This is the second installment in a series of posts.
“If you have your head in the sand, then nothing can hurt you“.
–Nepalese saying (And yes, they are kidding)
“Eighty percent of success is showing up.”
–Woody Allen
FINANCIAL OVERACHIEVEMENT IS A PROCESS
To become a financial overachiever, you must embrace a self-improvement process. The first step is to “show up.”
in other words, you must want to learn, change and participate in your own process of financial improvement. Success doesn’t happen if you leave your finances to random chance or keep your head in the sand. Put another way, the very first step toward financial overachievement and independence is to be aware of the financial issues you face now and in the future, and then follow up and act as you learn more.
SOME BACKGROUND
Most Americans are not financial overachievers. Per the previous post, financial overachievement happens when you achieve a high net worth compared to your income. Unfortunately, most people have not taken basic steps toward achieving that goal.
Instead, almost 30% have trouble funding an unexpected $400 expenditure. About 40% would have difficulty dealing with an unexpected expense of $1,000—for instance, an emergency like a major car repair or medical bill.
Instead, many would forego medical treatment to make ends meet.
That is a shame. And to be fair, the simple lack of money causes a lot of these statistics. No one blames people with limited incomes for that. But sometimes, lack of income is not the sole cause of financial hardship either. Often people with good incomes struggle too. If that is you, I hope reading this post helps.
Now, you would expect we would be better as a nation about just acknowledging the reality I have described. But we do not. While most people would give themselves an “A” or “B” for financial literacy, most cannot pass a basic financial literacy test. And that overconfidence creates a lot of risk for families and individuals.
FIRST: SHOW UP
Most people do not want to think about personal finance. And many don’t. In other words, they don’t “show up.”
Since you are reading this post, you are already part of the way towards financial achievement and overachievement. However, just being aware of the issue is only half the battle. The rest is about spending effort and time.
And yet, I completely understand why people want to avoid the subject altogether. It is a lot more comfortable to not think about it. Our lives are already extremely complicated. Delving into the household budget is not fun. Who needs that?
Unfortunately, sooner or later that sort of thinking costs people. One source summarized where Americans are on their financial journey. The results are discouraging:
- 48% want to be financially prepared for the future, but 97% don’t take any time to achieve that goal.
- Only 3% spend time on household financial management on an average day.
- People also spend less than two minutes a day on household finance management issues.
However, as a country, we do spend 58 minutes per day on social media.
Priorities.
EXPECT TO CHANGE AND DEVOTE SOME TIME TO YOUR MONEY
To move forward, most people must change their expectations and regularly spend some time on money issues.
The effort is worth it. And it is not as complicated as you might think. For instance, several money experts recommend that couples “make a date” with their money every week.
But first, they have to agree to ground rules to be sure that the “date” is productive. For instance, they set forth a specific amount of time on a particular day to strategize about their money. They also must make sure there are no distractions during “date” time.
That sort of intentionality pays off. Most of the wealthiest people believe that they control their own destiny. It is what defines them more than anything else. And it is one of the most significant differences between them and the general population. So, at a minimum, it is important to have an active attitude in order to meet challenges.
TAKE THE TIME TO LEARN ABOUT BENCHMARKS
Overachievement means that you routinely compare yourself to a baseline or benchmark–and then exceed that. Here are a few baselines that people compare themselves to:
- Personal benchmarks—this activity helps you to compete against yourself and your own status quo. Common goals ensure that your net worth, income, and individual well-being are better than last year–or whatever comparison period you use.
- General population benchmarks—when compared to others, are you gaining against the financial performance of the general population, staying about the same, or losing? Standard measures compare your income and net worth against others your age. More about that in an upcoming post
- Index or average benchmarks–these refer to investment measures of common financial indexes. For example, does money in your money market fund make more or less than the national average? Or, if you have a stock portfolio, are you making more or less than the average of the Standard and Poor’s 500 index? In other words, when you look at your net worth, are some of your investments performing better or worse than the average?
The idea of overachievement is that you want to make efficient use of your money and beat the benchmarks, and not just make average use of your money. Therefore, you must know your situation well before seeing if you are achieving any overachievement goals you may have.
CULTIVATE “CONSCIENTIOUSNESS” AS AN ATTITUDE
As you may have guessed, that is what the richest most successful people in the world do. Of course, I don’t mean that the wealthy are always courteous or well-behaved. Instead, this characteristic means that you take the time to organize and manage activity, especially activity or time as the use of money values it. (Common measures of value are dollars per hour, or percentage of a budget spend on one activity versus another).
Here are a few forms of conscientiousness, ranging from the most basic to the most complex:
- Describing–this means simply knowing where all your financial assets are. The most common form is to list them in a net worth statement that compares your debts to assets. Oddly enough, this primary step is often missed–even by very organized or talented people. During one counseling session, I had to point out to a capable Ivy League graduate that he was late putting together his net worth statement. Not only that, he had not taken into account of the cash value of a pension—an omission that understated his net worth by several hundred thousand dollars. He was happy after that. Fully describing his financial situation made him feel better.
For a more personal account of my own experience see here.
- Understanding/Analyzing—for instance, many people track their expenses and income. That helps them understand where they have been on their financial journey and how they got there.
- Planning and optimizing (Overachieving)—this is where people can see how potential future changes or decisions, both good and bad, can alter and change their situation. In the best case, those decisions help optimize their net worth and then help them overachieve on their financial goals
NEXT: HOW TO MEASURE FINANCIAL OVERACHIEVEMENT
How do you know if you are an overachiever or underachiever? It turns out that there is some excellent research by bloggers I admire that gives target net worth amounts. I will write more about that in an upcoming post.
Overachievement goals are also impacted by age. You would not, for instance, expect that a 20-year-old would have the same net worth as a 65-year-old when the older person had worked far longer.
Disclaimer: consult with a financial fiduciary before taking any steps outlined here. Not all advice may be suitable for your circumstances or investment style.
Photo credit: Braden Collum
License: Unsplash