Money Obedience

A little while ago I got an invitation to go to a personal finance seminar free of charge, and dinner was served! The event took place at a very nice setting - a local private country club. After wondering for a little while why I got an invitation, I called up and made reservations. I was too curious to see what a financial planner from one of the largest financial planning firms in the US would tell his guests.

The financial planner greeted everybody at the door. He was a nice looking, older gentleman who later on informed his guests that he got into financial planning after he had helped out a relative who needed to sort out a long-term care plan. He appeared to be a nice man. I am convinced that if you hang out with him in private you’d also find him to be a nice man. He definitely left a good impression with me.

Let me also tell you about the people I met there. I sat at a table with two couples. The more affluent looking couple was actively looking for a financial planner who would help them sort out their finances, especially looking for advice on what to do with their retirement savings. The wife was not ashamed to say that she had no idea about any of this “finance stuff.” The husband must have made some money in his life, but in conversations it became clear that he was not that well versed in personal finance topics, either. I guess that is why they were looking for some help. To me it makes sense to scout out different financial planners. The couple can decide later whom they trust and with whom they feel most comfortable.

The other couple was actually a customer of the financial planner who had invited us all to this dinner presentation. Both the husband and the wife were talking about their finances telling us about the great investments they had. They had gotten some of these investments from this one financial planner of whom they said that he was “just great.”

I suspect there are at least three reasons that this couple who were already his clients might have been asked to come to this dinner. First, perhaps the financial planner wanted to fill up the space. Maybe he had to pay a minimum fee to the country club for hosting such a dinner, regardless of the number of people, and he didn’t want his hard-earned money to go to waste. Perhaps, second, the financial planner wanted the others at the table to know he comes highly recommended. One cannot do much better than getting a recommendation from real people. It is one thing if he tells us how great he is, it is yet another thing if somebody else (who has worked with him) tells us how great he is and how he helped others. Third, in this way he is paying them back for the commissions he got from them trying to stay on their good sides. Who knows how much more in commission income he can generate from them? They have already decided to retain him for his services, so it is a lot easier for the financial planner to talk them into other financial products than it is to recruit brand new customers.

And then, also at the table, there was I. I was just trying to make sense of this whole thing. I picked one of four dinner events to which the financial planner had invited me. There were about 30 people at the dinner. I suspect the other events had to be as well attended. This financial planner is willing to stage such events to get more customers. So, the few who signed up with him have got to make up for the expense of all the others who did not sign up. In other words, this financial planner’s customers have got to pay him enough in fees and commissions to make these events a success for the planner. The financial planner is probably most concerned about making back the money he spent on dinner. This is what I know for sure.

Where does this leave the customer? Who knows? This really depends on whether the financial planner is driven by his customers’ success or his own. Perhaps both drive him. The latter would not necessarily be bad, since he’s got to make a living, too. The only question remains how much of his attention is spent on getting the money back he used for dinner and how much of his attention is spent on doing the right thing by his customers? And this is a question only a financial planner can answer for him- or herself.

I recently wrote about two ambitious goals that I set for myself but have not yet reached: improving my business prospects and improving my marathon time. Two questions came to mind after I posted the thoughts on these goals. First, why didn’t I write about these goals before? Second, why is it that I’m not upset about not having reached these goals?

Well, I think I did not write about these goals because I did not feel so good about them at first. Only when I took a hard look at failing did I become comfortable with the idea. As long as I ignored these goals, I could not think about Plan B and Plan C. But now that I have thought about my goals a little more, the options I have as I try to reach them, and the various responses I’d have to either a good or bad outcome, I feel so much better about failing.

Second, failing really is not the problem. Failure only becomes a problem when failure keeps you down. I know now that failing at these two ambitious goals is not going to break me. I can come back and tackle these goals again, and better yet, I know pretty much what I am going to do should I fail even a second time. And I decided that failing again would not be a disaster for me. So I think I’ve become pretty comfortable with the idea of failure. Don’t get me wrong, nobody wants to fail, certainly not I, but the point is that another failure would not break me. And that is the most important thing.

Likewise, any financial goal works the same way. There is usually one way or another out of financial troubles or failures especially if you take a hard look at the problems. If you are honest with yourself, I think human nature is built so that you can overcome almost any adversity, especially a financial one. Why especially a financial adversity? In the end, we are only talking about money. Contrary to common belief, money does not make the world go round. And if you’re so blessed to have enough to eat, shelter over your head, clothes on your back, money cannot make or break you.

