September 4, 2015

Is Financial Security a State of Mind ?

Financial Security


Over the last few weeks the stock market has proven yet again it is no place for sissies. Huge drops in the Dow Jones average one day, followed by an encouraging partial recovery, only to be dashed by another fear-induced sell off makes for an emotional roller coaster. What will the Fed do about interest rates? What happened to the price of oil?

China has become the financial equivalent of jello: a seemingly solid mass that quivers and shakes with each new move by their government to hold things together. And, don't even get me started on Greece.

The bottom line is a financial headache for nearly all of us. Even if you don't have much skin in what happens on Wall Street, we are all affected by what happens there and around the world. It is absolutely true that if one developed country sneezes, we all worry about catching a cold. 

So, what does all this mean for the concept of planning for satisfying retirement financial security? If you are retired, close to leaving the work force, or even just thinking about the time when you will be freer to live your dreams, what are you supposed to do when the Dow drops 1,000 in 10 minutes, or China, the world's second largest economy, starts to slow down? Do you rejoice when gas prices are dropping again, or realize that means bad things for whole industries? What about the California drought...how will that affect food prices this winter?

As regular readers know, I am a non-financial blogger. I still managed to retire at 52 by following a simple rule: spend less than I made. I have had a few financial advisers over the years. Generally speaking, they have been positives for me. Yes, some of their recommendations were poor (think Greek banks in 2012) and I lost money. Since the financial markets are not very logical and are subject to seemingly counter intuitive moves, I  know losing is part of the process. As long as the growth exceeds the decline by a decent percentage, I am happy. 

So, what is financial security and how do you achieve it? I suggest there are three parts to the answer:

1. Knowledge. I don't mean understanding derivatives, swaps, or other esoteric financial tactics that helped launch the 2008 meltdown. Obviously, many of the professionals didn't understand what they were buying either. I mean knowledge about your goals, the true state of your financial health, and the amount of risk and uncertainty you are willing to tolerate. Self-knowledge is a key. Without it your future is at the mercy of others.

2. Patience. This is a tough one in a culture that literally screams at us, "buy now and buy often." Saving for something and delayed gratification are just not part of our collective mindset. When the stock market falls we react in precisely the wrong way, by allowing panic or fear to dictate how we manage our financial assets. When housing prices begin to increase we decide to sell our home so we don't miss out on the rising tide - completely forgetting that the house we are moving to is also more expensive. 

Patience is a winning strategy in much of life, but particularly in financial matters. The hare lives up to 10 years. The tortoise closer to 150 years. There is a reason he eventually wins the race. 

3. Attitude.  This is the belief that you will succeed in preparing adequately for your retirement. Life may make that difficult, but without an attitude that the problems can be overcome or worked to your advantage, serious damage will have been done to your long term success. This isn't just positive thinking. Rather, the proper attitude allows you to make proper decisions, execute your plan, and adjust your goals as need be.


The title of this post is a little flippant. Certainly financial security does require money. It does require being smart with your investments. It does require a certain level of resources, though for each of us that level is different. That is the reality. 


But, I contend that the mental part of the equation is every bit as important. With self knowledge, patience, and the right attitude your financial security is not just what is in the bank, but what is in your mind. 

And, unlike a stock market that runs more on emotion than logic, I find it quite comforting that the mental part of financial security is 100% under my control.

 I find that quite satisfying.

15 comments:

  1. I agree 100%, Bob. How many people that stayed the course after the market correction around 2008 are in fine shape today? Nearly all that did exactly that, as compared to those who panicked and got out at the absolutely worst time. Stick to your agenda, stay diversified, and you will likely be in great shape for the rest of this journey.

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  2. I fellow I know liquidated every thing he owned during the 2008 downturn.....one of the worst decisions of his life. He and his wife have had to move in with a daughter since they don't have the financial resources to move to a retirement community. Panic is not a useful emotion when making any decision.

