How a bad investment created a major milestone in my financial advising career
I’m a numbers guy. It’s what I do. Growing up, in college, my first job at a big four accounting firm. It was in my DNA – numbers made sense to me and were an easy way to make a decision or recommendation. It’s what made financial planning so appealing to me. Granted we couldn’t account for every variable & future unknowns, however numbers could be used to make compelling decisions that made financial sense. If it could be proven with numbers, it must be right? Right?
I had always believed in the ability to use numbers to make analytical & reasoned decisions, yet it took my worst "investment" to help shape a change in approach to reason. It also made me a much better advisor to clients. What was the “investment” and why was it so bad?
I first should admit that I don’t view a primary residence as an “investment.” It truly isn’t. But for purposes of this article I’m going to label it an investment. Or maybe just a financial decision. Either way this is the story about our 2nd home we purchased and how some bad financial decision making led to a change in mindset and a change as an advisor.
Approximately five years ago my wife and I purchased what we thought was our forever home. We lived in Saratoga Springs, the home was a few miles outside of town, had a huge yard and lots of room for our growing family. At the time we had two kids (now we have three) and this home had room for us and plenty more to entertain guests. We fell in love from the minute we walked in.
Two years later our plans drastically changed. We had the itch to leave this “forever home.” Without saying it to each other, my wife and I both felt we wanted a change. I knew this wasn’t a smart financial decision, but it was our reality. Weeks before our third child was born, we put an offer on a new home and it was accepted. We had a few days to think it over and decided – let’s do it!
At the time we held two mortgages briefly, sold a home we essentially only paid interest on for two years, sold it for about the same price we bought it for (after realtor fees, transactions fees, etc becomes a much steeper loss), lost the money we put into the home for entertainment systems, window treatments – basically everything needed in a new home. I think the two year mark is right about when you're ready to settle in and we got up and left. Was it the best financial decision? No, not at all. Was it the best life decision? At the time it was.
How did the loss we took on the home help make me a better planner? Well for one the decision wasn’t all about the numbers. It wasn’t about making the rational decision. It was about living life with less regrets, even if it set us back financially for a short period of time. It made me realize that not every decision can be based on the math or the analytical outcome. It needs to be made using analytics, but also using some instinct and intuition. It was OK to not make the best financial decision – we could get through that. It was about creating happiness and enjoyment. It was about letting go and moving past a bad decision. It was about living life. Our role is to point out the financial and monetary implications, show the “math” – but it's also about empathy and putting yourself in clients shoes. Maybe they are making a decision that doesn’t maximize return on paper, but it maximizes something more important... Happiness.
Written by: Ryan Bouchey