When I looked at my wife’s and my retirement accounts I learned that we are falling very slightly behind plan these days, but not to a worrisome extent. The reasons for this shortfall are quite obvious to me. For one, we lost a little bit of money with our investments, but both downs and ups are part of the deal when you put money for some period of time into anything other than federal government guaranteed things. The other reason is also quite simple. Our household income has dropped a bit which makes it a little more difficult for us to put money away. But that is not necessarily all bad for our retirement plan. Let me explain.

We are fortunate enough that our lifestyle has never consumed every last dollar we earned. When our household income dropped it was not so difficult for us to adjust our spending. Now and then we are a little challenged by our new economic circumstances – old habits don’t die (easily) – but between my wife and me policing each other we are doing pretty well keeping our household finances in line with our lower income. The bottom line is that our expenses are lower than they were a year ago. This has a positive affect on our retirement plan.

We have always looked at our retirement needs based on our expenses (and not based on our incomes as many an adviser has suggested). But why should we try to save up based on the money we earn when we don’t spend that much? Now that our expenses are lower, we can also take down our projected expenses during retirement with an equal percentage. This has the positive effect that we do not need to save quite as much as we needed to save a year ago. And that leaves our retirement plan in a fairly good state even if we have to accept the decline of our assets.

Once again, I realize that it is good to check up on your finances now and then. It is not like I check my retirement plan every day or every week, but about twice a year I take a look at it and see where we stand. I think this is a good practice that works for me. But since personal finance is a personal thing, others may want to check more or less often. It is all good, as long as you make conscientious decisions about what you are doing and why you are doing it.

At the end of last year, or maybe it was at the beginning of this year, I wrote about two goals I made for the New Year. I wanted to reach both of them by midyear, and that has passed us by a good month already. So, it is high time for me to review my progress – or the lack of it.

One of my goals was a business goal that I have not yet reached. We wanted to make some progress with our personal finance website, but that has not come about. There are many reasons to explain why I’ve not reached this goal. I think I’ve definitely dropped the ball in a major way. But the important thing is what I plan to do next.

What is my Plan B? We (my wife and I, who have been in this business together since the beginning of this year) are in the process of making a few changes in the way we approach the business of our website. We are also trying to set up a second related business. That’s good and bad. It gives us the advantage that we have two ventures, either (or both) of which should yield some good results. But, of course, that means I have just that much more to do, setting up two businesses instead of one. Still, there are almost five months left in the year, which was my deadline to see whether we can make a go of our business ventures, and by that I mean create positive cash flow, however small.

If I won’t reach my goal by the beginning of next year, my Plan C is to go job-hunting again. I am positive that I can do well in my learned profession, which I enjoyed doing, and I would like to go back to it in the case that nothing works out with my business ventures. If that happened I would also have to acknowledge that setting up a business was not my talent. Anyway, plan C would not be so bad for me personally.

My other goal had to do with marathon running. I wanted to break three hours (meaning run the whole 26.2 miles in less than three hours), but I failed to do that when I ran Boston. I missed my target time by only a few minutes. (When I set this goal, I didn’t give myself a deadline, so I can just try again, and I plan to at a marathon this fall.) I really don’t know why I didn’t make this goal, except that maybe I did not prepare well enough for the race. If you don’t know, Boston’s marathon is in early spring; I found it quite difficult to train harder on the dark winter nights or in the dark hours of the early mornings. Nevertheless, I am now running at a level that allows me to run with the elite runners in any race in the world including the prestigious New York City Marathon come November. Sure, my goal may have been a little ambitious in the first place. Nevertheless, what am I going to do about it? What is my plan B? Well, I am in the middle of preparing for a fall marathon – either New York, or another one close by. I am more dedicated this time to reaching my goal. I hope that I will be able to train enough so that I will still reach my goal even if it’s a little later in the year than originally planned. If I don’t reach my goal, my Plan C is to be content with my personal record, which is pretty darn close to 3 hours anyway.

Most important of all, I don’t feel bad about not having reached either one of these two goals. First, they’re both very ambitious. Second, it’s not like I can’t just give myself another chance. Besides, even if I go with plan C in both cases, I know that I will not be upset at all. Instead, I know that I will feel very privileged for having had the opportunity to explore some ambitious goals. Why would I be unhappy about that?