I love baseball. If you just think of the number of variables involved in every play, and how the strategy of the game changes from each pitch to each batter, what’s not to love?
My love of ‘the game’ also involves the time between the last pitch of the World Series and the first pitch of the regular season, also know as the Hot Stove season. This is where fans speculate and consider whether their team will sign a notable free-agent or trade for a player that will hopefully complement their March to October baseball.
As a lifelong Yankees fan, I have watched and read with interest the various moves and speculation about the potential moves, signings, and their implications. There is a vast number of variables that impact the outcomes of moves or non-moves.
When it comes to your money life, there is also a vast number of variables that impact your chances of success.
Consider the practice of contributing to your 401(k) or other retirement plan. You must consider many things, like how much to contribute, how much time you have until you begin drawing, how much risk you are willing to take vs. how much risk you need to take, whether to increase your contribution as the allowances go up, whether and when to rebalance the portfolio, not to mention how to assess the given choices, costs, management expertise and performance.
Let’s take another example. Consider the number of decisions and implications of buying life insurance. You must consider many things like how much to buy, the type to buy, when to buy, how long it’s needed or appropriately, the quality and reliability of the company, the underlying assumptions of the policy, and any convertible features or built in flexibility.
The same can be said for “Save/Spend” decisions — buying a home vs. renting, locating assets for tax efficiencies, hiring professionals, gifting, investment strategies, estate planning, and selecting a 529 plan.
The sheer number of possible outcomes is enormous depending on the nature of your decisions and how you go about making those decisions.
Like baseball, each decision can have a wide array of potential outcomes, but the ramifications of poor decisions are vastly different.
A baseball fan always has “next season”, but in terms of your financial well-being, you cannot say the same.
Here are few basic tools to employ in trying to “hot-stove” your financial life.
1. Devote time and energy to understand risk. There is so much more to risk than just analyzing market volatility. Time is your best ally or greatest enemy.
Baseball teams buy policies to protect themselves if their expensive players go down with injuries. Do you know where the risks lie in your money life?
2. Focus on the big decisions. It’s the big things that matter most, not cutting down on a latte here and there. How much do you earn (inflow)? How much of that do you apportion to save, invest, and/or spend?
Ball clubs know how much revenue they can expect, how much they pay their players, and how much the organization costs to run. They also know how much profit they expect to extract. Do you know your numbers?
3. Minimize the complexities. There are always new schemes, ideas, and ‘gray area’ strategies that seemingly provide an edge. But in the long run, the downside typically outweighs the upside.
When the estate tax laws were more restricted, many people paid significant fees to arrange their estates to mitigate or escape tax. As soon as the law changed, it was all a waste of time and money. In the long run, keeping to the basics delivers the most reliable results.
Ball clubs begin with certain premises when selecting their trade targets, draft choices or free agent acquisitions, and calculations and negotiations go from there. But at the end of the day, someone has to pitch, catch, hit and win or lose. Why is hitting a round ball with a round bat so tough?
4. Chart your progress and make adjustments. Your money life is not a “set it and forget it” affair. It requires your attention and intention. Unintended consequences, changes in the law or public policy, increases in inflation, stock market disruption, political upheaval, technological changes, and economic conditions all have potential consequences on your financial success. You need to know when to shift and when to stay put.
In baseball, a drafted player isn’t going to proceed from A ball to AA without advancing their skills. No one goes from Rookie ball to The Majors without increased skills and abilities, and the organization knows full well who’s doing what.
As we draw closer to opening day, I am excited by the prospect of how my team will do. I anticipate how the newly acquired talent will perform as well as the returning members of the squad. I know that injuries are a part of the game, as are the impacts of variables like rainouts, travelling schedules, pitching rotations and the strategies and skills of the adversaries in the opposing dugout.
Your financial well-being is fraught with variables, possibilities, unexpected changes and challenges. But if you devote your time and energy to understanding risk, focusing on the big picture, minimizing complexities, and keeping on top of your progress appropriately, I have to believe you will put yourself in contention for post-season success. Batter up!