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  • 6-Minute Article
  • |
  • Sep 03, 2019

5 Small Behavior Changes That Can Impact Your Financial Future

Simple habits that can help you get closer to your financial goals.

5 Small Behavior Changes That Can Impact Your Financial Future
Questions this article can help you answer:
  • What behaviors can help me reach my financial goals?
  • Why is a written financial strategy important?
  • What are the benefits of sticking to a long-term plan during volatile markets?

Small steps can have a big impact on attaining your financial goals. Here are five simple changes in behavior you should consider using throughout your financial journey.

Set Smart Goals That Avoid Blinds Spots

Identifying specific financial goals can be one of the most important steps you can take. People who worked with advisors to create a financial plan based on pursuing goals saw an increase in wealth of more than 15%, according to one study.1

Financial plan increases wealth

“Goals that truly resonate with investors can be more motivating and fulfilling. This can then prompt better behavior, helping investors do what they need to do now to get to where they want to go in the future,” according to Behavioral Researchers Ryan Murphy, Ph.D., and Samantha Lamas, both from research firm Morningstar.

But establishing goals can be challenging. The same study found people often picked goals that didn’t accurately represent their preferences and failed to identify as many as half of the goals that were actually critical to their plans.1

The same report found that it is common for people to have what researchers call “thinking blind spots,” which can prevent them from setting goals that accurately represent their motivations.1 These blind spots, or biases, can result in decisions that don’t truly reflect how they feel.

Biases can sometimes be caused by something as simple as a recent event that leads you to believe you have different goals. For example, someone may say a vacation home is a goal after a great trip, or that they have a desire to increase their charitable contributions after receiving an emotional solicitation. Neither of these is a bad goal but pursuing them may take the focus off more pressing goals.

Murphy and Lamas say that when setting goals, you should work with a professional to help you prioritize your interests to ensure that your goals are personalized, detailed, and tied to core values.1 For instance, a goal of “building wealth” may be broad and have different meanings to different people, but a goal of “I want to be able to cover any health challenges so that I’m not a burden on my loved ones” allows you to work with an advisor on strategies that can help you be sure you’re really getting what you want.

Write Out Your Goals and Strategies

Writing down goals and the concrete steps for accomplishing them can help you clarify what you want to achieve and provide a document you can use to check your progress.

One study found that “people who very vividly describe or picture their goals are anywhere from 1.2 to 1.4 times more likely to successfully accomplish their goals.”2 According to the study, this is generally thought to be because writing down goals gives you a physical reminder of them. The more you view that physical reminder, the more likely it is that your brain will remember it. Similarly, the process of writing has been shown to help the brain encode information, also leading to higher rates of remembering.2

20-40% of people vividly picture their goals

When it comes to finance, this is typically done in the form of a formal written plan. However, only 35% of people had a written financial plan, according to one study.3

David Bowman, a financial advisor in South Carolina, says he regularly hears from people who say they are saving for retirement and other goals. But when they are asked for details, they struggle to come up with specifics on how much they’re spending or saving.

A written financial plan can help you cover many goals over a long period. Although each financial plan is different, it may include:

  • Projections for your assets’ value
  • Your cash flow (how much you’re spending versus how much you’re receiving in income)
  • A list of milestones, which can be goal-related or age-related


You can think of it as a map that shows your destination and the steps you need to take to reach it.

“Sometimes folks say, ‘I’m saving,’ but if their strategy isn’t written down, they aren’t really paying attention,” Bowman says.

Avoid Emotional Decision-Making

There’s another advantage that comes with having an established financial plan: the ability to remain confident during times of change.

When financial markets experience big swings, it may be tempting to worry, react emotionally, or make impulsive changes. A financial plan gives you something to follow rather than making those emotional decisions.

For example, for someone concerned about protecting their assets, when they see the market start to take a turn downward, they may be tempted to begin selling assets out of fear, due to a psychological phenomenon known as loss aversion. Studies show that can hurt in the long run because people are unlikely to make the move before the downturn and, by removing money, you can risk missing out on any potential increases when markets improve.

In fact, the average investor underperformed the broader market by 4.6 percentage points over the past 20 years,4 and one of the primary reasons is that some sell at the first sign of bad news.

Investor underperforming broader market

As Bowman says: “We’re all human beings. We all can get nervous. But the key is to not do anything irrational and know you’re in for the long haul. A plan reminds you of that.”

Learn to Be Self-Aware

Steve Lear, a certified Behavioral Financial AdvisorTM in Minnesota, studies emotional competency and decision-making behavior among investors. Lear encourages clients to take the time to understand their own attitude toward investing, as well as their partner’s. One spouse may be more passive or apprehensive when it comes to planning, while the other may often take the lead in discussions. Understanding how each partner processes information can lead to more efficient and informed decision-making.

For example, if one person dominates every financial discussion, the other partner’s goals may not receive the same attention, even if that wasn’t the intent of the more assertive partner. Having a neutral third party, like a financial advisor, to help moderate goal-planning sessions may also ensure everyone is heard.

“Once somebody is self-aware, your planning can be much easier,” Lear says. “There is a lot of satisfaction when somebody is self-aware. From the client’s perspective, they can feel satisfaction, growth, and security. From an advisor’s standpoint, you can feel really good about what you can do for that client.”

Pay Yourself First

Some people may find it easier to focus on caring for others than on preparing for their financial future. Bowman says he often must remind clients who are business owners or who are self-employed to be sure to pay themselves.

Similarly, someone who is caring for an aging parent or helping a child financially may be so focused on caregiving that his or her own life and finances get neglected.

  • 26% of caregivers say providing care has prevented them from saving money in general
  • 22% say it caused them to reduce their contributions to their workplace retirement plan
  • 23% of caregivers incurred additional debt as a result of their caregiving5


Bowman says this is typically a challenge for clients who are most focused outward. While they’re sure to invest in their companies, provide for their employees, take care of others, or contribute to a worthy cause, they may forget to invest in themselves, such as by failing to fund their own retirement.

Enjoy the Journey

Situations may change but embracing strategic choices and smart behaviors can help you find and stay on the path that best suits you.

Working with a financial professional and having clear goals, good communication, enhanced self-awareness, a written plan, and accountability to yourself can help you make strides toward your financial objectives.

Or, as Lear advises his clients: “You discuss, you make a plan, and you revise that plan as your situation changes. You stay adaptable. And then you will have the satisfaction, time, and energy to focus on things other than money.”