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Monday, October 15, 2012

Try to Focus on Your Personal Economy

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at BAM Advisor Services. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

As many of the social structures we have relied on in the past for retirement seem to disappear or appear vulnerable (company pensions and Social Security to name two), we're becoming increasingly more responsible for our own financial futures. But at the same time we're overwhelmed with information about how to handle our money.

Never before have we had so much information at our fingertips about how to handle money, and never before have so many of us felt out of control. Sorting th ough this noise is more important than ever before, not only for our financial futures but for our mental health.

Think I'm overstating the problem?

In 2011, IDC Digital Universe published a study, “Extracting Value from Chaos.” It found we have 1.8 zettabytes (1.8 billion terabytes) of data floating around. What does that look like?

  • Every person in the United States tweeting 3 tweets per minute for 26,976 years nonstop
  • Every person in the world having over 215 million high-resolution MRI scans per day
  • Over 200 billion high definition movies (each 2 hours in length), which would take one person 47 million years to watch if that person watched for 24 hours a day
  • The amount of information needed to fill 57.5 billion 32 gigabyte Apple iPads.

In 2012, that number is expected to grow to 2.7 zettabytes.

Obviously, it's easy to get distracted. And based on the questions I get, people are really distracted when it comes to money.

  • Should I buy this stock?
  • What do you think the market will do?
  • Will Europe go down in flames?
  • Will the economy ever recover?

But what if instead of asking those questions, we asked just these questions:

  • How much can I save?
  • How is my portfolio allocated?
  • Can I pick up some extra work this month?
  • Can I start a little business on the side?

By asking these questions we switch our focus to things we have at least some control over. We start to focus on our personal economy, instead of the global economy. Our personal economy becomes the filter for all the noise. Things like Europe, the market, and individual stocks drop off our radar. Instead, we focus on information that helps us with the one thing we can control: ourselves.

Obviously with so much noise, it can be incredibly hard to get this focused. But the so oner you figure out the value of this filter, the faster you'll be able to make sense of the noise.

So besides burying your head in the sand, what have you done to filter the noise?