During the course of a recent party, I met someone who was asking for ‘hot stock market tips’.
I was confused; didn’t he just get done telling us about how he couldn’t afford his 2 weeks in Europe and his new auto? It didn’t add up; I knew what he did for a living. I had a pretty good idea of his income.
I suspect he didn’t like what I responded with.
Debt and Income
“What’s your annual and monthly debt to income ratio?” I asked.
“What’s That?” he asked.
“What percentage of your gross income are you putting towards retirement?”
It might have seemed judgemental for me to do that, but I wasn’t judging him. I was trying to help him by refocusing the conversation on what mattered. We have all gotten carried away at some time with Being In The Moment and making some choices that came at the expense of other things.
Without understanding our behavior with money, nothing else much matters.
Why It’s Important
I could be making $350,00 a year, but if I am spending $350,001 a year, then I am in Big Trouble.
See, it’s not about how much you make. It’s not about the ‘hot stock market tip’, it’s about our behavior with our money and it’s about what we do with it.
If we aren’t even operating with a Spending Plan (aka Know Thy Cash Flow) and, worse, have minimum net worth (Balance Sheet) with respect to our income, then we have significant issues to address.
It’s why I re-frame the conversation around behavior, not market performance.
If we don’t have good behavior and habits with our money, than what difference does it make what the market does regarding a singular stock or another?
The Starting Point
That’s why it’s always the starting point: Illuminating how we spend our money (Spending Plan) and how we turn it into Net Worth via saving and investing it (Balance Sheet).
Yes, market performance matters. But it’s within the context of identifying key assets that will help us reach our goals, which is all part of the process that comes after we establish our values and and mitigate, if necessary, our behavior with money.
Ready to take the next step and work with a fee-only CFP? Reach out to schedule a Discovery Meeting to learn more.