In The Hard Thing About Hard Things, successful Silicon Valley entrepreneur and respected thinker Ben Horowitz writes:
“Hard things are hard because there are no easy answers or recipes. They are hard because your emotions are at odds with your logic.”
Although Horowitz’s book pertains to building and running a startup, the observation is directly applicable to our financial lives, too. In many ways, thinking of yourself as a startup is a good way to approach your relationship with money. You earn revenue from working and then appropriately allocate your money to build and maintain your desired level of success. And, you will face challenges and difficult decisions along the way.
Of course, everyone’s financial needs are personal. However, there are common “hard things” everyone must overcome to reach their financial goals. For which, your emotions wrestle with your logic and there are no easy answers or recipes. In most instances, it comes down to not specific financial moves but behavioral changes. Once you master the hard things about money, the specific, individual steps become all the more easier.
A hard thing about saving
A down payment on a new home. An emergency fund for life’s expensive curve balls. A nice nest egg to live comfortably when out of the workforce. These are future financial goals you work toward over time, diligently saving dollar after dollar. Saving is hard. One thing that makes it so hard is the competing desire to live fully in the present, especially in a culture that encourages you to do so.
Often, the latter desire wins out. The average American carries $6,354 in bank-issued credit card debt, and not because people are struggling to make ends meet. In fact, the states with higher debt levels are typically home to higher-income residents.
Logic tells us that if we sacrifice some today, we can expect more tomorrow. But our emotions pressure us to keep abreast with our peers – those Joneses everyone keeps talking about. Take, for example, a 2019 study that found debt and bankruptcies increased among neighbors when one neighbor won the lotto.
It’s behavior that leads to a place of regret. The majority of Americans say their financial regrets pertain to savings, a Bankrate survey shows. The solutions is to think long term.
A long-term financial perspective, unfortunately, isn’t something you can just turn on. You may have to modify your habits. Ask yourself if what you spend money on provides lasting happiness. And, remind yourself that saving is the surest way to create a future filled with the things – no stress from debt, helping a child go to college, the ability to give to a favorite charity, etc. – that often do.
Once you feel better today about the things you did yesterday, then it comes much easier to continue to do them in the future.
A hard thing about investing
Whether in an employer-sponsored 401(k) or an individual retirement account (IRA), choosing investments can trip people up for a variety of reasons. There are many to choose from. They all have different characteristics. Everyone’s needs are unique.
Then there is the fact that the fundamental principles of investing are at odds from other areas of our financial lives. Typically, the more expensive thing with all the bells and whistles is the better product.
Not so, in the world of investment products. Most people don’t need products that come with page after page of fine print. Instead, a simple low-cost portfolio mainly comprised of the three most common asset classes – stocks, bonds and cash – is the better option for most individual investors. After all, the less you pay in investment costs, the more you keep of your returns.
Assuming the more complex and expensive product or strategy is best is how many people can end up spending more than they need or getting stuck with the wrong investments.
As tech innovator and entrepreneurial saint Steve Jobs said: “Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”
A hard thing about personal finance
Recently, financial blogger Ben Carlson wrote about data from the Bureau of Labor Statistics that shows the average American spends almost 100 times as much time watching TV every month than he or she spends on household finances.
The reasons people ignore their finances vary, but they are often a reflection of a person’s financial literacy. Making smart financial decisions takes time and effort, but also a certain amount of education. It’s much easier to simply ignore the problem. But doing nothing is also an action – that can have a profound impact on your money.
A CEO can’t run a business without understanding the company and its industry. You, on the other hand, can outsource your finances, but all the results – good and bad – still fall upon you.
It’s your responsibility to make sure you hire professionals who are truly looking out for your best interests; that you fully commit to your financial plan; that you are buying products that are right for your needs; that your tax forms are filled out appropriately; that you meet your required minimum distributions; that you update your beneficiaries to keep your wishes fulfilled; and so on.
Certainly, this is where a financial adviser can help. But it is a two-way street. Good financial advisers will educate people; financially successful people, however, will take time to also educate themselves.