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  3. We sold everything at the very beginning of the 2008 downturn. Took all of our principle out and reinvested all of our profits when we thought we were at the bottom. We sold, again, two weeks ago. Some people go to Vegas- we play the market. So far we have survived :) We are only in as far as we are comfortable to lose. Now, if the feds would ever permit us take some money off of our money. That does drive my emotions crazy!

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    1. The interest rates at basically zero for most of the last 6-7 years do make life very difficult. With Social Security likely to have no cost of living increase next year and cash earning a whopping nada, it is tough to keep up with even minimal inflation.

      Glad to learn you are doing well with your strategy.

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    2. Speaking of Vegas.. The only difference between Vegas and the stock market is that in Vegas, you get free drinks.

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  4. I like your philosophy of spending less than you earn. Years ago, we had a friend who happened to be a successful banker. He happened to be a financial counselor at our church and that was always the basis of his teaching. The other thing he stressed was learning to enjoy the process of saving for a purchase. As we all grow older (and wiser, I hope), When we were younger, we took more risks with the market. In spite of ups and downs, it was generally good for us, financially. You have to look at the long haul. We used to have most of our savings in the market, but now we have regrouped and play it a bit safer. We're down to 20%. It's not easy to plot your financial course, but as we age, we need some growth, as well as security. I think Cindi at ThriftyAtSixty hit the nail on the head, earlier this week, when she talked about the importance of living frugally. If a person doesn't overspend, you're probably gonna be just fine.

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    1. Living below your means is the most foolproof way to approach your financial security.

      Like you, I am taking fewer risks now that the amount of time available to regrow our accounts is much more limited.

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    2. Thanks for the mention, Pam!

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  5. We've done well listening to our financial advisor over the years. We have learned to ignore the scary stuff that happens, and just stay on course. I think the other thing that keeps us sane is that we know we have a plan B, and a plan C. We are delaying social security until we are 70 to maximize our benefit (I'll do spousal at 66, and convert to my own full at 70). But if the market tanked badly, we could start collecting our SS now, and be just fine with our pensions supplementing.

    Also, we have talked a lot about downsizing. Haven't done it yet, but this would be another option. Possibly even renting; would not miss the school and property taxes!

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    1. In our area there are school budget override votes every single year because the state doesn't provide enough money. I completely understand the need, but it is bothersome to be asked to bust the school budget year and year.

      The battle Betty and I are staying vigilant about now is the inheritance from my parents.With dad passing in March, there is a large influx of cash and investments that we want to manage well for our kids and grand kids. We don't expect to need it for ourselves, but it does occasionally call out to us, "spend me!"

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  6. My blog entry from 6/2/2015

    Enough To Get By

    A few years ago, when I still had thoughts of going back to work, I was in Home Depot looking for sprinkler parts. A young man came to help and we got to talking. I asked him if Home Depot was a good place to work and how was the pay. He smiled and said, "Its enough to get by, but not enough to get ahead". The store wasn't busy and I was in no hurry, so I questioned what he meant by "not enough to get ahead". He explained his situation. He and his wife both worked. Had two kid in school that had to be picked up by a day care service. Between their house payment, two car payments, two jet-ski payments and credit cards, it was a struggle each month. He said they were notable to save anything and he couldn't figure out how his parents had managed to save money for their retirement after having raised four children.
    I didn't want to make him feel bad, but I knew the answer.
    Only his father had worked, they had one car, no credit cards and would haven't even dreamed of buying jet-skis if they had been available.

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    1. Absolutely true. Personally I have a theory that if a younger couple is struggling with too many wants and not enough income and savings they should get rid of the TV. It is responsible for a constant stream of instant gratification demands. Advertisers hate the concept of saving for something.

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  7. Good perspective, sensible advice. The only thing I'd add is that patience becomes less and less of a virtue the older we get.

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    1. If patience becomes procrastination then I agree.

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  8. I find that my rental property has been a great sense of financial security for me. Even in this latest downturn, I was not phased at all. I do hope we have seen the bottom though...

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