Dave Kansas - The Wall Street Journal Guide to the New Rules of Personal Finance: Essential Strategies for Saving, Investing, and Building a Portfolio in a World Turned Upside Down

T HE PAST FEW YEARS of market turmoil have left deep scars. Unmoored by the craziness that has taken place, many people feel a bit lost, and that sensation is amplified by real hurteviscerated retirement portfolios, shrunken savings, homes underwater, and, in some cases, jobs lost and careers derailed. Others feel that theyve been had, that the market was rigged against them. Still others feel a palpable sense of anger because the oceans of financial advice offered by experts during the past decade didnt work the way they said it would. During such difficult times, it can feel like things will never get better.

But weve learned that things can start to feel better, and, while the situation is still challenging, we can see evidence of recovery. Many who have lost jobs have found new work. Shrunken savings have started to grow once more. Shattered confidence in our financial future has begun to improve. However, now that the worst appears to be over, we must return to handling our finances more like a strategic command and less like a triage unit. As the months roll by, and as the financial climate continues to improvealbeit more slowly than any of us would likewe need to find a way back to financial security. This book is meant to help you get back on your feet and get moving again.

This time, though, we need to find a better way of thinking about money. Indeed, many of the old rulesideas such as relying too exclusively on the stock market or real estatefailed us. We need new rules, new ideas, and new strategies to rebuild nest eggs and a sense of financial confidence. We need to discover new ways of thinking about our money so that we can thrive once again. To get at the heart of this new personal finance ethic, I figured that Id turn to some of the experts to see if their advice had changed in the wake of the financial crisis. However, when I asked what everyday people should do differently now, most of these advisers simply resorted to the same predictable answers.

They talked of stocks and their long-run success. They talked airily about diversity in investments, without outlining what that truly meant. When asked if there was some new lesson to be learned from the catastrophes, the response was a mixture of blank stares and nervous fidgeting. It seemed that most of these folks believed that if they hoped hard enough, the booming stock markets of the 1980s and 1990s would return once again.

That hasnt happened yet. Importantly though, even if those bullish days return to Wall Street, we must still adjust our financial lives so that they are less susceptible to the inevitable turns in the market than they were in the past.

So, what this book tries to do is address this conundrum. How can we rebuild financial security in a new way, a way that truly will provide better protection and better peace of mind? How can we learn lessons from what has occurred so that we can more intelligently provide for ourselves and our families?

Ive written about investing and financial topics for almost twenty years, and I believe that a healthy, recession-proof financial life contains three key components.

1. We have to take responsibility for our own financial security. Many of us have spent the last couple of years griping about the unfairness of what occurred. Dark forces beyond our control conspired to deprive us of hard-earned savings. The system was rigged. The government bailed out the banks and the bankers continued to receive big bonuses while many of usand our friendslost jobs and struggled to set things right.

It feels good to complain, but that doesnt help make things better. We need to take a sober look at where we stand, take control of what we have, and get back on the path to prosperity.

2. Despite the horrific difficulties of the past few years, we have to recognize that many fundamental elements of personal finance still have merit. In other words, Im not suggesting that you discard every lesson youve ever learned about taking care of your finances. To be sure, some tenets of personal finance are timeless. Notions such as saving, budgeting, and eschewing credit-card debt and reckless spending are time-tested means of improving your financial situation, and we should embrace them.

Unfortunately, some of the most important elements of these bedrock values became somehow lost in the last decade. While the bursting of the Internet bubble in the early 2000s brought with it some self-reflection, it did not erase a belief that easy money was somehow just within reach. Discipline eroded; greed and craving grew; and strategies came unglued in search of something that would not come.

3. Perhaps most important, we have to find new approaches that will help protect us when the next storm comes. This means rethinking many old notions. We need to reexamine our love affair with the stock market. Perhaps we fell too deeply in love with stocks, and that became a big part of our vulnerability when the financial crisis came. We also need to reexamine diversitydo we really understand what that means? Finally, we need to see the evolving world as it is and take advantage of the emerging opportunities that are presented. Many of us still remain far too domestically oriented in our investment thinking.

Back in the fall of 2008, as markets cratered and the government threw hundreds of billions of dollars at the problem, it became incredibly difficult to formulate a plan to cope. The stabilizing nature of the time since then has given us a chance to rethink how we approach our financial lives. This book will give us guideposts that will help enrich us and provide us financial security. Together, we will discover a different, smarter way to deploy our assets so that we can have more assurance that financial security is truly achievable, no matter what chaos may come.

Everything weve gone through feels unprecedented. But it really isnt. And the fact is, weve lost some of the lessons learned during previous difficult times. Along with preserving what works and embracing new strategies that have promise, this book also seeks to rediscover what has worked in the past. That last notion has had me thinking about my grandfather. The youngest of ten from a poor family in North Dakota, he worked his way through college and medical school during the Great Depression, served his country in World War II, and built a strong medical practice in St. Paul, Minnesota, my hometown.

As a kid I would help him on many tasks, some of which required trips out to his cabin, about an hours drive from his home. Each time we went out there, we had a routine, right down to driving in a certain lane on the highway in order to avoid time-wasting lane changes. Along the way, wed stop at a home improvement shop to grab some supplies and then McDonalds to get some food.

Like any kid, I loved McDonalds. The first time we stopped there, I couldnt believe it! Such extravagance! We ordered our meal at the drive-thru window and I can still smell those salty French fries. He grabbed the bags and placed them right next to the supplies in the front seat between us. As we started driving I figured wed start eating soon. But we didnt. At the cabin, he put the McDonalds bag in the fridge. And then we went outside to work in the yard.

I was confounded. Why werent we eating this wonderful, warm food? As we raked leaves, pulled weeds, and did other chores, the food went from warm to cool to cold in the fridge. We worked for several hours before he considered our chores completed. Inside the cabin, he put a banged-up skillet on the stove and turned up the heat. Out came the bag of McDonalds food and onto the skillet it went. His point was made, whether he intended it or not, in a way that sticks with me thirty-five years later. First we work, then we eat. Gratification shouldnt only be delayed, it must be earned.