When I was a kid, my buddies and I would get together and ride our bikes all the way across our neighborhood to the big church. And after playing around in the parking lot for a while, we’d take a break and step inside where there was a coke machine. We’d pull a quarter out of our pockets and buy an ice cold coke or sprint. Other times we would take the adventure to the next level and go further up the street and across a main road (hope my mother is not reading this) and go to the small grocery store and buy not only a coke but some candy to go with it. After finishing it we would fly back home on a sugar fueled power high, pedaling as fast as we could. If we had the money to buy that coke and candy we were rich, if not we felt poor. Back then, that was our definition of enough.
In high school I had a part time job working at Radio Shack. Back then in 1987 the minimum wage was around $4. (Somewhere there is a millennial reading this thinking to themselves “I was not born in 1987… and what is a radio?”). So, my 20 hour a week part time job got me around 80 to 100 dollars a week before taxes. When I got my paycheck every two weeks and there were three whole number in front of the decimal point, I felt like a rich man.
Well, high school is long behind me, along with the 80’s. And as time has gone by the amount I seemed to require to make me feel OK financially has grown with the times. As I have been working to pay off debts and to save money for both a rainy day and retirement, I found myself recently thinking about what amount I felt I would require today to feel OK. As I thought of that answer, the idea of a new “Zero” came to mind. What amount would I need to have on reserve so that if I was above that amount I would feel confident, and if I dropped below that amount I would be concerned. To my surprise the number that immediately came to mind was larger than I thought. $100K the little bike riding kid in me whispered in my ear and I could see the slightly geekier version of me standing in the middle of a Radio Shack with his cheap tie on smiling and shacking his head in agreement.
Reserve. That is a good word for it. When I was a kid I had a three wheeler that had a small reserve gas tank with just enough fuel to get me home if the main tank ran dry. If that happened, I just turned a switch and was back in business. When planes fly from one city to another, the ground crew doesn’t put just enough fuel in the plane to just get them there. They go beyond that and add an extra amount just in case the plane has to circle the airport waiting to be cleared for landing or maybe has to be redirected to land in a different city due to bad weather.
What amount would you need to have on reserve to feel confident that you would be able to make it through a bad financial storm and still make it to the runway and land safely? $100K? $50K? Whatever the amount your 13 year old self whispers in your ear, get to work on saving that. Once you have it, you will have a sense of piece that just isn’t there when you don’t. I am very close to my new Zero, and already I can see a big difference in my piece of mind where money is concerned.
Life is just better when you, and your inner child, know you have enough.
I must have been 12 or 13 years old. I was at the skating ring and the disc jockey was playing records. For you young people, those were these big plastic things that had groves in them and went round and round and a needle made the music come out. Well, The DJ guy was giving away a prize to the first person to name the song he was about to play. I readied myself. He played the song. And I knew the answer. In my little voice I said the answer as loudly as I could, but he did not hear me for all the background noise and other people guessing incorrectly. But an older boy standing near me did hear me. He turned and looked at me, thought for a second, and then realizing the guy had not heard me, turned and said the same answer as if it was his original thought, and of course he won the prize. An older girl standing next to us had heard me and saw what the older boy did and tried to speak up on my behalf and explain that I was the one to first say the correct answer, but the record guy didn’t care. After all he was only getting paid minimum wage, what did he care who won.
I can’t remember what the prize was, but I remember the correct answer to the question, “The Gambler” by Kenny Rogers. And from that day forward, that song offered me two life lessons. The first was the lesson within the song itself, and the second was the lesson I learned in that moment as I watched that older kid collect my prize, some guys will do anything to win. But it is the first lesson, the one within the song, I would like to focus on.
You see in that song Mr. Rogers, or I should say the character of the gambler he invented in it, explains to a younger man that, in life, sometimes we will face difficult moments that call for us to make an all important decision regarding how we respond. He lays out the choices for us by explaining that you have to “know when to hold them, know when to fold them, know when to walk away, and know when to run”.
