During the course of a recent dinner party, I met someone who was asking what ‘hot stock market tips’ I could offer him.
I was confused; didn’t he just get done telling us about how he couldn’t afford his 2 weeks in Provence and his new Ducati? It didn’t add up; I knew what he did for a living and having been in the same field (Technology) and the same company myself for most of my career, I had a pretty good idea of his income.
Yet he wanted me to produce some ‘hot stock market tips’ to him.
I suspect he didn’t like what I responded with.
“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 is this so important?
Because I could be making $250,00 a year, but if I am spending $250,001 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’ Au Jour, it’s about our behavior with our money and it’s about what we do with it.
If wearen’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.
That is why I reframe the conversation around behavior, not market performance.
I’m obviously painting with broad brushstrokes here, so please indulge me on the generalities, but I suspect you know exactly what I am talking about.
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?
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.
(Disclosure: I am a Fee-Only Financial Planner. Here’s my website).