“When you go looking for something specific, your chances of finding it are very bad. Because of all the things in the world, you are only looking for one of them. When you go looking for anything at all, your chances of finding it are good. Because of all the things in the world, you’re sure to find some of them.”
- Daryl Zero, Detective Extraordinaire, The Zero Effect
When examining successful people – be it fitness, monetary, relationship, or otherwise - we typically think about all the things these people do to become successful. And indeed, there are important daily habits necessary to become financially, physically, and spiritually fit.
But what most people fail to realize is that a big part of accomplishing something great in life is making choices about what not to do. For example, people who are very fit and healthy are that way more because of what they don’t do (which takes no time or money) versus what they do. As in, two people can both have a similar routine – some cardio and lifting each week – but get different results. Very healthy and fit people don’t drink a lot of alcohol, they don’t eat a bunch of empty calories, they don’t sit around chatting at the gym, they don’t stay up super late and deprive themselves of sleep.
In the realm of finance, our near and long-term outcomes can be as much a function of what we abstain from doing as the actions we take. People who are fiscally fit do not overspend, they don’t take on a lot of debt, they don’t dedicate tons of time staring at their computer screen obsessing over short-term stock price movements, they don’t sell otherwise high-quality stocks in a panic for which they don’t need the cash for years.
When you are thinking of making improvements in a particular area of your life – financial or otherwise – start with the low hanging (and often more impactful) fruit of eliminating actions that are harming you. The act of not doing something typically takes no time or money – just discipline – and can have a far greater influence on your results than things you are doing. I’ve already mentioned a few of which are hopefully just daily habits and routines you don’t really need to think about. Take an honest inventory of yourself and ask if you really need to take X Y Z actions. In most cases the answer will be no – you are just in the habit of doing so (out of ritual, fear, boredom, etc.). Try not doing one of those things, and you will likely feel very liberated – and over time healthier financially.
Look for the Haystacks
“We’re not looking for needles in haystacks or anything of the sort,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “You know, we like haystacks, not needles, basically, and we want it to shout at us.”
When it comes to decision making in financial planning, it is more important to be sort-of right than to be precisely wrong. Misplaced precision in budgeting, asset allocation, and security selection is not as helpful as simply knowing which haystacks to chase and which ones to avoid. For example, clients will ask if it is better to use excess cash to accelerate the payoff of a recently refinanced mortgage or to invest the excess cash in their retirement account. While it’s likely that the expected returns in equities will exceed the cost of current mortgage rates, there is potentially a peace of mind in paying off the mortgage. In either case, these are two haystacks that you should seek: investing in your future self by virtue of paying off a mortgage or investing in your retirement account to fund your future needs. By contrast, as Scott pointed out above, staring at short-term price movements in positions that you don’t need to sell for years is trying to find a needle in the haystack of asset allocation that you have already invested in and committed to.
When it comes to spending excess cash (or perhaps even using a credit card) to purchase a luxury item that you don’t need, this is the haystack that you want to avoid. You simply cannot get ahead paying 18% on credit card debt. Look for the haystacks and know which ones are the right ones and which ones should be avoided.