In the Buddhist teachings, there is a concept of “near enemies”, something that at first sight seems useful, but which is ultimately an obstacle.
Opposites (or enemies) are easy to understand, but close enemies are subtle.
Let’s explore the impact on us in financial planning.
Financial security is something everyone is looking for. Financial security may mean different things to different people, but it comes down to wanting what you have.
The opposite of having financial security is being a spendthrift. But the near enemy is greed.
Greed can present itself as security in that we each have a personal definition of what financial security means. When this definition leads to coveting things far beyond our needs or being afraid of losing what we have, then we have swung into greed.
The most obvious example are your investments. If you focus on the highest level your investment account has ever reached, you are not being realistic about how the markets work.
Every time someone comes up with a number or how much their wallet needs to reach to make them feel safe, I warn them that they will never feel safe. Instead of focusing on their safety, they focus on numbers.
This artificial reference is guaranteed to make them forget the purpose of the number – to create a stream of income to spend today or an inheritance to give away tomorrow.
An ever-present quality in financial planning is our explanation in our heads why we do something. Explanations are useful because they help us understand the reason for our situation.
The enemy of an explanation is avoidance. But the near enemy are excuses.
Whenever customers overspend, they seamlessly switch from explanations to excuses. Explanations cover occasional budget issues such as unexpected health care costs or major car or home repairs.
When these unexpected events occur every year, they are excuses rather than explanations. A home renovation is not the same as a home repair, and regularly replacing a car is very different from auto repairs.
Be honest with yourself about the choices you make so you can be realistic about how you choose to spend your money. Customers who make excuses for their expenses tend to feel guilty. It’s not a huge leap from excuses to avoidance.
The relevance of financial planning is to align your values and your expenses. The enemy of propriety is hedonism. But the near enemy is comparison.
Money has a place in all of our lives, but its place is something to calibrate. When we end up comparing ourselves to those around us, we can feel bad about our own situation. But we never really know what other people have because wealth is what you don’t see.
When someone arrives in a new car, you don’t know they are rich, you only know they have less money than before they bought the car. Not sure if they paid cash or borrowed from their 401(k) or leased the vehicle.
Focusing on what others have is not only unsettling, it can create desires within us that don’t serve us and go against our own sense of ease.
One of the best ways to handle this is before making a major purchase, write down what you expect the purchase to be for you. Note the additional costs that the purchase may create. Then wait a few days before continuing. This period of reflection helps to avoid impulsive decisions.
Being frugal with our money means allocating our resources in a way that matters to us. The enemy of economy is parsimony. But the near enemy is frugality.
Frugality taken too far leads to an inability to enjoy your money. I have clients who wear their frugality like a badge of honor – showing how little they need to be happy.
Our most demanding customers are those who spend too much and…those who save too much. You will either spend your money or end up giving it away. A balanced distribution of your resources between today and tomorrow is therefore the most effective approach.
Many of our clients have found that they would like to see their charity work in their lifetime, rather than leaving money at the end of their life.
If they are in a strong enough position to make current donations, there is no reason not to. Spending too little is the flip side of spending too much.
It’s clear what the enemies of good financial planning are, but for most people, these are the nearby enemies they need to gain control over.
Ross Levin is the founder of Accredited Investors Wealth Management in Edina. He can be contacted at [email protected]