Stop Lying To Yourself About Financial Health

20274116_sMy wife, Jill, has had me on this health kick for the past six months. She has me eating so much “ruffage” I feel like a bunny rabbit. Apparently, I’m getting old and need to put more effort into keeping off the pounds than I used to. I can just imagine my 20-year-old self watching 48-year-old me make my beet, celery, cucumber and kale juice every morning with unbridled judgment. Anyway, I am doing it.
Over these last six months of shifting toward a healthier lifestyle I have learned something important. There are a lot of things about weight loss and health that we can’t control—metabolism, age, injury or illness, et cetera. But those things really aren’t the main obstacles to reaching our health-related goals; the real obstacles are the little fibs that we tell ourselves. “This piece of cake won’t make a difference.” “It’s just too hard to work out when I travel, I’ll get back to a routine when I get home.” “Those pants were just washed; that’s why they feel tight.” These are just a few, and, in the spirit of full disclosure, I have used them all.
It’s those little lies that we tell ourselves to justify bad behavior that really do damage to our progress in achieving a healthier lifestyle.
The same is true for another aspect of our lives that we need to be more vigilant with as we age. You guessed it: our financial health. Sure, there are a lot of factors that we cannot always control—the market, our salary, unexpected emergency expenses. These things can all potentially damage our financial future, but the real danger is in the little lies that we tell ourselves that affect decision-making, with respect to our chosen strategies and our behavior.
The biggest “fib” relates to the concept of a “paper loss.” People use this term a lot when their portfolio dips; yet when they make money, they do not seem to use the term “paper gain.” A paper loss is like water weight. When we gain two pounds, it is just water weight but if we lose two pounds, we never think of it as just water weight. And although many people do not want any losses in their portfolio, even when they are “just on paper,” most do not understand the total effect of such losses to their retirement savings.
When a portfolio loses a significant amount of money, it loses something else just as valuable—time! We all know how important it is to make our funds last as long as possible during retirement. And naturally, we want to do everything in our power to make sure that we protect our savings from significant market losses. However, people often do not understand that significant losses can wipe away many months and years of hard-earned savings. And as we get closer to retirement, we do not have the time to come back from such a loss. Folks, most investment strategies will have gains and losses. What must be minimized is the magnitude of the downside exposure.
Another lie we often tell ourselves is that, if we have not saved enough money when we plan to retire, we will just work longer or we will work part time in retirement. This translates directly to my fitness routine; when I have that extra piece of lasagna, I tell myself, “I’ll just run an extra mile tomorrow.” And then I curse myself and that lasagna, when tomorrow comes and I’m running that extra mile (or even worse, when I don’t run that extra mile and I am racked with guilt all day). You might think that working during your official retirement sounds okay. But, a survey by the Employee Benefit Research Institute found that while 67 percent of workers plan to do it, only 27 percent of retirees actually work in retirement. (I would say that’s about how often I actually run that extra mile). You should work in retirement because you want to, not because you need to. Do not build this “plan” into your savings strategy.
One of the most common and most threatening lies we tell ourselves when it comes to finances is that we cannot afford to put much away now, but we will buckle down in the future and really start saving soon. “I don’t have time to run this morning. I’ll do it after work.” We all know how this goes. It never seems like the best time or the most convenient time to save more, and so we lie to ourselves and say it will be more convenient or easier later. In the world of investing, the biggest asset we have is time. We can’t afford to waste it. It is important to start saving for retirement as early as possible, with as much as you can.
The last lie that many tell themselves is also a very dangerous one, especially in today’s market conditions—that everything is fine. When it comes to retirement planning, people like to stick their heads in the sand. They don’t want to be told their financial future may be in danger. They don’t want to hear about any mistakes they have made. They don’t want to step on the scale and see what their actual weight is. They want to hear good news or no news, so this leads many people to lie to themselves that they are doing well enough with their finances, that they do not need to review their retirement strategy. Folks, the only way you can know where you really stand is to do an annual check-up and crunch the numbers with a financial professional to see where you are, where you want to be, and whether your current plan will get you there.
I urge you, Cutter Family Finance readers, not to lie to yourselves. Put in the work, stay committed to your goals, and you will reap the rewards. Heck, at this rate with all my healthy living, by August I may be able to fit into my Guess acid-washed, 30-inch-waist jeans that I wore in high school . . . pegged, of course.
Be vigilant, and stay alert, because your future-self deserves more.