This true story really hits home. We all have a need to feel secure. We like calendars, schedules, systems, processes, and organization. According to Maslow’s Hierarchy of Needs, safety and security includes: personal security, health and well-being, safety net against accidents / illness and the adverse impacts, and financial security. This theory describes human motivation and growth. Each level builds on the previous one and needs to be relatively complete before one can move up to the next level.
Our need for safety is completely opposite of how the stock market works. Markets are confusing, complicated, intricate, unpredictable, filled with incomprehensible jargon – an unholy mess. Stocks and bonds are also referred to as securities, which really muddies the waters since they are anything but secure. This dichotomy causes us to have a difficult time jumping into the investing pool. We want to invest in products that are neat and structured and have great positive returns. But these two concepts are at odds. In order to have the “$1000 in your hand” you have to take some risk since a nice bank manager won’t just give it to you.
So how do we begin investing while maintaining the assurance that our world won’t crumble?
Safety needs, in terms of finances, are comprised of things like an emergency fund and insurance protection. Without having this base level of financial security, it becomes difficult to move up to the more complex level of investing. Our safest investment may be a good ‘ol savings account. Once we have a comfortable amount built up, say 3 – 6 months of expenses, and we have basic insurance in place, we can start investing. Beginning with a small dollar amount allows us to see how stocks, bonds or mutual funds work, grow our knowledge and build our confidence. Continued investment on a regular basis allows us to see our money grow, creating the positive reinforcement needed to keep buying in and growing our wealth.
Will the stock market go down? You bet. There will be good and bad times, but when we know we won't go hungry and can pay our bills, the ups and downs of the market are easier to weather. We know we can get past the short term storm for the benefit of the long term voyage.
Pamela J. Horack, CFP® of Pathfinder Planning LL provides personal financial planning advice for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.