Recently, a journalist posed the question to a financial advisor, “What traits do the wealthy have that make them good at managing their money?” The journalist was apparently assuming that a direct correlation exists between one’s level of wealth and one’s skill in managing that wealth. An alternative question could be, “What are the traits of someone who is a good steward of their wealth?” Good financial stewards can be found across the wealth spectrum and they tend to share common traits.
Vision – For some, a vision is a clear sense of direction that is held within. For others, a vision may need to be written down in great detail to have meaning. Our experience has demonstrated benefit for both advisor and client to have a clearly defined vision of their finances with associated goals in writing.
Discipline – Good stewards act with discipline in their financial decision making. This typically means living within one’s means and acting in a manner consistent with accomplishing one’s vision.
Process – A process is followed to actively monitor one’s financial position in relation to the vision and make improvements and/or adjustments as needed. It is particularly important to have a process in place to identify the need for adjustments in a timely manner. Identifying adjustments as the need arises increases the likelihood that a plan will be successful. Otherwise, the risk of being forced to make a single dramatic adjustment greatly increases. Dramatic adjustments are to be avoided as they tend to have adverse consequences for the long-term outcome of the plan.
Stewardship involves having a vision, acting with discipline, and following a process. It also involves an element of continuously seeking ways to improve. This leads us to a final thought courtesy of Dr. W. Edwards Deming – whom many consider to be the father of modern quality control. Deming popularized an approach to continuous improvement known as Plan-Do-Study-Act (PDSA). While continuous improvement is something typically thought of in a business context, it can work equally well when applied in a personal context. Considering one’s financial plan, it can be applied as follows:
- PLAN – Create a plan that has specific goals.
- DO – Create an action plan that will support achievement of the plan.
- STUDY – Study the results of the plan and identify opportunities for improvement.
- ACT – Take action on the opportunities for improvement.
And of course, when the cycle is finished – repeat.
Regarding the question from the journalist, it is true that not everyone who has achieved a level of wealth is skilled at managing it. It is also true that not everyone who demonstrates the traits of a good steward will achieve a high level of wealth. However, those demonstrating the traits of a good steward can be confident they are making the best use of the resources entrusted to their care and they greatly increase their chances of achieving their personal financial goals.