Racine Journal Times, WorkLife Section, February 17, 2008

Back to Basics

Money touches almost every aspect of our lives.  Where you live, your career, transportation, education, relationships, health and children, just to name a few, are all affected by money.  That’s why it’s no surprise that 67% of Americans, according to a recent study, are motivated to get financially fit this year, topping the 57% who said they want to get physically fit.  If you, like many, are wondering what you can do to improve your financial well-being, it may help to get back to basics.

Here are four ways to shape up your finances by getting back to basics:

Be true to yourself

Humans are social creatures.  We’re built to watch other people and, in doing so, we develop a natural inclination to go along with the crowd just to fit in.  Over the long-term, that’s probably been helpful to the survival of our species.  But modeling ourselves after others can be unhealthy if we lose ourselves in the process and become disconnected from who we really are.  The evidence of your connection or lack thereof can show up in how you spend your time and money.

One clue to whether you’re staying connected to the real you is how often you feel regretful, bored or burdened after making a purchase.  If you’re true to yourself on a consistent basis, you’ll have positive, not negative, thoughts and feelings about how you spend your money.  That’s why I rarely make a purchase – especially a large one – unless it feels really good.  For me, that means two things:  1.) an ‘Absolutely, 100% Yes!’ visceral response and 2.) the item or service has to reflect me and my unique nature.  If it’s right for me, I jump in.

But if it isn’t right for me, as some friends have found out, I won’t budge.  My buddies are having such a good time with their Harley that they can’t understand why my husband and I have resisted their numerous suggestions to go hog wild.  Our consistent response has been, “We love that you love your hog, but we won’t love it as much as you, certainly not enough to buy one, so what’s the point?”  We’ve stood firm, and our friends respect our decision, so they recently suggested that we be the token chase vehicle as a caboose to their train of bikes.  And we happily agreed.

Open your eyes to the big picture

It’s all in the details, right?  Not always.  Let’s say you’re offered a promotion which entails a transfer to New York and a 20% pay increase.  Ignoring the fact that your largest expenditure – housing – could rise by 30% or more may lead you to take that promotion without negotiating for a higher raise.  Others lose sight of the big picture when they turn down a position that is light on pay but heavy on experience.  Paychecks come and go, but experience always stays with you, opening more doors and the chance to earn more down the road.

Investors sometimes lose sight of the big picture by tripping over a dollar to save a penny.  For example, it’s easy to tell how much a mutual fund costs by looking at its expense ratio or its expenses as a percentage of assets.  Higher expenses can be a drag on performance, but not always.  Sometimes, higher expenses are necessary to employ a unique investment strategy.  If such a strategy is successful in providing better performance (net of expenses), isn’t a higher price tag worth it?

Learn from your mistakes

We all make mistakes with money.  What we do with the knowledge offered by our mistakes, though, is up to us.  A wise sage once said that the definition of insanity is doing the same thing over and over again and expecting different results.  If you, like many, feel like you’re on a hamster wheel, running fast to nowhere, try a new, reasonable course of action and see if you get better results.

How can you learn from your financial missteps?  Start by preparing yourself for some honest, self examination.  It may be difficult at first, but it gets easier in time, especially when you begin to see tangible benefits, which can be huge.

That’s the biggest reason why I don’t just review my investment decisions that turn out to be profitable.  I review all my dogs too because they, more so than my winners, help me to consistently improve my investment decisions.  Always celebrate your successes, but examine your mistakes if you want to plant seeds for greater success in the future.

Follow your instincts

How often have you ignored your gut instincts and ended up in an awful position or relationship?  It’s that faint whisper we too often ignore because it’s so easy to rationalize away.

If something doesn’t sit well with you when you’re interviewing for that new job, but you just can’t put your finger on it, don’t ignore it.  When you’re shopping for a new car or a new home, don’t ignore that little whisper telling you to keep looking.  If you require more time to be totally comfortable with the purchase, it’s time well spent.

Just like your exercise equipment, money is a powerful tool to achieve greater well-being.  The key is to use it effectively no matter how much you have.  Get back to basics and you may be surprised at what you can accomplish.

Michelle Ouzounian, CMFC, is the founder and President of Verity Investment Counsel, Inc. (www.verityinvcounsel.com), a fee-only, independent registered investment advisory firm in Racine. Michelle can be reached at 262-898-8400, or m.ouzounian@verityinvcounsel.com.

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This article contains the opinions of the author, but not necessarily those of Verity Investment Counsel, Inc.  Such opinions are subject to change without notice.  This article is provided for educational purposes only.  The information contained herein does not suggest or imply and should not be construed, in any manner, a guarantee of future performance and/or investment advice.  Information contained in this article was obtained from sources believed to be reliable, but not guaranteed.  No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Verity Investment Counsel, Inc.