This is the first installment of my new four-part series entitled “Kid Lessons for Adults.” “Back to Basics” lays the groundwork for this series, and how these lessons relate to money, investing, and financial planning. 

With graduation season upon us and so many video speeches being delivered, I was struck by how often these commencement addresses are about the core lessons we were taught early in life. It’s easy to forget those earliest, most fundamental life lessons sometimes, and many of us are still learning how to apply them to our adult lives. Far too often in adulthood, it seems that we prefer to seek out the path filled with complications and complexity, while the less cluttered path remains untraveled.  

“Back to basics” is such a simple phrase, that its power is often overlooked. Why do the basics matter when facing a task as complicated as planning a retirement? The basics matter because the entire outcome of the plan is predicated on how it is initially built, and “the basics” tend to be the foundation. For instance, take a basic component to any retirement plan, such as the annual amount contributed to a 401k or 403b account. If we model an annual contribution for a 20 or 25 year period of time, but the client stops contributing after 5 years, the original outcome of the plan will be horribly inaccurate. Therefore, we must consistently strive for accuracy in even the most basic of components in our plans, as well as ongoing adjustments, to ensure the best chance for an accurate outcome. Simple habits, like increasing the amount of money saved towards retirement with every salary raise or bonus, can have a big positive impact on the plan’s chance of success.   

The idea of “back to basics” can and should apply to other facets of our financial lives as well. Events like job changes, buying or selling a home, and sending our kids off to college can get complicated very quickly. However, if we’re able to take a step back and look at the data objectively, we find that the correct option is easy to identify in many cases. Working through these complex decisions by isolating variables, then solving for the remaining variables is a great way to keep emotional decision-making in check. We try to break large decisions down to a series of smaller, more manageable decisions that will ultimately lead us to better outcomes. It has been my experience in business that highly-charged emotions are not conducive to making solid financial decisions. The ebb and flow of investment markets can foster a whole host of emotion, from fear to greed to regret to disappointment to resentment. By understanding the likely impact of these movements on the potential outcomes in a financial plan, clients are better equipped to handle these difficult times without letting emotion influence the outcome. The same is true when buying or selling a home. Working through a long, arduous real estate transaction can be a breeding ground for bad decisions, mainly because of the emotion of choosing a home and the complexity of most housing transactions. Remember the phrase “back to basics.” The overall transaction should be seen as a series of small decisions made in due time without looking five decisions down the path. The best advice given to climbers attempting to summit Mt. Everest is “just take one more step.” There may be thousands of steps left to take, but your focus should be on the next one.   

The money basics as a kid were simple and easy to understand– I want to buy an item for $40 and I earn a $10 allowance. Therefore, focus on saving four straight allowances, and I can get the item. While many things in our lives get more complicated and harder to solve as we become adults, the idea of breaking down problems to their basic components and intentionally directing our focus to the smaller decisions will lead to better outcomes.

Nate Condon