As an advisor, I’m often in the position of helping clients temper their worst impulses. It’s a delicate balance to get investors to pay enough attention to be engaged without micromanaging or being overly obsessed with the bean counting side of things. And because everyone is different, so are the pain points and blind spots.
This is where an advisor can deliver the most value – giving truly personalized guidance based on a plan to achieve very specific goals, and helping to manage harmful tendencies. If you want a balanced relationship with money, take an honest assessment of your behavior and look for the following imbalances:
It is Never Enough
Hats off to you if you tirelessly dedicate yourself to saving as much as you can. This requires great discipline and sacrifices. I myself started out in this camp. Being financially independent at the age of twenty-one taught me that I had a small margin of error. I learned to work handily within those confines – establishing an emergency fund and never carrying credit card debt. And from that, I gained a sense of power and control that was comforting.
Fast forward, some decades later, and it is hard for me to indulge, to make life easier for myself when I can. Practicality is so ingrained in me that paying for conveniences can feel wasteful. But at a certain point, the only thing you don’t have too much of is time. Dedicating yourself to tasks that drain you or make life unnecessarily cumbersome robs you of joy. Out-sourcing tasks you despise is not indulgent if you can afford to do so. The future is not guaranteed, so enjoying the present has its value.
It Doesn’t Matter What I Do, the Job is Never Done
If you believe you will have to “work until you die” and that nothing can improve your financial wellness, self-sabotage is sure to follow.
It starts like this: Perhaps you won’t seek fiduciary advice because you either believe you aren’t worth it, or can’t afford it (meanwhile, your mistakes are very costly). Or, you put yourself in precarious positions, such as taking out high parent plus loans instead of limiting your child’s college choices to something affordable. Or you have tapped what little retirement savings you have, paying penalties to do so, justifying it with, “If I have to borrow anyway, what does it matter?”
It matters very much. If you are already on shaky financial ground, small measures to conserve your resources will compound and get you on firmer ground. Conversely, leveraging compounds, getting you in the hole deeper and faster; and any setback, like a lay off or health scare becomes the final straw.
Most damaging is repeating the phrase it doesn’t matter what you do because your actions surely will follow. The right question is what can I do to make this better? Not to minimize financial struggles and stress, because they are a burden, but there is also a real opportunity to get creative and resourceful.
I mentioned I was financially independent at age twenty-one; however, I failed to mention that I sacrificed owning a car so to afford rent and my commute to New York City. I walked everywhere. And no, I did not live in the city, but in suburbia. And yes, when it rained and I had a 20-minute walk to the train station (a horrible way to start the day). And when I finally did buy a car, it was an ugly bomb that ran reasonably well and was never in danger of being stolen out of the train parking lot.
Depending upon how dire your situation is, you may need to get incredibly ruthless in slicing your budget or extra creative in side hustles to make money. It may not be pleasant, you may hate every moment of it, but you need to tell yourself it is temporary. Dedicate yourself to getting on firm ground as soon as possible because you cannot build a foundation on sand.
I Do Exactly What I Have to, and That Is Good Enough
There is beauty in the simplicity of automation. Set it and forget it, make those automatic investments and get on with your life. I love this approach because it allows you not to hover and obsess, but actually live life. However, the danger of becoming complacent is real.
You may set it and forget it and never increase what you contributing. Putting away $5,000 when you earn $50,000 is a respectable 10%, but make sure that as your salary increases you keep working towards setting aside 10%; ultimately aiming for 20%.
You may never look at your allocation to insure that it still is appropriate for your goals. You may fail to see other ways that you can, earn money, such as making sure that your cash is actually earning something now that high-yield money markets are at 4-5%.
If the market returns are strong, you might not notice how expensive your investments are, and you may continue paying unnecessarily high fees (as is the case with the annuities most teachers have in their 403(b) plans). In short, you will miss the chance to do better for yourself.
Paying attention does not mean that you have to become obsessive. Set a routine appointment with yourself to review your finances, your goals, your savings rates. If you work with an advisor, this should be your annual review.
I’m Too Young or Too Old to Bother Investing
It’s always a good time to prioritize your future – because you are the only person who can make it happen. When you are young, the beauty is that you have a long timeframe for the investment to compound. There is no such thing as being too young to invest. Warren Buffett famously started investing when he was only ten years old, and that fact is what is enabled him to grow his wealth into the billions. According Morgan Housel’s book, The Psychology of Money, time, not investment choice, was the secret to Buffet’s massive success.
As for being too old, life expectancies are rising. When I create a plan for clients, I assume a life expectancy into the nineties. So, even if you are fifty years old, it’s better to start now than never. Forty years of compounding can have a profound effect on your plan. And while a set-it-and-forget-it approach can be appropriate, depending upon how far out your investment goal is, it is important not to slip into complacency.
Your Next Step
Financial balance can only be achieved if you are clear on the goals you want to achieve and are aware of your thoughts and behaviors that threaten this harmony. Being mindful of your finances means paying enough attention that you have a plan and are on track, and that you periodically review and reassess – looking for new opportunities to make the most of the resources you have, without being obsessive. It means believing you are worth a plan, worth a better future and making your decisions based on that very important assumption.
It matters what you want out of life, and it matters very much how you dedicate yourself to your plan. Getting unbiased, thoughtful advice from a fiduciary advisor may be just the perspective you need to make the most of what time you have – and to finally achieve the ever-elusive balance.
Photo by Aziz Acharki on Unsplash