A hard thing about setting financial goals
When you start a family, it’s almost as if you become a business conglomerate with a vested interest in the success of each family member. That generally entails managing a list of competing financial goals, from vacations and cars to college savings and retirement savings.
The trick is to prioritize your financial goals, which can be hard when your inclination is to provide the best for everyone. The hardest part for many parents though is putting their needs first.
Half of American parents have cut back on their retirement savings to help pay their children’s bills, according to Bankrate.
When it comes to financial goals, your own retirement should come first. Students can borrow money for college. Young adults have the advantages of time and ability to work. Once you start dipping into your retirement savings, it is very difficult to catch back up. And, you won’t be doing anyone favors if you exhaust your resources and in turn become a burden on those you helped.
A hard thing about financial planning
One the hardest parts of creating and implementing a financial plan can be the need to accept how many things are out of your control.
Take, for example, the stock market. Its performance can greatly impact your financial success, which is why many people emotionally react to its twists and turns. Often that proves to be a costly mistake. You have a better chance of coming out ahead by avoiding rash investment changes and letting the market work itself out.
This lack of full control extends to other parts of your financial life, too. You may have a retirement date in mind, but an unexpected layoff can change all of that. According to a Transamerica survey, more than half of retirees said they retired earlier than planned.
It’s hard to accept that you can’t control some consequential areas of your financial life. But you’re not powerless; far from it. The logical thing to do is to focus on what you can control: when you start saving, how much you save, your expenses, etc. When you do that, the things you can’t control won’t matter as much.
A hard thing about asking for financial help
Money is traditionally treated as a taboo topic. We’re taught not to talk about it, and most of us feel self-conscious discussing finances – even with our partners.
A Fidelity Investments survey found 43% of Americans don’t know how much their spouse makes. Even worse, in two out of every five couples, one spouse admits to lying to his or her partner about money, according to a separate survey by the National Endowment for Financial Education. With all this financial secrecy, it’s not surprising that money is the leading cause of stress in a relationship.
People say they fear being judged, or feel ashamed about past decisions or their lack of financial knowledge.
Even though less than half of Americans could cover a $1,000 emergency, most Americans decline any financial help or advice. According to a CNBC and Acorns survey, 75% of Americans manage their finances on their own without help from a professional or online service.
But when you ignore your financial situation, small problems transform into major challenges later.
Therefore, one of the best financial moves you can make, certainly as a couple, is to open up about money. To know where you are and where you need to go is the only way to determine what specific steps you need to take to get from here to there. Talk to your partner or even a close friend about money. Or, join an online money group. Then start working on small financial goals you’ll be proud to talk about. And, as you start planning farther into the future, sit down with a professional who can help guide you along the way.
A hard thing about aging
As you reach the typical retirement years, you will have overcome a lot of challenges and will have earned the right to rest and enjoy your accomplishments. Unfortunately, what lurks at this age is the potential for your body to turn against you.
Your later years could be your most expensive yet. Today, the average 65-year-old couple can expect to spend $285,000 in health care expenses, excluding long-term care, throughout retirement, according to a Fidelity medical cost study. As you plan for retirement, it’s important to understand how future medical costs fit into your overall picture.
Perhaps the hardest thing though is coming to terms with the idea of ceding control of your finances. That’s because cognitive impairment, such as Alzheimer’s or dementia, is often the most challenging health issue of them all. By 2050, the number of Alzheimer’s cases is projected to nearly triple, up to 13.8 million, if a medical breakthrough to prevent or cure the disease is not found.
Studies have shown the ability to make financial decisions is one of the first skills to decline in people who begin to suffer from cognitive impairment. As your financial skills decline, you become more vulnerable to financial abuse.
The inability to make decisions is something most people likely would rather not think about. But, the only way to avoid or alleviate the consequences is to plan ahead, which gets harder as you age. That’s why a power of attorney should be part of your estate plans when you’re still healthy. A durable financial power of attorney, who may access your financial information, can help monitor your finances and decrease the chances of you becoming a victim of financial exploitation or scams.
Don’t think of it as losing independence, but rather as adding protection for you and your loved ones. It isn’t being vulnerable, it’s doing the right, hard thing.