Here we stand in New Year’s resolution territory. If you’re anything like me, this is dangerous terrain. I know better and yet I am always tempted to try something radical, particularly in terms of money, when a new year rolls around. It’s easy to understand the temptation. Despite our best intentions, for most Americans the holiday season brings a spending frenzy and once the shine wears off the gift wrap, a new year often means new debt and the same old pressure, intensified.
There is no shortage of advice on the matter. Books and magazines are filled with solutions. In fact, there is so much advice on what we “should” do to earn more, save more, invest more; it’s hard not to feel guilty as well as overwhelmed right about now. Guilty? Sure. When we are bombarded with “solutions” from “experts,” and we still feel powerless, it’s got to be our own fault, right? Well, not really.
The world of financial services is not set up to keep the average consumer feeling empowered and independent. Lots of people make lots of money when investing requires expert help. If you don’t know your mutual fund from your natural gas limited partnership, you’re where I was when I began to educate myself about money and investing. Many years ago I decided to read every financial book I could get my hands on and stopped counting at 100 but kept reading. I even earned securities licenses in order to get the upper hand on investing.
I’m not suggesting you follow this route and become a financial encyclopedia unless it fascinates you as much as it does me. I’m an “all or nothing” kind of girl. It’s my nature and until I embraced it, all the information and expertise I’d acquired didn’t make a meaningful difference. What I encourage you to do is get to know yourself better in terms of money. What is that part of your nature that, for better or worse, guides your choices, let’s you sleep at night, and has you passionate and enthusiastic all day? Once you clearly identify and embrace this aspect of your own financial style, it will be a lot easier to go shopping for advice.
Invest in Yourself This Year I want you to spend some time thinking about where you want to be financially next year, in five years, in twenty years. Get a picture in your mind’s eye of New Year’s Day 2007. Make that picture as vivid as possible. I love this exercise! It’s amazing what I think I can accomplish in a year. How about you? The bad news is that most of us vastly overestimate what we can achieve in a year. The good news is that we also vastly underestimate what we can accomplish in five or ten years. It’s so important to use the correct lens when you’re looking at your financial life. If you’ve got a twenty year window, why use a one-year lens? Partly I think it’s human nature. For some of us the answer lies in the pressure we feel to see immediate results. What if instead of looking to your 401(k) or your brokerage account to double in a year, you look at your piggy bank. You can literally pop the seams of your piggy in a year (or less) without taking crazy risks, and use that money to increase your long-term position… slowly.
The big key to popping the piggy is that every time you make a choice that will put more money in your pocket, you’ve got to take that money out of your wallet or checking account and put it aside, either in a piggy bank or in a separate interest bearing account with your bank or brokerage.
An excellent book on this concept is Start Late, Finish Rich : A No-Fail Plan for Achieving Financial Freedom at Any Age by David Bach. When it comes to money, it’s safe to say that most of us think we are starting late, regardless of our age. On the other hand, whether you are young, young at heart, or simply still maturing in terms of money, The Money Book for the Young, Fabulous & Broke by perennial favorite Suze Orman is another great resource.
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If you invest the time to know yourself and know your goals, it’s not so hard to develop a plan to reach them. Sure, if you enjoy a sophisticated (think complicated) financial strategy, there are many choices and many experts to advise you. There are also many simple plans that work well and achieve their purpose, to provide a balance between security and growth over time. There are books and experts at every turn to advise you. You can do it yourself, hire a broker or retain the services of a fee only advisor.
If you are like me and enjoy the “do-it-yourself” approach, you may want to take advantage of online investing. The popularity of online investing has driven the cost per trade way down. Just make sure you read the fine print on trading volume and know what you’re doing before you dive in.
The National Association of Personal Financial Advisors (www.napfa.org) will guide you to a professional who charges a fee to provide a second opinion or a complete personal financial plan. Why would you pay a fee? The idea is that when you pay for advice on a “fee-only” basis, you are getting unbiased advice from someone who is not accepting commissions or compensation of any kind based on the products they recommend. In essence the advisor is working for you and only you. The concept makes sense when compared to traditional stock brokers who make a commission every time they execute a trade on your behalf. In this scenario the broker makes money, sometimes a lot of money, every time you take their advice and buy or sell. Some people are very happy with this system but just remember that you are paying the commission and brokers may work with you but don’t automatically assume they work for you.
How well the advice you get actually fits has a lot to do with who you are and how you’re wired. In fact, more than any other factor, I believe it is your personality that will determine your financial destiny. Anyone can create an empowered financial style with a little self awareness and a little education. I think of financial advice like shoe shopping. Unless the pair I buy is exactly my style and a perfect fit, I’m going to have trouble wearing them every day.
Make a promise that you will learn to understand your financial style this year. It doesn’t matter what your circumstances are today, understanding your style and developing a relationship with money that you enjoy living with over the long run, will serve you in a way that no New Year’s resolution or financial advice can!
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