Many otherwise successful individuals are a financial mess. Sure, they may have good incomes, live in big houses, and drive nice cars...but is that actually the measure of financial success? What is their financial truth? Are they truthfully making progress towards financial independence?
Comforting Lies or Unpleasant Truths
Financial truths are often elusive because as the cartoon below depicts, we sometimes prefer “comforting lies” to “unpleasant truths.”
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
One major reason investors seek expensive product “solutions” pushed by Wall Street brokers and banks is that these entities are experts at the “comforting lies” charade. You don’t really have to confront “unpleasant truths” head on because the investment “solution” makes the problem vanish.
Ha! If only that were so. In fact, these complicated packaged products often push you away from the truth, and in the opposite direction of where you ultimately want to be financially.
Three Sources of Truth Avoidance
The origins of this truth avoidance problem can be traced to three main sources.
First, while most successful individuals are well educated, this education usually does not include personal finance. As a society, we don’t provide many outlets within traditional education for even basic foundational type coverage of personal economics and finance. As a result, we have otherwise smart, affluent, and educated individuals with a stilted understanding of how investment markets function. This allows Wall Street to take advantage of these blind spots and sell products that are ill-suited but sound good on the surface.
Second, successful individuals don’t like to admit that they harbor emotional biases. Sure, they recognize these biases 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.
Third, especially for those of us with the Y chromosome, it is far too easy to take on the role of protector or savior for our spouses, children, and other family members. This is particularly evident in situations where a widow remarries or in a second marriage. Often, the new husband feels compelled to prove his worth by taking on responsibility for financial matters even though he may have zero ability to do so successfully. 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 working with clients in their peak earning years, we stress the need to create a vision of what they want to accomplish financially both in the short term and longer term. 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 also needs to be realistic. There must be a truthful connection between your current resources and the plan for the future.
Ultimately, most big financial questions become binary. That is, you either have enough money to achieve the outcomes you desire, or you don’t. You will never have enough money to do everything that you want and therefore it is important to understand trade-offs.
The time to become well acquainted with financial truths 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?