2013

Question: My husband and I are just paying so much in interest. We did not qualify for a super low mortgage rate and we pay over $1000 a month in car notes. And we have some credit cards we never seem to pay off. What's the best way to get lower interest rates?

Answer: Everybody wants to go to Heaven, but nobody wants to die to get there.

Here is a self-discovery conversation I often have with people: suppose you are 35 years old and need $1 million to retire at age 65. So you've got 30 years. You figure you can save $10,000 a year and let's just say your financial crystal ball says you could earn 5% per year on the money.

At the end of 30 years, you'll have almost $700,000.

"But that's not enough," you observe. "I need a million to retire."

OK - so what shall we change in this equation?

You could change the amount of money you save. If you want $1 million in 30 years in an account earning 5%, you'll need to save not $10,000, but nearly $15,000 per year.

Or, you could work longer. If you just want to save $10,000 annually in that account earning 5%, you could do so for 35 years (rather than 30) and have the $1 million. In that case, you just have to work longer (five more years).

Or, you could find an investment that does better than 5%. If you increase the rate of return from 5% to 7%, you can save $10,000 per year and have $1 million in 30 years.

Now...when I paint this picture for folks and ask them which one they would rather focus on - save more, work longer or get a higher rate of return - which one do you think they pick every time?

Higher rate of return. Every time. Because it involves no immediate change in behavior on their part. It is perceived to be the easy solution.

In reality, the more we try to get financial products to overcome our own unwillingness to change our financial behavior (i.e., over-spending, lack of discipline, no budget planning, etc), the more we inherently invite risk into our lives.

On a personal level, this is the situation you have described into which you and your husband have behaved yourselves. On the larger scene, this is the financial crisis witnessed in Greece.

If you want to change life's consequences, stop wishing for better circumstances. Change your behavior.

It's the only thing you can control.

Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at bmoore@argentmoney.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.  No forecasts can be guaranteed.  Argent Advisors, Inc. does not offer tax, insurance or legal advice.  The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.