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What I'd Tell Oprah PDF Print E-mail
Written by John D. Buerger, CFP®   
Tuesday, 12 January 2010 13:49
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John Buerger

My daughter, Alexa, has been encouring me for more than a year to get onto the Oprah Winfrey show as a guest.  "You'd be perfect - and you could really touch a lot of lives quickly with that," she explains.

This is true ... so if you know anyone affiliated with that show, you can pass along the link to this article and have them contact me.  I'd fly to Chicago in the middle of winter (even this one which is colder than usual) for that opportunity.

BEGIN WITH THE END IN MIND
RESPONSIBILITY - HERE, IT'S YOURS
WE'RE ALL DUMMIES NOW
ACTION - SIMPLE BUT NOT EASY
SOLUTIONS

In the meantime, this got me to thinking, "What would I do/say on the Oprah Winfrey show if I were given that chance?"  What would YOU do?  Here's what comes to my mind right now:

Begin With the End in Mind

One of the elements of any successful venture is to determine what you want to have as the end result.  For me, that end result would be to have more people be aware of three basic things about money and personal finance:

  • You are ulitimately responsible for your own financial future
    ... and that's a good thing
    .
  • We aren't hardwired to do well with money - but there are solutions available.
  • Taking action is the simplest yet most difficult part of the process.

Responsibility - Here, It's Yours

You are responsible.

When it comes to your financial situation, you have nobody to blame but yourself.  Personal responsibility is one of those God-gifted inalienable rights bestowed upon each of us when we were created.  It is an integral part of your existence on this earth: you live, you eat, you breath,  you are responsible for your actions and their results ...

... and the results you are enjoying (or not) today are directly related to your actions in the past.

"I have never seen where a woman has given birth to a success or a failure … it's always either a boy or a girl. Occasionally I've seen a man stand up and say "I'm a self-made man." So far I have never seen a person who didn't make it stand up and say "I'm a self made failure" although that is exactly what they are." - Zig Ziglar

You are Responsible ... and that's a good thing.

The day you give up your responsibility and lay the blame for any part of your current state of affairs on someone else is the day you give up on your freedom, individuality and the essence of yourself.  It is also the day you give up on all of your hopes and dreams (unless you can coerce someone else to giving these things to you).

YOUR FINANCIAL CHOICES MAKE ALL THE DIFFERENCE

The median household income is just north of $50,000 per year.  Even if you only earned an income for 40 years of your life (and most people earn some income well into retirement), that means $2 million dollars will slip through the average American's fingers in a lifetime.

That's a lot of money.

If that average American household could improve their savings by 5% per year ... and earned a 6% rate of return on those savings over that 40 year period, they would amass  $386,905 for retirement.  If they could get an 8% return (still conservative by historical standards), they would end up with a nest-egg of $647,641.

That's 5% savings for 40 years ... and the rule-of-thumb (and easily attainable) is 10% per year in savings.

THE NUMBER ONE TOOL EVERY OPRAH FAN SHOULD HAVE

Cash Flow (savings) is the most powerful wealth building tool you have at your disposal.  It is also the one aspect of your personal finances over which you have the most control.  True, you can't always control whether or not you have a job or income, but you have complete control over every dollar that you spend (except taxes, but we'll not go there right now).

Example: You may like coffee in the morning, but nobody is putting a gun to your head and telling you that you have to consume a Cinnamon Dolce Crème every morning.  That one innocent little exercise in indulgence adds up to $1000/year (or 40% of that $2500/year you want to save).

We're All Dummies Now

As we have explored elsewhere in this blog, for all of our wonderful attributes as calculating creatures, humans are not particularly well adapted to making sound decisions in financial situations.

Humans are first and foremost emotional creatures.  In times of stress, our brains automatically shut down the highest powered most rational and powerful circuits in the brain.  These areas are resource hogs - rational thought uses a lot of processing power - and the reptilian brain goes into "preservation" mode when the system is stressed.

The emotional circuits are also much faster than their energy-hungry cerebral cousins and (this is the big kicker), much more closely tied to the parts of the brain that manage feel-good drugs like dopamine.

STRESS = MORE EMOTION = MORE STRESS ... Hmmm

So humans are emotional creatures that rely on emotional circuits more in times of stress - but money issues are some of the most stressful of all factors facing a modern human.

The challenge here is that using emotional heuristics to come up with financial decisions is a losers game.  The 7% Solution and the Dalbar Studies show that the average investor sees portfolio performance 6-7% lower than the market averages.  As the average investor goes through the cycle of emotion, they have a tendency to buy high (when stocks are expensive) and sell low (when stocks are on sale) - just the opposite of what you want to see happen.

Poor investment performance leads to more stress which leads to more emotional decisions which usually lead to more poor investment performance.  We also see this cycle show up in most other areas of personal finance - from insurance to estate planning.

