In my last post , I talked extensively about the need for a new, pragmatic and more human approach to managing personal finance. I proposed financial self-determination as the umbrella concept to guide that new approach.
In today’s post, I take that concept a little further to propose a new manifesto for financial self-determination.
The need for a comprehensive paradigm
Rigid and narrowly-defined concepts such as financial security, or early retirement are not flexible and versatile enough to meet the needs of a broad spectrum of individuals. Nor will they necessarily light the fire of motivation and inspiration in a big way to mobilize action today – after all, the concepts have been around for decades, and yet we see people struggling to know where to even make a start.
In the spirit of making my small contribution to this important question, I sat down to articulate what to me sounded like a more versatile, inspiring, flexible and effective approach, even a manifesto, that could be applied by anybody regardless of level of knowledge, size of bank account, or direction of their life aspirations.
The financial self-determination manifesto
Financial self-determination stands for your right and obligation to drive your own financial destiny.
Each person’s dream is different. However, there are some common underlying principles that can help you get to your goal better, faster or more reliably.
There are many barriers that prevent you from mastering your own financial destiny:
- A complex and confusing market landscape
- Poor understanding of actual costs and benefits of products
- Lack of focus on maximizing the individual’s financial well-being
- Limiting self-beliefs, actions and habits
- Hard-wired human biases that make it difficult to act in one’s best interests
The secret to overcoming these barriers is to adopt the financial self-determination mindset and principles to significantly improve your financial outcomes with a little effort, consistently applied over time.
- You alone are responsible for and in charge of your own financial destiny
- Set the goals that are right for you
- There will always be trade-offs
- Your values are the best guide to help you make the trade-offs that are right for you
- The right path to your goal is the one that you can stick to long-term, not the one that’s necessarily in the textbooks
- Recognize that this is a journey not a destination
- Balance short term and long term. Aim for moderate goals in both, but always keep the door open to let in the great
- Always build options. More options are always better than fewer
- Remember every seller is seeking to maximize their profit – financial services companies are not philanthropic organizations
- You are the best champion of your own well-being
- Seek mutually beneficial transactions and arrangements when doing business with financial providers
- Approach the market with skepticism and a questioning mind
- Actively seek cons as well as pros to every purchase / financial decision
- Numbers are your best friends – actively befriend them and get cosy with them. They’re much nicer than you thought!
- Find and assess the few numbers that matter for every decision – simple numbers are better than no numbers or complex analyses
- Get expert help, but understand how and for what they get paid
- Even when you get expert help, don’t delegate the decision making
- Ensure that the reason for the decision makes sense to a fifth grader
- Pick simple over complex every time
- Build small habits and practices, rather than big one-off actions, for long-term success
- Automate as many favorable actions as possible; leave little or nothing to willpower
- Check in on the status of your financial affairs regularly, even if it’s briefly. Limit the numbers to monitor, and understand what changes in those will require action
- Long-term success entails focusing on behaviors, systems and processes and not as much about outcomes. Financial outcomes are driven by too many factors outside a person’s control – but every person has control over their actions
- Negative outcomes don’t indicate poor decisions; similarly, great outcomes don’t usually indicate genius ability
- Process and habits trump everything
Implementing the manifesto in real life
Now that we have a starting point, what comes next? Who is it for, and how does it get applied?
The versatility of this manifesto in my view, is that it can be applied by virtually any participant in the financial services landscape
As providers, we can use these principles to promote greater transparency, better fit between product and customer, as well as using these as a guide in designing products and communicating their primary benefits and risks to prospective customers.
As professional advisors, we can ensure that our clients are pulling in the direction of their ultimate financial well-being by educating them on the need for and the benefit of these principles. This will also have the benefit of making them better aware of the value we bring to the table, when we do our jobs effectively.
Last but most important, as consumers and buyers, we can start our journey towards greater financial well-being wherever we are, with whatever we bring to the game, and have the satisfaction of seeing immediate and lasting benefits to our peace of mind, as well as to our pocketbooks.