Nearly every financial decision you make will have either positive or negative implications for your financial future. What if you could ‘future proof’ your finances? While you can’t totally eliminate uncertainty, it’s entirely possible to set yourself up for financial success.
Step 1: Clearly articulate your long-term purpose for investing. This initial step is the place many investors falter. Money helps solve short-term problems but only meaning and purpose solve longer term issues. If you don’t take time to establish and embrace your purpose for investing all the steps that follow will be for naught. Exactly what are you trying to achieve, to sustain? This step is the anchor for the rest.
Step 2: Don’t look for certainty. Life is full of risk-taking. Don’t try to make your financial life “risk-free”. The irony is those who try to follow the no/low risk path increase their largest risk of all…the risk of running out of money. Instead, from an understanding of almost a century of market history, decide upon the level of ‘temporary discomfort’ that you can withstand from time to time in order to ’future proof’ your financial life. Accepting shallow risk can save you from deeper risk.
Step 3: Focus on your financial reality, not just some image of what you believe this reality to be. You can’t “fake it to make it.” Be crystal clear about your actual starting point with all the good and bad. This includes aspects that you like as well as the things that need to change. Be honest.
Step 4: Forget the round numbers. Investors are attracted to round numbers like $1,000,000 or 10%. Sometimes these largely irrelevant numbers obscure the larger point and can distract you from the proper path. Expecting a certain round number percentage return from your investments likely has no meaning and can lead you away from your underlying purpose.
Step 5: Willingly make tradeoffs. Despite what you were taught, you can’t have it all. If you want to ‘future proof’ your personal finances you have to save some (a lot actually) of your earnings. This inevitably means less current consumption as a tradeoff for deferred consumption sometime in the future.
Step 6: Bury your emotions. I know, not really possible but understand the largely negative impact that emotional decision making can have on your financial future. Investors that can stay focused on their purpose can avoid reacting to all the screaming noise that fills every second of the day.
Step 7: Understand what you control and what you don’t. It’s incredibly difficult to comprehend just how little you can actually control. How much you save for the future, the way you invest those savings, and how well (or poorly) you behave basically round out the list. The overall market, economy, politics, taxes, inflation, and so forth are beyond your control.
You’ll notice that nowhere in the steps above is there a single mention of optimizing or maximizing investment returns. You can’t future proof your financial life by living on the margins. Start there. Ready for a real conversation?