Laying a Firm Foundation

October 12, 2023

We each face things in life beyond our control. Sometimes, these external shocks are devastating. However, more often than not, our success or failure is determined by the quality of our thinking. Ralph Waldo Emerson put it this way: “Sow a thought and you reap an action; sow an act and you reap a habit; sow a habit and you reap a character; sow a character and you reap a destiny.” The way we think, and the actions we take, impact the results we ultimately achieve.

In last week’s column, I highlighted two examples of people making difficult situations worse with bad thinking. This week, I’d like to offer three questions that can help us to clarify our thinking and focus our decisions, thereby helping us to lay a firm foundation for our financial lives.

1) What am I doing to become more self-reliant?

Self-reliance means the capacity to take care of yourself without relying on someone else. It means independence. To the degree that you depend on parents, government agencies, or other third parties, you lack self-reliance.

Self-reliant people live within their means and save for the future. They know that life is what happens while you make other plans. Self-reliant people get a proper education for their chosen field, and keep current with their education as the years roll by. Self-reliant people build their network and actively develop career options.

Every self-reliant person has two major savings goals: retirement, and a rainy-day fund. All other savings goals are merely discretionary, depending on their chosen lifestyle.

2) What do I expect from my investments?

Financial markets generally attract two kinds of people: prospectors and farmers. Prospectors go to market to seek their fortune. They stake their claims, hoping to stumble into a motherlode. They hear tales of others getting rich and wonder when it will happen for them. Unfortunately, it usually doesn’t. Most prospectors go bust.

Farmers, on the other hand, see the market as fertile soil. They carefully sow their investments, nurturing them over time. Eventually, they reap a bountiful harvest. During some years, the harvest may be less bountiful than others, but over time, farmers’ disciplined efforts produce satisfying results.

Years ago, when I was a new bond trader, a guy named Charlie Jones was assigned to show me the ropes. One day, he asked me if I thought it was better to be lucky or smart. I said it was better to be smart, but Charlie assured me it was much better to be lucky. I understood what he was trying to tell me, but I’ve learned over the last 35 years that skill, knowledge, and discipline create their own “luck.” It is much better to be a farmer.

3) Do I let my emotions drive my financial decisions?

We can get ourselves into serious trouble when we let our emotions drive our decisions. This is called emotional reasoning and people do it all the time. For example, do your emotions tell you that you need to drive an expensive car—one that projects a certain image—when, really, any reliable vehicle would do? Do you worry about impressing the right people, wearing the right clothes, living in the right neighborhood? In my experience, most people who overspend rationalize their decisions through appeals to emotional reasoning.

Another brand of emotional reasoning is known as catastrophic thinking. With catastrophic thinking, we carry our fears to their logical extremes. Every setback is a catastrophe, every disappointment is the end of the world. Catastrophic thinking is based in fear and left unchecked, it will lead you to miss some truly wonderful investment opportunities.

As you consider these questions, you might recognize helpful changes you need to make in your financial life. Take the time to record your impressions so you can refer to them later. A good financial planner can help you follow through on them. Making course corrections now will help you build a firm foundation, and enable you to live with greater confidence in your financial future.

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Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to