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Pay Attention (to the right things) PDF Print E-mail
Written by John D. Buerger, CFP®   
Thursday, 01 October 2009 09:01

Saturday night I smashed my thumb.

I was opening a window (while paying attention to something else) and pinched my thumb between the window and the frame.  You should see it ... OK, maybe you don't want to see it (the nail is all black and blue - is that too much information?).

Has this ever happened to you?  You're paying attention to one thing and all-of-a-sudden and out-of-the-blue something bigger comes along and bites you.

I didn't see that coming!


Collectively as a society, we were paying too much attention to the wrong things and last fall we smashed our colletive economic thumbs.  Ouch!  Painful!  We did learn some things from the experience.  Americans are saving more and getting rid of debt and that is actually a good thing.  Of course, our government is trying to fill that void for us (because they haven't learned from the experience) by spending trillions of dollars they don't have.  That will prove to prolong the healing process.

But we all are still paying too much attention to some of the wrong things.

We focus all this energy and media time on the stock market (can you see a report on television that doesn't talk about what the Dow did that day?) and almost nothing on financial literacy or the real keys to building wealth.


Given a choice between more wealth and less wealth (with no other factors or variables), you would probably choose "More wealth!"  I know I would as long as I didn't have to give up anything more important in the process (I won't sacrifice family, my relationships or providing value to others in pursuit of wealth).

Is there any way to have some control over how much (or little) you are able to build wealth?  The answer is "Yes," but it probably isn't what you think it is.

In your quest to build wealth and make your family's future better than your current situation, there are a number of tools that are available to just about every one of us.  One tool, however, has received the lion's share of attention the past 15 years.  That tool is investing - more specifically, buying and selling stock, bonds and mutual funds through brokerage and retirement accounts.


You cannot hear or see the news without getting some report on how the stock market did today - as if the successes and failures of 30 large corporations could possibly be a proxy for the health of our economy and the transactions of millions of American citizens.

When I am introduced to somebody at a business or personal function as a financial planner, the first question that I am invariably asked is, "How is the market doing?"  "Should I buy or should I sell?"

But the growth of your portfolio is a very small part of your financial picture - and it happens to be a part over which you have relatively little control.  You have far more control over whether or not you spend $100 going out to eat tonight than you do on whether or not your investments go up or down $100 today.

Building wealth through your investment portfolio is like hoping to win a car race because of the motor oil you use.  It is a factor, but not the only one!


Earlier this week, I heard a reference to a new study which shows that stock market investing is responsible for about 5% of the wealth creation in America.  That's it - just 5%.

What about the other 95%?

By far the largest factor is related to behavioral economics - the daily decisions you make in how you spend or save your income.  Almost as important is the ability of business owners to grow their businesses, produce and sell more while keeping costs down (thereby improving profitability).


In other words it all boils down to Cash Flow - Cash Flow at both the personal and business owner levels.

(By the way, government doesn't show up in these studies because governments don't create wealth ... they only redistribute it).

What really matters isn't whether or not your $100,000 in that 401(k) makes you 8% or 6%.  That extra $2000 this year is small compared to saving $5000 (10% of an annual salary of $50,000) out of your annual cash flow just by thinking about money and how you spend it.


You will likely spend $1500 of that $2000 on mutual fund management fees (the average expense ratio of a fund in a 401(k) plan is 1.5%) with no guarantee they'll actually get a better return ...

... or ...

You can spend a fraction of that money learning how to get control over the money that is slipping through your fingers every day and end up with a much more positive result.

We have crunched the numbers with dozens of clients and many more who have attended workshops and classes.  If you want to be in control over you money ... and to have more wealth at some time in the future than you have today ... the fastest and easiest way to make that happen is to get control over your cash flow.


I should be clear that I am not suggesting that you ignore your investments and focus solely on cash flow.  That won't work either.  If you throw all caution to the wind with your investments, you will get wildly unreliable results.  Such a strategy could very easily set you back years if not decades.


What I am suggesting is that you ALSO pay attention to cash flow issues as well as your personal financial literacy.  Read books and articles.  Use a program like Quicken or (better yet) www.mint.com to track your expenses and income.  Send me an email (jdbuerger@altuswealth.com) to get our Cash Flow Hydrant worksheet and attend our next free webinar on how that Cash Flow Hydrant works.

... and don't be afraid to spend a little money talking with a professional, fiduciary advisor about all the other tools (beyond stocks & bonds) that are available to you to help you create and build wealth.

If we took a quarter of the money that we throw at transactions costs and investment-management-fees and invested it in financial literacy education, we could prevent the kind of meltdown we have been living through the past six years.

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Last Updated on Friday, 09 October 2009 23:07