The Psychology Behind Sound Financial Planning

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One commonality among all people, regardless of background, industry, or profession, is the hope to retire comfortably one day. Except for a few lucky or extremely well-paid individuals, most of us will need a carefully planned financial strategy executed over decades to make this goal a reality. An important part of the ‘comfortable retirement equation’ is to start saving and investing as early as possible to maximize potential returns. This will help transform whatever money you can set aside into a respectable nest egg that can be drawn upon as income during your sunset years.

There are many different options for investing, such as securities, real estate, and retirement accounts, such as RRSPs (or, in the United States, 401Ks), but because each person’s situation is unique, there is no single investment strategy that fits everyone. However, there is a general consensus on one crucial aspect of financial planning: the psychological portion.

“It’s true that adopting certain mindsets greatly aids in sound financial planning,” says Jason Hare, a Certified Financial Planner (CFP) and financial industry veteran based in Kingston, Ontario. “In fact, I’d go so far as to say that it is the single most important x-factor—at least the one that’s within the control of the individual investor.” In this article, we will explore the most advantageous mindsets you can develop and strengthen to help transform your current income—even if it’s a modest one—into a secure financial future, each accompanied by insider insights from Jason Hare, founder and proprietor of the financial planning firm Cornerstone Wealth.

Patience

Patience is an all-important factor in financial planning. It’s critical to understand that the sort of wealth needed to fund retirement doesn’t just appear overnight. Investments meant to accomplish this goal ought to be made with an eye toward the long-term, meaning they will have to be left in the markets for a substantial period of time to properly mature. By being patient, you give your money time to grow and work for you. “These days, most people start investing for retirement a few years after finishing their education and beginning their careers, typically in their late 20s or 30s,” Hare explains. “That means any investments they make should be left alone for a fairly long time—sometimes until they’re actually ready to retire. Doing so will ultimately result in a better financial situation, but it requires an incredible amount of patience.”

Discipline

Discipline is another essential mindset to espouse when planning for your financial future. This involves creating and sticking to a solid financial plan, which includes budgeting and saving, as well as investing. A well-crafted plan outlines your financial goals and the steps needed to achieve them, but without discipline and self-control, even the best financial plan will likely be ineffective. “It’s important to follow your plan, even when faced with the temptation to spend impulsively. Discipline helps you keep on track and avoid unnecessary risks,” comments Jason Hare. “Following your financial plan without deviation, especially during economically challenging times, is one of the major keys to unlocking long-term financial health.”

Resilience

In the case of financial planning, resilience is the ability to recover from setbacks. Everyone faces unexpected expenses or financial downturns at some point during their lives. What sets successful financial planners apart from their less-successful peers is the ability to bounce back and learn lessons from these situations. Being resilient means not letting these or any other setbacks deter you from your financial goals, and instead looking at them as learning experiences which will help you improve your strategy. “Cultivating resilience helps you remain calm should the markets or indexes you have a vested interest in suddenly take a downturn,” comments Hare. “By staying clear-eyed and stoic about any problems that might arise, especially during tough times, you will be far better off than those that give in to panic,” comments Hare.

The Path to Financial Success

One of the major components to achieving the long-term financial success needed to underwrite a stable and comfortable retirement is adopting the right psychological mind frames. The vast majority of professional financial planners, including Jason Hare, are of the opinion that cultivating patience, discipline, and resilience can be just as important as understanding basic financial principles and conducting thorough market research. “By developing and mastering these core traits, you will be better positioned to navigate the uncertain waters of financial planning,” he states, before adding, “Focusing on psychology has helped many of my clients weather financial storms and find true and lasting success. Remember, sound financial planning is not just about the numbers; it’s also about having the right mentality regarding your portfolio.”