It’s been 76 days since I published my last blog post on Certifiably Financial. This is by far the longest amount of time between posts since I first shared the blog with the world on June 11, 2018. I used to have ideas of what I should write about all the time, but I’ve been experiencing writer’s block this year. That, coupled with not prioritizing time for writing and making a habit to do it even when I don’t want to, don’t have an idea, or don’t feel like I have enough time, has led to me slacking.
I had some extra time this afternoon since Amanda is at the library studying for her dietetics exam and I knew that I wanted to get back on schedule and get a new blog post out on Tuesday morning like I have pretty regularly for the past (almost) 3 years. I have a spreadsheet where I keep a list of ideas of things that I want to write about. I went through it at the beginning of this year and filled in spots with ideas. When I opened that spreadsheet today, and scrolled past all of the posts that I’ve missed down to May 18, 2021, I saw “7 Lessons from My First 7 Years”.
Last year on May 18, 2020, I published a post that I named 6 Lessons from My First 6 Years. In the article, I highlighted 6 of the key lessons that I’ve learned in my time as a financial planner since I started my internship on May 12, 2014. Given that the idea was already written down and the date was perfect, I figured I should take a stab at it.
I’ve changed things up a bit from last year. Some of the lessons are the same. Some of them are different. The title is different – hopefully better. So, here goes…
Lesson #1: Master The Basics
It only seems appropriate to keep lesson number one as master the basics. You can think of the basics as the groundwork, the foundation, and the keystone of your financial life. You should focus on mastering the basics before trying to get too cute and getting into things that are more complicated. Even when you feel like you have the basics down, you can always continue to refine them and improve your financial life.
To me, the lesson of mastering the basics seems extremely important right now. I see so many people on social media posting about investing in the next hot stock or cryptocurrency or whatever the famous person posted about on social media. It’s okay to have some “fun” money to invest in those things…if you can afford it. But you can’t afford it if you haven’t mastered the basics. And I know that many of these people haven’t (not saying they all haven’t).
Want to know what mastering the basics looks like? Here you go: You Need Permission to Play
Lesson #2: Investing is Too Easy Right Now
Don’t get me wrong, I love to see that more people are becoming interested in investing and are entering the market, but I fear that it could end badly and drive those same people away for a long time. There are a lot of people who still haven’t gotten back into the market after what they personally experienced in the 2008 financial crisis. A 50% correction in the S&P will do that, especially to those who are heavily invested in US stocks.
It seems like you could throw a dart at a wall covered with pictures of investments, invest in the one that you hit, and it would go up. Bankrupt companies, assets that have no intrinsic value, jokes that were never meant to be seriously invested in – it doesn’t matter, it all goes up.
But history has a tendency to repeat itself and markets have a history of correcting themselves. As Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.” He also said, “Only when the tide goes out do you discover who’s been swimming naked.” That doesn’t mean to stop investing, but is more of a cautionary tale to think twice about what you’re investing in and what you’re being sucked into by social media, friends, and family, and if it really makes sense.
Lesson #3: You Have to Be Very Intentional About Fighting Lifestyle Creep
Lifestyle creep is when you spend more as you earn more. There’s nothing inherently wrong with spending more as you earn more, but it needs to be kept in check. It’s important to increase your savings rate when you receive a raise or bonus or other large cash inflow. Otherwise, you could fall behind on reaching your financial goals. Lifestyle creep can be a double-edged sword that increases your spending and decreases your savings rate at the same time.
For example, consider someone earning $70,000 per year and who saves $7,000 of it. If they received a raise of $10,000 and spent it all, then their savings rate would fall from 10% to 8.75% while their spending increased by $10,000. If this continues for multiple years, or even a whole career, then spending could get out of control.
It’s important to maintain your savings rate as a percentage of your income, rather than a dollar amount. If your goal is to save 15% of your income for retirement, then you should be sure to save 15% of your raises to keep the percentage where it needs to be. It’s so easy to figure out how to spend the money once it hits your bank account – you might not even know where it went. It’s harder, but so important, to systematically manage how much of your income you spend and how much you save.
Lesson #4: Thinking About the Future is Hard
People often come to a financial planner because of a specific pain point they’re experiencing – taxes, investing, a windfall, etc. But even though someone may think that the answer to the problem is simple, it’s usually not. It’s hard to help someone with their financial life without knowing what they want to accomplish. This is when the financial planner asks you what your goals are.
The truth is, most people don’t know what their goals are. Some people have a vague idea, some people have a really clear idea, but most have no idea. It’s difficult to know what actions to take and how you should be intentional with your finances and your life if you don’t know what you want to accomplish.
I read a great book earlier this year called Vivid Vision that I think can help with this. The book is geared towards building the business of your dreams, but I definitely think it can help you envision your personal life if read with context in mind. Read the book, take some time to do the hard thinking, and write down your own financial goals.
Lesson #5: Budgeting Doesn’t Have to Be So Complicated
I used to get bogged down in the minutia of budgeting and how much money I should spend in each category relative to my income. The truth is that those details don’t really matter.
If you can hit your retirement savings rate target, make your debt payments, and pay your bills without racking up credit card debt, then it doesn’t really matter what you spend the rest on.
The problem that I often see is that people want it all and aren’t willing to sacrifice in some areas. Most of us don’t earn enough money to buy the fancy house, drive the brand new car, eat at the best restaurants, wear designer clothes, take the exotic vacations, and reach our financial goals. For most of us, sacrifice is necessary to make sure we reach our goals.
But like I said before, it doesn’t really matter where your spending money goes. Want to live in the fancy house? Awesome. What are you willing to sacrifice to make sure that you can still set yourself up for financial success while doing so?
Want to drive a luxury car? Cool. Where are you willing to cut back to make that a reality without sacrificing your financial goals?
Prioritize your savings and figure out your spending after that. This is called reverse budgeting.
Lesson #6: Being Financially Responsible Can Become a Ripple of Impact
First, a shout out to my friend Arron Stanton for re-coining ROI as Ripple of Impact instead of Return on Investment.
When you’re financially responsible you have the opportunity to help others with your money without sacrificing your financial goals. Money certainly isn’t everything, but it can help to solve a lot of problems for others in need.
Lesson #7: If You’re Reading This, You’re Blessed Beyond Measure
I saw a couple of sources say that only about 50% of the world has internet access.
I think we can often lose sight of just how blessed we really are. I know I do. It’s easy to get sucked into the mindset of thinking about what we “deserve” and comparing ourselves to others who have more than us of something that we want.
But I think it’s much more impactful to compare ourselves to those who aren’t as privileged and are thinking about us as the lives they wish they had. I start my day thinking about all of the “basic” things that are prevalent in my life that countless others don’t have – a roof over my head, a safe place to live, electricity, heating, cooling, clean water, running water, indoor plumbing, food in the fridge, clothing. The list goes on and on.
A financial advisor isn’t supposed to make general recommendations in writing, but starting your day like this is something that I recommend you do as well. Whenever you want to complain about something that you don’t have or you want to compare yourself to someone else, go back to that list and remember all of those things that you’re blessed to have that others don’t.
