By Ryan Dolan
“Success will continue only as long as the commitment to the process of being successful remains in place.”
Nick Saban
“I don’t think complacency is a word they understand in Tuscaloosa.”
Kirk Herbstreit, football analyst
Last year, I had a client meeting with Ben and Tina, a couple in their late 30s. We’ve worked together for several years. they’re motivated, humble, engaged and accountable. Importantly, they are candid and have a deep desire to learn and get better personally and financially. The pain point that brought them to me in the first place was a common one for people their age: their ad hoc approach to managing their financial life was leaving them feeling anxious, overwhelmed and not at all sure that they were on the right path. They made the smart decision to start taking their money seriously at a relatively young age, and are committed to making congruent, long-term decisions for their young family of five.
I started, as always, with discovery: unpacking who they are, the road that led them to today, and to begin to identify where they want to go. We discussed the couple’s financial history, experience and backgrounds. Both came from humble financial circumstances, and exhibited some unease with their increasing financial resources. They shared a distinct sense of financial vigilance-almost paranoia-a fear that everything they built could be taken away at a moment’s notice. It took time, but we worked to unpack this mindset, which though understandable given their histories, was limiting and ultimately not constructive to making better decisions. As we worked through the process, they began to develop a healthier relationship with their money, which resulted in more confidence and calm-and better outcomes.
Then about three years ago, the couple’s financial life, which had been on a very solid trajectory, hit a higher gear. Ben’s income had soared from $500,000 to nearly $1.5 million due to strong industry trends and a big promotion. He also had a big chunk of employer stock vest creating a large jump in net worth.
So far so good.
Slowly at first, I noticed a subtle and distinct shift in the couple’s attitudes. While the irrational financial anxiety and pessimism that characterized their earlier mindset was gone, the engaged accountability of recent years had slowly given way to something concerning: I was seeing the early signs of complacency. It showed up in several financial areas, but perhaps the most obvious was the couple’s spending. For most of our working relationship the couple diligently kept spending at levels that allowed them to hit ambitious savings targets.
However, in recent quarters, signs of significant lifestyle creep started to appear. Despite surging income, the couple was on track to post a lower 2021 savings rate than in 2020-a worrying development. Worse, the couple seems unaware and disengaged from these developments, though promised to exert more focus and effort.
The next quarter, the spending picture deteriorated further. I pointed out that income is often much more volatile than spending. In my experience, once a higher level of spending becomes ingrained, it is very hard to cut it by more than 10%, even if income falls considerably more than that. The couple admitted it had been a big spending year, but they hadn’t had a down income year in a decade, and from the vantage point of late-2021, 2022 looked to see a continuation of strong income growth.
The past 15 years has been an unusually benign financial backdrop for affluent Americans: surging asset prices (real estate, stocks, bonds, crypto); record low interest rates coupled with easy credit; low financial volatility; low taxes (at least relative to history); and rising incomes. As I look around, there are many landmines which could derail this goldilocks backdrop: persistent inflation and rising rates, a fall in very richly valued assets, retreating financial liquidity, the risk of a recession. But perhaps the biggest and most pervasive threat today is one that always lurks after long periods of prosperity: complacency. I see it everywhere: in markets, governments, big companies-and individuals. Of all the behavioral mistakes that successful people can fall prey to financially, complacency is perhaps the most under-recognized and potentially dangerous.
Complacency sneaks up on people. It starts small and low-impact, but once it gets a foothold, it tends to metastasize. It’s difficult to diagnose, because it typically occurs against a positive backdrop. Your income’s growing, your saving, your portfolio’s done well-the future is bright-what’s the problem?
Complacency has always been a threat to enduring growth and success. However, the financial consequences of complacency seems to have grown in recent decades. In “The High-Beta Rich'' author Frank Rich details the increasingly ephemeral nature of modern wealth in relation to history. Over the past four decades,the volatility of wealth (easier to build and harder to hold onto) has clearly grown. Now more than ever, it is critical to realize the stakes have been raised-and the penalty for complacency is potentially more severe today than in generations past.
Heading off complacency is critical, but not easy. Which leads me to Nick Saban.
Three weeks ago, my wife and I dropped our oldest daughter at the University of Alabama for her freshman year. It’s an exciting time. A huge college football fan, I’ve always been fascinated by Saban and the dynasty he has created in Tuscaloosa. Standing outside Bryant Denny stadium, I wondered how this 70 year old, who has accomplished everything possible in his field, maintains such drive, intensity and focus? How has he created such a durable culture of success and sustained it against a constantly changing backdrop of players and assistant coaches?
