Successful People's BIG Secret?
by Scott Chapman on Mar 8, 2019
It’s only human to be fascinated by what’s new, what’s shiny, and what’s now. Instant gratification is in many ways the name of the game in the new economy's emerging industries, although our fixation on satisfying our need for it is as old as we are. Prioritizing the now over the long term is a survival technique hardwired into us, and old habits die hard. If you find yourself guilty of neglecting to sit down to make long-term plans for the future, don’t panic. You’re far from alone, and the impulse doesn’t make you a bad person. That said, it’s a habit that you can and should retrain your brain to avoid. Nowhere is it more important to buck trends and stick to a big-picture plan than when it comes to your finances.
What do superstar athletes, visual artists, and architects all have in common? Each has to master the fundamentals of their craft in order to excel and put something great out into the world. The selfsame principle applies to building a financial plan that will work for you and future generations. Keeping your proverbial financial house in order begins with its foundation. No, the foundation is neither the glitziest nor the sexiest part of a home. A foundation alone will likely never grace the cover of Southern Living. Even the most well-engineered foundation will seem bland next to a stocked deck built for entertaining. But that’s ok because none of the eye-popping, HGTV-worthy elements of a house could stand without that foundation there. Its significance is self-evident, not showy. Because if the foundation lacks integrity, all those more attractive elements will quickly fall to ruin. Walls will crack, molding will split, doors and windows will stick, and that’s just the beginning. While fancy trim, new cabinets, and home theaters stole our attention, we took our foundation for granted. It’s a hard-learned mistake that happens all too often.
“Sure, Scott, that’s bad, but my money isn’t actually a bunch of concrete and plywood. My financial house hasn’t gone the way of the Leaning Tower of Pisa. At least not yet. Can’t I just refocus and right the ship?”
Of course! The answer is always yes, but consider the opportunity cost of your mismanagement. Getting back on track with your financial fundamentals will take time, cut into an already overblown budget, and rob you of the peace of mind we all can agree is worth more than money. You’ll save yourself great cost and stress by doing things the right way the first time. Ask any homeowner who’s in the midst of a foundation repair. They’ll all tell you they wish the problem had been preempted during initial construction.
Besides satisfying a need for instant gratification, why do so many heads of financial households ignore the need to build a strong foundation? Why jump straight for conspicuous products that should represent tertiary or even quaternary elements of a portfolio? To put it bluntly, we always think we want what everyone else has. We’ll rarely if ever see the hard work our seemingly successful peers have put into building that strong foundation that’s so important. Instead, we’re much more likely to hear about (and thus desire for ourselves) the fancy new wainscoting in the dining room. In financial terms, that “wainscoting” might represent some futures a friend or relative got lucky with and used to make some money. But if one jumps straight into a commitment like that without the fundamental support needed for it to make financial sense, then that fancy new dining room remodel is going to collapse in on itself and ruin the whole house on its way down. Any advice that doesn’t take into account the full context of your financial situation is bad advice. Don’t simply do what it looks like the influential people around you are doing just for the sake of doing it. Stick to a plan; let’s address the first step together now.
It’s a poor financial services professional that only highlights problems without offering any solutions. It’s hard enough for a hardworking family to keep its financial house in order, so allow me to offer the most fundamental of fundamental pieces of advice for building your foundation: study and understand the difference between saving and investing. One of the most damaging misconceptions that the financial industry perpetuates is a conflation of the two concepts as essentially one and the same. In reality, there’s a great difference between saving and investing, and abundant misinformation makes it harder all the time for the layman to build a stable financial foundation. I can’t make it any clearer than saying that your savings are the bedrock upon which you should build a foundation for long-term financial success. Investments are not. They're tools to grow your wealth. Once you’ve got a solid start on that foundation, those other tools will have room to get to work in their appropriate role according to the blueprint. When the financial storms come–and trust me, they will come–a savings foundation will be the difference between a financial house that stands the test of time and a glittery, gilded wreck.
I can’t stress enough how crucial adequate “safe-money” savings are in building that all-important foundational element of anyone’s financial plan. Those savings are much like the 90% of the iceberg below the water, the hundreds of hours of practice that go into playing one hour of football, or all the edited drafts of a financial planner’s blog–there’s so much supporting and building up to the end product that you may never realize was there. As stated above, despite the importance of first building these savings, many uninitiated in the financial world skip straight to investing. While the industry does a generally abysmal job of clarifying the differences and laying out saving best practices, it may also be the case that those uninitiated individuals are asking the wrong questions of their friends and neighbors who have been in the accumulation phase of their lives longer. Let’s circle back to the case of the individual inspired by the elaborate new “dining room” in his acquaintance’s financial house. If that individual asks his acquaintance how the dining room was achieved, the acquaintance wouldn’t necessarily think to begin with “Well, first I poured the foundation…”
As I said, that’s why advice that’s ignorant of the totality of your situation will always be bad advice. It’s not your fault, but if this sounds like you, then it's likely you've been barking up the wrong tree all along. Of course, that’s not to say that it’s always a bad idea to take cues from any relatives and peers that have things together. People that have managed to hold onto and build their wealth know full well how important safe-money savings are to supporting the house they’ve developed over decades, and building those savings is a practice they never, never stop. It’s sad to say that it’s the number one “secret” to their success. I say sad only because it should never have gained secret status in the first place, but the obfuscation of the differences between saving and investing has rendered it as such.
Just as a solid brick-and-mortar home can appreciate into a highly valuable asset for you and future generations, so too will an appropriate reserve of safe-money savings serve as a foundation upon which to build a better life. Your financial security and eventual legacy begin there. Once those savings are in place, your financial plot will have room for the finer things that seem so appealing to jump on right now. It would be my privilege to serve as your trusted partner in clearing the site to lay that foundation today. Or, if you’ve already begun, I can help you pick out the trappings of a well-planned financial home that will see you and yours well cared for through all of life’s financial storms. Let’s talk today!