The Shawshank Redemption Approach 1/7/24

Happy New Year NFC clients and friends!

       I love this time of year!  As a teacher, I have just spent the last 2 (of my 14!) weeks of vacation with family and friends. Each year this fortnight provides the opportunity to gear down, reflect, and recenter.  While this holiday period looks different for everyone, I hope each of you has found a way to do the same.  

      As we emerge from 2023 and re-engage in familiar routines, I encourage each of you to

take the opportunity to optimize your financial (not to mention social/emotional and physical) fitness.  New Year’s resolutions are nice, but as James Clear emphasizes in his #1 New York Times bestseller Atomic Habits, it is upgrades to our systems rather than setting goals that yield the greatest dividends.  And when these upgrades are automated, results are sure to follow.  For example, starting (or increasing) contributions to a Roth IRA, 457b, 401k, 403b, taxable brokerage account, and/or high yield savings account is a one time upgrade that can be automated to recur monthly, increasing the compounding effect of your investments dramatically over time. See Clear’s, “How to get 1% Every Day” to understand how the aggregation of marginal gains can truly deliver an enormous impact.  Every “little” bit (even 1%) counts thanks to the miracle of compounding!

      For my money, The Shawshank Redemption is in the top 10 movies of all time, and Morgan Freeman is indisputably the greatest narrator on the planet.  To wit, watch/listen to how Andy Dufresne used “pressure and time” to win his freedom.  The same concept applies to earning one’s financial freedom— money invested and time is all it takes.  Powerful results can come from very small inputs, repeated, over long periods of time.  What worked for Andy Dufresne, can work for us!

       I am fond of preaching to my students (and my own children) the power of time in “Future Value” calculations, FV= PV*(1+r)^n, where “n” represents the number of time periods for compounding.  But our brains are not capable of properly appreciating the power of exponential growth (e.g. Would you rather have a million dollars, or a penny that doubles in value every day for a month?).  For that I lean heavily on this interactive, animated compound interest calculator.  There is nothing like showing an 18 year old what $100 per month invested into the stock market averaging 10% return* can do over long periods of time.  Can you say double comma club!?  What is truly mind-blowing is that 96% of the $1,200,000+ accrued in this example is due to compounding, and has nothing to do with the paltry $100 monthly contributions ($56,500) over the decades. It is your money making money that does the heavy lifting!  Just imagine if the contributions increased a bit as one earns more money, or gets more intentional about personal finances.

      I entreat you to spend just 5 minutes playing with this tool and see if you do not concur with Albert Einstein’s purported proclamation: “Compound interest is the eighth wonder of the world.”  The possibilities for creating generational wealth, financial freedom, and financial fitness along the way are truly inspiring.  What better way to kick off a new year than to be inspired, and take action!

     If you or someone you care about could use some help upgrading your systems to improve your financial fitness, get your year off to a great start and seek support.  Don’t just think about it, do it!  Action conquers fear.  You work hard for your money, so make your money work hard for you.  But, you have to start now.  Time and pressure.  That’s what creates diamonds, oil, escape tunnels, and financial freedom.

     I wish you all a healthy and happy 2024!

Yours in Financial Fitness,

David

Norman Financial Coaching

*Note: While the “Total Stock Market” history is a challenge to assemble, the S&P 500 Historical Returns data are an excellent approximation.  Past results are not a guarantee of future returns.