Americans are the envy of the world even though we can still point to a thousand and one things that are wrong with the country. There’s no denying the fact that we have a massive national debt burden, homelessness, unemployment, and that social services are under a strain. Yet, the fact remains that we still have it better than most of the world in broad terms.
However, many outsiders would be surprised to find out that their idea of wealthy Americans only shows their perspective about our corporate wealth and it doesn’t necessarily reflect the state of our individual finances. In fact, a recent survey showed that about seven out of 10 Americans (69%) had less than $1,000 in their savings account. This article provides insight into two major reasons our personal wealth doesn’t live up to the expectations of our collective wealth.
One of the main reasons most Americans have a poor handling of money is that they don’t set SMART financial goals. Your financial goals must be Specific, Measurable, Achievable, Realistic, and Time-Based. Any deviation from the core principles of SMART financial goals raises the odds that you’ll fall short of meeting your target.
To start with, your finances can’t be healthy unless your income is more than your expenses. Hence, you’ll need to take proactive action to increase your income or reduce your expenses in order to stay smart in your finances. You might decide to reduce your expenses by $100 every month or increase your side income by $50 week by taking on a side gig.
Setting SMART financial goals is also applicable to getting loans and getting out of debt. For instance, if you have a poor credit score, you’ll be better off looking for loans with bad credit instead of wasting time and resources chasing lenders who only cater to people with excellent credit. More so, if you develop a strategy for making automatic withdrawals to repay your loans, you won’t have to worry about bad debt.
Setting SMART goals could also help you get out of the rat race and build a life of financial prosperity. Buying a lottery ticket every week is not a SMART strategy and neither is hoping that your father’s granduncle from his mother’s side will leave you a $10M inheritance. You’ll need to take stock of your current financial position, decide on where you want to be financially, and start taking small measurable steps everyday to get there.
People assume that financial advisors will act in the client’s best interest
A report by Teachers Insurance and Annuity Association of America (TIAA) reveals that 51% of respondents in a survey felt they don’t have the money to seek the services of a financial advisor. Yet, many more people hire the services of financial advisors and they are not much better off financially. Irrespective of whether you think you need the services of a financial advisor or not, an understanding of the Fiduciary rule can help you know if the financial advisor is acting in your best interests.
The U.S. Department of Labor developed the Fiduciary Rule to ensure that people who provide financial and investment advice act in the best interest of the client. The fiduciary rule, which will go effect in April, requires the financial advisor to act in a trustworthy manner to reveal any conflict of interest and ensure that they act ethically in your best interests instead of chasing sales targets or commissions.
However, not all financial advisors are under a legal obligation to act within the ambits of the fiduciary rule. Hence, you should ask your financial advisor if they’d be acting as a fiduciary 100% of the time. You should also be careful if they ask you to sign a “best interest contract exemption” (BICE) contract that allows them to sell you products that are not necessarily in your best interests.