We live in an age of incredible informational resources. If you want to learn about smart money management, there’s never been a better time. But very few people know how to get the most out of all the interesting bloggers, financial planners, investment forums, and other resources available to them.
So here are my best techniques for answering the unknown when it comes to thorny money management questions. Whether you’re stumped at a financial planner’s office, or hitting a roadblock as you build your investment thesis out alone at your computer, this will help you overcome your obstacles.
Embrace The Phrase “I Don’t Know”
Being able to admit you don’t know something is the first step to finding out the answer. After all, if you don’t admit you have a problem, you won’t expend any resources to resolve it. In money management, this is very important. You can’t make good decisions if you aren’t clear with yourself what is fact and what is speculation.
Say you’re sitting at your desk trying to determine whether you should get a mortgage or not for your fully paid off house. Do you actually feel like you know what the advantages of a mortgage are and when to use them? Or are you just going to go with what your parents told you to believe all those years ago when you overheard them talking about their own home purchase?
If you can embrace the phrase “I Don’t Know”, you are slightly ahead of the average Joe.
But even most pretty smart people stop here. That’s so sad. You did the hard part putting your pride aside, and if you took just one or two more steps you’d be 10x more productive. So here’s what you can do to 10x your results.
Share What You Do Know
Say you’re at a financial planner’s office. You and he have sat down to discuss what sort of investments you should make. He asks you, “When do you plan to retire?”
You are seized with a feeling of helplessness. That’s an overwhelming question! That’s so complex and depends on a number of things, not the least of which is how those investments perform. You could answer “I don’t know,” and let the planner steer the floundering conversational ship, or you can help the conversation along by sharing what you do know.
Answer the Question But Include A Caveat With Your Unknowns: For example, you could say, “I’d like to retire by age 45 if that’s possible. But whether I can actually retire at 45 based on the state of my finances is a question I’m here to answer.”
Use a Range: If you feel too overwhelmed to feel comfortable providing a specific answer, you could provide a range. “I’d like to retire between 45 and 50.”
Leave a Hook: Maybe you’re truly just overwhelmed in the moment and can’t think of any of the above. There’s still an option that better than a flat “I don’t know.” Leave a peace offering at the end that shows you want to cooperate but that specific question is difficult to answer. “That’s what I’m hoping to get to from our session today – I don’t have a great answer since there seem to be an overwhelming number of factors. Perhaps you can help me get started with a few smaller questions.”
Sometimes you can help the conversation by breaking down the original question into more approachable baby steps, and for you to play a part in that you need to understand what factors the questioner is weighing based on your answer.
For example: “I don’t have a crisp answer because it depends on a ton of factors including how my nest egg performs. Can you help me understand how my answer would change our strategy?” Or alternatively, “How would the target retirement date play into how we decide on a strategy?”
Clearly the financial planner is trying to help you. Clearly the information he is asking for is in some way critical in developing the strategy. But you don’t know why. And if you knew why, perhaps while you couldn’t answer his original question you could give him pieces of what he does need.
Put yourself on the receiving end. If you got a deadpan “I don’t know,” it’s a real conversation shut-down. It feels like you’re trying to wring blood out of a stone. But if someone answers in the second fashion, they have created a more collegial, collaborative atmosphere. It’s very much a “help me help you”.
Ask How You Find Out
This question is worth its weight in gold. For example, the financial planner has asked you “When do you plan to retire?” Embedded in that question is two questions: when you want to retire, and when the math would support you actually retiring and not outlasting your nest egg. So tell the planner you don’t know, but ask him how you’ go about finding out.
“I dream of retiring at 45. I don’t know if the math of my nest egg will support it. How do I go about determining if it will?”
Or say you’re sitting at home trying to figure out how exactly you’re supposed to allocate your portfolio between stocks and bonds. Jump on an expert’s website or a forum, and ask. Specifically, don’t just ask “What should my allocation be?” but rather ask, “How do I determine the right allocation?”
There’s a very key difference.
The latter will give you the explanation to decide for yourself whether a strategy makes sense. The former may just be a confident-sounding sound byte, and you will have very little to take away and stress test if you don’t have the explanation for why.
Solicit Examples From Others
Ask the planner for examples of how others have answered this. Essentially, ask them what options they have seen in the past. Say the planners ask how you would like to divide your assets in your will. You can ask, “What have you seen others do? What are the more common approaches?”
And back to the portfolio allocation question. You can ask for examples on a forum, stressing the why.
You can take charge of any conversation even when you don’t know the answer by using these techniques. Make sure you’re getting the most out of your conversations by focusing on the why.
Any other techniques you’ve found work for you when you don’t know the answer? Please share your go-to strategies in the comments!