Ross Levin is the founding principal and president of Accredited Investors Inc., Edina. He is a certified financial planner and author of "The Wealth Management Index" as well as a collection of essays "Spend Your Life Wisely." His Gains & Losses column appears on the fourth and fifth Sundays of the month. His e-mail is firstname.lastname@example.org.
Trick or treat: Here's a lesson in personal finance
- Article by: ROSS LEVIN
- October 30, 2010 - 11:03 PM
GAINS & LOSSES ROSS LEVIN
A dentist who lived in our old neighborhood gave out toothbrushes and floss every Halloween to excited trick or treaters. While the thought was both nice and tax-deductible, it even fell behind apples as sought-after swag. I love Halloween. We invest a small fortune in regular candy bars that ensure I will see a good number of kids about whose costumes I can comment or whose parents I can wave at. But I wonder about the financial planning lesson from the dentist's approach vs. ours.
How kids handle their Halloween sweets may or may not be a great metaphor for how they will handle things in their lives. But candy management certainly offers a teachable moment.
Eat as much as possible as fast as possible. These are kids who burst in the door, dump their haul out of their bags and eat until they almost get sick. In financial planning terms, if you spend freely and live for today, you may be embracing life. Or you may be lacking some discipline around delaying gratification. One of the keys to success in financial planning is postponing some of what could now be rightfully yours in order to have a better tomorrow. While this is in some ways an act of faith because we are never certain what tomorrow will bring, it is also an act of responsibility.
My wife and I have tried to instill this trait in our own teenagers through their allowance. We pay for all of their school-related activities; by managing their allowance, our daughters pay for everything else. Every dollar that they save toward college, we double. This has radically changed their buying and saving behaviors. They "need" far less when they are paying for it. As college approaches, they are saving significantly more.
Dole out one piece each night. Some kids are so disciplined with their rationing that their candy lasts almost until next Halloween. While this may seem like a great approach, it could also be penurious. In financial planning, some clients hold so tightly to what they have that money takes on an exaggerated role in their lives. We had a discussion with one of our client couples who were not spending enough and thereby shortchanging their life experiences. Over time, this behavior had developed into a stinginess that made them unable to enjoy the success they had achieved. When this happens, we try to create buckets for spending as a way to reframe how they are looking at their wealth.
Eat what's there, regardless of whether you want it. Most kids go through their favorite candy first. After several days, all that's left is the candy they don't like. But sometimes they still eat it. We often see this happen in financial planning with things people own but no longer use. They feel stuck in their present situation because they don't want to lose money on something they bought or give up something that is rightfully theirs, even though they no longer value it. If you own a timeshare for which you continue to pay annual fees to go to a place that you now abhor, you know what I mean. Rather than accept the mistake and move on, some people will often hang onto it as a form of self-punishment. Studies have shown that the best thing to do with bad news is to get everything out at once so you can get past it. By continuing to pay ongoing costs you prolong your unhappiness.
Give it all away. Some kids love to go out to trick or treat, but give away most of what they collected. While there may be good reasons for doing this, in financial planning we will sometimes see clients with inherited money try to get rid of it as fast as it came in. The contrasting feelings of guilt and entitlement can lead to destructive decisionmaking. Write down what money represents and why it feels like a burden so that you can then review this and become more circumspect with your philanthropic behavior. While giving to charity is an important component in anyone's financial plan, giving too much without really developing a strategy can lead to resentment or regret.
Eat what you like and give the rest away. Kids who pick out a reasonable amount of what they like and give the rest away are like those intentional clients who make choices consistent with their values. Strive for equilibrium -- not too much or too little. Enjoy what you have and share it with others.
It's good to eat some of the candy, just make sure to brush your teeth before you go to bed.
Spend your life wisely.
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