Both my dad and my good friend Kara (not her real name) saw huge changes in their bank accounts in the past few years.
Their home prices sank. Their investments were cut in half. Their businesses teetered on the verge of collapse. And it’s during this time of tremendous change – these tough times – that their emotional strength was tested.
But their reactions are wildly opposite.
Kara never wanted to learn about money in the first place. Even during the so-called “good times,” when home prices were skyrocketing and the markets were on a bull run, she thought it was greedy – and sad – to devote her energy to thinking about money.
At the same time, she knew she was supposed to start saving for retirement. So she opened a 401(k) and put her retirement contributions into mutual funds, which someone told her was a ‘safe bet.’
But she never paused to learn about the market. She doesn’t know how large of a fee her fund managers pay themselves out of her nest egg. She never learned to ask herself what level of risk she would prefer. She never set financial goals.
Then the market chopped itself in half.
Kara now sees investing as too risky, too fraught with downside and loss. She knows that her retirement savings have been cut in half and she mulls over the hours she spent earning that money.
“Do you know how long it takes me to earn $1,000?” she tells me. “And it just disappears – poof! – just like that, in a day! I didn’t even get to spend it on anything fun!”
Kara focuses on loss. She views the downside as ‘permanent,’ not as a temporary dip in the roller coaster of life.
She’s only 28 years old but she’s already sworn to avoid ‘risk’.
“What happens if I’m about to retire and we go through this recession again?” she tells me. “I’ll be screwed! I just want to put my money somewhere safe.”
My 70-year-old dad took the opposite reaction.
He sees the change as temporary. For the moment, his chips are down. For the moment, his retirement portfolio is smaller and his home is worth less. But it’s only for the moment. Just wait until tomorrow.
“But Dad, you’re 70,” I tell him, and he replies, “which means I still have 20 or 30 more years to go!”
He views economic change as a time when wealth is transferred from one group to another – and he wonders, “How can I position myself on the winning end?”
But he’s only able to do that because he invested the time – decades ago – to learning how stocks, business and real estate work. He set goals. He won some and he lost some. He learned to take it all in stride.
A few weeks ago – actually, on my mom’s 70th birthday – we were all sitting at dinner when he said to me: “Homes are on sale right now. I want to buy a rental property but I don’t want to do any of the repairs and maintenance. I’m going to pay a property manager to do it, unless you want the job?”
And I thought: “Here’s a man who knows how to leverage opportunities – and how to make the most of people’s time and talent.”
Our response to tough times is a window into how we view the world: as a place of scarcity or a place of abundance.
The more your personal finances change – as your debts are repaid, your income increases, or your nation’s economy undergoes a massive shift – the more opportunities you’ll be blessed with. “Change” equals another chance.
It’s exhilarating to recognize your personal wealth for what it is – a roller coaster – and to choose to enjoy the ride.
by Paula Pant