In the financial world someone may ask you, “What’s your number?” Odds are they aren’t trying to pick you up. Rather, they are referring to the amount of money in which you achieve financial independence (aka retire).
Defining such a number is essential in financial planning. It provides the basis for how much you need to save each year, what kind of investment returns you need to achieve and how many years until you can retire.
The Dangers of Numbers
Focusing too much on numbers has a downside. As an investor, is easy to get caught up in the numbers. Stocks are quoted in numbers. Investment performance is shown in numbers. The numbers representing our account values change often. We are so inundated with numbers that sometimes we forget what those numbers represent.
The Ego of Numbers
Sometimes, what starts as a genuine desire to provide for our family and retirement transforms into a quest to feed our unquenchable ego. We become focused on what we got versus someone else.
Investors routinely compare their portfolio values and performance with an arbitrary stock index; a stock index that has little to do with the goals and constraints of investors. This unfortunate practice is sometimes done on daily basis.
Our moods are affected by the ego of numbers. We can go from being giddy and kind one day to angry and bitter the next day. It’s so easy to get caught up in this. We need to constantly remind ourselves what those numbers represent.
The Representation of Your Number
What does “your number” represent for you? What do you plan to do once you hit that number? We spend a good portion of our life working, saving and sacrificing. To what end?
The number represents the freedom to do what you value most. What is that? Write it down. Review it often. It’s not about your return or number on a given day. Investing is about doing those things that matter most to you.
©2019 The Behavioral Finance Network. Used with Permission