I read a post today on the CFA Institute’s website written by William C.G. Ortel. William asks the question, “Have you made a profit on your life?”. I think this is an interesting way to think about spending and saving habits.
We all allow ourselves to get so consumed by things like earnings announcements, the latest Fed minutes, and the financial media’s flavor of the week. The reality for most of us is that our savings habits are far more crucial to our financial well-being than any of that. Will put it nicely writing:
“Investment media occasionally does a poor job reminding its readers that, as far as their wealth is concerned, the most recent high-profile earnings announcement is a passing distraction compared to their savings pattern.”
We’ve all been told to “focus on what we can control”. We know it’s the right thing to do, but it doesn’t make it any easier to actually follow that good advice. Sure, investment returns are important. But if you’re piling up credit card debt every month or spending more than you make, I’d argue that your IRA’s return is the least of your worries.
William broke it down like this (emphasis mine):
“Imagine that your personal life is a business. Are you profitable? If you’re neglecting your loan balances and buying expensive things on credit, consider how you would react if one of the companies in your portfolio was doing the same thing. What about a company that managed to go a whole lifetime without ever generating a meaningful amount of cash?”
So think about it, would you be a profitable company? If not, you may want to reassess your financial plan. You can start by getting to know yourself financially.