I have a tough question for you:
What’s your financial truth?
I mean, really, your financial truth.
The reality is many otherwise successful people are living a life of denial. They seem to have it all together on the surface, with big incomes, a nice house, maybe multiple luxury cars. But underneath the facade is a financial mess.
They aren’t living their financial truth.
So are they really financially successful? What is the measure of financial success? What’s their financial truth? Even with all the outward signs of success, are they truthfully making progress towards financial independence?
Comforting Lies or Unpleasant Financial Truths
As the cartoon below so aptly portrays, as humans, it’s in our nature to prefer “comforting lies” to “unpleasant truths”. The truth is, most of us would rather be blissfully ignorant and stay in our comfortable ruts than know the truth and be forced to take uncomfortable, intimidating steps towards necessary change.
This is especially so for financial truth.
There are lots of reasons we prefer “comforting lies”, but they all revolve around either intellectual or emotional denial. It is far easier to pretend the “unpleasant truths” don’t exist. Maybe it’s best just to press on…tomorrow is another day.
Investment “Solutions” Can’t Fix an Unpleasant Truth
Investors often seek expensive product “solutions”. These are investment packages designed to further distract you from your financial truth.
These complicated packages are offered by Wall Street brokers and banks, who just happen to be experts at the “comforting lies” charade. You won’t ever have to confront your “unpleasant truth” (your financial truth) as long as this investment “solution” can make the problem go away.
Ha! If only that were true—investing would be so easy! In fact, these complicated packaged products often push you away from the truth, in the opposite direction of where you want to be financially.
Three Sources of Truth Avoidance
If you’ve been practicing financial truth avoidance, don’t worry because you’re not alone. Everyone does this at one time or another, it’s incredibly common.
In fact, the truth avoidance problem is so common I can trace its origins to three main sources:
Lack of Education – While most successful individuals are well educated, their education likely did not include personal finance. Our society doesn’t provide many opportunities within the traditional education system for even basic foundational coverage of personal economics and finance.
As a result, we have a paradox of smart, affluent, often highly-educated individuals who don’t understand how investment markets—and even personal finance—works.
This allows Wall Street to take advantage of these blind spots and sell products that are not beneficial but sound good to someone who doesn’t really know what they’re doing.
Emotional Bias – Everyone has emotional biases. But recognizing your financial truth means actually acknowledging them.
Successful individuals don’t like to admit they harbor emotional biases. Sure, they know they exist, but just not in themselves!
With all the noise today, it is easy to reside inside an echo chamber where all you hear are things that support your operating narrative of life. This is a major behavioral bias in itself, known as confirmation bias.
Personal obligations and responsibilities – Third, for those of us with families or other dependents, it can be far too easy to take on the role of protector, bread-winner, or savior.
For example, in a situation where a widow remarries, the new husband may feel compelled to prove his worth by taking on the responsibility of the family’s financial matters, even if he has zero ability to do so successfully. An overblown sense of responsibility can be a barrier to accepting your financial truth.
Men and women have different perspectives on investing and both viewpoints are needed. Men tend to be more accepting of risk, while women have higher security needs. A balance of the two is generally what works best.
A Clear Vision of the Future
In our work with clients during their peak earning years, we have learned that it’s important to stress the need to create a vision of both short term and long term financial goals.
Knowing your financial truth now is essential.
Our experience is that it is very difficult to save and invest for something in the future unless that something is crystal clear.
Many individuals have fuzzy, fluffy goals and those don’t provide the motivation to save for the future.
You have to be able to both live life today and prepare for life tomorrow simultaneously. The vision for the future needs to be realistic. There must be a truthful connection between your current resources and the plan for the future—your financial truth must be at the forefront when you are planning the road ahead.
Ultimately, most big financial questions become binary. That is, you either have enough money to achieve the outcomes you desire, or you don’t. The truth is, you will never have enough money to do everything that you want. Therefore it is important to understand trade-offs.
The time to become well acquainted with your financial truth is while you are still in the peak earnings or accumulation phase of life. This is the time when you can “rewire” your approach and focus on what’s most important for your financial future.
Embrace the truth. Your financial future is at stake. Ready for a real conversation?
Enjoyed this article? Here are three more to help you:
This article was originally posted on January 9, 2018 and has been updated.