StrategicPoint’s Women’s Planning Initiative held an evening gathering in May during which we discussed: The Anatomy of a Good Decision, including a look at what elements go into a worthwhile decision. The topic is meant to be broad in order to encourage the sharing of views, but it got me thinking about one aspect of choice – financial decision making and what shaped the advice I often give to my clients.
Childhood Spending Plan
When I was very young my parents encouraged me to be responsible. I had an allowance, but I couldn’t just spend it – I had to keep track of it. That meant I wrote down everything I bought – from cheap penny candy to expensive doll clothes. I found that when I wrote something down, I owned it and had to live with it. I can remember staring at the tiny tan notebook and wondering why in the world I had bought all those gum balls when, if I had waited another week, I could have purchased the newest version of the comic book Nancy.
Looking back, I believe my parents were sowing the seeds for effective cash management. Today one of my most difficult challenges in counseling clients about spending is working with those who have no idea where their money goes. These individuals often fully admit that if the dollars are in the bank account, they spend it. So I harken back to my roots and ask my clients to start tracking their expenses the old fashion way – not just for the revelation on how the money disappears, but also to encourage ownership of decisions. It is hard to change habits without facing up to mistakes, and learning to live with the choices we make.
Introduction to Savings
My parents also bought me a small tin safe with a combination lock that I kept in a dark corner at the back of my closet. I put my tiny ledger in the safe along with the allowance I hadn’t spent and the silver dollars that Santa brought me for a number of years. There were other small keepsakes I deemed precious in there as well. But the inherent message was that I should set aside, in a safe place, things that had value, and one of those worthy things was savings.
Today, I continue to think of savings as something that needs to be separated out and cherished. So I tell my clients that savings represents goals, and if they isolate their savings into accounts they can’t touch (symbolic combination locks), they can reduce the temptation of spending their savings early. This physical or mental bucketing of savings helps to put the focus on goals as opposed to the dollar figures, since it is the goals that we value the most.
I also have to thank my parents for lessons learned on investing. My grandparents, who lost much of their money during the Great Depression to less than scrupulous investment advisors, taught my mother and her sister to educate themselves on investments so they could be financially independent. My mother, anxious to pass on the family wisdom, decided that her two daughters should learn about stocks at an early age.
Each Christmas, for around ten years, we were given a small amount of stock from a particular company (Exxon, IBM, MMM, GE, etc.). I have no idea where this stock was held. My job was to keep a record periodically of the value of the shares and what dividends they paid.
At the time I can’t say that I was very appreciative of this early gift. Recording names of stocks on paper seemed more like work than having real money. But the slow exercise of charting a company’s progress over months and years helped to shape my investing philosophy; you need both discipline and patience to succeed.
This realization came home to me between 1968 and 1981, when I saw my tiny paper portfolio essentially go nowhere during an extended decade of volatility and multiple recessions. My patience was rewarded during the 1980’s and 1990’s, when stocks rebounded. The early frustration and eventual reward helped me accept the more recent decade of rocky and unproductive markets.
My message to clients today is that markets move in cycles that are similar to waves. The peaks and troughs keep coming. But unlike waves, which tend to pound the same place, the markets have historically moved higher even after the worst of times.
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Simple, childhood lessons born of old-fashioned tools: a plain cash flow ledger, an unadorned tin box, and a very basic stock analysis. Update the tools to modern times and throw in both discipline and patience and, in my opinion, you have a solid way to make good financial decisions.
The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Betsey’s opinions and comments expressed on this site are her own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.