My spouse to her Father: “Dad, I know you don’t think of yourself as old (he was age 87) but you know, when you look in the mirror, do you still see that younger man? Do you see yourself that way?”
My Father in Law: “I don’t see that well.”
When I look in the mirror, I look for the truth, but my brain lies to me. It tells me that I am younger than I am. And the mirror helpfully cuts off at above counter level, so I don’t see if I have gained weight. Just to keep my confidence up I tilt my head in a way that is flattering because I want to peer at myself in a way that is reassuring.
And then there is my driver’s license photo.
For the real truth, nothing much compares. Every facial crease and fold shows. The angle is unflattering. My weight is on full display. And my hair. It looks like a bucket of nightcrawlers.
Of course, the real problem is that the license photo does look like me. And if there is one thing I can’t stand, it is too much honesty–even if I claim I do have a mirror and use it.
But that is never the best way to look at any situation, especially your financial situation. There are times when having an unvarnished view of reality is pivotal. No one wants a rude awakening like that, but sometimes it is a good thing—especially when you are trying to achieve financial independence.
My rude awakening occurred when I was at almost age 40. I was near the end of the first year of my dream aspirational job, and I was about to be fired. It had turned out that the dream job and reality did not mix. The “dream job” was a nightmare.
Fortunately, my old employer was willing to stave off disaster and hire me back before the ax fell. I was incredibly lucky.
That near miss taught me a few things and changed the way that I looked at personal finances and careers. First, if you take your dream job and are fortunate enough to keep being promoted, your financial problems are not over. Climbing the highest and tallest career mountain sounds like a great plan, but comes with some drawbacks.
Second, you need to take care of you and ask yourself what happens if things do not work out.
Third, it is essential to look over that ugly license picture and be honest with yourself. See if some changes need to be made–whether it is before you start climbing the career mountain or after. Metaphorically speaking, if your hair looks like a bucket of nightcrawlers, it may be time to change —and get a new stylist.
Eventually, I realized that I was asking the wrong question about my career. I was looking solely at my job performance, and not in my overall financial situation.
After that revelation, it was clear that I needed to find out better how to protect myself and my family. So, I got every book I could find on personal finance. What did people do who were financially independent? What habit or outlook was I missing?
At that time there were not too many books and articles that were good. And most reinforced that most of my decisions were sound. But after reading the Millionaire Next Door there was something mentioned, almost as an aside, something that very successful people were doing, but that I was not. As I looked at the other sources out there, they all revealed the same basic idea.
Financially successful people were tracking their financial progress on a regular basis. In other words, they were looking in the mirror, but hard and critically. And they often took the extra precaution of having someone else, like a financial advisor, look too.
The basic idea of tracking your net worth is to see if you are meeting your financial goals, not just your professional job ones. Want to be a millionaire? It is interesting that many who are millionaires can tell you the exact age they achieved that status. According to Business Insider, Sarah Blakely (Spanx) was 29, Meg Whitman was 40, Larry Ellison (Oracle) was 42, and Warren Buffett was 30. For each of them to know the date they achieved millionaire status, they all had to have an exact handle on their finances. And, of course, all the individuals listed above eventually became billionaires, not just millionaires.
It is essential to update your personal financial (net worth) statement on a quarterly basis or every six months.
The idea is pretty simple. You add up the value of all that you own, and then subtract the debts you have. Make it fit on one page.
You can track your progress and answer a few important questions at the same time:
- Do you have any money? Some people think so—until they look at their debts.
- Are you satisfied with your progress, and are you reaching your financial goals?
- Are all of your economic eggs in one basket (a house, a stock fund, collectibles, etc.)? If so what happens if you “drop” the basket?
- Where can you improve? Savings? Monthly income? Retirement account savings?
You never know unless you look. Much much more about this later in a future post.
In the meantime here is an article with some links to useful tools and ideas: https://clark.com/commoncents/budgeting-101-step-step-guide-take-control-money/
There is a postscript to all this. While I eventually moved on to an enjoyable job that became my life’s work, I realized something else too: with a few exceptions, I did not want to work for anyone else. Retiring at 50 became a goal.
In the ten years before retirement at 50, my net worth increased by five-fold. I cannot and won’t guarantee that the same will happen to you. But it is more likely if you update your financials regularly.
Virtually all of that success I had came from regularly updating my net worth statement and acting on the strengths and weaknesses that it highlighted. I announced my retirement before my 51st birthday.
And, by the way, I still hate my driver’s license photo.
LESSONS:
- A financial statement can help define where you are financially in an objective way.
- A statement can also help define where you are compared to your peers.
- Goals can and should change based on items 1 and two if it appears you are falling short.
- Risks can also be highlighted and defined: risk of debt, putting your financial eggs in one basket, etc.
ACTION STEPS:
- Update your statement of net worth at least once a year.
- If you are not meeting your goals, change what you are doing—that can include financial goals or goals in a profession.
- If you need help from a financial professional to generate a financial statement and accomplish items one and two ask for it. According to numerous sources, many well-to-do people use financial professionals.
Disclaimer: consult with a financial professional before taking any steps outlined here. Not all advice is suitable for your circumstances or investment style.
Artist Credit: Nicolae Grigorescu (1838-1907), Young Girl With Mirror–public domain country of origin, US public domain; exceeds 100 years since created.