In Buddhist teachings, there is a concept of “near enemies,” something that on the surface seems helpful but is ultimately an obstacle.
It is easy to understand opposites (or enemies), but near enemies are subtle.
Let’s explore the impact on us in financial planning.
Financial security is something that everyone seeks. Financial security can 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 like security in that we each have a personal definition of what financial safety means. When that definition leads to coveting things far beyond our needs or being afraid of losing what we have, then we have tilted toward greed.
The most obvious example are your investments. If you are focused on the highest your investment account has ever been, then you are being unrealistic about how markets work.
Whenever someone comes in with a number, or the amount their portfolio needs to reach for them to feel safe, I caution them that they will never feel secure. Instead of focusing on their security, they focus on the number.
That artificial benchmark is guaranteed to make them forget the purpose of the number – to create an income stream to spend today or a legacy to give away tomorrow.
A quality ever present in financial planning is our explaining in our heads why we are doing something. Explanations are useful because they help us get to the whys of our situation.
The enemy of an explanation is avoidance. But the near enemy are excuses.
Whenever clients spend too much, they seamlessly shift from explanations to excuses. Explanations cover occasional budget hiccups like unexpected health care costs or significant car or home repairs.
When these unexpected events occur every year, they are excuses rather than explanations. A home remodel is not the same as a home repair and regular car replacement is far different than car repairs.
Be honest with yourself on the choices you make so that you can be realistic with how you choose to spend your money. Clients who make excuses about their spending tend to feel guilty about it. It is not a huge leap from excuses to avoidance.
Propriety in financial planning is aligning your values and spending. The enemy of propriety is hedonism. But the near enemy is comparison.
Money holds a place in all our lives, but its proper place is something to be calibrated. When we end up comparing ourselves to those around us, we can feel bad about our own situation. But we never really know what others have because wealth is what you don’t see.
When someone drives up in a new car, you don’t know that they are wealthy, you only know they have less money than before they bought the car. You have no idea whether 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 wants in us that don’t serve us and work against our own sense of ease.
One of the best ways of handling this is before you make a significant purchase, write down what you expect the purchase will do for you. Write down additional costs the purchase may create. Then wait a few days before you go forward with it. This cooling off period helps avoid impulsive decisions.
Being thrifty with our money is allocating our resources in ways that are important to us. The enemy of thriftiness is parsimony. But the near enemy is frugality.
Frugality gone 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 challenging clients are those who spend too much and … those who save too much. You are either going to spend your money or end up giving it away, so a balanced allocation of your resources between today and tomorrow is the most effective approach.
Several of our clients have come to the realization that they would like to see their charity work while alive, rather than leave money at the end of their lives.
If they are in a strong enough position to make current gifts, then there is no reason not to. Spending too little is the other side of the spending too much coin.
It is clear what the enemies of sound financial planning are, but for most people it is the near enemies over which they must take control.
Ross Levin is founder of Accredited Investors Wealth Management in Edina. He can be reached at [email protected]