“know when to hold them”
It’s hard sometimes to just sit still and do nothing. That is doubly true when the circumstance involves the money we have worked so hard to save. As I write these words our country is going through a very difficult time and over the past two weeks we have watched the entire gains in the stock market of the past three or more years completely wiped away. In such a moment it is tempting to call up our financial advisor or log onto our company’s 401K site and sell everything. But to do so would just make things worse because we would be selling at what is most likely the bottom. So what do we do then. Well, as Mr. Rogers suggested, we hold what we’ve got. We don’t go crazy and take out a second mortgage to try and buy stocks while their cheap, nor do we do as we mentioned above and sell everything we own. We simply stay the course and live life one day at a time and trust that very soon our patience will pay off in a very good way.
“know when to fold them”
I must admit, the folding them option was never as clear to me as the next two, but I think I kind of sort of know what it refers to. Folding them is the equivalent of someone who maybe has decided to sale a stock but not to give up on investing. Or maybe its a situation where you have decided the position you are in is not right for you but you like the company and have decided to stay but make a change.
“know when to walk away”
Walking away sounds like the easy one. It sounds so relaxing. But to anyone who has ever dealt with a situation involving sunk cost (that’s a fancy term I learned while completing my MBA. It means money you spent that you are never going to get back or have anything to show for it.) walking away is painful sometimes because for a very long time the thing you valued so much is still within sight. A good example might be a business idea you were excited about and had spent the past year working on and a sizable amount of your hard earned money trying to make it happen, but you still have not sold a single one of the product or service you were offering. We tend to fall in love with our ideas and walking away from them can feel like walking away from a relationship with a person we really liked and spent years with. But sometimes you just have to admit that its time to walk away.
“know when to run”
Have you ever experienced a moment when something came at you out of nowhere and while logic would say you should run as fast as you could or jump as far out of the way as possible, for some reason you just stood still and watched what was happening as if time had slowed down. Well, I’m sure you have. I know I have. Looking back it is clear that whatever was happening was just so unexpected that my mind didn’t have an answer or response to it. Kind of like when you are on one of those automated calls and it does not understand your response and asks you to try again.
Most of us wish we could go back and relive those moments and do exactly what we know we should have done, or say what we should have said. Well, we can’t do that, but we can learn from those experiences and be ready for the next blind side type event that will come our way, and trust me it will come. It’s out there waiting on you. Some bad driver just waiting to jump out in front of you. Some company that decides the fact that you gave them the best 30 years of your life means less than them saving a few extra thousand on overhead to make stockholders happy. Something will happen. And when it does all you can do is be ready to run. Be ready to live off savings while you figure out what’s next. Be ready to pay cash for another car to avoid taking on a new car payment when you last car got total. But the best example of all is the Pandemic we are all living through now and the effects it is having on our economy and peoples’ ability to hold on to their jobs. I would be willing to bet that of all the excuses of having a company lay you off, you never thought it might include “the world is going through a pandemic right now, so we’re going to have to let you go. Sorry.”
“you never count your money when your sitting at the table. they’ll be time enough for counting when the dealing’s done.”
I almost forgot the last lesson of the song, the one that most directly ties its self to matters of finance. After all, it mentions money, I’d call that direct. A couple of things come to mind, but the one that I think is most relevant is the problem that most of us develop when we try to save money. We start checking our 401K balance every day. I’m guilty of that one. I have a spreadsheet at work that I update each day. When what we should be doing is deciding on our long term plan and simply putting it on autopilot and forget about it until about a year or so before we plan walk away into the sunset and move to Florida (I’ve already done that). We start to second guess ourselves. We listen to that “sell … sell… sell..” thing Cramer on CNBC likes to yell and some of us do exactly that in the worst moment we could, when our country is completely shut down due to a pandemic. Make your decisions about how you will handle you money when things are what might be called normal. Then in the best of times you want be tempted to overspend, and in the worst of times you won’t be tempted to sell and lose it all. Nope, you will just ride it out and know its time to “hold em”.
Ps. I had started writing this blog post a few months ago but never finished it. I saw the news this past week of Mr. Rogers passing away and thought it would be a nice tribute to finish it and get it posted.