The Mindset of Financial Fitness

Presenters/Authors
Government Buildings

I was recently asked to draft an article on personal financial fitness. This phrase combines two topics that interest me: finance and fitness. As a CPA, I’m professionally interested and trained in finance. While I’m personally interested in fitness, I don’t have a degree, designation or years of professional experience in the personal fitness arena. This upfront disclosure leads me to my first piece of advice: If you don’t know what you’re doing, hire a professional.

I recently viewed a humorous yet truthful meme on LinkedIn with the quote, “If you think it’s expensive to hire a professional, wait until you hire an amateur.” This triggered a memory of a personal experience regarding my personal fitness. A few years back I read a book about the paleo diet. After finishing it, and with additional internet research, I felt confident enough to follow the paleo diet plan. After a few weeks, I saw tremendous results, losing weight and maintaining energy throughout the day. I found myself actually looking forward to my annual checkup and sharing my success with my physician. He was very pleased and encouraged me to keep it up. However, a couple of days later he called me to discuss my cholesterol levels. He was concerned, as these levels were very, if not dangerously, high. In reality, what appeared to be healthy on the outside was actually risky for my long-term health.

I’m an amateur when it comes to nutrition and diet, yet I acted as if I were a professional and got into trouble. After consulting a professional, I tweaked my diet and got my numbers under control. Most importantly, I avoided a serious long-term risk. That story parlays into my second piece of advice: Avoid significant risks, and mitigate the rest.

Our firm works with many financially successful clients, and the most successful clients preserve wealth by avoiding systemic hazards and managing their controllable risks. Controlling spending, using debt wisely and managing exposure with insurance are critical components of maintaining financial fitness. An annual checkup with your financial professional is a great habit that can lower your risk of making long-term mistakes. This leads me to my next piece of advice: Self-discipline is hard, but a system of timely nudges can change your world.

“The early bird gets the worm,” “A penny saved is a penny earned” and “An ounce of prevention is worth a pound of cure” are clichés you’ve most likely heard countless times. While they contain wisdom, they’ve lost their power to motivate. For self-motivation, I recommend implementing a system of timely “nudges.” Nudging is a technique to subtly and consistently encourage behavior change. It has been used by the U.S. and U.K. governments and the World Bank—and the theory even led to a Nobel Prize.

Nudging is well documented as a successful behavior-changing system for personal financial fitness. Setting up auto-reminders, establishing default enrollment and sending age/value/saving rate emails are all ways 401(k) companies nudge participants. I’ve responded positively to emails reminding me to consider increasing my 401(k) deferral. However, nudging can have an equally dark or manipulative side, e.g., social media bots. So how do you recognize when you’re being manipulated? Honest self-reflection of your personal influences is crucial in many aspects in life, even your financial fitness.

One of my personal mantras is Jim Rohn’s statement, “You’re the average of the five people you spend the most time with.” Considering the paradigm of today’s technology, I’d offer a slightly modified phrase: “You’re the average of the five influences you spend the most time with.” Television, social media and podcast subscriptions appear to be the mature, established and emerging influences of our time. Deciding what you watch, engage in and subscribe to is within your power to change—literally at your fingertips. Honestly assessing your influences will tell you who you are today; the more extreme of these influences will tell you about the person you might become tomorrow. If you have a spending problem, you should unsubscribe from your favorite store’s emails. If you’d like to save more, consider subscribing to podcasts that positively reinforce this behavior. If you think someone or something is using fear or greed to manipulate you, shut them out or turn it off. Seek out the positive influencers you’d wish for your own children.

To recap and provide some action items:

  • Hire a professional.
    • Specifically ask them if they follow the “fiduciary” standard.
  • Avoid financially systemic risks.
    • Seek professional advice on how to mitigate controllable risks.
  • Practice behavior changes through a system of timely nudges.
    • Consider setting up reminders on your smartphone or subscription-based reminders from your trusted service providers.
  • Become self-aware of your biggest influencers.
    • Make meaningful changes to help you become the financially fit person your kids need you to be.

For more information, reach out to your BKD trusted advisor or use the Contact Us form below.


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