“With confidence gained from more than a decade of fine tuning financial trade-offs and priorities, Joe and Betty are well positioned to achieve their most important life goals.” Such might be a sentence from our review meeting notes for an established client that has demonstrated discipline and focus in their financial decision making process.
How can you avoid the disease associated with mis-thinking money? How can you achieve financial wellness?
Root Cause of Financial Sickness
To cure a malady, financial or physical, you need to discover what is creating the problem in the first place. Financial sickness, in all of its forms, is caused mostly by consuming too much errant and conflicted financial “news.”
This “news” generates fear. In turn, this media-driven fear leads directly to emotional reaction. This emotional reaction manifests itself through poor decisions and buying awful financial products that further embed the sickness. The daily consumption of misinformation from product purveyors and the sensationalist 24-hour cable channels can create a very sick “financial body.” This disease, caused and created by the conventional financial service providers, can only be cured through unconventional means.
Commonalities between Nutrition and Finance
Allow me a personal aside that may help connect the dots. As many of you know, over the past year or so I have lost more than 30 pounds. While I have always worked out, spin class, weight training and some outside cycling, my conventional diet was overwhelming the exercise. I started looking for answers by reading articles on nutritional science.
What stunned me was the dearth of actual observed scientific conclusions. Much of what is passed along as nutrition science is little more than industry generated drivel. This is the same in the financial realm; actual evidence, actual science, has been ignored. In nutrition, the scientific evidence points strongly towards sugar and carbohydrates as the primary dietary culprits, not saturated fat. Despite this evidence, for more than four decades Americans have been advised, by the USDA Food Pyramid, the AHA, etc., to follow low fat, and thus high sugar, high carbohydrate, diets.
The result has been a 300% increase in obesity, skyrocketing diabetes rates, and increased heart disease. The cure has been there all along but the confluence of commercial interests and institutional bias has managed to keep the real science out of the limelight. The correlation to financial market science being largely ignored is interesting and the underlying reasons much the same (vested commercial interests and built in biases). As I mentioned earlier, the nutritional cure, for me at least, was unconventional and required a break from conventional dietary “wisdom.” Here’s how you can “cure” your financial sickness.
Cure Number One
Stop consuming garbage financial information and instead fill that space with actual scientific evidence. Life is too short to waste your scarce financial resources chasing investment strategies that have no demonstrated efficacy. Remember that the training for the person on the other side of the table at the large financial firms consists mostly of how to sell things. That is, they are skilled at selling, but far less so at solving your particular planning problems. To be plain, they are paid to sell stuff. Beware!
Cure Number Two
Financial futures are built upon what you do today, what you save today. Save more than you think that you will need, at least 15% of your income, and then save a bit more. The future belongs to the great savers, not the great investors. The amount that you save matters more! Just as I discovered that it is difficult to out exercise your diet, you can’t achieve financial goals solely through investment out performance.
Cure Number Three
Understand that you can’t, and neither can anyone else, “outsmart” deeply held behavioral biases that routinely impact financial decision making. We often act in a “predictably irrational” manner, even while having the best of intentions to do otherwise. My observations from working with many intelligent individuals is that accepting this truth is very, very difficult. Accept this truth indeed, find a trusted source for ongoing behavioral coaching, and you will be way ahead of the game.
Everything that we do in our work with clients, and those who are still not our clients) is aimed at amplifying awareness of financial sickness and then focusing on the cure. Ready for a real conversation?