Money Is Everything … Until You Master It. Then It’s Nothing at All.
I have been accused at times of worrying too much about money. And my retort is always the same: I do’t worry about money at all. But I do spend time carefully managing it, as I do with any other valuable resource. The alternative of having no concern for money and devoting no time to prudently and wisely managing it seems to me to inevitably lead to financial hardship and ruin. But avoiding these adverse outcomes through concerted effort does not mean a lifetime of worry about money. To the contrary—it means a lifetime free of worry related to money. I have a set of rules and guidelines that manage my financial behaviors, and a process for the related administrative work. I attend to money matters, I do not worry about them. There is a significant and meaningful difference.
Categories of (Money) People
I have observed three distinct categories of people in terms of their governing money-management psychology:
1. People that constantly worry about money (because they have no control over it). This group spends and consumes with reckless abandon, and as a consequence is perpetually worried about how they will fund tomorrow’s excessive consumption. This group is trapped in work and often trapped in debt. It’s a miserable existence. But most of them are blinded to the reality that it does not have to be this way.
2. People that never worry about money (and have no control over it). This can be great fun. Until the music stops and the reckless behavior catches up with you. Then there will often be a painful reckoning. But it’s fun while it lasts, which can often be a long time.
3. People that spend zero time worrying about money (because they have mastered it). This group understands that money is a valuable resource and a tool to be used responsibly and wisely. They understand what it can and cannot do, and have cultivated a healthy relationship with it. They have a zen-like peacefulness in their money outlook, and are master of their own (money) domain. (Note here: While there may be a fourth group comprised of people that worry about money (but have mastered it), I have not seen much or any of this breed.)
Why the Hell Aren’t People Interested In Managing Their Money Resource?
Every time I get a new power tool that I haven’t used before I am initially intimidated by it. The raw power and potentially destructive force are, well, scary. But as I study the device and learn how to safely and correctly harness its power and apply it to my will, the fear diminishes and the elation of the possibilities of what I can do with the tool emerge. Money is similar—you must devote some amount of time to learning how to safely and responsibly use the tool in order to deploy it in a productive fashion and to eliminate the fear that can result from potential misuse.
Anecdote No. 1: In a recent conversation with a friend we moved (somehow) to the topic of money management. We’d had a couple of (good) beers and so we were loose. He informed me that he has an “advisor” that manages his money. I asked if he knew how much he paid his “advisor,” and whether he acted as a fiduciary (I already knew the likely answers). My friend’s response: nope and nope. (Now I definitely knew the answers). Under the mild-to-moderate influence of some fairly high-gravity fermented liquid refreshment, I (diplomatically) declared that he was likely being fleeced. I carefully explained why—that he was paying a commission for investment products that likely benefitted his broker more than him, and that he was likely underperforming the market as a result—but it became clear that this line of discussion made my amigo uncomfortable. So we moved on, and haven’t yet returned to that topic. In trying to understand my friend’s psychology here, all I can conclude is that he thinks he’s done all he should have to do: he’s gone to a “professional” to manage his money, and that’s it. What else can he do? To consider it any further would be too cumbersome and maybe painful.
Next anecdote: Another conversation with a different friend. This time a high-earning attorney. In passing I mentioned something in relation to our state’s 529 plan (it was relevant to whatever we were discussing … honest). I got a strange look. I stepped back: “Sorry, you’re familiar with 529 plans, right?” Response: “Oh yes, our financial advisor has mentioned them. But we’re prioritizing retirement savings right now.” Ok, fine. For some folks this makes perfect sense, because as we all know, you can get a loan for college but for retirement, not so much (although with reverse mortgages and other cheap credit options available now, maybe this is no longer true). But I know this family. They earn a high six-figure income (I know the legal market). They routinely take vacations to exotic locations costing in excess of $8k a pop. I understand that people will choose different values and will spend and save according to those values, but with four kids within 10 years of college, this family should be directing some savings toward that objective. I did not tell him that. (“I’ll just write about it on my blog! What could go wrong?!”).
Within days of this conversation I saw the data indicating that only 32% of parents in the US even know what a 529 plan is. Only 14% plan to use them. And only 16% of “affluent” US investors have a 529 account (“affluent” defined as having more than $100k in liquid investable assets outside of home equity). The proffered explanation for this: financial advisors don’t push this option to clients because they don’t stand to personally gain from these investments. So even if you are outsourcing your financial management to a so-called “pro,” you have an obligation to know enough about the basics to keep him/her honest. If your advisor has not made it clear to you he/she is compensated, and/or has told you that college saving isn’t critical (and he knows you have kids that you want to help send to college), you should strongly consider firing him/her immediately.
