June 12, 2014
When it comes to playing the money game, there are two “Golden Rules.” The first Golden Rule of money says: “The one who knows the rules, gets the gold.” The other Golden Rule: “The one who makes the rules, keeps the gold!” If you’re going to play to win, you better know the rules. Unfortunately, most people never take the time to learn them.
To help you understand the retirement rules, we’ll examine the game of basketball. The object of basketball is to score more points than your opponent. The game is divided into three parts: the first half, halftime, and the second half. Let’s take a look at each half, and compare it to “real life.”
First half strategy in basketball: Start with a game plan devised by your coach, based on what he/she knows about your opponent. Take your game out on the floor, play as hard as you can, and try to score as many points as possible. Size up the opponent, make adjustments, keep an eye on the scoreboard, and try to stay ahead. The scoreboard tells you how well you are doing.
First half strategy in life: Get a job, find a coach (financial advisor), work as hard as you can (score points), and save a little money. Spend the rest trying to raise your family, keep your opponents (IRS, brokerage and bank fees, insurance premiums, market losses, inflation) from taking the ball away from you. Watch the scoreboard (investment statements, 401K balances, and debt) to see if you’re winning or losing. This first half of life is the “accumulation” phase.
Halftime strategy in basketball: Run to the locker room and take a breather. Allow the coach time to assess the game. Discover new things about your opponent you didn’t expect. Make substitutions in players if necessary. Try to take out the biggest player on the opponent’s team (don’t let him/her get the ball near the basket) so he/she won’t beat you.
Halftime strategy in life: Run to the locker room to meet with your coach (advisor). Realize where you stand according to the scoreboard (your investment statements and debts). “Accumulate” as much money as you can. Take the extra money you have due to higher wages (and maybe your kids being out of the house) and stockpile that away as well. Don’t get frustrated if you are behind. Begin a plan that includes reducing risk over time. Take time to ask your coach some questions about his/her strategy for helping you enjoy this money. Try to take out the biggest player on the opponent’s team so he/she won’t beat you (reduce taxes on your assets and income for instance).
Second half strategy in basketball: Put your best foot forward, knowing the clock is ticking. Don’t be in a hurry. Minimize your mistakes, as there is less time to go back and recover. Play good defense and execute the strategy your coach created during halftime. Don’t get into foul trouble or you’ll lose your best player. Stay focused on the main goal; scoring more points than your opponent.
Second half strategy in life: Put your best foot forward, knowing the clock is ticking (the game will end when you die). Don’t get in a hurry (you should be encouraged by your progress if you have a clear vision of where you are going). Minimize your mistakes (take less risk with your money) as there is less time to go back and recover. Play good defense (minimize unnecessary taxes and fees on your money) and execute the strategy your coach created during halftime (use and enjoy your money). Don’t get into foul trouble (having unrealistic expectations of how and when you can retire), or you will lose your best player. Stay focused on the main goal: Creating a WorryFree Retirement™ based on your vision, not someone else’s. This second half is the “distribution” phase—where the plans you put in place during the first half will determine whether you will enjoy a WorryFree Retirement™ and how much you can use during the second half.
Just as you need a good game plan to win at basketball, to create a WorryFree Retirement™, you must have a well-thought-out game plan. Accumulating money is important, but learning how to use and enjoy it is the key to life. A true financial game plan is one that allows you to do both. Accumulate money on a safe basis and distribute it out on a safe basis over the rest of your life.
Investing for the future is just like in any ballgame; you’ve got to pace yourself to win. So no matter what half of life you’re currently in, stick with your game plan and be ready to make adjustments over time. This is the key to success.