Hello, my name is Ronnie and I am a control freak ...
<insert chorus of "Welcome Ronnie" from the rest of my assembled control freak brethren>
If there were such a thing as Control Freaks Anonymous (I don't think there is but I could be wrong), we would begin by reciting the Serenity Prayer:
"God, grant me the serenity to accept the things I cannot change,
The courage to change the things I can,
And the wisdom to know the difference."
As a recovering control freak, I have to constantly be on guard for letting my desire to control things outstrip my ability to actually do so. This is seldom more true than in the world of saving and investing, where there is much beyond my control and very little (comparatively) within it.
When swimming in the sea of our financial lives, the ability to recognize that which we cannot control is key and sometimes there are nuances to that recognition. For example, I can't control market interest rates, as I am not in sole control of the Federal Reserve. I can however control, through research, where I put my money in order to get the best interest rate available to me.
Given what's been going on the last few weeks and months in the global economy, I thought the timing might be right for reminding myself and my fellow control freaks about a few of the things we can and cannot control in our saving and investing activities. Let's begin with the things we can't control, since those are the most unpleasant and we want them out of the way first:
What We Can't Control
- Market volatility - The market and its corresponding indices covered in the media (Dow, S&P, NASDAQ, etc.) are going to change every minute of every hour of every trading day and there's not a thing we can do about it. Like a perpetual roller coaster, we must resign ourselves to the ride if we're going to be in the market at all. Whether you should be in the market at all is a topic for a different day...
- Interest Rates - See previous example. The savers among us would love to see higher interest rates, the borrowers want to keep it lower. Suffice to acknowledge that we can't control the prevailing rates and move on as best we can.
- Wall Street and Corporate Behavior - The big banks, investment firms, corporate CEO's, and their executives are going to do what they're going to do, which is to do their best to squeeze as much money out of the system (and us) for themselves as possible, in any way they can come up with. It may be illegal or immoral, but they're going to do it and we won't know about it until after the fact.
- Taxes, Now and in the Future - Taxes are a necessary evil of modern life and you're going to have to pay them. Sooner or later and in some form or another, you'll pay them and you can't let avoiding taxes control your every decision. What rate you might pay for a given circumstance, particularly when thinking about a retirement horizon that might be 30 years away, is ridiculous to consider since nobody knows what the situation will be then. Remember, you can be guided by tax implications but your actions should not be dictated by them.
Now that is by no means an exhaustive list of what we cannot control (feel free to add your own in the comments below) but it's a few highlights. The trick is to truly realize we can't control them and not let that get in our way emotionally or psychologically. Now let's shift to the more pleasant things, that which we can control.
What We Can Control
- Spending - All spending is discretionary to one extent or another. Sure there are expenses you can't avoid like food, clothing, shelter, etc., but you can control how much you spend on them. Some expenses are fixed in the short term but can be changed later, like being 6 months into a 12 month lease on an apartment; you can't control it for the remaining 6 months but you could move somewhere less expensive later. You don't need the latest iPhone and you won't die of starvation if you don't shop at Whole Foods. Spending is something you have a great deal of control over.
*Side Note: never,ever, be ashamed or embarrassed about clipping and using coupons. Whether things are very tight for you or you're rolling in money, coupons are awesome if you can use them for the things you want, particularly groceries and meals out.
- Saving - When combined with changes in Spending, our ability to save is our most powerful investment tool. We control what we do with our savings in terms of our emergency fund and where we put it to have easy access but still get a decent interest rate. We control where and how much we devote to retirement savings, our kid's college fund, or just saving for a new car or improvements to the home.
- Income - We have a degree of control over our income, whether that's asking for a raise in our current job, a promotion, changing companies, getting some extra education and changing careers, or, in a pinch, getting a 2nd job delivering pizza. One way or another, we do have some control over our income and using that control will impact other areas of our lives, notably Saving and Spending.
- Taxes - Yes, you read that right. Taxes shows up in both categories because while you can't control them to the point of never paying them, you do have some degree of control over when and how much you might have to pay, depending on your individual circumstances. Deferring income to a subsequent year, using a ROTH IRA instead of a Traditional IRA, judicious use of an FSA or an HSA for healthcare expenses, etc. Your accountant or financial planner can give you some advice on this sort of thing but there is some control to be had. It's not ultimate control, but it's better than nothing.
The thing we control freaks must admit and adjust to is that much of life is beyond our direct control. We must accept that fact and let it go, being content to control what we can to achieve our desired outcomes. In saving and investing, like many other things in adult life, there is no option to take our marbles and just go home, refusing to play the game. To have any chance at things like a reasonably comfortable retirement, a decent roof over our heads, etc., we must play the game the best way we can. This sentiment is summed up very succinctly, at least for me, by one of my favorite movies in the following line:
"There's no sense asking if the air's good when there's nothing else to breathe ..." Henry II, "The Lion In Winter"