How is it that the man least interested in finances taught me some The Psychology of Money lessons that are most important? Was he a subscriber to The Wall Street Journal? Did this man pour over personal finances books, stock quotes, and prospectuses? Was he one of the wealthiest men in America? The answer is that this man did not do any of these things. This man was my father. My father’s superpower was being a psychology expert and this extended to money in a very powerful but unintentional way. These lessons will allow us to energize the Retirement Police in 100 Months or less.
Psychology of Money Strategies Include “set it and forget it” investing
My father never earned over $65,000 annually yet he retired a millionaire.
My dad did not focus on money, but he emphasized counting his blessings.
As I have previously revealed, both of my parents were children of The Great Depression. In terms of the psychology of money, The Great Depression left an indelible on both my parents. Let e be clear, I never heard my father or mother speak of Financial Independence. I would imagine people emerging from the Great Depression came out of this experience one of two ways:
1) A strong desire to be rich beyond their wildest imagination so that they never felt “poor” again; or
2) Feeling so blessed that you were able to survive on so little that you never wanted for much but the basic life necessities.
If there really are two categories, my father (and my mother), perhaps ironically, were in category two. My father and mother focused on counting their blessings.
The Psychology of Money is finding a spouse who is good with money
My father did not pursue a life of material possessions or being “rich” because he grew up without money. “We did not know we were poor, because everybody I knew was poor,” my father explained regarding The Great Depression.
As a result, post-The Great Depression, my father’s psychology of money always reflected his belief that he was blessed by a roof over his head, food on the table, clothes on his back, and a little extra money for a “rainy day.” My father literally had no interest in the stock market, his bank account, and most days barely knew how much cash was in his wallet because he spent very little money.
On the other hand, my mother was keenly aware of how much cash my parents had on hand and in their checking and savings accounts. My mother was a born saver and debt averse. Working as a bank teller while my father pursued his Ph.D. my mother handled their finances throughout their marriage. Despite an extremely debilitating physical illness for nearly two decades, my mother’s mind was sharp. My mother led the family financial decisions even until her last days. So how is it that my father provided me the most important psychology of money financial-related lessons? It was mainly due to my father’s financial temperament outlined below.
It is best to be emotionally detached from financial decisions
The ups and downs of investing, savings, and unexpected events impacting the financial aspects of their lives did not noticeably illicit emotion from my father.
- My father did not spend emotional energy on, say, the 1987 stock market crash or market corrections.
- My father did not attempt to time the market. My father was a brilliant man, but he probably did not even know what “timing the market” meant.
- My father just kept plugging away at his own work and trusted that it would all work out in the end– he saved himself a lot of emotional distress.
- My father knew that my parents were living below their means and while they did not knowingly (at least not based on my financial discussions with my parents) undertake an exercise like saving 25 times their income, they had more than enough when he finally retired given factors outlined below. I cannot state this with certainty but based on the fact that my parents eventually maxed out my father’s 403(b) plan and accumulated “wealth” via other safe financial vehicles such as certificates of deposit and money market accounts, I do believe they did attain 25 times their annual spending. The caveat here being that in the last few years of life, in which my father required assisted living, his annual spending far exceeded annual spending in the previous decades.
Set it and forget it strategy for retirement
My father may have been oblivious to daily stock market fluctuations, but my father knew he had to save for retirement. My grandfather had an excellent pension with a strong and stable company. By the time my father began his career the employer investment option he was able to access was part of pre-tax retirement accounts or tax-deferred accounts, in my father’s case, a 403(b) plan (the non-profit equivalent of a 401(k) plan).
- Oblivious or Forgetful Investors. My father did not eagerly anticipate the quarterly 403(b) statements; in fact, he rarely opened them– but my mother did. Certainly, one should have a more active interest in any investment adjustments that should be made, but my point is that even as an “oblivious investor” his commitment to a diversified portfolio over decades yielded more wealth than he was able to spend in his lifetime. I never heard my father express a desire to be a millionaire or discuss his investment goals. In fact, it’s unlikely he thought about it. How is it possible that such a passive investor could be so successful?
- My father and mother would be classified as successful forgetful investors. According to a study by Fidelity Investments, individual clients who were dead or forgot that they had an account at Fidelity did better than those who knew and were active with their accounts. Ironically, this is probably a major contributing factor in my parents accumulation of more wealth creation via the market than was expected– because they never tried to beat the market– and instead passively followed a set it and forgot it strategy.
As The Millionaire Next Door would say, “Be a Prodigious Accumulator of Wealth (PAW)” by:
“Paying Yourself First”:
My parents were PAWs. The biggest way they did this was by “paying themselves first” each month. Money for retirement came out of my father’s paycheck even before it was taxed. My parents never even saw the money they were putting into a pre-tax retirement account. Budgeted items included, my parent’s mortgage, car payments, any regular monthly expenses. With limited dollars, my parent’s “entertainment” expenses only happened if there was enough money. However, my parents did budget for their college basketball season and local symphony orchestra tickets; passions but reasonably discounted prices.
From day one, my father invested at least the minimum amount of funds required to receive the company match. The company retirement match is an incredible bonus that is not always offered by corporations and non-profit organizations.
- If your company still offers a matching contribution to your retirement account, find a way to take advantage of it. I have had people tell me that they “cannot afford the company match.” Unfortunately, this is leaving money on the table. Try investing one percent of your income for a month. The next month increase this percentage by one percent. Keep increasing your investment by one-percent each month until you hit the company match. You may not feel the “loss of this income” as much as you think you will. Your employer has factored in the “company match” as part of your compensation package. If you are not taking advantage of the company match you are actually saving your company money.
Instead of spending the raise, my parents invested my father’s annual raise back into the 403(b).
Honestly, I’m not sure how my parents handled inflationary increases. I think they just went without little treats here and there. Your Money or Your Life co-author Joe Dominguez stating, “There is the possibility that consciousness grows faster than inflation.” Joe asserted when you are cognizant of your expenses, even with high inflation, you can live on even less because its not worth spending the life energy.
As my parents paid off debts (mortgage) they increased investment in my father’s 403(b) until it reached the legal maximum. In doing so, my parents did not express that they “felt” deprivation while investing for the long-term.
- Once you hit the max, focus on other savings vehicles. After maxing out a 403(b) retirement account, my parents began to deploy their “excess” discretionary dollars into other investments. My parents utilized low-risk certificates of deposit and money market accounts earning 5-percent or more.
We continue to utilize these same strategies on our 100 Months on our journey to Financial Independence (FI) by age 59+.
*Disclaimer: The content on this website or any blog posts is not intended to be investment or life advice. Readers should consult with their legal, financial, and accounting specialists and spiritual and/or life coaches to provide insight on their personal and specific circumstances as each situation is unique. The website and any blog posts are written for entertainment purposes only.
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