8 Steps to Ascend Your Financial Peak | Part 1

Author: Nathan Rowader
Date: August 21, 2014
Category: Financial Planning
Tags: , , , , ,

In May of 1953, Sir Edmund Hillary and Tenzing Norgay became the first people to reach the summit of Mount Everest. The accomplishment earned Hillary and Norgay worldwide acclaim, something they hadn’t expected. Today, taking the summit of Mount Everest can be analogous with the journey many of us embark on when trying to achieve great things. While achieving financial success may not be as difficult as climbing the world’s tallest mountain, it certainly can feel that way. So, what can Hillary and Norgay teach us about realizing our financial goals?

1. Prepare Your Mind for the Journey Ahead
The 1953 expedition was not Hillary’s first attempt at mountain climbing and not all of his attempts were successful. In fact, just the year prior he was part of a team that failed to climb the sixth highest mountain, Cho Oyu, located 30 miles west of Mount Everest. Despite this failure, he was undaunted and likely saw the failure as a learning experience, full of valuable lessons he could apply to later expeditions.

Our modern world places a substantial premium on success, especially financial success. Some of us might even believe that it defines us as a person. Many also have deep emotional issues revolving around money. These issues are often the reason that we overspend, amass debt or simply fall short of our financial goals.

This first step should sound familiar to you since it is typically the first step to changing any habit (i.e., dieting, quitting smoking, exercising, etc.) and it should be treated just as seriously. Step one is to prepare your mind for the challenge ahead by reshaping your attitude or relationship with the issue at hand, in this case money. Fortunately, there are a lot of good resources out there to help you shift gears and learn how to become a great investor.

2. Choose Allies for Your Financial Journey
It is rare that anyone accomplishes their goals in life alone. Hillary was part of the ninth British expedition to Everest, which included over 400 people carrying more than 10,000 pounds of supplies and equipment. While the glory definitely went to Hillary and Norgay, this feat wasn’t accomplished without the help of many other dedicated people.

So, the simplest thing you can do is pinpoint individuals within your circle of friends who might share some of your financial goals such as retirement or buying a home. Try initiating a regular dialogue with them about some of the challenges and successes they have encountered while moving toward those goals. These conversations are not without pitfalls, however. Some people can be embarrassed by their financial mistakes and may choose to only share their successes. By comparison you might feel that your friends are some type of financial dynamos and you may be afraid to have an open and honest discussion with them about your own challenges. Therefore, when looking to your friends for help, set the ground rules early on to help everyone feel that it is safe to be open and honest.

Another great option is to seek the advice of a financial professional. When you research this topic you will find that there are many hard opinions on the subject of fee-only advisors versus commission-based advisors. The fact is that only you can decide what type of advisor you prefer, but the most important part of the advisory relationship is covered in the next step.

3. Make a Plan
When searching for help, focus on the development of a financial plan. One can imagine that the ninth British expedition to Everest didn’t strike its way up the mountain spontaneously without a predetermined plan. In fact, the team actually spent a great deal of time surveying their course and setting up camps in advance of the ascent. Just like Hillary and Norgay’s momentous achievement, financial greatness also requires a solid plan.

Many investors focus on the potential returns of certain investments and then assess their financial fitness on whether or not they are achieving their returns. This is a case of the tail wagging the dog. Hillary probably didn’t tell the team that he thinks he can run a four-minute mile up Mount Everest and that they should plan their expedition accordingly. Instead, they pinpointed a reasonable pace and route in advance based on the number of people, weight of supplies, weather and potential injuries. They were subject to certain constraints, and as investors, so are we.

A good financial plan will take stock of your resources and constraints (such as income and debt levels) and determine how you can comfortably achieve your financial goals. The Certified Financial Planner Board of Standards’ 2013 Household Financial Planning Survey reveals that “even in an uncertain economic climate, financial planning leads to better outcomes for those who take the time and make the effort to plan.”1 It also highlights that the more comprehensive our financial planning the more likely we are to believe that we live comfortably and have greater confidence that our financial goals are within reach.

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Once you’ve determined your financial goals and fleshed out a comprehensive financial plan, you can determine the rate of return required to reach your desired outcomes. This rate of return is now the most important step to assessing your financial fitness. The types of investments and their success metrics should be tied to your goals―not an uninvestable benchmark like the S&P 500 Index.

While ascending Mount Everest, Hillary didn’t decide to abandon his plans because a Sherpa told him a rumor that someone else had already summited, and, by the way, did it faster and better. Even if that did happen (first off the Sherpa should be sent back home), Hillary would have stayed committed to his plan with the confidence that achieving his goal was more important than trying to beat some rumor of a better-performing expedition.

4. Execute the Plan and Adjust as Necessary
Change is a constant in our lives. In July of 1952, Colonel John Hunt was appointed to head the expedition to Everest over the de facto choice, Eric Shipton. Many of the expedition team members, including Hillary, were disappointed by the change. Hillary even considered withdrawing but was talked out of it by Shipton himself. He also intended to do the climb with his good friend George Lowe, but was assigned to a team with Tenzing Norgay. Obviously he got over his personal disappointments, adjusted his expectations and the rest is history.

Executing a plan is only part of the path to success. Every few months or so you should hold yourself accountable and evaluate your plan either with your trusted group of friends or your financial advisor. In the short term, you need to focus on things like your rate of savings, spending habits, changes in your financial situation, such as a new job, change in marital status or unexpected expenses. These changes will impact your financial goals and will help you see the relationship between your everyday choices and your long-term financial plan. What you find is that you will start to evaluate your choices through the lens of your goals and suddenly things like major expenses or working toward a promotion become easier to navigate. Perhaps you find yourself deciding not to buy that brand new TV you’ve been wanting and invest the money instead to get a month closer to retirement.

Stay tuned for the final four steps to help you ascend your financial peak.

1. CFP Board 2013 Household Financial Planning Survey and Index, September 18, 2013.

RISKS

Investing involves risk, including possible loss of principal. The value of any financial instruments or markets mentioned herein can fall as well as rise. Past performance does not guarantee future results.

This material is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product, or as an offer or solicitation with respect to the purchase or sale of any investment. Statistics, prices, estimates, forward-looking statements, and other information contained herein have been obtained from sources believed to be reliable, but no guarantee is given as to their accuracy or completeness. All expressions of opinion are subject to change without notice.

Nathan J. Rowader is a registered representative of ALPS Distributors, Inc.

One cannot invest directly in an index.


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