Personal Financial Management by Decade

Regardless of which decade of life you are in, financial responsibility usually comes down to managing a few basic goals: generating income, saving/investing money, controlling your living expenses, and protecting yourself from risks. However, the relative importance of each of these, and the way you approach these goals, will change with each passing decade as I will discuss below.

0's (age 1-9) - Don't Eat the Money. During the first decade of life there are three important financial lessons to be learned. First is to not put money in your mouth (risk avoidance!). The second lesson is that money can be exchanged for stuff. Finally, learning delayed gratification can parlay itself into the ability to be a better saver and to make better financial decisions. Allow kids to experience delayed gratification.

10's (age 10-19) - Value Exchange. Teens must learn that money is received for adding value to people’s lives. This can be a hard thing for teens to see depending on the type of job they have. My son works at a minimum wage job with no incentives for performance and tells me that adding value does NOT lead to higher income. However, a friend of his works as a waiter at a country club and clearly sees the relationship between top service with a smile and his tips! More money comes when you are a more valuable employee, or a powerful contributor to the organization. Money is also earned because you have created or improved a product, service, or process. Regardless, understand that your income is correlated with the value you provide. In other words, if you want a higher income, figure out how to add more value in your workplace. Work harder, be more creative, persuasive, likable, original, collaborative, and efficient.

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Long-Term Care in Images


Life is filled with risks. While stock market, economic, or political risk is widely discussed in the press, there are other risks that financial advisors and clients must consider.  One of the biggest and most uncertain risks has to do with the future high-cost medical care that is not covered by insurance. This is the care you may need if you have a prolonged physical illness, disability, or severe cognitive impairment. These limitations can prevent you from performing basic activities such as bathing, dressing, and eating. Help for these types of needs is called long-term care and can result in the biggest expense shock a retiree can face.

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The Second Key to Investment Success


In my last blog post, I discussed Faith in the Future as the first key to investment sucess. The second key is Patience.


Key #2 - Patience

Some investors don’t lose faith; they simply lose patience. Patience is the ability to wait and delay expectation of positive returns.  Patience is absolutely necessary because positive returns are not provided each and every year, and may not even be provided for many years.  While I know it may be almost un-American to be patient in our world of instant gratification, news feeds, and credit cards, it is patience that is a necessary characteristic of a successful investor. There are two methods of obtaining more patience when it comes to the markets.

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The First Key to Investment Success


Investment Success can be thought of as the reward that awaits you within a vault that must be opened using four key codes.  To open the lock to the vault you must turn to each of the four key codes in order. Only then will the wheels of the lock align allowing the vault to be opened. Then investment success will be yours! In today's blog post, I will introduce the first key: Faith.


Key #1 - Faith in the Future

The first key needed to obtain investment success is to have a resounding "faith in the future". This is faith in the growth and progress of economies, businesses, and people (who work and own these businesses). When you invest, you are buying a piece of a business. Therefore, you would only invest in that business if you felt that the business would make money in a conducive environment. Taken further, as globally diversified mutual fund investors, you are buying ownership in businesses around the globe, and therefore, you have a stake in the entire world economy - the economies in which these businesses operate. You would only own these investments if you felt these economies would grow over the long-term. This is faith in progress, not perfection. People, businesses, and politicians are not perfect, but if you take a step back to look at the upward curve of progress it is easy to have faith. If you can't see this progress, and are fundamentally afraid of the future (and have lost faith), it is impossible to invest successfully.

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