We continue with our discussion of the risks preventing us from
becoming financially independent.

We began with the understanding that being financially
independent is a journey, not a destination.

In the past columns, I’ve explored those risks, beyond our
control, which can have devastating effects on our
pocketbook.

While the nine risks already discussed – see previous issues of
this newspaper or archives on the Internet at www.dcnewspress.com –
are not always avoidable, we can and should take steps to mitigate
these risks.

Financial independence is not a certain dollar amount; it is
learning to handle money, and make financial decisions, in ways
that reduce the risks that we all face regarding our financial
health.

This week I promised to discuss those risks in our control. You
might ask: If the list that follows is in our control, why are they
risks at all?

Because it is this list that has the biggest impact on the
financial health of most couples, these items are what keep many I
have seen from truly feeling confident about their money.

q Falling in love: No, this is not the marriage penalty, nor is
it the expense of supporting a family. I’m referring to the
tendency for many investors to fall in love with a particular
investment, following it right down the drain.

It might be a certain type of investment or a particular
company. Whatever the situation, I have seen people who experience
success, then can’t let go.

They’ll continue to pursue their choice even when all of the
original reasons for buying it are gone, and all signs point to
decline. Mitigate this risk by getting professional advice, and by
diversifying.

q Mental accounting: When it feels like we are ahead, we are
much more willing to take risks.

For example, in studies of gambling habits, those who are ahead
gamble much more freely, making bigger bets and generally ignoring
risks. It’s called gambling with the house’s money. If you feel
like you are gambling with your own money, you make smaller bets
and are more careful about the odds.

Of course, this behavior is strictly our state of mind – the
amount of dollar loss is the same, and the odds of winning or
losing on the next bet have nothing at all to do with how well you
have done previously.

There are many other examples of mental accounting, including
benchmarking, herd mentality, anchoring, loss aversion, framing and
others that prevent you from making sound decisions.

People make investment decisions based upon their perception of
their past experiences, which might or might not give an indication
of the advisability of the investment decision.

q Failing to plan: If you don’t know where you are headed, it
doesn’t matter which way you turn. Failing to realize how today’s
decisions affect your financial future is but one way in which not
planning is detrimental to your financial health.

Let’s work with an example. Most people would not think a few
double lattes, a pizza or two, and buying lunch out now and then
would have much effect on their finances.

However, if you average just $7 per day on these extras, it is
costing you more than a million dollars. That’s right!

Invest that $7 per day in a good mutual fund, and over your
working career those few extra dollars would give you an extra
million dollars to enjoy during retirement.

Lack of appropriate information for decision-making: Your
financial needs are unique. There is no one correct answer, and
even financial guidelines that are general in nature might not
apply to your situation.

You might be advised to make a certain financial move based on
your situation, and the same move might be inappropriate for
another person.

To make decisions, you must be knowledgeable in tax laws,
investment choices, finance options, legal issues, several types of
insurance, employer and government benefits and much
more.

Nothing is worse than advice from someone with limited knowledge
of your finances, or with limited access to the options
available.

Choose your financial advisers carefully, and keep them fully
informed of your situation.

Over the past few columns we have explored 13 risks that could
keep you from becoming financially independent. And yet, only one
of these risks had to do with the volatility of the stock market,
and this is the easiest of these 13 risks to control.

We also discussed the fact that the amount of income earned is
seldom the real reason someone is not financially secure.

Do yourself a favor, and determine what is keeping you from
reaching your financial goals, then work to eliminate these
risks.

Send questions to dan@cookfinancial.net or to Cook Financial
Associates, 399 Perry St., Suite 202, Castle Rock, CO
80104.

Daniel Cook is a Certified Financial Planner licensee with an
independent planning practice in Castle Rock.