You are ultimately in control of your financial success. As a financial planner, I can help guide and motivate you, but in the end, it's up to you.
To achieve financial success, you must take ownership—extreme ownership.
How do you take extreme ownership of your household finances, though?
Utilizing the Laws of Combat to be a leader of your household and a good steward of your money would be a good start.
Jocko Willink and Leif Babin, fellow Navy SEALs and business partners at Echelon Front, published Extreme Ownership: How U.S. Navy Seals Lead and Win in 2015.
The New York Times Bestseller describes the leadership principles aptly dubbed, The Laws of Combat. Throughout their careers, in training, and as a part of SEAL Team Three, Task Unit Bruiser, they used these principles to lead effectively and produce success on the battlefield.
As Leif says, "the Laws of Combat were the key to not just surviving a dire situation, but actually thriving, enabling us to totally dominate the enemy and win."
The Laws of Combat are:
Cover and Move
Prioritize and Execute
This post is a continuation of our break down of the Laws of Combat and how they apply to your personal finances.
Today's Law of Combat: Prioritize and Execute
Life Gets Busy
The kids need college funds.
Your retirement is on the line.
You know you need life insurance.
You wish you could get out from underneath this pile of debt.
Oh, yea and everyday life is happening...you know, stuff like travel ball, dance lessons, vacations, roof leaks, new tires, and the list goes on and on.
How do you combat the overwhelming nature of multiple problems and competing goals?
You have to prioritize and execute.
Leif says, "Even the most competent leaders can be overwhelmed if they try to tackle multiple problems or a number of tasks simultaneously. The team will likely fail at each of those tasks. Instead, leaders must determine the highest priority task and execute."
Whether in your finances, at the fire station, or at home, multitasking is a loser's game.
"A study by a team of researchers at Stanford came out a couple of months ago. The investigators wanted to figure out how today's college students were able to multitask so much more effectively than adults. How do they manage to do it, the researchers asked? The answer, they discovered—and this is by no means what they expected—is that they don't. The enhanced cognitive abilities the investigators expected to find, the mental faculties that enable people to multitask effectively, were simply not there. In other words, people do not multitask effectively. And here's the really surprising finding: the more people multitask, the worse they are, not just at other mental abilities, but at multitasking itself."
So, how do you effectively prioritize and execute?
You have to start by staying ahead of the game. Suppose you don't understand your priorities before a significant event happens. In that case, it will be much harder to make a quality decision.
Once the shit hits the fan, it is too late to plan.
So you have to pre-plan your finances.
But what does that mean?
It means don't just wing it. Put together a thoughtful plan and execute upon it. Prioritize your goals, craft a strategy to accomplish the first one, execute upon that strategy, and then begin planning for the next.
Let's walk through an example.
Jim and Nancy are 37 years old.
They have two children—ages 3 and 6. They have $10,000 in credit card debt and no emergency savings. They have been saving some money towards retirement, but they don't even really know how much.
They want to get out of debt. They want to save for their children's education. They want to save for retirement. They want to shield themselves from the chaos of life with an emergency fund.
So what do they do first?
If they want to get out of a hole, they have to stop digging. So, first, Dan and Nancy need to quit using the credit cards.
Now that they've quit digging, they should save up at least a month's expenses. This is not a fully-funded emergency fund. As Dave Ramsey calls it, this is their starter emergency fund.
After they've accomplished that task. Dan and Nancy need to knock out their debt. Cash flow is king when it comes to goal accomplishment. So, they must budget their income and prioritize excess cash flow towards debt destruction.
As Charlie Munger says,
"It's hard to get ahead when you're paying 18%."
Now that they are not lining Visa's pockets, they can fully fund their emergency fund. This means having a minimum of 3 to 6 months of expenses in a liquid account in case of an emergency.
Once they are shielded from Murphy, they can ramp up their retirement investing.
It really doesn't take a lot more than the back of the napkin kind of math.
First, guesstimate how much you'll need in yearly retirement expenses.
Then, multiply that number by 25, and use an investment calculator to determine how much you have to save given a reasonable return rate of 7 to 8 percent.
And after they put their retirement savings on autopilot, they should begin to look at saving for their children's college.
This example seems simple, but when you are trying to do it all at once—in real-time—it feels incredibly complex...and stressful.
Don't let competing goals pull spread you so thin you don't make progress on any of them. Prioritize goals. Create a plan. And execute.
Stay Ahead of The Curve
"A particularly effective means to help prioritize and execute under pressure is to stay at least a step or two ahead of real-time problems. Staying ahead of the curve prevents a leader from being overwhelmed when pressure is applied and enables greater decisiveness."
To stay ahead of the curve, you've got to think about your money and your goals. If you are married, this means you have to COMMUNICATE with your spouse about money.
Every person has their own relationship with money. Don't assume your spouse feels the same way about money as you. It's not always easy to communicate about money, but it is well worth it if you want a functional marriage.
The Map Is Not The Territory
Remember, the map is not the territory. Meaning, the plan is not reality. Priorities change. Emergencies happen.
Just because you've prioritized retirement saving doesn't mean that you can't put it on pause—temporarily—to increase your cash flow.
As Leif says,
"Teams must be careful to avoid target fixation on a single issue."
You've got to stay flexible to ensure that you and your spouse communicate in real-time when issues occur.
To implement Prioritize and Execute in your personal finances, you must (from the book):
Evaluate the highest priority problem.
Layout in simple, clear, and concise terms the highest priority effort.
Develop and determine a solution.
Direct the execution of the solution, focusing all efforts on this task.
Move on to the next highest priority problem.
When priorities shift, communicate.
Don't fixate on a target. Maintain the ability to see other problems developing and rapidly shift as needed.
It is easy to get spread thin and lost in the financial details of everyday life. We all know the feeling of not having enough time, money, or energy to accomplish the many tasks you want to get done.
When you start to feel financial anxiety creeping in, detach from the situation, take a breath, remind yourself of your priorities, and decide how to move forward.
Even a perfect financial plan can't solve the problem of problems. You will always have them. Maintain discipline and don't lose sight of the big picture.
And if you'd like help prioritizing your goals, creating a plan, and executing; I'd love to help.
Thanks for reading,
Your Friendly Firefightin' Financial Planner
Forward Focus Financial Planning wants to help you communicate and clarify your financial goals so that you can create a plan and take action. Take the first step and schedule your free retirement pre-plan today. You only get one chance at living a great life. Define your goals, create a plan, take action, and be confident.
Disclaimer: All written content on this site is for information purposes only. Opinions expressed herein are solely those of Forward Focus Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.