Every Decision is a Financial Decision
Whether the currency is your time, energy, attention, or actual dollars...
Happy Hump Day,
I don’t like relying too much on charts and graphs as they can often be designed to tell a particular story or sell a narrative, but in some cases it’s true that a picture is worth a thousand words.
So instead of writing 1,000 words, here’s the picture:
What you’re seeing in the image above is a measure of consumer sentiment and the subsequent 12-month investment returns for large US companies as measured by the S&P 500.
A few weeks ago, I wrote about doing the opposite.
This is another example of where doing the opposite may be in our best interests.
Put simply, 12 months after peak positive sentiment (when people feel confident about the economy and investment markets), the S&P 500 on average returned 4.1%.
While this is better than a negative return, consider this:
12 months after consumer sentiment lows, the S&P 500 on average returned almost 25%.
A couple of Warren Buffett quotes come to mind:
Buy when there’s blood in the streets, even if the blood is your own.
and
Be fearful when others are greedy, and greedy when others are fearful.
Of course, much easier said than done, right? 😉
Every Decision…
Perhaps I’m stating the obvious, but I believe every decision is a financial decision.
Or at least each decision has a financial component.
There are “micro” financial decisions like spending money on coffee at Starbucks vs Dunkin vs making it at home.
Or having a Timex watch (my personal choice) vs a Rolex.
But there are bigger picture, “macro” decisions that very much have a financial element to them…
If you’re working, you’re earning money.
But there’s an opportunity cost of all the other things you could be doing with that time spent working.
If you’re retired, you could instead be working and earning money.
If you’re spending, you’re not saving.
If you’re reading a book, that’s time that could be spent elsewhere.
If you’re anxious about an upcoming meeting with your boss, that’s energy and attention that’s being spent.
We’re always spending…
Time
Money
Energy
Attention
Focus
And I’m not suggesting that you become a money-focused machine of productivity with no friends or interests outside work.
I read.
I listen to music.
Elizabeth and I travel.
I do a lot of other stuff that doesn’t add to my earnings or net worth.
And you should too!!!
My point is that if we can agree that - at some level - every decision is a financial decision, and we’re making tens of thousands of decisions each day, this means that financial planning can’t be compartmentalized into just the “financial” aspects of your life with no impact or overlap into the rest of it.
Financial planning - done right, in my opinion - is really life planning.
Not “please lay down on the couch and tell me about your relationship with your parents growing up”, though that has come up in my conversations with clients before.
No, instead I’m suggesting and encouraging you to take a broad-scope approach to your financial planning whether you’re DIY or work with an advisor.
Because when the focus is solely on your money and finances, how do you know if your money is supporting the life you want to live, the things you want to do, and the people you care about?
This “whole life” approach to financial planning is how I believe it should be done and how I work with clients.
It’s not going to appeal to everyone, and that’s OK.
Because I’m not trying to work with everyone.
As my colleague Tim Maurer says,
Personal finance is more personal than it is finance.
And I couldn’t agree more.
Hit reply and share your thoughts…
Links & things
New Blog Post
Here’s another new blog post on my website I invite you to check out:
New Video
Check out my latest video conversation with Lisa Kaufman and Natasha Berk… we spoke a few months ago about senior care and living options. And this time we’re talking about how seniors (and their family) can navigate a trip to the hospital, then to rehab, and then back home (or to a senior community):
If you have any suggestions or requests for future topics of discussion for Lisa & Natasha, please let me know.
Spending Money
I often reference or point you to the writing of Morgan Housel, and this week is no exception. However, I’d really, really encourage you to read this one:
It’s a lengthy article but well worth your time. And it addresses many things that often come up - either directly or indirectly - in my conversations with clients.
Let me know what you think…
Thank You!
I’m grateful to have you as a reader.
If you have any questions or an idea for a future newsletter, blog post, or YouTube video, I'd love your input.
Just hit reply - I read (and truly appreciate) every email you send.
Until next Wednesday,
Russ