By Byron Moore, posted April 3, 2017
Originally published in the News Star and the Shreveport Times on Sunday, April 2, 2017.
Q: I am mid-career, doing well there with good prospects for advancement. The stock market seems to be doing good, so that’s where I have most of my 401K money. It had an awesome year last year. I think I’m hitting on all cylinders. Anything I’m leaving out?
A: Only that which you can’t see. Or won’t.
Former president Bill Clinton, Facebook founder Mark Zuckerburg, actor Paul Newman and iconic American humorist Mark Twain all have one thing in common. They have stated publicly that they are color blind.
The National Eye Institute describes color blindness as “a color vision deficiency,” meaning the color blind person’s “perception of colors is different from what most of us see.” Men are much more likely to be color blind than women. That should come as no surprise to any woman whose husband comes to breakfast wearing brown socks and navy pants. “What?” he reacts to your attempt at sartorial correction, “they’re all dark!”
Well, just as some of us don’t seem to see certain colors well, I’m convinced there is a financial version of color blindness operative in most of us.
I believe financial optimism is fundamentally healthy, but not blind optimism. Financial optimism tends to see the ideal version of the world and tends not to see upcoming problems or obstacles.
Financial confidence when facing financial obstacles is a good thing. Financial color blindness that does not even see those obstacles is not. But confidence and color-blindness can look like the same thing…until reality hits.
Some “financial colors” commonly missed are:
Red, the color of loss. Financial losses come in the form of taxes paid on savings and investments (either currently or in the future), fees and interest paid on debt. These items are certain losses, yet most of us get so used to them they remain camouflaged. As a result, we do little to reduce, eliminate or recover these losses. We just live with them.
Yellow, the color of caution. Financial risks may or may not happen, but if we don’t even perceive them, we do little to guard against them. So we carefully guard against a few hundred dollars of risk by having low dollar deductibles on auto insurance, yet expose ourselves to nearly unlimited upside risk by having low liability limits in the same policy. We remain blissfully ignorant of the impact of market volatility on a portfolio producing income in retirement. We maintain no cash reserves, assuming we can borrow our way out of a crisis. We live as if color-blind to risk.
Blue, the color of transition. If you are 45 years old, it should come as no surprise that in 20 years you’ll either be dead or age 65. Those are your only two options. So how crazy is it that so many people behave as if these two options come upon them suddenly, with no warning.
Look down the road. Life is coming at you and it won’t be stopped. So realize that life’s transitions will come too. Your children will grow up and move out of the house. Sooner than you think, you’ll be one of the oldest employees at your workplace. People will ask you what you plan to do when you retire.
Ignoring the inevitabilities of these coming transitions isn’t healthy. It’s financially color blind.
Grey, the color of aging. If you do make it to 65 and beyond, you will have aged. Things will change – some for the better, some not so much. A great deal of those changes (in health, in lifestyle, in free time, in relationships) you can deeply influence by how well you prepare now.
Don’t let the fact that you cannot control your future discourage you from influencing it.
You’re optimistic. That’s good!
Just make sure your optimism is accompanied by a clear eyed focus on certain financial realities you just shouldn’t avoid.
Natural color blindness has no cure, only workarounds.
Financial color blindness has excellent treatment options – but you’ll have to want to see the truth before you begin looking for it.
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