Financial Management The Key To Financial Security
Setting Your Financial Strategy
Before crafting a plan for myself around money, I needed some ammunition so I’d know what to do. Hence, I began to read everything I could get my hands on— money books, investment publications. I went to as many financial seminars by critical thinkers as I could. And I started to do some really deep thinking about the situations I’d seen during my career on Wall Street — and particularly the situation that I was seeing for women and money (it was bigger than me). I studied what worked and what didn’t — for all of us.
When I’m curious, I also take surveys. So I turned to women I knew and began to ask one question”—a question I put to to the audience I was speaking to at the Ranch and one I will put to you right now: ‘What are you doing now to make sure you’ll have financial well-being for your life when you ease out of working?’
The first time I posed my question, it happened spontaneously as I took a long stroll in the park with my friend Nora. Nora usually didn’t have time for walks because she is so dedicated to her work as a lawyer. On that day, I turned to her and said, ‘You know, we’ve both made a lot more money than we ever expected when we planned our careers. But where are we going to be when we’re sixty years old? What are you doing to make sure you don’t end up a bag lady?’
My friend’s eyes widened at the mention of ‘bag lady,’ and I knew that I’d struck a chord. She turned to me and said, ‘Well, I have a car and a house, and that’s about where I am right now.’
A few days later, I talked to another dear friend, Sylvia. She gave me the same answer: She had a car and a house. A pattern was emerging. I pressed on.
That night, I called a woman I had known in college. We often chatted by phone just to stay in touch, but rarely saw each other. She lived in New York City, was married with two children, and did a little freelance editing when she had the time. I asked her the same question. ‘We own a co-op here in the city,’ she replied. ‘What about a car?’ I asked. ‘Are you kidding? No. I take the kids around on the bus or the subway,’ she said. Whew! No car.
I even talked to the woman who cuts my hair. Guess what? She owns a small two-bedroom house and, yes, a car.
Even Financial Planners Don’t Always Practice What They Preach
Finally, I decided to go straight to the source. I called my friend Jackie, an investment banker at Fidelity Investments. Surely, I figured, she would have some brilliant inside strategies for her personal finances. We arranged to meet for lunch one day, and after our entrées had been served, I turned the talk to money matters.
‘So I guess Fidelity Investments has an excellent investment program for employees. You’re so busy traveling from city to city, there’s someone at Fidelity whose only job is to make sure that your earnings are well invested, right?’ I asked. I envisioned a committee that provides the company’s investment expertise to employees to ensure that they will have financial peace of mind so they can then do their jobs better.
I almost dropped my fork at Jackie’s response. ‘Well, the fact is,’ she said, ‘I invested in some Fidelity funds and lost money, so instead, I just bought a big house. Oh yes, I have a BMW and a Range Rover, too.’
The pattern was clear. My baby-boomer friends were ‘investing’ in houses and cars and then stopping because they, too, hadn’t come up with any good strategies for growing their money. Our parents, our schools, our employers, our financial institutions, our popular culture—not one had taught my friends and me how to use our money.
Something was seriously wrong.
We Treat Money Matters Like We Did Fitness 10 Years Ago
Where we are today regarding financial management is very much where we were a decade ago regarding personal fitness. At one time it was commonly believed that if you ran at full speed, jumped up and down a lot, and sweated profusely, then you would eventually become physically ﬁt and thin. Today the more accepted wisdom is that old-fashioned anaerobic exercise—the kind in which you’re moving so hard that you can’t talk—actually sends your body into survival mode. As a result, the body stores fat, probably defeating any weight-loss or health goals you seek through exercise. Now we know that a regular walk in the park that involves both your body and spirit will produce consistent physical and mental benefits.
And we can find other examples of common beliefs that are now outmoded: for example, our past beliefs about nutrition. When I was growing up, we were told to eat three large, balanced meals a day in order to be healthy and ﬁt. Today, many nutritionists and doctors say that smaller, low-fat meals—one or two of them being fresh fruit or vegetables—make a more healthful diet.
