My business coach recently told me that “confidence is the most important capability a person can develop.”
I don’t disagree. Yet…we are living in very turbulent times. So, here’s the question I want to address in this month’s letter: “How can a person experience a greater level of confidence in their financial life?”
Before we talk solutions, we must first discuss things that erode confidence and security surrounding money. I see traditional financial planning as a big part of the problem, because it leads people to the incorrect conclusion that “Money is Math.”
Money is NOT math! Let me illustrate…
Suppose you had six oranges in your kitchen, and it’s a really nice day. So, you decide to take your six oranges out to the backyard picnic table. You proceed to eat one of the oranges, but then you hear someone at the front door. You leave the remaining oranges on the table and head back into the house. So, you had 6 oranges and you ate one … how many oranges do you have left?
It's not a trick question…you have 5…right? Six minus one equals five. That’s the math of it. But remember, we are talking about money and money is not math. So, if the oranges are money, the correct answer is: Zero!
Here’s why. While you were away, the neighborhood kid stole two of them, a squirrel carried one away, and the other two rotted. As a result, you don’t actually have any oranges left.
In this example, the neighborhood kid stealing is like the government taking taxes. The squirrel represents new innovations being created and old products wearing out. The oranges that rotted represent the effects of inflation on your money.
Again, my point is that money is not math. That being said, traditional financial planners continually lead the unsuspecting public to that conclusion. This ultimately undermines the confidence people experience in their financial lives. The common theory is that if a future target is known, you can simply reverse engineer the problem to get the desired result. Sounds simple, right?
Frankly, there are problems to this approach of financial decision making. These problems play out every day and have contributed to people finding themselves way behind in their wealth-building journey. By the way, the solution has nothing to do with asset allocation!
The marketing tactics that financial institutions regularly use show the long-term attractive results of staying invested. However, the fine print in disclosures state there are no guarantees. As this scenario plays out, it’s like walking backwards enjoying the beautiful landscape behind you, but not seeing the cliff that you are heading towards. All this leads us back to the place where our money-confidence is drained, due to all the uncertainty surrounding it.
Relying on sound economic truths is a better and more sound approach to building confidence in your financial future. Here are a few solid baseline principles I suggest considering:
· Protect first. It’s been said the best offense is a good defense. An important step in planning your financial future is to ensure adequate protections in all the important areas. In many cases, there are products available that can cost-effectively bundle protections.
· Minimize taxes. Taxes are your biggest lifetime expense. It’s a BIG DEAL! Yet, many people take a casual approach to paying taxes. I say that life either happens by design or by default. You decide. You can be reactive in tax preparing or proactive in tax planning.
· Reduce risk. The right question to ask before making any investment is: “What backs the investment?” When Wall Street works (on paper), it feels good and seems easy. But, when it doesn’t work, it can fall apart quickly! As long as our debt-fueled system exists, hard assets are arguably the best tool to help you sleep soundly at night.
Final thoughts:
At 3D Money, we have confidence in an investment portfolio that is grounded in real estate. We aren’t saying there won’t be downward pressure on everything, including real estate, when the economic storm clouds roll around. That being said, real estate is … well … REAL … and in most cases it’s essential. When other businesses fail, there’s nothing left. The equity disappears when good will is gone. I know I sound like a broken record, but the right real estate, in the right market, managed by the right team, is about as good as it gets for building resilient wealth in tumultuous times.
Could you use a “financial tune up?” We can help point you in the right direction. Give us a call or shoot us an email. We’d love to have a conversation with you.
Thank you for your continued partnership,
Jeff Huston and the 3D Money Team
320-905-3306
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