8 things financial planners would tell their younger selves

We've all said this to ourselves: "If only I'd known then what I know now." If we had, we could have avoided that toxic relationship, buying that lemon of a car, or diving head first into that fad diet.

But dwelling on the past never helped anyone. What's important is to learn today what you can use tomorrow and down the road. And when it comes to financial planning, who better to learn from than the professionals who practice it every day?  

If time machines were a thing, here's what financial planners would go back to tell their younger selves.

1. Start early, diversify, ignore the noise

Time is a saver's and investor's greatest asset. Deposit $1,000 in an account that pays 8% interest; after 20 years, the account will grow to $4,927. After 40 years, the account will be worth $24,273---twice as much time, almost five times as much money. That's the power of time and the magic of compound interest. Earning interest on your interest while you sit back and watch your money grow is a great feeling.

Nearly half of all retirees regret not starting their retirement accounts sooner. Don't be one of them.

Did your grandparents ever warn you to avoid putting all your eggs in one basket? If so, consider them astute investors. The key to investment success over the long term is to spread your capital across several investment types, known as diversifying.

Many of these investments tend to move in different directions. The stock market may be up while the bond market is down, and vice versa. European or Asian stocks may be outperforming U.S. stocks. Since no one can consistently predict which types of investments will perform best at any given moment, diversification is critical. 

The key to achieving diversification is to own assets that act differently from one another. For example, say you own 30 stocks, but all are technology companies. This isn't diversification because they will all tend to act similarly. Sure, some will do better than others, but they will likely be down or up on the same days, weeks, and months.

If your investments are well diversified, relax and ignore the noise and hype that runs through the investment world. Don’t chase the hot stock or the sure thing. Have a plan (more on that below) and follow it.

2. Understand your money personality (and your partner’s)

We all have money personalities which begin forming in childhood. If your parents bought a fancy gift for themselves to make themselves feel better, for example, or thought it was important to spend money on things neighbors, friends, and family saw, you may have internalized those messages without even realizing it.

Start with this brief quiz designed to identify your money personality. If you have a partner, have them take it as well. Take the quiz separately to avoid influencing the other. Then, compare and discuss your results as a starting point to a deeper understanding of each other’s attitudes about money and finances.

For a deeper dive, each of you should also do a quick financial wellness check. No math or numbers are involved: this quick quiz explores how financially secure you feel.

With money being one of the leading causes of stress in a relationship and divorce, it's important you understand how your partner thinks about money, finances, and investing. Unfortunately, there's no single "best" way to live together in financial harmony, but honest, open discussions can help you choose the best strategy that works for both of you. If you’re at the stage where marriage and blending your financial lives is part of the discussion, understand how to blend your finances when you blend your lives.

3. Understand the difference between saving and investing

Many people use the terms saving and investing interchangeably, but saving and investing are fundamentally different (and understanding the difference will drive your strategy). 

Put simply, you save for shorter-term goals and invest for longer-term goals. For example, you save to buy or lease a car, take a vacation, or purchase a home. You invest for retirement or your child's college education.

The difference is both psychological and strategic. The best tools for saving are savings accounts, CDs, money market accounts, and other accounts that provide steady interest with minimal risk. Unlike stocks, bonds, and mutual funds, they don't fluctuate in value. These are the best choices for any financial goal with a timeline of five years or so.

The best tools for investing are options with the potential for much higher long-term growth, such as stocks and mutual funds. These may fluctuate in value, but they offer the best chances for significant growth in the long run.

4. Only spend what you have

Some debt may be unavoidable, but too much debt can cause stress and make your financial life difficult. Most people borrow money (in the form of a mortgage) to buy a house, for example, which can be a smart financial move. Taking on student loans is really an investment in yourself. But running up a credit card balance for things you want, but don't need, can mean that you'll be paying off that credit card long after you've even forgotten what you bought.

 Nobody wants to hear the B word (budget), but a budget can be an excellent tool to keep yourself on track financially. It can even be fun.

5. Understand the true cost of things

There are some things you only buy and pay for once. And then there are others where the initial purchase is just the beginning.

That new jacket? You'll buy it once and wear it for years. Your new home? Besides the mortgage payments, you'll be spending money on taxes, insurance, repairs, maintenance, utilities, and upgrades every year. You'll pay to maintain, insure, register, and fuel your car for as long as you own it as well.

The key is to avoid stretching so far to buy a home, vehicle, boat, or other large purchase that you don't have enough left over for ongoing costs. Instead, the smarter move is to buy a cheaper home or vehicle to leave a cushion for ongoing expenses.

6. Don’t try to time the market

The biggest mistake many investors make is reacting to the stock market's ups and downs---investing when it's rising and selling when it's dropping.

In the long run, that behavior can cost you dearly. The most recent annual study of investor behavior by DALBAR shows that investors who try to time the market earned an average annual return of 7.13% over a 30-year period. If those investors bought an S&P 500 index fund and left their money untouched for the same 30 years, they would have yielded an average annual return of 10.65%. Over time, that difference can mean hundreds of thousands or millions of dollars, depending on how much you invest.

7. Max out your future

For most people, investing for retirement falls into two buckets: retirement plans supplied by their employer, such as a 401(k) account, and retirement accounts such as a Roth IRA. Here’s how to make the most of both types of plans.

If your workplace has a retirement plan where your employer matches a portion of your contribution, that's free money. Don't leave it on the table. If you can, at least contribute enough to get the maximum employer match. Over time, this can put thousands of dollars into your retirement account.

Even if you have a robust retirement plan at work, consider opening a Roth IRA  as well. A Roth IRA is taxed differently from most workplace retirement plans, which gives you added flexibility when you retire and start making withdrawals. It's also an easy way to put more money away for retirement.

8. Work with an advisor and have a plan

Even the most gifted and talented professional athletes have coaches who help them reach their full potential. Many have multiple professionals supporting them: nutritionists, strength and conditioning coaches, and the lest goes on.

Financial lives work the same way: a great financial planner is like a great coach, helping you change bad habits and align your financial planning with the things that are important to you.

A professional can help guide your financial planning no matter how your life changes. With over 200 professional designations in the financial planning industry, it's important to understand what each one means, what knowledge and expertise an advisor brings to the table, and their legal responsibilities to you.

The professional designation considered the industry’s gold standard is CFP® professional. CFP® professionals must demonstrate expertise in many areas: financial planning, estate planning, taxes, insurance, and other financial planning subjects, including an understanding of the psychology of money. 

At a minimum, you want an advisor who's a fiduciary. Fiduciaries must put their clients' interests ahead of their own, which means you're getting advice based on your needs, not the advisor's bottom line. All CFP® professionals are fiduciaries.

Many professional planners have learned these lessons over time. Take advantage of their expertise and start applying them in your own life today.