We all strive to live our lives with meaning and a real sense of purpose and as we reflect, the things we will value most in our lives will be our relationships and the experiences we have shared with people we care about. Understanding what drives us, aka, the power of why, becomes the most important foundation we can put in place as we embark on securing our financial futures.
In his book Start with Why, Simon Sinek discusses the way great corporate leaders harness the power of ‘Why?’ He suggests all businesses know What they do, many are clear on How they do it, but few are clear on Why they do what they do.
He credits Apple’s phenomenal success to its clear sense of why – ‘to challenge the status quo’. Apple’s ability to innovate and think differently empowers it to be the market leader across so many consumer segments. And consumers love them for it. Similarly, consumers are rewarding Tesla Motors for its why, which is ‘to accelerate the world’s transition to sustainable energy’. Therefore, the power of why cannot be underestimated.
When it comes to our wealth, Sinek’s golden circle is just as powerful. Most of us can clearly state what we are doing with our money. For example we might hear someone say, ‘I run my own self-managed superannuation fund’, or ‘I negatively gear properties’. Some investors may even have a clear idea of how they manage their self-managed fund. They may say something like, “Well, I subscribe to such and such a newsletter and from that I get stock ideas, and …’.
Ask an investor why they do what they do and they will probably respond with something like, ‘Well, to get a good return on my money of course!’ While this is probably true, there’s likely to be a lot more to it than that.
Because investors focus too much on the What and the How, they end up making poor investment decisions. If you think smart investing is only about seeking out the best possible return on your money then you may be missing some important considerations. You may also be the perfect target for an unscrupulous rogue with a good story.
Pick up a newspaper over the New Year break and you’ll see headlines like: ‘Top stocks to own in the year ahead’. The likelihood of success from following such tips is almost zero, so treat these articles as good holiday entertainment but don’t act on them.
Worst of all, people searching for higher returns can become victim to scams and schemes designed to enrich the scheme promoter rather than the investor. As Lewis Carroll said in Alice in Wonderland, “If you don’t know where you are going, any road will lead you there”.
So let’s use Sinek’s idea of the Golden Circle to explain how we can make better financial decisions.
The why always comes first as it helps us define the really important things we are seeking to achieve in our lives. These may include financial security for our family, or pride and satisfaction around building a great business. Having a clear why should help prevent you doing dumb things with your money. It will cause you to stop and reflect on the possible outcomes before you make an impulsive decision.
A clear ‘why’ will also keep you focused on your most important goals and give you the inspiration you need to follow through on the actions required to achieve them.