Do you remember who taught you how to play tic-tac-toe? Probably not – for most of us it was a while ago. Usually it’s an older sibling or a neighbor kid down the street. They “graciously” offer to teach us how to play. They might even let us go first.
Three moves in they’ve got an “x” in the middle and an “x” on both lower corners. They look at you, smile, and offer, “Your turn.”
No matter what you do, you’re toast. No matter where your next “O” goes, you’re about to get “tic-tac-toed.”
All because they knew how the game works, and you didn’t.
Think about the rules of the game as played by financial institutions. Whether that financial institution is bank, a mortgage company, a mutual fund, an investment house or an insurance company – they’re going to tend to want the same things from you.
First, they want you to give them your money. Second, they’d actually like you to send it to them systematically, so they can plan for the inflows of money. Third, they would prefer to hold on to your money for a very long time (10, 20 or 30 years if possible). And when it comes time to give you back your money, they don’t want to give it back all at once – actually, they’d prefer just a trickle at a time.
Doesn’t that sound exactly like a 401(k) plan? You send them money for years. Each week or month, it comes out of your payroll check automatically. They hold on to the money as long as you are working, perhaps until you retire. Then, upon retirement, they send you a little money each month to live off of in retirement.
Their plan is for you to use their products. They are very content with this plan. You should not be.
A financial plan is not just a collection of financial products, any more than a symphony is a musical instruments store. Financial plans and musical symphonies have a few things in common: coordination of all parts involved, skill of the conductor and an ultimate goal for where its disparate parts are all going.
You’re never going to get an answer to “how much is enough” by simply piling on product after product.
A well-designed financial plan will help you choose not only which products to use, but also in what proportions and at what time.
Don’t just follow the “rules of the game” as taught to you by purveyors of financial products.
Write your own rules. Get a plan.
