Financial Wake Up Call for the DIY Crowd

Financial Wake Up Call for the DIY Crowd 10 28 2014The financial DIY crowd tends to fall into several categories:

  1. The Mindful are smart, with the time, energy and desire to do their research—they work hard, putting in the time to sift, read and analyze available data.
  2. The Bubblers live in a bubble of belief that they are smarter than anyone out there, so why pay for help?
  3. The Muddlers aren’t very knowledgeable, but believe they can figure it out—eventually.
  4. The Avoiders know little and do the absolute minimum to get by, believing that magically, the solutions will come.

Jim called to make an appointment, first making sure that he was speaking with a planner who was a fee-only fiduciary. Sitting in the conference room, Jim began,

“I’ve been doing all the financial planning for my family all my life. As a researcher, I am accustomed to digging deeply into issues and figuring out the best solution for my family. I am preparing to retire next year and I thought it would be wise to get a second opinion.”

Obviously, Jim falls neatly into the category of the Mindful. Jim separates himself from his fellow DIY’ers by his ability to realize that he might have missed something and as he is bumping squarely against retirement, he’s better off knowing now than later. A Bubbler would dismiss the very notion that they could have missed something, let alone something important. Muddlers and Avoiders either won’t acknowledge what they don’t know or don’t care enough to find out.

Very few of us possess the ability to be objective about our situation and ourselves. After all, if you believe you’re doing the right job or making the right decisions, why would it occur to you that you just might not be all that? In Jim’s case, his life in retirement and the security of his family are potentially at risk and that was motivation enough to open the discussion. The stakes were high enough for him to reach out for help.

The Bubblers, Muddlers and Avoiders walk a very dangerous road, especially when their estimates of their knowledge or abilities overreach reality. Piloting your financial life is more than setting up your 401(k) allocation. Following the “rules of thumb” is just plain silly in most cases. The “rule” might tell you to have three to six months of living expenses in cash. But your situation might dictate more or less. Another tired and hackneyed “rule” is that you should own your age in fixed income. Kick this one to the curb too—it’s as relevant as “a stitch in time saves nine”.

There are tax and estate planning issues (sometimes highly technical) that require careful and detailed work. There are decisions to be made that center on judgment: how much life insurance do you need and what product is appropriate; or thinking about your life in retirement and all the changes that brings. The retirement conversation is deep and wide, as it encompasses the anticipation of significant changes—from where you live, potential health concerns, creating a life in retirement that is rich and meaningful—right on down to legacy issues. It’s a lot.

When it comes to having financial security, try to be objective and ask yourself: “What if”? What if my assumptions are wrong? What if I’ve missed something important? Life is too important to take unnecessary risks. So if you’re going to DIY, at least place yourself firmly as a Mindful. It helps takes the worry out and provides the best chance of living the life you value most.