Thankfully, the word about proper exercise and diet is spreading rapidly among women of all ages. But many women are still in the dark about financial management. And Wall Street itself deserves much of the blame.
At many of the major Wall Street brokerage houses I knew, the primary approach to building wealth was to make big chunks of money for the client—and, more important, for the broker—all at once. No value was placed on slowly, patiently building a bundle for the future. If you buy into that living-for-the-moment rush, then yes, the risks are very high, and the anxieties of first-time investors are an understandable reaction to the frenzied Wall Street approach. But beneath the hype and excitement of the ‘fast money’ game is the real motive for the financial industry: generating the highest possible commissions for unscrupulous brokers and increasing the wealth of the ﬁrm.
“When I worked on Wall Street, I noticed that the investment information itself wasn’t too tough to understand, but it was often presented in a jumbled manner that was heavy on jargon and short on simplicity and logic. It almost seemed that someone deliberately wanted to make financial information confusing to the average consumer. I noticed also that brokerage statements presented information in ways that confused clients and often omitted essential information—like what a client paid for a specific investment and its current value. With a little effort to straighten it all out, though, and to put it into sensible language, nothing was particularly difficult.
Financial Community Interested In Separating You From Your Money Not Building Wealth
“Eventually, I realized that the financial community is interested more in separating you from your money than in building your wealth. As a result, investor education is a low priority. Even those of us who worked on Wall Street making your investments were never really taught personal financial management, or to lead others to grow wealth.”
“You mean you knew how to invest other people’s money but not your own?” someone in the audience where I was speaking asked.
“No. It wasn’t that. The point is that Wall Street isn’t really interested in investing your money, only in getting you to spend it,” I replied. “Let me explain.
“Wall Street teaches the investor to ‘buy in greed and sell in fear.’ What does that mean? I’ll give you an example: Your broker calls to give you the following hot tip: ‘FLASH—XYZ stock is really HOT. It’s about to go through the roof. You should buy it.’ Well, if you have a few bucks sitting in your checking account, you may well say okay and take the plunge.
“Several weeks later, the price of the stock has declined and you begin to get nervous. What happened to that great opportunity? Your broker’s answers are confusing, even evasive. And the business page of your local paper runs a story about how XYZ company’s profits are way below expectations. Naturally, you think, ‘I really wouldn’t want to lose all of my money.’ So you opt to sell the stock.
“Bottom line—you bought in greed and sold in fear. The only person who beneﬁted was the broker, who made commissions on both the buy and the sell.
“I once bought a stock called Bolt Technologies in the way I just described, and that burning sensation in my stomach clearly indicated that I’d made a mistake. I wound up selling it at a loss. Because of this unfortunate experience, I was discouraged from investing in stocks and other investments again for a long time.
“The right wealth-building strategy is just the opposite from what some on Wall Street practice. Rather than buying today’s ‘hot’ investment, you want to buy something that other people disregard and keep it until others value it. In this way, you’ll ‘buy low and sell high’—the dream of every ambitious investor. Whether it is building a business or buy an investment, this strategy is the only reliable way to grow your money for a secure financial future.
“Furthermore, now’s the time to develop and rely upon your own judgment when it comes to making your dollars work for you. Decades ago, many women went to male doctors, who often didn’t listen to what a woman had to say about her own body, but who presumed to know all the answers himself. This happens to women and their money, too—a woman’s competence is questioned and she’s treated like a baby. For women, the path to building wealth is using self-knowledge, making more personal decisions, and preserving their power to choose their own direction. With this in place, then perhaps you’ll partner with someone else who can increase your knowledge. There are plenty of Wall Street brokers, financial advisers, and get-rich-quick scam artists who would be happy to help you gamble away your bucks. The wealth-building strategy is to keep clear of them and to chart your course. And don’t be put off investing by a few bad-boy—and bad-girl—brokers.
You will make your decisions to grow your wealth in long-term ways for lasting cash, and pay particular interest in the discussion of building your Money Machine.