Obsession can be somewhat dangerous as one can get lost in the same train of thought for extended periods of time. There are some financial behaviors or quirks we as individuals exhibit which could be considered as obsessive traits. This in turn can warp our outlook on money. Below are a few examples of these “obsessions”:
Having a savings-focused mentality is a great thing in order to get to retirement or to accomplish any savings goal. However, the downside to this is that after decades of saving, we will likely adopt a scarcity mindset that can be difficult to shake off during retirement. For retirees with significant wealth, it can be quite a hurdle in order to rewire the mind in order to fully enjoy all that has been saved.
A helpful visualization of overcoming this is a financial plan. Customizations within plans allow an individual to see how much one can spend and test this spending number to its upper limit to see what is possible. Doing so can give one a sense of security as they are no longer in the dark of what is achievable.
Emergency Fund Obsession
While it is extremely important to have an emergency fund, sometimes one can get too fixated on how hefty this amount should be. While 3-6 months of expenses is the widely-accepted standard, one may want to have one, two, or maybe five years’ worth of cash on hand because of market uncertainty. It is here where one’s personal predilections and financial advice conflict with each other.
An advisor’s role is this situation can help dive deeper into this issue. Just like with the frugality obsession, a financial plan can illustrate how a reasonable emergency fund makes the plan work. Having an excessive emergency fund can affect a plan’s success if too much money if left as cash.
Net Worth Growth Obsession
It is always a good sign to see your net worth growing. Seeing that number grow is not only rewarding one’s savings habit but it is also a great indicator of how far one has come. However, this may not be as pleasant if a market downturn causes this net worth number to go down. Checking this number daily or weekly can build up an unsettling feeling which can lead to an urge to tinker with one’s portfolio. We would recommend checking your net worth no more frequently than quarterly. Once per year is probably enough for most folks.
One should check financial accounts often to ensure there is nothing out of place. However, checking too often (i.e. multiple times a day), can lead to feelings of anxiety. It is now easier than ever to indulge in this with online banking and investment accounts. Just as one’s mental health is affected when checking social media, these effects can also be experienced when checking financial accounts.
While these are just a few of the more common obsessions one can indulge in, it is important to take all these things in moderation. Setting one day aside bi-weekly or monthly to check in can reduce the unsettling or anxious feelings when examining one’s personal finances or net worth. Checking in with a financial advisor can also help when any feelings of anxiety creep in.
Weingarten Associates is an independent, fee-only Registered Investment Advisor in Lawrenceville, New Jersey serving Princeton, NJ as well as the Greater Mercer County/Bucks County region. We make a difference in the lives of our clients by providing them with exceptional financial planning, investment management, and tax advice.