Thinking Style Matters

People misunderstand financial planning at a fundamental level.  They see methods and think those are their plan.  They are not.  A working financial plan grows from inherent beliefs and tendencies.

Methods or tools or concepts are refinement.  They usually will make a plan moderately more efficient and that is good.  Efficiency here means you can reach a goal sooner or more safely or you can have resources to attach to some other goal.  Success is more likely.

Without the intuitive tendencies, the best method in the world will not work.  No financial plan together with brilliant methods will save situations like these:

  1. I spend all my money as I earn it
  2. I might be able to borrow myself rich
  3. I probably won’t die before I am old
  4. I will probably die before I run out of money
  5. I will never be sick or injured
  6.  I will always have a good job
  7. Budgets make it seem like I have less money than I really do
  8. Interest rates don’t matter as long as the money is available
  9. There will be no unusual expenses in my life, like divorce, problems with children or parents, or floods and tempests.
  10. You have to risk money to make more money

There are other tendencies that offset this kind of thinking.  People who hold these automatically succeed, even without fancy tools.  They may not do perfectly well, but they will do well enough:

  1. I have a rainy day fund
  2. I spend less than I earn.  Sometimes quite a bit less.
  3. I know what my commitments are and I set money aside to deal with them.  Or I insure ones that are to big for the money I have.
  4. I don’t like debt
  5. I like having choices (flexibility)
  6. I try to learn more about investments, taxes, risk and opportunities.  If I don’t understand it then, I don’t do it.
  7. I understand risk and refuse to accept it unless I understand it, can afford the potential loss, can manage it, or can insure it.
  8. I make provision for the others that depend on me.  Will, powers of attorney, communication.
  9. I buy less, but what I buy is better quality and I shopped for the best price.
  10. I know that my security the day before I die is my estate the day after.

People who have the right underlying beliefs about their financial life are unlikely to fail.  It is more about how you think about things and less about the detail of methods.

Here is a thought expressed by “The Keeper” of Talos 4 in Star Trek, the original series, “The Menagerie, Part 2” aired on 24 November 1966.

“Wrong thinking is punishable. Right thinking will be as quickly rewarded.”

The same rule applies to financial planning.  Be sure you organize your thoughts before you organize the tools.

Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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