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Financial Literacy Month: How to control your money instead of it controlling you

I recently met with an employee who mentioned he was facing financial hardship and wanted to understand his options to withdraw money from his 401(k).

He unfortunately didn’t have enough in his "rainy day fund" to cover the expense and was considering tapping into his 401(k). While this option would help him cover the hardship, he would have incurred a 10 percent early withdrawal penalty and paid taxes. Plus, the money would no longer have been invested and growing for his retirement. 

April is Financial Literacy Month, an excellent time to consider your approach in this scenario and others regarding money. Will money control you or will you control your money? As much as I would love to encourage you to spend within your means, it’s important that you conquer the steps to learning how to do this while and overcoming self-control bias, including:

  • A budget is critical. "If you fail to plan, you plan to fail” as Benjamin Franklin said. He was right! Without a plan, you are setting yourself up for failure. To do this, compile all of your inflows (income) and outflows (expenditures) into one place. Then, start separating out your non-discretionary (non-negotiables) and your discretionary spending. Finally, identify your strengths, weaknesses, and opportunities to find a path forward. 
  • Develop a pattern of behavior for success. Now that you have a budget, then comes the hard part: sticking to it.  Develop a pattern of behavior to set yourself up for success by examining your lifestyle and see if you can identify behavioral patterns that are putting you in a position to fail. Maybe you scroll through social media a lot and have a lot of ads for your favorite items pop up that may cause you to impulse buy. Perhaps instead, you go on a walk or read a book to free up your mind. You may spend a lot of time with friends and tend to purchase unplanned food or shopping items. Make your friends your allies - be upfront with them that you are trying to manage your spending to help you avoid unnecessary purchases. When you head to the grocery store for your dreaded weekly shopping, think about bringing cash instead of a credit card to help avoid items that aren’t on your list. Having a fixed amount available to spend will help you to be more cautious about what you spend it on. 
  • Find an accountability partner. You can hire one, like a financial counselor or planner, or identify someone who you trust and manages money well and ask them to hold you accountable. A good friend cares about your long-term success.

Avoiding self-control bias can be hard, but it does not have to be. Consider the action plan outlined above to help you on your path to being more financially fit this April. The actions of today can have a profound impact on the results of the future, and you may see results sooner than you think. The next time you find yourself surfing the web or window shopping with your friends, ask yourself what you would like to accomplish and keep perspective to help you make the best decision.   

Newfront Retirement Services, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration as an investment adviser does not imply any level of skill or training, and does not constitute an endorsement by the SEC. For a copy of Newfront Retirement Services disclosure brochure, which includes a description of the firm’s services and fees, please access or click HERE for the disclosures on our website.

Michael Forney

About the author

Michael Forney

Investment Advisor and Financial Wellness Specialist

Michael is an Investment Advisor and Financial Wellness Specialist focusing on providing employee education and partnering with clients on financial wellness strategies. He possess a depth of knowledge on employer sponsored retirement plans, particularly the 401(k), and has a broad range of financial knowledge on investments, high-level tax benefits of various retirement accounts, and savings strategies. Previously, Michael worked at a top producing advisory firm where he built financial plans for families and businesses as a Financial Planning Specialist. Connect with Michael on LinkedIn.

The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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