I recently finished Saban’s 2004 book, “How Good Do You Want To Be,” and it became clear the many shared parallels between a coach and his team and an advisor and his client.
Here are some core points and quotes from the man himself and how it relates to your money.
You need a roadmap
“Who you are. Where you are. Where you are going. How are you going to get there. You need a road map to give you direction.”
Without a roadmap, a mission statement-unfocused, undisciplined behavior-complacency in a word- is almost inevitable. While there are universal financial principles that must be adhered to, we all need a custom-built template that keeps us anchored to our defining core values and goals. If you can’t define your “why,” good luck with the “how.”
A culture of expectations
“The major by-product of creating a mission statement and vision is that it creates a culture of expectations…The expectations are clear, the consequences are laid out, and behavior is modified and reinforced to be in concert with the culture”
Once we have a roadmap, I isolate the handful of key priorities and set demanding, but achievable targets for clients. Importantly, the clients know that every quarter, there is an expectation that these will be hit. The social pressure of knowing we are going to sit down and discuss performance helps drive accountability.
Beyond the social pressure, I will run financial projections of how errant behavior, if continued, will blunt long-term financial growth.
“Don’t look at the scoreboard.” Focus on what you can control
“We don’t worry about our rankings, our record, or how other teams are doing. In fact, we avoid looking at the scoreboard within individual games…Don’t be relieved when you are successful and don’t get frustrated when you are failing to have success. Stay focused on the next play to dominate.”
“Spend your time working on what you can control-your actions, words and emotions.”
I keep clients focused on the controllable financial inputs that really drive the needle in their lives: a high savings rate, a tolerance for equity volatility, patience, and deferred gratification to name a few. Most new clients, in my experiences, want to focus on important but unknowable areas, or domains in which they have no expertise: predicting the market, individual stock picking, higher investment returns, etc.
“Anticipate problems and prepare”
“‘Close the barn door before the horses get out’ my father used to say. Spending the time and energy to think ahead and anticipate problems is a lot less work than having to deal with the problem once it occurs.”
A key question I continually ask clients is “What can go wrong?” This question is never more important, and never harder to accurately answer, than when everything is going well. It’s all-too-human, and self-serving, to only plan for what can go right. Avoid this.
“The importance of motivation”
“Motivation gives you a reason and a passion to do the things you love to do and to push through the things you hate to do. Knowing what you want to accomplish is the key to being motivated.”
In the early months of 2022, I used many of these principles with Ben and Tina. We spent time refocusing on their mission and roadmap, and highlighted how recent behavior wasn’t aligned with building long-term financial security and protecting the people they love. I pointed out how their entire careers and adult lives had taken place against a very positive economic backdrop, and ran projections of how a shift in the environment would impact their financial life.
I pointed out the high cyclicality of Ben’s industry and income. I ran cash flow “stress tests” which modeled out how the couples’ cash flow could be impacted in a modest recession and a severe one. The results, given the sharp increase in spending, weren't pretty.
Ultimately, Ben and Tina’s complacency was caught early. I think what got them to level-up was being reminded of their core motivators: providing for their children, a commitment to giving to charity and the desire to create financial independence and autonomy. These factors are, for them, more enduringly motivating than the quick fix of excessive spending.
Their unfocused spending was largely the result of losing sight of their roadmap, and the key motivating factors behind it. People can lose their motivation when they think their money is all about themselves and their gratification. Reorienting the couple on their key mission was enough to get them reengaged and refocused.
I just had my most recent client meeting with the couple. 2022 has brought a sharp financial u-turn Ben’s income has suffered with rising interest rates, and income-at least in the short-term-is down by more than 50%. Due to the couple’s recently reengaged spending discipline, they are able, in spite of this drop, to remain cash flow positive. They have plenty of liquidity to not only survive this period, but to thrive. Complacency, had it not been reversed, would have left them in a much more concerning position.
How about you? Has financial complacency burrowed its way into your mindset and behavior? Do you have an advisor dedicated to understanding you and your family and committed to building a “process” around your money and goals?
At Dolan Partners, the core mission is a simple one: to help good people make better decisions with their money. Learn more today: www.dolanpartners.com