Anecdote No. 3: Conversation with another friend, this time a newly minted “financial advisor” of the “RIA”-type. This means he is a “Registered Investment Advisor” and a fee-only planner. He is paid strictly through a stated fee; no commissions for bad/expensive investment products. And he lives by the “fiduciary standard,” which means he is obligated to act in the best interests of his client, not himself (how crazy is that?). But he’s having a hard time getting business and clients. Why? He’s wicked smart, and undoubtedly would bring great value to his clients. But he’s not super-smooth or overly gregarious. In fact, he’s fairly nerdy and introverted (I can say this because that’s how I describe myself). And apparently the social skills of financial advisors matter more in the business-development game than actual technical knowledge and skill. I get it—relationships make the business world go round. But when it comes to managing your money, why not seek out the smartest and most effective advisor, not the best golfer or back-slapper?
So what’s going on here? Why are more people not interested in diligently managing this critical element of life? One that determines how you’ll spend your days, how much sunshine and fresh air you’ll get to feel, and how much time you’ll get to spend with kids and other loved ones? Well, some people are content to whistle as they stroll past the graveyard. (Damn. I almost wish I was one of them sometimes.) Maybe others are moderately content with their job/career and life situation, and simply view money management as a chore. If they have gone through the hassle of engaging a professional financial advisor, then that’s just all they’re going to do. And of course they’re going to pick the one they like the best (i.e., the most personable) … I mean, how else would you go about it?
But that’s not good enough. Not if you want to master your finances and never have to worry about money again. Money management should be viewed in the same way that we view other critical life activities (some may say chores) such as exercise and diet. I don’t love exercise; in fact most of the time I really don’t like it at all. But I do it. Every day. I pull my ass out of bed and hit the treadmill for a 2.5 mile jaunt (I’m not saying how long that takes me; this isn’t an exercise blog after all). I do it because I know I need to do it. I accept this obligation as a responsibility that I have to maintain a healthy and therefore productive and good life. If my body falls apart because I sit on my fat ass all day typing into this computer, life (sooner or later) is really going to suck. Same concept with your diet—you have to manage it (with or without professional assistance) to get good results.
And just like joining a gym and paying the monthly fee (but not going) isn’t going to help you get firm, having a “financial advisor” that doesn’t know what he’s doing or is leading you astray based on his own self-interest isn’t going to get you to money mastery and financial independence. You don’t have to know it all, but you have to know enough to be sure you have engaged someone that knows enough. You’ve heard the quip that “everybody wants to be huge but no one wants to lift the weights.” Well, everyone wants to be free of money worries, but no one wants to do the financial management work.
Back to the exercise and diet analogy. Discipline in these areas does not come natural for me. But once I created a routine to address both, it really didn’t seem like a lot of work. I hit the treadmill on auto-pilot every morning (podcasts help). Fast food is not even on my radar. Money management works the same way. Once you make a habit out of regularly doing the basics—tracking expenses and consumption so you know where your money is going; spending less than you earn; investing the rest—it will start to feel second nature. And it will start to feel good. Once you reach the stage of money mastery, you won’t have to worry about money any more. Not because you don’t need it or have more than enough, but because you know how to control it as a tool and a resource. Anyone can get there—no matter how much money they have and how much they make—and thereby relegate money to something that just doesn’t have to be fretted over any more. Like the air you breathe: sure you need it—a lot—but you don’t have to think too hard about your supply of it or where you’ll get more. Your supply abundantly serves your needs without consternation and worry.
So start today. Get on the treadmill and just run for a few hundred yards. Baby steps. If you need more motivation, just consider the alternative: to die early from unnecessary worry; fat, unhealthy, and penniless.
*Footnote: Notwithstanding the title of this post, I do NOT believe that money should be the central focus of anyone’s life, irrespective of what stage of mastery or control over money they have achieved. I needed a short handful of words to use in the title that describe the phenomenon which exists when people don’t have control over money; that is, it often ends up controlling them. Hence the phrase “Money Is Everything.” Whether you do or do not have control over your finances, money should not be the focus of your existence. And the idea behind this post is that once you master it, you are free to devote your time and energy to other, more important endeavors.