This might be an odd way to think of it, but if we wanted to establish a formula for financial success, it might look something like this:

Let’s review each piece of this equation in turn.

It’s intuitive that supplying financial plans with enough capital (money) and time is required to achieve financial success. The simple math is that the more capital put toward a plan, the less time should, theoretically, be required to achieve financial goals. And the more time we give capital to compound, the less capital should theoretically be required to achieve those goals. This is a pretty straightforward calculation.

But here’s the thing. What your capital and time will ultimately amount to hinges dramatically on the quality of your planning and behavioral decisions. Let’s start with planning decisions.

Planning decisions are the decisions we make together when we build, review, and update your financial plan. They include decisions about your portfolio’s asset allocation, how to best utilize debt, addressing the spectrum of tax-planning decisions, planning for short-term risks via insurance planning, plus many others.

Barring significant life changes, these broad planning decisions rarely require a complete overhaul. Still, it’s always important to remember that each planning decision impacts both the capital and time required.

As one example, making a planning decision to be volatility-averse is making a conscious tradeoff that your plan will likely require additional capital or delay the realization of your financial goals (i.e., require more time).

As is evident here, these first three components all interact relatively seamlessly. Just like 1x3x2 and 3x2x1 both equal six, so it is with these components. While each is independently important, additions in one area can often offset deficiencies in others. Unfortunately, this is not the case with behavioral decisions.

Early in our financial lives, each of us likely made a few poor behavioral decisions (e.g., trading hot stocks, timing the market, etc.) without causing significant harm to our long-term future. But later in our financial journey—or after we’ve accumulated significant capital, regardless of age—poor behavioral decisions can completely derail even the best-laid plans.

This means that the impact of these behavioral decisions on your plan becomes increasingly binary as your wealth and/or age increase. At least as far as the equation goes, they generally equal either 1 or 0, which has important implications.

I’m guessing you probably remember from grade school that any number multiplied by 1 is the original number and any number multiplied by zero is zero. This being the case, good behavioral decisions are rarely additive (meaning our success is governed by the first three components of our equation, as it should be), but poor behavioral decisions can make achieving financial success nearly impossible.

In other words, every bit of saving, time, and planning can be devastated in the wake of a single poor behavioral decision. Some situations are less dire, but the point here is that it doesn’t take much to undo decades of prudent financial management.

What makes good behavioral decisions particularly difficult to make is that behavioral decisions are made—good or bad, and consciously or unconsciously—every single day. Thanks to the 24-hour news cycle that’s built on the provocation of fear and/or greed, we must stay on our toes if we are going to consistently make good decisions.

Not surprisingly, this is why we continuously encourage focusing on elements within your control and regularly meeting to review and update your financial plan. We believe this combination is the best way to encourage high-quality behavioral decisions.

Saling Wealth Advisors is here not only to help create a sound financial plan for you and your family, but also to help provide perspective, guidance, and consistency when behavioral roadblocks threaten long-term financial success.

As always, if you have any questions or concerns about your financial plan, please reach out to us.

Source(s): Money Visuals LLC

This material is not financial advice or an offer to sell any product and is not a recommendation to buy or sell any particular security. The opinions expressed are those of the Saling Wealth Advisors’ Management Investment Team and are subject to change without notice.

Saling Wealth Advisors (“SWA”) is an independent SEC registered investment advisor. Registration does not imply a certain level of skill or training. This material is provided for informational and educational purposes only. More information about SWA including our advisory services, fees, and objectives can be found in our Form ADV Part 2A, which is available upon request.