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Financial success requires clear focus

Financial success requires clear focus

July 24, 2014

Success is often based on doing the simple things correctly. That most certainly applies to managing your finances.

A starting point is to not get trapped in the noise of our 24/7 fast paced world of information overload. Life as we know it is on steroids. We do not have to be an expert in all things. We just have to be aware of what is most important to us.

Over the past several years I have had the opportunity to attend several graduation ceremonies. There seems to be a theme throughout speeches given to graduating classes. It is that success will not come from what was studied but in the graduates’ ability to be a critical thinker.

Humans are not at the top of the food chain because we are the fastest or strongest species on the planet. We are blessed with the ability to think; a tool we should use to ensure we have financial success. Critical thinking brings some people more success than others.

Talking to your investment advisor about all of the latest “flavour of the month” thoughts that circulate throughout the investment world on a continual basis is not thinking about important financial issues.

That type of conversation is a form of entertainment. If you enjoy the conversation then fine. Just do not think that any of that fiction about what new strategy is supposed to work has any real value in achieving your financial objectives.

Please do not misinterpret what I am saying. Yes, the conversation can be entertaining but it is not productive or useful when it comes to helping you move towards achieving financial success.

For example, you and your advisor might look at charts and graphs or study the past performance of mutual funds. That’s great but what is the purpose of doing this?

How does that show you your path to financial success? Regrettably, the world of investing is not that simple.  Real life is harder and requires comprehensive thinking skills.

Our recommendation is that you focus on yourself. Your success is based more on what you do where you have the advantage of acting pro-actively.

For those who have read my previous columns, you will know I am a strong believer in completing cash flow projections to achieve your financial objectives. These projections should be done at least every year.

Not to oversimplify the investment world but success is based on simple arithmetic. Now that arithmetic is done by computers, all you have to do is input the data.

What is your target? Is it paying down debt, assisting your children with the high cost of a university education or planning for retirement? For many, your financial objectives will be a combination of more than one specific objective.

Calculating how much you can save is a useful exercise when setting your priorities. How much can you save, how much should you save and how much will you save.

Saving is real and unfortunately there is no crystal ball for charting your exact course on investing. However, there are certain guidelines that can be useful.

Stocks will most likely continue to do better over time than bonds but they are riskier in the short term.

If time is on your side then stocks might be appropriate. However, if your child is going to university next year you might be better served if any stock investments are moved to a less volatile bond investment.

Our recommendation is that you use your ability to think as your guide. Do cash flow projections annually to measure your progress and help chart the course of future saving and investing.

Focus on what is most important. Ignore the noise that circulates throughout the investment world and focus on you.