This article originally appeared on Forbes.com.
God, grant me the serenity to accept the things I cannot change,
Courage to change the things I can,
And wisdom to know the difference.
I often see families who could benefit from more serenity in their financial lives. To illustrate this concept, I created a hypothetical situation to illustrate how applying the Serenity Prayer can make life better. Although the Chandlers are not real people, their circumstances are more common than you might think.
Steve and Heather Chandler have a lovely home in a tony suburb and a second house on a nearby lake. Their three children attend sailing camp at the lake in the summer and play soccer and basketball during the school year. Their oldest daughter takes tap dancing lessons, while their youngest has a private art tutor. Two Lexus SUVs transport the family of five and their black Labrador Retriever, Molly. Steve also has a small pick-up truck for trips to Home Depot and to haul the kids’ belongings to camp. The couple have been married sixteen years and have a busy social life. They love to eat out and Steve has a respectable wine collection. They seem to have everything going for them.
There’s just one problem. Lately, Steve has found it hard to get out of bed in the morning. He wakes up in the middle of the night for no reason and because he’s up anyway, he snacks indiscriminately. This former fitness poster boy has gained thirty pounds. Heather loses her patience with the kids a lot these days and she and Steve snap at each other more than they ever have. They’re also making a noticeable dent in Steve’s selection of fine Pinot Noir.
The reasons? There are several:
- Steve and Heather are in serious debt. The mortgages on the 4,000 square foot house in the suburbs and 2,000 square foot lake “cottage,” loans on the two newer vehicles, insurance on all three, medical and vet bills, taxes, school, camp, and athletic fees for their kids, plus clothing, groceries, and the three times a week take-out make it impossible for the couple to save—or to sleep at night. Every month, it seems to get worse. Their financial stress is affecting their moods, their kids, their health, and their marriage.
- Steve has a high-paying job, but it’s making him miserable. To make things worse, his performance reviews have been less positive recently, and his bonuses have suffered. Even though he’s unhappy with his job, he believes he has no choice but to stick with it. Their lifestyle is expensive! His dreams of making a difference in the world with his talents while earning a good living seem further and further away from reality.
- The Chandlers have very little saved for retirement or college. Their financial advisor has told them that the only way they’ll ever have enough for either is to “swing for the fences.” Their advisor has invested their portfolio almost entirely in individual stocks, managed by aggressive (and expensive) portfolio managers. They have nightmares every time the market takes a dip.
Something’s got to give, but the Chandlers find thinking about their financial situation overwhelming.
By identifying financial “things they can change” and “things they cannot (change),” and by changing the things they can, the Chandlers could enjoy more serenity in their financial life. Life could be better, even if there were less money involved.
Earning and spending are financial fundamentals. You can’t spend more than you earn. Living within their means is the surest way for the Chandlers to achieve financial serenity.
1. Choose not to be “house poor.” Their homes are their biggest investments, but are they wise ones? Right now, they have a five-bedroom, 3-bath, 3-car-garage main home and a 3-bedroom, 2-bath vacation home. They live happily in the 2,000 square foot home whenever they are there (which, when they are honest with each other, is usually only two or three weeks each summer). Do they really need a second home? Could they be happy owning just one house (maybe even a smaller one) and taking “special” vacations? By focusing their attention on needs and preferences, as opposed to status and the opinions of others, the Chandlers can choose a more manageable footprint and mortgage without sacrificing essential elements of their lifestyle.
2. Focus on needs vs wants. Everyone wants the best for their children, but do the kids need costly summer camps and private art tutors? Maybe fewer scheduled activities will be less stressful for the kids too. Do two drivers really need three cars? By selling the old pickup and trading one of the SUVs for a less expensive one, the Chandlers would have lower payments and insurance costs and still have the transportation they need.
3. Spend consciously. The Chandlers are so accustomed to stopping at Starbucks or getting take-out on the way to work or soccer practice, they don’t even think about it anymore. They use credit cards for most purchases so it’s easy to overspend without realizing it. Spending thoughtfully would allow them to focus their resources on what’s really important.
- The Chandlers can’t change how much houses cost, but they can change how much their house costs by choosing a different size, neighborhood, or even a different city or region.
- They can’t change the prices of the things they buy, but they can change what and how much they buy (and their payment method) to be more consistent with their resources and values.
Steve regularly sees attractive job opportunities he thinks he’d enjoy, but the salaries would not allow them to maintain their current lifestyle. Heather would like to take a job, too, and she’s had nibbles, but the pay seemed too low to make a difference. However, if they made significant spending changes the Chandlers might find the positions they see more attractive. In addition, if Steve enjoyed his work more, he’d be more likely to be successful both in his career and in his earnings, and perhaps he’d be able to work a few more years, too. (Delaying retirement reduces the amount of saving required.)
- The Chandlers can’t change how their careers are paid, but they can move up or change careers.
- They can’t change which activities they like, but they can change where and how they do them.
The portfolio is perhaps the most obvious financial application of the Serenity Prayer. Their investment choices carry risks that can threaten the Chandlers’ ability to accomplish their goals. If their investments don’t pay off as planned, they won’t be able to retire comfortably or fund college for their children.
Will Rogers neatly boiled down the ideal investment strategy in one statement.
“Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”
Sounds simple, right? It’s funny because we all have a gut feeling we can succeed in just this way, even if our experience and the rational advice we receive strongly suggests we can’t.
- The Chandlers can’t change the risks inherent in the assets in their portfolio, but they can change their portfolio risks by changing the asset mix.
- They can’t change how any individual security will perform, but they can change the risk of their holdings by diversifying.
- They can’t change their inability to predict which funds will perform well, but they can increase the chances of success by selecting less expensive passively managed funds that track broader indices.
- They can’t change how hard it is to time the market, but they can change (or at least manage!) their belief that it’s possible.
Less financial stress is likely to enable greater health. With less debt and more savings, the Chandlers will both sleep better and maybe Steve will have the energy to begin exercising again. If Heather spends less time chauffeuring kids to activities, maybe she, Steve, and the kids will have more time to cook healthy meals together, and to enjoy each other’s company.
- The Chandlers can’t change the health challenges that life throws at them, but they can change their health for the better by choosing to live a healthier lifestyle.
- They can’t change the cost of health care and long-term care needs, but health insurance and long-term care insurance can change the resources they have to meet those costs.
- They can’t change the damage health events do to human capital and income, but they can change their financial impact by having enough life and long-term disability insurance.
Our review of each financial area identified important similarities—among them, a unifying wisdom:
- Things we can change: Our individual choices and actions can favorably influence the outcomes we experience. The most helpful choices are usually not easy. They require courage:
- To overcome our natural instincts and biases;
- To choose and follow our own values even when they differ from those of our family and community; and
- To recognize the limits of our powers.
- Things we can’t change:
- The world will not conform to our wishes.
- The market for products and services sets prices we can only observe, then choose to pay or not pay.
- The investment markets vary and refuse to deliver predictable returns.
- The market for our human capital services contains multiple jobs and careers, but each offers compensation and imposes requirements we must accept.
- Even our health depends on genetic and environmental factors beyond our ability to control.
Financial serenity lives in recognizing that while most of the world is beyond our influence, it still offers many options. Choosing well is both wise and courageous.