How to avoid misfortune

By Al Jacobs
On the Money Trail

Over the past several decades, I've watched as the personal lives of a number of friends and acquaintances self-destructed. At first, each misfortune seemed unique, but looking back, I find common threads among these financial calamities. There are typically three factors that invariably lead to misery. Read on to learn how to avoid them.

1. Beware the natural law of income and expenditures
Innumerable works exist on the subject of income and expense as they relate to one another. Whether a scholarly dissertation on taxation, helpful hints on personal budget balancing or a diatribe on welfare spending, certain elements of fact and fiction are often woven together to blur the obvious. The inability of many to separate financial illusion from reality is a national defect and, for an individual, this failing can be a personal disaster.

Of the many books on the subject, an exceptionally clear and enlightening text entitled "The Law and the Profits" was published in 1960 by perhaps the most lucid writer of this century, the late English historian C. Northcote Parkinson. In it he postulated the maxim that expenditures invariably rise to meet and exceed available income, and substantiated this as it relates both to organizations and individuals. It is this impulse to spend whatever is available that's the undoing of many otherwise rational persons.

The message of this book should be clear: To protect yourself, reject this tendency to spend up to and beyond your financial limit. In one example, Parkinson introduces a close acquaintance; a wealthy "self-made" investor, who boasts that in his years as a young Depression-era attorney he lived on only 30 percent of his income. Interestingly, at the same time, his indolent son-in-law boasted, though more discreetly, that he, likewise, lived on 30 percent of the wealthy man's income. Perhaps there's a lesson to be learned here, but that's something for another time.

2. Do not commit to things you do not understand
Of one thing you may be certain: You will often be called upon to make decisions for which you are unprepared. Whenever possible, defer your judgment to a more favorable time. There are instances, however, when you cannot wait. Under these circumstances you must make your decisions from the best information you can gather at the moment.

Frequently, you must weigh the advice and recommendations of others. And, the source of the counsel offered should be considered closely. It can be hazardous to place your confidence in persons merely because they are friends, relatives or professional advisors. The same can be said about the opinions of the wealthy, though it is not unusual to confuse financial success with knowledge. The line from the Broadway musical Fiddler on the Roof sums it all up pretty nicely, ". . . because when you're rich, they think you really know."

We all seem to accept that the advertising business might not function as effectively without the celebrity pitchman. For unknown reasons, the claimed benefits to the purchaser of a complex health insurance policy are presumed more credible when endorsed by an aging television talk show host or a sports celebrity. This is neither unique to the U.S. nor a recent phenomenon. For example, the ability of royalty — the British equivalent of celebrity — to market products was captured nicely in a Gilbert and Sullivan comic opera written over a century ago with the following lines spoken by the mythical Duchess of Plaza-Toro:

I write letters blatant
On medicines patent —
And use any other you mustn't;
And vow my complexion
Derives its perfection
From somebody's soap — which it doesn't.

In short, when required to make decisions on factors you consider less than reliable, disregard any advice, regardless of the source, which is not clearly understandable or with which you disagree, and try to postpone binding commitments until you acquire the missing information.

3. The secret of success in virtually every endeavor is mastery of the details
If there is a single factor to explain why so many people fail in their undertakings, it's their inability, or perhaps unwillingness, to spend the time and energy to collect, evaluate and utilize information. Perhaps this is excusable, as there is little in the training of most of us that encourages close scrutiny of anything. It's my belief that admonitions such as "You can't see the forest for the trees," and "We must step back to get the big picture," are mere rationalizations to avoid thought. The world should be viewed not as a monolith to be comprehended through revelation, but as a jigsaw puzzle in which a multitude of differently shaped and colored pieces are sorted and rotated while being fit together — often in unattached clusters — as the picture slowly forms. In short, the minutia, which may seem merely an annoyance obscuring the subject, is often the actual substance which is then assembled to form the subject. It is only by diligent investigation that you can know what you are doing, learn what is happening to you, and control the situations that confront you. As once expressed: "When you know the details, no one can lie to you."

These are the simple — perhaps not so simple — ways to stay out of self-made trouble. Whenever you encounter a predicament, however benign it may at seem at first, try to reflect on these three rules. They can save you from a heap of misery.