Analyzing one’s individual approach to finances has always been a fascination of mine. In my 16 years of practice I have found that success is not linked to a specific decision but a pattern of hard choices over a long period of time. Some say that luck looks a lot like hard work and I tend to agree.
When I meet with clients I have highlighted two very distinct and polar opposite approaches to financial planning, proactive and reactive.
The clients that are proactive, normally consider the future and plan for as many outcomes as they can dream at an early age. They are existential, goal setting individuals, more relaxed about the decisions that they make be-cause they have taken time to evaluate what it is they desire and researched what they need to achieve it.
Reactive clients are tentative in their thoughts, having trouble weighing all of the risks as a whole. They tend to vacillate and avoid making decisions because they fear the consequences of bad decisions. They dwell on fear and tend to take their stance with a strong base of emotion and do not take the time to research their options. They use their lack of knowledge of the market or finances to solidify their paralysis. They give mixed signals, for example, they stress that they do not want market risk with investments and expect a return in the market that requires significant risk. They feel as though they are behind the 8-ball because they want to retire at a certain age but have not made the appropriate steps throughout their life to get there.
Though most of my clients begin as reactive investors, I have helped, with explanation, to convert their style of thinking to prepare them for the future. I empathize with their mentality as I have shared it with them in the past but I try to motivate them beyond their current objectives to form future goals more concretely. I try to break the cycle of indecision. It is important to know that the road and decisions that you have to make are different than others so it will take some specific planning to identify and reach your goals.
For proactive or reactive investors, remember that you must begin your retirement and emergency planning at 15% of your income from the beginning of your career. The later one waits, the higher the percentage of current income is needed or the longer one will need to work to achieve retirement goals. Do not avoid saving because you feel that the mountain is too hard to climb. Set shorter term goals to achieve the larger goals. Employ your advisor to help monitor your progress and push you in the right direction. If you are proactive, keep doing what you are doing and don’t become complacent in your progress, celebrate the little milestones.
One must not forget that even though advisors are an integral piece to your financial success, the most important decisions that you make on your financial future are within your control. Do your research and don’t dwell on the bad decisions. Keep moving forward as the bad decisions afford us the opportunity to make better decisions in the future.