contributed by Nathan Gehring
There’s are many interesting parallels between exercise and financial behavior. Last week’s blog post, What I (Re)Learned About Finances While Running a Tough Mudder and Spartan Race, explored one of these parallels. This week, I offer a second such parallel…the benefits of sacrifice.
When it comes to exercise, the benefits of sacrifice are pretty obvious. Exercising requires time and often requires a willingness to accept some pain. The sacrifice of pain can occur during a particularly grueling workout as an elevated heart-rate begins to take it’s toll; or it may present itself as muscle soreness a day or two later. Yet, it’s this sacrifice that makes exercise so beneficial. The stress of increasing heart-rate to an uncomfortable level for short periods of time makes the cardiovascular system stronger over time. The pain of muscle soreness is the stressor which causes the body to respond and build stronger muscles. The body responds and adapts to the sacrifice it has given.
In finances, sacrifice is a crucial element to good financial health. That sacrifice can come in many forms. Financial sacrifice can include giving up some current spending in order to save for the future, or to save for an important goal. Financial sacrifice could be accepting a more stable employment option, but which has less opportunity for advancement and major income increase in the future. Financial sacrifice could include accepting a lower expected return on an investment portfolio in order to sleep well at night.
But both in exercise and finances, the sacrifices offered must be measured and reasonable. They must be sacrifices that provide a desired response and have a good potential for leading to a desired payoff. Too much exercise with no time for the body to adapt can cause more harm than good. It can lead to injuries, low energy, inability to sleep well and overall decreased health.
Ill-planned financial sacrifices can also be detrimental. Saving too aggressively can lead to negative consequences. For instance, people who save extremely aggressively and live on a razor thin budget can have a very difficult time spending more in the future when that goal is eventually reached. Turning off the “I need to save and scrimp” habit can be tremendously difficult even once the sacrifice is no longer necessary. Not accepting much investment risk is a path many people choose, but this can come at a major cost…the inability to reach financial independence or retire in a manner desired.
The trick is to figure out the correct level of sacrifice. How much discomfort or pain do you need to offer today in order to have the desired outcome. In exercise and fitness, there are specific training plans and professionals who can help you determine the amount of sacrifice to offer. In finances, financial planners help clients answer this question on a daily basis. Financial planners help you measure how much enjoyment you need to give up today in order to have the enjoyment you desire in the future.
Or conversely (and perhaps better put), how much enjoyment can you keep today without putting your future enjoyment at risk.
For our clients at KeatsConnelly, this question often becomes “how much do I have to sacrifice financially today in order to live the life I desire in the United States, and is that worth it?” Often the financial sacrifice is much smaller than might be expected and is more than repaid in the future.