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Financial Tipping Points


All of us can modify rigid, non-optimal financial habits. Sometimes we just need a little push to get us to our financial tipping points and force us to make what changes need to be made.

I know that it's traditional, but I have never been a big fan of making New Year’s resolutions. They seem too artificial; it isn't the underlying problem that calls for a solution or a change, but just a matter of timing, which seems too tacked on, by half. And, therefore, is not organic to your life and doomed to fail.

I have never seen any sort of accurate assessment of the success — or should I say failure — rate of this sort of venture. Probably because the answers are sensitive to the time of year and the fact that people are usually too embarrassed to even admit that they made some resolution, let alone (likely) failed at it.

However, this year I made a sea change in my attitude. I had been wrestling with my approach to tipping for some time, realizing that my formulaic, math-based solution never left me feeling "done." I always had a faint sense of guilt. My "tipping point" (rim shot) was the epiphany I had over the holidays when I was abroad and may have badly misjudged a situation where an under-tip may have been the person's entire day's earnings.

So I decided, with some relief I might add, to be more generous with the working folks who depend on tips. You might think after that breakthrough that all has gone well since, but it, surprisingly, hasn't been that easy. Old habits die hard. Yes, I'm tipping at a higher rate, but I find I have to grit my teeth to do it. But this is how we learn, and in the end I will work it out.

I bring up this story not only because it is January, but to show that all of us can modify rigid, non-optimal financial habits. And The Wall Street Journal on Jan. 14, 2013 published an article along this line that may help push one of you into your own overdue financial tipping point — something that you need to do, have meant to do, but never quite got over the hump.

To give a cited example of where many folks lag, 67% in a survey say that they are behind schedule in planning and saving for retirement. As I have pointed out in earlier pieces, the critical factor in this area is not maximizing your return on investment on your savings, but how long, and regularly you have been saving. It's all about time. The magic of compound interest and all that.

To help get you off the dime, if you are one of this unprepared majority, you first need to track your spending to know how much you might put away and where you are going to find it. I've never liked the word "budget," preferring the idea of "awareness" of what you spend and how you live. This is the key, for without this awareness you are dead in the water, no matter what your income. Just look at the newspaper to see all of the celebrities and professional athletes who go through bankruptcies in spite of high incomes.

What I do, and have recommended upon several occasions in these pages, is simply to pay for everything with a credit card. You get a printed record, organized by category at the end of the year, which may raise a shocked eyebrow upon scrutiny. As a bonus, you can either get points, miles or cash back as well. If you want a separate template for budgeting, there are many online that you can Google.

Corollaries of your budget/awareness project are firstly the possibility of using automated withdrawals to your IRA/401(k) and secondly, the absolute necessity of sharing the whole project with your spouse. Things are complicated enough without having half of your team being unaware of your situation.

The last piece of this puzzle is to decide how you will live at the end of your saving period in retirement, whatever that means to you. I know, your needs and wants change over time, but you have to have a working, specific plan or you will find yourself off in left field when the time comes.

And, hard to believe sometimes, your retirement will come and a soft landing is far more pleasant than a forced one

— w

hich, incidentally, you should be prepared for, as well.

If you're one of the 67%, it's time to get started. If you are not, steady on. Either way, Happy New Year!

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Victor J. Dzau, MD, gives expert advice
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