MONEY TALKS - In today’s day and age, people love to get caught up in the latest headlines: “Interest rates are near all-time lows”, “Gas below $3 a gallon for the first time in four years”, “Savvy investors should watch for bear market warning signs”. In fact, they often get so consumed with these external factors they’re convinced they have no control of their financial destiny. Some even go so far as to blame their financial problems on inflation, interest rates, politics or myriad other external factors. The truth of the matter is, although they may not know it, they are in complete control.
External Factors - Don’t get me wrong exogenous, or external, factors do have an effect on your financial wellbeing. However, since you have as much control over the stock market as you do the weather, I would argue that there are far more sensible things to worry about. Perhaps this can best be illustrated by retelling one of my favorite stories by Bert Whitehead, a leading authority on financial planning and old colleague of mine. In 2002 a client came to him asking if he should pull his money from the stock market because of the rising possibility of war in the Middle East. His client was clearly agitated with the political landscape of the country and the resulting world events that had transpired. Without hesitation, Bert sarcastically responded, “Why? Are you getting drafted?” I know this is a serious topic and should not be taken lightly, but the point of the story is, although these predicaments often make the headlines, they rarely have a significant impact on our financial situation unless we are directly affected (e.g. getting drafted).
Internal Factors - The glamorization and/or demonization of politics and economics by the media can be hard to ignore because they are on the face of every TV station, newspaper, and social media site. Nonetheless, it’s essential to remember that for the most part these situations are out of your control. However, that doesn’t mean you should sit idly by and hope for the best. To stick with the weather analogy, while you don’t have control over when the next snow storm will hit, you do have the ability to buy snow tires for your car, a new shovel, and salt for your driveway. By personally managing the internal factors in your life such as; how much you save, your consumer loan balance, and the size of the home you purchase, you are taking responsibility over the aspects in your life that allow you to control your own financial destiny rather than taking a back seat to external factors over which you are powerless.
Decision Making - On any given day you probably make hundreds of decisions that have a direct impact on your finances, from deciding whether to dine in or go out, to buying toothpaste at CVS vs. Target. While every decision has some impact, certain decisions obviously carry more weight than others. To get you on the right track, I compiled a small list of steps you can take to give you power over your financial future.
Take Control - Start off by setting up and contributing to your company retirement plan. It is tax deductible and more often than not your employer will match a portion of your contribution. Once your retirement plan is set up, put any extra money you can set aside into an emergency reserve fund. This will allow you to weather the storm (pardon the pun) when things go awry. Paying off credit card and other consumer debt will reduce the chances of hard earned money being wasted on interest payments. Buying a home that fits into your budget will allow you to afford discretionary items while paying your bills on time. Lastly, make sure to invest in your career. Education and experience are the primary vehicles that will drive your career and increase your earnings potential.
Over time the factors you can control will have a much greater impact on your finances than external factors. So before you go blaming the market for your latest woes, take a look at what you can control, it will go a lot further than you think.