The emotional circuitry that has served our species so well the past 10,000 years in surviving in the wild completely undermines our ability to survive in financial markets and modern times.

ONE MORE BIT OF INFLAMATION

There is one more catalyst in this incendiary brew: The advertisers and marketers of the world understand your vulnerability very well and use it to sell you more stuff you don't need and can't really afford.

We call this "retail therapy" and it is just as dangerous as a pain medicine like morphine.

Action - Simple But Not Easy

Before we get to one or two of the solutions, I want to make sure I make one last point clear to Oprah's audience.

While we can make this process pretty simple to understand ... going through it is not easy. 

Your human hardwiring is very difficult to overcome and change.  It takes 30 days of conscious, diligent effort to create a habit.  It takes just as long (if not longer) to break yourself of an old habit.  Here we are talking about breaking yourself of a number of financial habits (emotional investing & retail therapy) that you have had for years if not decades.  These habits flow out of 10,000 years of human evolution.

Meanwhile advertisers, marketers and politicians all gain power by taking advantage of this hardwiring so they will do whatever they can to keep the status quo ... or slowly sink you into a deeper addiction.  They'll make their products more tantilizing.  They'll make it even easier to buy (more credit, please) ... and they continually promote blaming somebody else for your problems, even though ...

You are Responsible.

ARE YOU READY FOR THIS?

One of the ongoing themes of this website (and indeed my work with financial planning clients) is this question - "Are you ready for this?"  Awareness of the challenges you face improves your chances of success. 

If you go to the gym expecting a warm-stone massage, but instead get the Marquis de Sade of personal trainers, you won't make it through the first workout ... and you certainly won't come back every day for 30 days (that's how long it takes to build a habit).  But if you know that the workouts are tough and that you'll hurt the next two days, but that you CAN push through the pain and in 30 days you'll be on your way to being in better shape and realizing the future you want for your physique ... the odds of success have improved a great deal.

Any type of change creates challenges ... that means stress.  Your brain is hardwired to go back to what you know, even if it is bad for you.  But if you are clear about what you want, you can make it happen ... and it will be all YOUR doing.

You are Responsible ... and that's a good thing.

Solutions

The most useful solutions are the ones that work in alignment with your brain's hardwiring and the human tendency to act emotionally rather than rationally.

AWARENESS - As we've already discussed, understanding the challenges that you face will help you push your way through resistance when it happens ... and you will encounter resistance (from your spouse, your family, your friends and your own sub-conscious mind).

But Awareness also is a useful foundation from which you can build a gameplan that works best for you.  Since Cash Flow is the most powerful wealth-building tool at your disposal, we'll start here.

Use a website like mint.com or a program like Quicken, QuickBooks or Microsoft Money to track your expenses.  Get to know your income and expense numbers as well as you know your weight.  Accept responsibility for what these numbers are today (but no blame game) and resolve to make incremental improvements.  Spend a little less this month than last.  Look for ways to earn a little more.

CLARITY OF VALUES - Come to understand the things in life that are most important to you.  We call these your "values."

Your Values reside across both your emotional and intellectual framework.   While they don't originate in the same receptors as fear, greed and sex ... but they DO carry an emotional charge with them.  Example: Think for a moment of something in life that is VERY dear to you.  It could be a family member, something you do that deeply rewarding and fulfilling or a place or time in your life that you absolutely treasure.  Whatever it is, it should be something that is more important to you than just about anything else you can think of.

Spend just a few seconds dwelling on that thought.

It's not hard to feel the emotional component of something that is important to you.  What is really interesting about Values is that they are the only tools we have been able to find that can short circuit most of the emotionally reactive garbage that comes with your brain's hardwiring.   You can want something really badly ... but if getting what you want interferes with keeping something that is really important to you, the want just fades away.

SAY THANK YOU - Think about those values every day.  It's probably best to do this twice per day.  Be sure to give thanks for already having all those things that are important to you.  It's OK to want more, but being thankful for what you already have helps cement those images in your mind.  It brings up those good emotions (which helps to short circuit more of the bad ones).

ALIGN YOUR STRATEGY WITH YOUR VALUES - Create a gameplan (strategy) that is in alignment with your values.   Use your rational brain to come up with ways to get you more of what's important to you.

Evaluate everything you spend money on each day based on your values.  If you spent $5 on a laté today and it was the most rewarding $5 you spent this week - that's great.   Relish in the moment.  If you spent $5 on that laté and you barely remember it ... maybe there was a better place to spend that money.

Remember ... your values (those things that are most important to you in life) have the ability to short-circuit almost any self-destructive emotional impulses when it comes to managing your money.  If managing your Cash Flow is the most powerful tool in your wealth-building toolkit, your values are the gas, oil and compressed air that you need for that tool to run. 

Without them, the tools will be quickly rendered useless.

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Last Updated on Wednesday, 13 January 2010 02:56