When you’re not a disciplined investor or saver, the madness of the moment can deprive you of your rational thought process. Remember, investor behavior is rarely rational, but quite predictable. Then it doesn’t take much to go from optimism and descend into panic and despondency. The emotional freight train is almost unstoppable as it picks up fear and panic along the way. And after going though a catastrophic market in 2008, the mindset of many has soured towards the market. Meanwhile the market recovered, albeit slowly for most investors. But many experienced a degree of psychological scaring from the market meltdown, so they stand on the sidelines, wounded and paralyzed.
One possible remedy that can help you modify your investment behavior is to establish a financial profile that contains a risk tolerance test, financial goals, monthly funding of those goals and a timeline of events that have money milestones that mark accumulated achievements along the way.
But sometimes you have to create cash flow to fund your dreams and money accomplishments. One tried and true way is to reduce your spending, especially five years out from retirement. And if you’ve created monthly cash flow, one important use of your money is debt elimination before retirement.
The discipline of reducing debt generally gives way to a savings routine on a monthly basis called dollar cost averaging, the continuous purchasing of funds, annuities, or even cash value life insurance. You’re committed to the process. You’re forming new routines. You’re becoming focused. Then one day you realize you’ve become a disciplined investor.