Stewardship and Your Money
What traits of the wealthy make them good at managing money? That question assumes a direct correlation between your wealth and your skill at managing that wealth. Wrong idea.
Better to ask, “What are the traits of someone who is a good steward of wealth?”
Merriam-Webster’s Dictionary defines “stewardship” as, “the conducting, supervising, or managing of something” and “the careful and responsible management of something entrusted to one’s care.” Personal wealth certainly qualifies as worthy of care.
Yet few seem to exercise such care: Fewer than one in three (31%) American families draw up a financial plan; just 35% of families’ financial decision makers report a plan in place even to save for emergencies, according to a recent survey from the Certified Financial Planner Board of Standards.
You find good financial stewards across the wealth spectrum, from your thrifty neighbor to Wall Street guru Warren Buffett, and they tend to share common traits:
For some, a vision is a clear inner sense of direction. Others may need a written and greatly detailed vision. Whichever you need, both you and your financial advisor benefit from a defined vision with your associated goals.
Sort your priorities logically. What do you value? What’s important to you, the purpose of your money? A written financial plan supports your vision and gives you a tool to correct your course as needed.
This typically means living within one’s means and spending and saving in a way to accomplish your vision.
Methods exist to support your discipline. Consider automatic systems to save, which take money out of your paycheck or invest it straight from your checking account. Also use your company’s retirement plan, especially if your company matches your contributions.
How you monitor your financial position in relation to your vision and how you make improvements or adjustments as needed.
Your process is especially important to identify the need for adjustments quickly, which increases the likelihood that your plan will succeed. Otherwise, you risk having to make a single dramatic adjustment as a reaction – and potentially at a bad moment. Avoid dramatic adjustments, which tend to harm the long-term outcome of plans.
Stewardship also involves continuously seeking ways to improve your financial control and situation. This leads us to Dr. W. Edwards Deming, whom many consider the father of modern quality control.
Deming popularized an approach to continuous improvement known as Plan-Do-Study-Act (PDSA). Considering your financial plan, apply it as follows:
- Plan: Create a plan that has specific goals.
- Do: Create an action plan to support achievement of the overall plan.
- Study: Scutinize results of your plan and identify opportunities for improvement.
- Act: Take action on the opportunities for improvement.
And, of course, when the cycle is finished, repeat.
True, not everyone who’s rich manages that wealth with skill, nor will everyone who demonstrates the traits of a good steward achieve a high level of wealth. Those with the traits of a good steward, though, can be confident of making best use of resources and they greatly increase the chance of reaching financial goals.
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Written by Eric Ross, CFP, a financial planning specialist at Truepoint Wealth Counsel in Cincinnati.
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