Financial Kung Fu
April 22, 2008 – 7:22 am
Like most sports, martial arts require a combination of skills to be effective. There are numerous similarities between how each of us should handle our finances and the martial arts, and our personal finances also require a combination of efforts and skills in order to be effective.
Stability
When facing an opponent, a skilled fighter will move into a strong, stable stance before striking. Stability is required for a couple of reasons, the foremost of which is power. The power from a punch or a kick comes as much from the hip as it does from the arm/shoulder/leg muscles. Without the proper stance you’ll have little power.
Stability in the financial realm includes an emergency fund and a minimal (or at least manageable) amount of debt (zero?) to start with. You could also include having low fixed expenses, adequate insurance, and a core financial plan. See my article on two budgets for one way to create a contingency plan.
Technique
Technique requires both knowledge and practice. If you’ve ever had to spar with someone who had better technique but less brute strength you’d soon recognize that raw strength isn’t that important. Personal finance is indeed personal, and having knowledge specific to your own situation can be extremely valuable. Knowledge like this takes time to acquire and should not be rushed. Some people try to bypass this process entirely by using a money manager. If you refer to your “money guy” or “money man” you might fall into this category.
Although a professional advisor can be worth their weight in gold, you need to be careful that you balance the advisors recommendations with your own knowledge. Your relationship with a professional advisor will be much more valuable if you work to learn as much as you can on your own. That way, you’ll be able to speak more intelligently, understand and question the recommendations, and ultimately gain more benefits from your interactions.
Strength
Technique is more important than strength, but once you have the techniques down strength will make you that much more effective. This is most clearly demonstrated in a weightroom. Every gym I’ve even been in contains at least two types of guys. One is scrawny and lean, and is quietly struggling to bench press 45 pounds (just the bar, with no additional weight plates). This guy is taking his time, focusing on what he’s doing, asking questions of the trainers, and concentrating on form. The other type of guy has 1,200 pounds stacked on the leg press sled. He’s grunting and groaning, trying to beat his 1-rep max every time he’s in the gym. He’s got his knees wrapped, straps on his hands, a weight belt on, and three of his no-neck friends helping him load more plates on the sled. Terrible form and insufficient preparation (warm-up) means you only see this guy in the gym about two weeks out of every month. He’s always recouperating from knee surgery, a slipped disk, a pulled hamstring, or something else. The scrawny guy however, after about 12 weeks, has doubled his strength and is still improving daily.
Strength in your finances can come from several sources. It can be a solid career or expertise developed over a lifetime. It can be cash reserves or a paid-for home that gives you security and allows you to weather storms. All of this financial strength is of minimal value though without the technique, or knowledge of how best to use it.
Power
Power is a combination of strength and speed. From a mathamatically perspective, force is mass times acceleration (or strength times speed to some degree, assuming stronger muscles are also more massive). This means that an improvement in one will have the same result as an equal improvement in the other.
Power in personal finance mean having the ability to make a decision in a reasonable amount of time. Analysis and research are necessary and important, but some people (like me!) tend to over analyze a situation and never end up making a decision. Sometimes I could use a punch in the face to get me going! Speed also means flexibility. Do you have all of your retirement assets locked up in a retirement account, or do you have them spread across different types of accounts (pre-tax, post tax, annuities, etc)? Flexibility allows you to adjust and adapt to a changing environment, including a change in your own personal situation.
Wisdom
Wisdom in the martial arts can take on several forms. In an actual confrontation it could mean running away or not fighting at all. Regardless of your skill and your opponents skill, it’s likely that you’re both going to inflict some damage. If you can safely flee and it’s to your advantage, you should consider it an option. Wisdom could also mean tactics. If your opponent appears to have more raw strength it may be advantageous to keep the fight on your feet if you are faster. Wrestling would not be advisable, because given similar skills raw strength using wins if the fight makes it to the ground.
Wisdom in your personal finances includes thinking through you dealings with financial partners, children, and others. Do you really think it’s wise to cosign for a loan or leave a huge inheritance to a child that is not responsible enough to handle it? Wisdom also comes with experience, and includes understanding your own weaknesses and strengths. Do you make good investment decisions but tend to freak out if the market corrects? Then perhaps having an advisor to help calm you down in some situations would be a good idea.
Summary
A strong financial position requires the dedication of an athlete and time to adapt, grow, and learn. It also requires practice and a review of your performance from time to time in order to improve. Perhaps you need a coach (adviser) to move to the next level, or maybe you’ve already noticed a few areas where you could make some changes. Continue training and you will reach all of your goals!
Image Credit: Blackpool Karate
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