Over the many, many, MANY years I’ve been in financial services, I have learned some stuff. There are people who think they are “wise” about money and who might know some stuff, but who I wouldn’t consider wise. And there are people who feel clueless yet are doing very well.
I like to compare this to academic understanding versus sports (I’m not a sports person, so bear with me here)… just because you know all of the players, all of the stats, the rules and the history of the game, it doesn’t mean you can actually PLAY the game. That takes practice. It might even be super annoying to see someone who knows nothing about a particular game play really well.
So yeah, being wise, or having knowledge about personal finance doesn’t directly translate to doing well with it. Personal finance is not academic… Just like a sport or game, it’s about the choices, behaviors and practice that contribute to a whole.
This came up in a major way when I spoke to a local class of senior high school students. Tons of them wanted the next hot stock tip. They were super disappointed when I didn’t want to talk about stocks with them… I wanted to talk about financial choices (they never had me back).
Being “wise” about money, from my perspective, is about honing your ability to keep it. Sure, there has to be balance – you can’t just lock away all of your money for that rainy day that never comes! But when I see people who are being “wise” with money, it probably looks different than what the general public might think.I believe “wise” is honing your ability to capture and keep more of your excess dollars. Fundamentally, that is all it takes to build wealth. Click To Tweet
What being wise isn’t about
Wise is not about…
Understanding the market. It’s great if you can consider yourself an ongoing student of the stock market. But it’s not “knowable,” necessarily; it’s like predicting the weather. The biggest takeaway here is you can’t time the market, which means that extra understanding doesn’t really get you that far ahead of everybody else who consistently invests.
Being clever with investments. You don’t need the perfect investment to succeed. You definitely don’t need anything super fancy. You just need to keep going. Anyone can be clever with the stock market when everything has been going up for 10 years.
And BTW, my whole business model is built on what we call “set it and forget it.” Choose low-cost investments, invest for your goals and timeframe and let it ride. Sure, I have my favorite funds and I like tweaking portfolios for my clients, but that’s just icing on the cake of already being invested and saving consistently (if you want to know more about how I work with clients, you can go here).
Making tons of money. Yes, you’re probably very wise about your work if you make oodles of money – I don’t want to take that away from you, it’s impressive. That doesn’t necessarily translate to being wise about money. If your family has a high spend rate, you could be burning through that higher compensation, whereas someone with a lower salary but a more demure lifestyle keeps more money. In fact, I would say that sometimes, making a ton of money feels like a trap, because if your entire life revolves around you making and using every single dollar, then you don’t feel free to walk away from a stressful job.
Having the coolest car, home, etc. We need to stop equating keeping up with the Joneses as a measure of financial success. You know who hardly ever meets with a financial planner? People with cool cars. I also see that the most financially successful people UNDER BUY (is that a word?) their homes — meaning, if they got approved for $1M, they might go with $800K. And yes, hello, I live in Seattle, where housing prices are insane.
Early retirement. Maybe early retirement IS about being wise with your money, and using your resources well, but I also don’t want anyone to feel stigmatized if they don’t have big plans for early retirement. You know what? Most of the nation doesn’t. And if you’re doing work that you enjoy and can keep doing, why not? Philosophically, I believe we are all here to serve at some level. I see most of my early retirees switch to a vocation that allows them to serve.
What wise IS
As I mentioned before, I believe “wise” is honing your ability to capture and keep more of your excess dollars. Fundamentally, that is all it takes to build wealth.
Wise is about…
Understanding that keeping your money gives you incredible freedom. Wealth building is about making that connection that saving money isn’t sacrificing something today, rather, it’s giving you freedom down the road. Sure, you might be giving up some of your spending, but how meaningful was that extra shirt from Nordstrom anyway? You already have 3 shirts in your closet you’re not wearing.
Delayed Gratification. If there is a mantra that I think ties to personal finance, it’s Delayed Gratification. You can have whatever you want… but I find, if I just defer the purchase for a few days, I don’t want the thing anymore. I have set up my online shopping to never buy the thing the day I see it. I estimate that THIS YEAR (just a few months in) that tactic has already saved me $2,000.
Accepting lack of control over markets. I said earlier, we’ve been in one of the best bull markets in history. Which means everybody feels like they know what they are doing. But I know they don’t last, so when I create plans, I never assume we’re going to continue to make 19% annually. Wise investors know that the market is going to do what the market is going to do. All you have control over is how much you save.
Aligning purpose with money. Before I design a portfolio for someone, I have to understand, what is this money supposed to be used for? The most common issue I see is that people are saving money but don’t really have a context for what these buckets of money are going to do for them 5, 10 or 20 years down the road. Context is everything. And wouldn’t it be awesome if you KNEW you were totally on track for retirement, college savings, whatever and could redirect some savings toward fun stuff? That’s my favorite part of financial planning!
Acknowledging the balance in life. Being wise about money is understanding that during certain times in your lives, some things will take precedence over saving. Like, when you have two kids in daycare (that is EXPENSIVE). Or acknowledging that, hey, kids are around for a limited amount of time and it might be good to take some awesome, memorable vacations together before they are off living their own lives.
Being wise about your money is about clarity and context. If you’re not conscious about your money, you might be wasting it. And if you want some more tips and tactics to work on getting more and more conscious around your money, you can check out my free library of resources here.