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The stock market and the economy continue to be headline news as
American’s struggle with a recession that nobody saw coming. But
is there a silver lining to these financial tough times – or at
least some lessons to learn?
Two financial gurus believe so. Barbara Stanny, an author and a
national speaker on financial management, calls America’s
current financial situation “a wake up call.”
Likewise, Jean Chatzky, who has also authored several books on
the topic of finances and is a frequent financial commentator on
the Oprah show and morning news programs, says people should
view the current recession as “a call to action.”
What caused this mess?
The two women agree that the current financial crisis was
created by people spending more than they could afford and not
paying attention.
From that, Stanny says, “The lesson to be learned is get our own
financial house in order as individuals. It doesn’t matter what
the world is going to do, you just take care of your own house
and world. Don’t worry about what you can’t do; but what you
can.”
She adds, “If you don’t deal with your money; your money will
deal with you.”
Throughout your career what have you learned about managing
money?
Stanny herself has a long history of learning about money. She
grew up in a wealthy family – her father was the “R” in the
company H&R Block. Stanny was given a large trust account on her
21st birthday and the only advice she every received from her
father about money management was “Don’t worry.”
But, over the next two decades, Stanny went through a divorce
and the stock market plunge of the late ‘80s – her accounts were
nearly wiped out and she recognized she needed to become more
involved in managing her own finances.
Through the process of her own self-education, Stanny visited
with many wealthy individuals to learn how they became smart
about money – her interviews eventually led to her first book on
the subject of women and money titled Prince Charming Isn’t
Coming.
Stanny says, “I learned the first rule of investing, which is
‘Don’t put any money into what you don’t understand.’”
Beyond that, Stanny found there really are no secrets to being
wealthy, instead, the key is simply being educated and being
proactive in managing the money you make.
For instance, She says often people – especially women – know
how to be a wage earner and a good consumer, but they don’t
understand how to build wealth. “Most people make financial
decisions out of fear, ignorance and habit,” says Stanny, and
she points out that is no way to build wealth.
“You’ve got to make your money work for you. This means putting
it in assets that will grow faster than taxes and inflation,”
says Stanny. She adds, “The biggest risk we take is outliving
our money. That is why growth investments are essential.”
What advice do you offer others as they start to get smart
about their money?
Stanny likes to break the process into a two pronged
approach. She says there is innerwork – which relates to your
attitude and beliefs about money. Then, there is the outerwok –
the actual retirement planning and investing. Of this she says
there are really only five places to put your money - cash, real
estate, stocks, bonds or commodities.
She reiterates that where you chose to invest needs to be
something you are comfortable with, and it’s not something you
need to do alone. “Make decisions from a place of knowledge by
working with a professional financial advisor you trust,” Stanny
says.
Lastly, as you educate yourself about finances, Stanny suggests
following these three steps:
- Everyday read something
about money or finances. She says this is essential because
so much of getting smarter is about familiarizing yourself
with trends and industry talk.
-
Every week have a conversation about money. “We tend not to
talk about money. But to learn we need to talk. Start by
asking others how they invest,” Stanny suggests.
-
Every month save. Stanny advises setting up a monthly sweep
to make it automatic. And she says, “You don’t miss what you
don’t see.”
Stanny admits that there is always a natural inclination to
resist adopting new habits such as these, but she suggests
taking small steps and says, “If you do this for three
you’ll be smarter and watch your money grow.”
How does attitude influence wealth?
Chatzky believes attitude could be the key ingredient
behind the reason why some people are rich and others are
not.
In
her new book, The Difference, researched the subject, and
commissioned a study of 5,000 individuals. She uncovered
four distinct money types: the wealthy, the financially
comfortable, the paycheck-to-paychecks, and the
further-in-debtors.
What’s “the difference” dividing the rich from the poor?
Chatzky found that individuals who have acquired wealth
have been proactive about managing their finances – and they
have an optimistic attitude. She says the wealthy possess
traits like optimism, resilience, grit and curiosity, as
well as habits like reading everyday and expressing
gratitude. Chatzky believes everyone can learn to do those
things and tap into prosperity.
People who understand ‘the difference’ are looking toward
the future, according to Chatzky. They save, they network,
they are always looking at job opportunities – even if they
are in a job they like, because they know that things can
change quickly, she reports.
She says the fastest way for people in debt to turn their
financial situation around is to control spending, and adds
that the fastest way to fall from financial security is to
start spending more than you earn.
She concludes, Studies have shown that simply by focusing on
the positive things in life individuals are better able to
think financially.
Any final reminders?
Stanny says as you gain knowledge, you’ll come to realize
there are no secrets to building wealth. She says, “I
thought rich people had a list. But, no, they just do the
basic things right. They manage their money and follow four
basic rules: spend less, save more, invest wisely, give
generously – in that order.”
She concludes, “When you become financially savvy, you have
the opportunity to use money to make a difference; that is
empowering.”
Bonus Tip
On the subject of risk, financial author Barbara Stanny says
risk should not be synonymous with loss – instead it should
be viewed as synonymous with opportunity.
She adds that there are two ways to diminish risk. One way
is to diversify – which means spreading your money into
different types of investments such as stocks vs. bonds vs.
real estate.
The second way to diminish risk is through time. To
illustrate this, Stanny says the stock market should be
viewed as a roller coaster, which means you need time to get
in and get out. Using the methaphor of a rollercoaster, she
adds, “The only time you get hurt [in the stock market] is
when you jump off in the middle.”
Her recommendation for using time and diversification to
diminish risk is as follows: have money you’ll need in the
next 1-5 years in cash; money that you may want to get at in
5-10 years should be in stocks and bonds; and money that you
won’t tap for 10 years or longer can be in real estate and
stocks.
For more about Stanny, visit her website at
www.barbarastanny.com. Her books include: Finding a
Financial Advisor You Can Trust; Breaking Through: Getting
Past the Stuck Points in Your Life; Overcoming Underearning;
Secrets of Six-Figure Women and Prince Charming Isn’t
Coming: How Women Get Smart About Money.
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