Controlling the Controlables
There is an adage about how all you can control is your work ethic and attitude towards the events that occur, and while that’s great advice I want to discuss the financial aspects of your life that you can control. There are so many things that remain out of your control in terms of finance, and it seems the news and media coverage fixates on those in order to create fear or greed depending on what’s selling the best. With everything that is being thrown at you it can be easy to get caught up and feel like you have no control over financial issues that impact you and your family. So, to counter that narrative we will take a look at foundational ways you can exert control over your finances and reduce your stress and anxiety.
I did mention these would be foundational, which means that most of them will be simple, but not necessarily easy. You can control how much you spend and on what. Going through the process of figuring out your budget to see how much money you have after you’ve covered your big goals is critical to living within your means. Perhaps this means looking for a less expensive place to live, or not going to restaurants as often. Regardless of what it means for your specific situation, you can take control of your spending and make sure that money is being allocated towards goals you mark as priorities.
Saving is the complementary piece to regulating your spending habits. If you’ve put together your plan for what goals you want to pursue in life, it then becomes the process of determining how much money you’ll need to hit for each goal. Obviously every goal is different, but if you really want to buy a house for example, you need to look at the price as well as how much you’ll need to have for a down payment. Only you can determine what savings level you’re comfortable with and what kind of lifestyle you’re willing to have in order to reach your larger goals. However, if you’re able to fully take control of both your spending and saving, you’re on the right track to achieving your long term financial well-being.
Timing can be a crucial piece to your financial plan and is something completely under your control. This is not timing as in timing when to get in or out of the market as the chances that you do that correctly are so slim that it makes more sense to just stick with a good strategy no matter what happens. This is timing in terms of when you want to achieve the goals you’ve set for yourself. Using the house example again, do you want to buy a house in two years or five years? Given the amount of work it takes to buy a house and to make sure you have the funds available that difference of three years can make a huge difference. If you’re unwilling to wait that three extra years, you may put yourself in a much worse financial position to achieve your goal.
This also commonly applies to saving for a child's educational expenses. Perhaps you’ll be in a better place to save in three years, but saving a little now may prove more beneficial as the time value of money and compounding work their magic. These are all decisions that are completely within your control, but require considerable thought before jumping into any of them. I believe I mentioned something about this being simple but not easy…
Having a safety net is invaluable to a strong financial plan, as that is what will bail you out of unforeseen circumstances. While the conventional wisdom is to have somewhere around 3-6 months of expenses put away in case of emergencies, people vary on what makes them the most comfortable. Some people want to be very secure and put much more in their emergency fund, while others use that money to bolster their investments and maintain only a month’s worth of expenses. Obviously having a larger or smaller safety net is completely within your control, but there are pros and cons to each approach. Like every other financial item within your control, you will need to figure out which style works best for you and the downsides of each.
You will never be able to find a no risk situation, it simply doesn’t work that way unfortunately. Even for those who say the market is too crazy and you will stick with shoving all your cash under your mattress, so take that! Well, unfortunately due to inflation and interest rates, that money is losing its value and will be worth less in the future. So, even doing nothing carries some risk. However, what you can do is honestly assess the risk you are comfortable with and make sure that your investments and strategies reflect the amount of risk you are willing to assume. Everyone is familiar with the phrase high risk high reward, and while more risk does carry higher returns, you can control what you feel is best to reach your financial goals. Being able to control how much risk you’re exposed to throughout your investment experience is very important as it will allow you to more realistically plan out the timing of hitting certain goals.
I know that much of this seems very simplistic, and you are absolutely correct. However, with all the news and volatility that has been happening and will continue to happen, it can be nice to go back to basics and focus on the foundational pieces that drive our financial success. In the kind of economic and investment climate that we have, it can be important to reconsider our financial plan and the aspects of our success that we have control over. If you are curious as to how to put all of these pieces to work in the most effective way, then do not hesitate to reach out and we can discuss how to tune up your financial plan and investments to give you the best shot of hitting your financial goals.