The 5 habits of fiscal fitness

I remember as a small kid watching my mom exercise while Jack Lalanne encouraged and cajoled from our black and white console television. At the time, I thought it was kind of weird. As a young teenager in Southern California, I remember smirking at Jack Lalanne's commercials for his European Health Spas. Of course Jack was smirking too--all the way to the bank. I don't smirk anymore. I stand it awe of this man and his accomplishments.

At age 94 he is still going strong. Recently, Jack told Reuters, "I work out every day for two hours. Swim one-half hour, and then I do weights." He continued, "Life's a pain in the butt. You've got to be in shape for it."

According to Jack, getting in shape requires consistent habits of exercise and nutrition. He said, "You are the sum total of your habits. It is what makes you who you are." This maxim applies not only to physical fitness but also to fiscal fitness.

How healthy are your financial habits? Are you making the progress toward the financial security you desire? If you aren't, maybe you need to take a closer look at how you are living your financial life. Here are five habits you can cultivate to develop a stronger financial physique.

The Habits

1. Take time to plan. Like any great venture, your life deserves thorough planning. Make your life count by deciding where you want to go and how you expect to get there. Don't be afraid to dream, but make sure you are ready to shoulder the responsibilities that come with those dreams.

A complete plan will cover four primary areas: spending, savings, investments, and estate planning. In each of these areas, your plan needs to incorporate an awareness of the uncertainty of life. It should contemplate contingencies and should provide flexibility. As I work with clients, we look at several "what-if's" in our effort to uncover risks and potential conflicts. The planning process takes time, but the sense of direction and confidence that come from a well-designed plan are invaluable. A recent experience highlighted the importance of this planning process for me.

In late 2007 I received a call from someone wanting help managing a fairly large portfolio he inherited from his mother. He was anxious to "get it working." He was sure the market was going higher and he didn't want to miss out. I told him I would be happy to work with him, but that we needed to do some planning in order to make sure the portfolio was structured correctly for him. In his impatience he decided to put his money with a broker -- someone who would "put it to work" without the planning process I require.

I didn't hear from him for several months. Early this year he called again, distraught over the severe losses he suffered in the 2008 market crash. He wanted help restructuring his portfolio. I asked him how it had been invested and he told me of some very speculative investments he had made. I again encouraged him to let us do some planning, but again he couldn't be bothered. I don't know what happened with him, but I suspect he sold at exactly the wrong time.

This man would have benefited greatly from a well-designed plan. The planning process would have helped him understand how his wealth should have been invested. When the market turbulence hit, it would have been a reminder to him about why he was invested as he was. That reminder would have helped him hold a steady course despite the financial storms that were raging.

2. Live within your means. Overspending is to your fiscal fitness what overeating is to your physical fitness. If you saw the popular documentary Supersize Me!, you know what happened when the film's maker tried to go 30 days eating nothing but food from McDonald's. The results included massive weight gain, irregular heart beat, and even kidney failure. It wasn't pretty.

An analogous thing happens in the financial lives of people caught in a web of overspending. They get get bogged down in debt, they experience increased stress and, without course correction, they put their financial futures in jeopardy.

In a previous post , I discussed values-based budgeting. The simple approach laid out in that article will help you live within your means and find more satisfaction in the process.

3. Learn to love simplicity. A wise man once said that wealth is less about how much you have, and more about how little you need. A large part of my work with clients is to help them clearly define what they want in life. We call this process "discovery" and it is a very enlightening exercise for most people.

As we work through the discovery process, I rarely come across a person who describes her life's mission as getting rich. On the rare occasion when I find a person like that, I usually don't spend much time with them. I am in this business because I value people and I want to surround myself with clients who do too.

Most people have aspirations in life that transcend money. They want to travel or they want to have security in retirement or they want to support a favorite charity. Staying focused on these aspirations can help you simplify the rest of your life and with that simplicity will come a greater sense of purpose and fulfillment in what you are doing.

4. Invest wisely. In the course of my career I have managed money for some very interesting characters. One of them, Linda Wachner, is a famous (some might say, infamous) New York fashion executive. During a side conversation about her business she told me, "You need to understand something -- everyone wants to be sexy."

At the time, I thought her comment was a fairly obvious statement about the fashion business. But since then I have come to see that her comment also explains a lot about the investment business. People not only want to dress sexy, they want to invest sexy, and that usually gets them into big trouble.

Sexy investing is when people try to "wow the crowd" with their investing prowess. They take big risks hoping for big returns. They chase fads because they heard a hot tip and they think that's how the "smart money" does it. Sexy investing explains the huge growth in hedge funds, most of which are simply the 21st century incarnation of 19th century snake oil salesmen. The sorry truth is that these investments do not usually outperform traditional investment options, especially when fees and tax costs are taken into account.

If you want to be fiscally fit, forget sexy and invest wisely. Avoid speculation, stick with tried and true principles, focus on value and take the least amount of risk necessary. When it comes right down to it, being fiscally fit is pretty darn sexy, too!

5. Develop your human capital. Wealth is an ephemeral concept. It can come and go quickly as markets ebb and flow. Many people were shocked over the past two years to see how easily their wealth evaporated.

Human capital is different. When properly developed and maintained, it does not evaporate. It is not subject to the market's whim. Though economic downturns may come and businesses may fail, a life built on well developed and maintained human capital will enable you to ride out the economic storms that inevitably come.

The quality of a person's human capital is comprised of two parts: 1) the relevance of her training in the market place, and 2) her resilience in the face of opposition. Both aspects can be improved through ongoing education and by staying mentally engaged with life. An interesting study by Shell Oil Company (and the object of a previous post by Gary)  looked at the life expectancy of retirees as a function of their age at retirement. The results were surprising. It turns out that the younger a person's retirement age, the shorter their life span. Though there are many factors that might explain the higher mortality for younger retirees, one important reason seems to be that those who retire later stay mentally engaged longer.

Jack Lalanne understands the importance of working on his human capital. Not only does he maintain his ironman body by working out everyday, he spends another hour each day playing mental puzzle games online. He says it helps him maintain his "mental edge."


In the final analysis, the process of developing physical and fiscal fitness is about helping you live the life you really want to live--a life that is satisfying and secure. I recognize not everyone is ready to pay the price Jack Lalanne has paid to attain his level of physical fitness. I recognize also, that some readers may balk at developing all the financial habits I have outlined in this post. But I am convinced that anyone will benefit from developing even a small portion of these habits. This is the point Jack Lalanne was trying to make when he said: I don't care how old I live; I just want to be LIVING while I am living!