Putting Purpose in Your Money Management

09/10/2015 6:00 am EST

Focus: STRATEGIES

Jim Farrish

Founder and CIO, Jim's Notes

For the benefit of all newbie traders or for anyone in need of a trading strategy refresher, Jim Farrish, on Jim’s Notes, explains that if a trader can stop long enough to define what he wants, the purpose, and a strategy for achieving it, then he can develop the disciplined habits it takes to achieve the end objective.

How many times do we promise ourselves we are going to lose 30 pounds, exercise regularly, eat healthy, etc, etc, etc. And how many times do we start out great only to lapse back into the same old habits? It sounds so good when we are making the commitment and in our mind's eye and heart of hearts we believe this time is different. But, it leads to the age old question: How and why does this keep happening? Psychology and the study of human behavior has answers in many different themes, but they all seem to lead back to the simple solution of motivation. Are we motivated enough to follow through on our promise and to work daily to achieve the habits necessary to accomplish our goal or desired outcome? If we would focus on a system for eating right every day versus losing 30 pounds the probability of success increases significantly according to studies. That would lead me to the conclusion that I need to have a well defined system that I can practice every day that fits both my personality and motivation.

It would seem logical to say that motivation is the momentum that drives the discipline to develop systems that lead to lasting habits. If we set out to lose 30 pounds and we are committed to walking three miles per day as part of achieving the objective, my motivation is to lose weight and therefore I walk. We start out great getting up an hour earlier every morning to put in the three mile walk. But, as time goes on…do we maintain our motivation or does it wane? Set backs come…we are too tired, the weather is bad, too cold, too hot, snowing, raining, and eventually we stop walking all together. There are endless articles and speeches on how to motivate yourself, but the real challenge comes in sustaining motivation. This is where a well defined system comes into play. A system is simple Boolean Logic…IF ____ Then _____. If it is raining I will walk ten flights of stairs in my office building. It plans for contingencies if things go wrong. This is the first issue investors/traders have to deal with in achieving their stated objective relative to investing their money. Define a system that allows for best and worst case scenarios. Practice the system to the point of being habitual. As you perfect it…improve it. Keep records and stay focused on the end goal or purpose for the process.

Put this in perspective of the following purpose…I am 40 years old and I want to retire when I am 65 years old with $3000 per month of income. This is a 25 year goal. The odds are good you cannot or will not sustain your motivation for the next 25 years towards hit purpose. This begs the question of how do keep yourself motivated to save $300 per month for the next 25 years? Better yet, how to do I stay motivated to manage the money year in and year out. If I believe I am going to stay motivated about a goal 25 years into the future, I am only kidding myself.

For me personally, the word purpose better defines how to achieve both short- and longer-term goals especially when it come to my money. What if I define the purpose for investing $300 a month for 25 years so I can retire and live the lifestyle I want for the remainder of my life? Being motivated is driven by my defined purpose. I still have to define the motivation to manage the money and continue saving or even increase my savings amount monthly. What if I learn to manage the money better? What if I increase my savings by $50 per month every six to12 months? I will get to the goal—$3000 per month—sooner. Thus, the motivation stays engaged in the process by understanding the purpose for managing the money. First, retire with $3000 per month of income. If I get better at managing the money and save more per month I could retire sooner.

NEXT PAGE: Three Steps to Help Get You to Your Goal

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Investing on purpose is key to getting where you want to be. Purpose in turn helps you develop the habits necessary to obtain your goal. If I put on my calendar the last day of every month to review my retirement portfolio and recalculate the outcome based on the current balance when I can retire, the motivation stays fresh. When I have setbacks from the markets moving lower I may want to find ways the next month or two to save more money to help buy more shares in my retirement account cheaper. Defining the purpose will create the habits which in turn drives discipline…which accomplishes the goal or the desired outcome.

Recently I have been working on the idea of making $500 per day from my portfolio. This would equate to approximately $120,000 per year. Being that I am not a day trader, I had to find a way to translate this into my strategy/system for investing. The purpose behind this endeavor was to make me more disciplined in my active approach to managing money. This drove down to the simple task of managing the emotions involved in making buy and sell decisions in my portfolio. If I could look at the positions and determine if they are achieving the objective/purpose for which I bought them…adding $500 per day of value to my account, I would be on my way to achieving my goal. Without getting into all the details of how this can be done, I want to focus on the purpose…maintaining the lifestyle I want without having to go to work every day.

This process is helping me develop better habits that are driving my discipline system to implement the strategy for my money. I have developed a system for spending an hour a day managing the positions to achieve their objective/purpose. If there is a position in the portfolio not achieving the objective it is sold. Positions are added to the portfolio based on my strategy and managed to achieve the objective. Simple, defined, implementable, trackable, and achievable. End result: managing money and living on purpose.

Three Steps for Staying on Purpose:

First, find your purpose for investing your money...or stated differently…putting your money at risk. Define your system in terms you understand, believe in, and are willing to commit to daily to achieve the desired outcome. It is your money, you have to own your purpose in order to accomplish your goal.

Second, define your strategy, system, and needed habits before you start. Practice, practice, and practice some more. Implement your strategy small at first, gain confidence, and develop good habits, then increase the size of your positions as your confidence grows along with your education. Maybe you start with making $50 per day and grow it from there. Whatever it takes to keep you engaged in the process and stay on purpose.

Third, hold yourself accountable daily. That is why I designed the $500 per day goal. It is manageable, measurable, and achievable for me to gain the confidence to keep doing it every day. I am motivated to be accountable to myself and my future as I laid it out and believe in the purpose for implementing the strategy every day.

It is too easy to get caught up in the complexity that is the market. It is equally easy to get distracted in trying to find the BBTS (bigger better trading strategy). If you stop long enough to define what you want, the purpose, a strategy for achieving it, you will develop the disciplined habits it takes to achieve the end objective. Managing my money on purpose helps me to live on purpose, doing and experiencing the lifestyle I want to live. It all starts and ends with investing on purpose in order to live on purpose.

By Jim Farrish, Founder & CIO, Jim’s Notes

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