Sunday, June 26, 2011

Traits That Lead to Financial Security

The road to financial security is pretty boring. Most people who have meaningful amounts of money got there by patiently saving and investing, month by month, year by year. There are some who had spectacular career success and hit it big with stock options. Others inherited their wealth. But the majority of the financially secure got the the point of perhaps facing estate taxes because, in part, of their personality traits. What are these traits?

Insecurity. Assiduous savers feel nervous if they don't have a healthy balance in their bank accounts. More than an award winning beer mug collection or a closet full of shoes, they want a lot of zeros to the left of the decimal point in their net worths. Why they feel insecure isn't that important. It could be that one or both parents were that way. It might stem from a financially unstable childhood. It could come from difficulties starting a career--hard times early in adulthood often instill lifelong caution. Whatever the reason, insecurity promotes saving.

Faith in the future. Paradoxically, perhaps, building wealth requires faith in the future. You have to believe that money you save today will be there ten, twenty, fifty or even more years from now. If you're insecure about the future, it might make sense to party now and eat dog food later. Having faith in the future doesn't mean you believe that there are magical, no lose investments. Never rely blindly on any particular asset or class of assets. Real estate, gold, stocks, the British pound, and the U.S. dollar have all waxed and waned. What you need is a belief that you'll find something worth investing in no matter what turns events take.

The ability to defer gratification. Success in almost anything requires the ability to defer gratification. Kids who do well in grade school not only are smart, but can forego playing in order to study and get As. Earning a college degree involves deferring the opportunity to earn money and enjoy life, while perhaps taking on a pile of debt, in order to have a higher income stream later in life. Career success often means giving up a lot of personal time early in one's working life, in order to build a solid foundation on which to progress professionally. And building wealth requires the ability to pass now on two-inch steaks, $100 bottles of wine, a luxury name plate on your car, designer brand names on your clothes, and an 86-inch TV, in order to have nice things later on.

Discipline. This is where things get really boring. The most reliable way to build wealth is to save early, often and relentlessly. This allows you to compound your earnings. Compounding is the investor's most powerful weapon (see A disciplined saver has a 4,368% greater chance of becoming well off than someone who is undisciplined.

We aren't talking about strategies or techniques. Always saving a portion of your paycheck, or assiduous use of retirement accounts can definitely make a difference in your financial well-being. (See, and But you must have certain personality traits to execute the right strategies and techniques effectively. If you don't have them, you won't succeed. It's part of the American way to believe that you can change and improve yourself. If you don't have the right traits now, work to acquire them. You have a lot riding on the outcome.

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