Warren Buffet says, “Don’t risk what you already have for what you don’t need.” Like most sage remarks, this seems so obvious, but has big implications for how we live and make decisions. When we overreach financially, we open the possibility of going backward instead of forward and experiencing much more stress and uncertainty than necessary. Is this happening to you? What are the signs and what can you do about it?
Signs of financial self-pressure
Do you make a lot of money but wonder where it all goes? Here are some questions to consider as you look for the source of the drag:
Do you feel like you have to nail a bonus every year to maintain your lifestyle? Is your cash reserve dwindling? Are you selling part of your future to pay for the present? Are you carrying a growing balance on your credit cards at high interest rates? Do you measure your success against your neighbors or coworkers? Are you continually making upgrades to your home that you don’t really need? Is too much of your cash going towards status symbols like addresses, memberships, cars, clothing and jewelry? Does putting money away for retirement sometimes slide too far down your priority list?
These financial pressures can manifest in unpleasant ways — trouble sleeping, short tempers or uncomfortable arguments about money. It’s not healthy on any level.
What’s the remedy?
Simple awareness is the best place to start. Few people go bankrupt purely due to bad luck; almost all personal bankruptcy is self-inflicted, often by spending too much in both good times and bad. Left uncorrected, this pattern can create a snowball effect of poor decisions, from taking on too much debt to investing in “sure thing” ventures that are anything but sure. Even in cases that are far from potential bankruptcy, awareness is essential to fix any problems before they become crises.
Beyond awareness, behaviors must change to relieve self-inflicted financial pressure. Take a step back and consider the benefit of good financial practices: spending within your means, consistently putting money into savings, having a generous emergency fund in case of a change in income, weathering market downturns without hardship or worry. These benefits are within reach when you are willing to make changes. It may mean cutting spending considerably to bring it back into balance with income, or modifying investments to improve cash flow. A diversified portfolio can provide yield to support expenses that can’t be immediately reduced.
News awareness without worry
Have you ever seen a market where there was no bad news? I don’t remember one. We are looking for reasonable market conditions including economic growth, profit growth, job creation and steady IPO activity. We are not looking for the absence of any bad news. We will get a new jobs number this Friday. It doesn’t have to be a great one for low unemployment and low inflation to continue their positive trends. Remember that the US has had 3.25% GDP growth for the last year, a number that would be the envy of any developed country.
Why we are talking about this?
Even among the most successful executives and entrepreneurs, investment decisions are often more deeply influenced by the financial pressure people feel than by their income statements and balance sheets. People with high financial stress are prone to short-term thinking and questionable decisions while those with low financial stress often can take more risk that leads to high returns and continuing wealth. It’s our mission to help individuals move into, and stay in, this second category.
How’s your stress level? Do you feel like you’re risking what you have for what you don’t need? We’re here to discuss your challenges and explore your opportunities.
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