Pain v. Gain

Clearly the most arduous part of the Wealth Management proces is having to construct a list of household expenditures. But the question remains, why is it so arduous?  In a world of online tools such as Quicken or Mint, why is budgeting so damn aggravating?

First off, as you can read here, there are some pretty fundamental reasons, three of them actually, the first of which is clear, "it's not fun." We get it, and we can appreciate it. Few things that are necessary in life are fun in the true sense of the word, eating salad isn't fun, exercising everyday isn't fun and surely, picking that salad over your favorite steak or cheeseburger and fries isn't fun either. 

The second falls into that realm of the "doing v. knowing" gap. You already know where your money is going (out of your bank doesn't qualify as an answer).  But truly, you don't know where its going, you just think you do. And, in the world of the "doing v. knowing" gap, thinking you do virtually makes it so.

Clearly the most arduous part of the Wealth Management proces is having to construct a list of household expenditures. But the question remains, why is it so arduous?  In a world of online tools such as Quicken or Mint, why is budgeting so damn aggravating?

First off, as you can read here, there are some pretty fundamental reasons, three of them actually, the first of which is clear, "it's not fun." We get it, and we can appreciate it. Few things that are necessary in life are fun in the true sense of the word, eating salad isn't fun, exercising everyday isn't fun and surely, picking that salad over your favorite steak or cheeseburger and fries isn't fun either. 

The second falls into that realm of the "doing v. knowing" gap. You already know where your money is going (out of your bank doesn't qualify as an answer).  But truly, you don't know where its going, you just think you do. And, in the world of the "doing v. knowing" gap, thinking you do virtually makes it so.

For all we may want to ignore it; the reality remains that whatever you earn in your lifetime, whatever you save, whatever you invest is largely meant to do one primary thing....pay for what you spend today and what you'll spend over the remainder of your lifetime.

Meaningful financial plans are built on accurately judging expenses, today and tomorrow. Not perfectly predicting it, but accurately predicting it would be key. If you're building a house, your "budget" is your foundation, everything else gets built on top of that. The more accurate (level) the budget the more reliable everything from there up is going to be.

And, as the Carl Richards notes in his article, awareness is seldom ever a bad thing to have.

The Fate Of Your Predictions

Jamais Cascio in a recent posting for Fast Company Magazine may have gotten it just right in his vision about "the future" and the metaphors we use to consider it's ultimate arrival.

The Dragon, the Black Swan and the Mule, all ring true as cautionary tales for both advisors and Clients and yet, do so in different ways.

Here's some quick definitions;

• The Dragon- a segment in a topic area that is uncertain and dangerous to consider. It's something that we steer clear of, but should know much more about than we do.
• The Black Swan- this is something we don't know much about but probably should, like the emergence of the Internet, or the fall of the Soviet Union or 9/11.
• The Mule- this is something that we don't know much about and likely can't. It's something so far out of the realm of knowing that we can't conceive it.

I don't think that I could write any more salient a thought than the one that Jamais closes his Fast Company piece with....

"Here's the thing; It's easy to assume any surprise is a Mule. It's much harder--ultimately more valuable- to recognize when you are looking in the wrong direction (a Black Swan) or refusing to open your eyes (a Dragon). The task for the futurist is to be able to tell these three animals apart. Good luck."

The bigger question for sure, when considering personal financial matters is this; if you have no defined future (because you're not planning one or creating it) doesn't everything show up as the Mule?  And, in reality isn't the most likely of the trio to spawn an "unrecoverable event" that very thing?

Consider that spouses die, get sick, divorce or some other calamity. A Dragon to be sure but the impact of the Dragon can be measured and understood and alternative plans can be made to employ upon it's appearance. Those plans, figured out now, might well save the day. 

The stock market crash, continued high unemployment, changes to Social programs like Medicaid and Medicare? Black Swans to be sure but again, they can be measured and judged, evaluated and prepared for, at least in the realm of "contingencies" they can. 

Reality is that most people will be meet one of these intruders at some point. Be that intruder Dragon, Black Swan or Mule will largely be determined by the context it shows up in.

Again, the admonition; "Control What You Can Control."

You control the context if your write the context. Want to ensure that at it's worse, your unwanted "visitor at the door" is either a manageable Dragon or a less co-operative but manageable Black Swan? 

Then let your well thought out plan be your context, otherwise you're just letting the Mules in.

Should you "max out" your 401(k)?

There's little to be gained by over stuffing your 401k plan. It's much wiser to save both personally and in your retirement account.  Generally, we advise Client's to put in enough to get their employer match and not much more than that. 

There are other options you know. 

Can we get a Greek update over here?

So, whatever happend to Greece?

Can you remember when seemingly for weeks at a time, all the financial buzz was about the sovereign debt default of a country with the economic prowess of something less than the State of Indiana?

FLASH! Wall Street found something(s) more compelling to use to scare you into trading your accounts....the fiscal cliff.  But wait, we solved that one.  Ok, the how about Sequestration. Oh, wait, that didn't pan out either, but not to worry we've got a budget battle looming so that'll be next.

See, it's much easier to scare with you stuff that's close to home than something half a world away. 

Having been through all the market tumults since the late 1970's I can tell you that our most successful Clients are the ones who never got scared, never got out and never stopped putting money in.  You know why many investors feel like their 401k plan is their best investment (ok, let's ignore for a second that for many it's their ONLY investment)? Because payroll deduction ensures that they'll keep funding their future no matter what happens to Greece or Indiana, even if they do monkey around with their investment mix (P.S., that seldom helps).

So, when the domestic scare tactics abate, don't be surprised if you're taken back to the plight in Europe or the developing markets or some other short term problem that "requires your immediate attention."

Warren Buffet, clearly one of the world's most successful investors said something to the effect of the way to build significant value in the stock market is to buy good companies and keep them. Ever wonder why Cramer has a TV show but not Buffet?

Because it's kinda hard to scare someone with a buy and hold strategy.

Wall Street wouldn't like a show like that.

But you would.