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Rely on more than one avenue for financial success.

Rely on more than one avenue for financial success.

| June 20, 2016

"When you reach the end of your rope, tie a knot in it and hang on." - Franklin D. Roosevelt

Don't put all your eggs in one basket. You'll set yourself up for failure. Thank you captain obvious, I'm sure you've heard this age old adage... So why do so many people rely on one asset for the majority of their net worth? Think of your business, home, 401k, real estate investment, IRAs, etc. I'm not talking about having a blend of those. As part of your financial plan that’s great!  When you have too much relying on one basket, you may end up with a rotten egg.

Small business risk example: Most business owners think they can control their own business into success, small businesses have a very high failure rate (50-65% failure rate by year 5 according to www.census.gov). It’s very difficult to run one, let alone succeed, despite your own motivations and brilliance. There are too many factors you cannot control that could ultimately be the doom of your business. Whether they are health issues, a poor economy (think 2008!), Obamacare, or even some innovation that makes your idea irrelevant (laserdisc anyone?)… Name your bogey, the risks are innumerable.  While it seems noble to put EVERYTHING into your business, if failure is the end result, by doing so, you’ve left yourself barren and without resources. I'm not saying small business is the wrong route to success. On the contrary, small businesses are tremendously important to both the economy and accumulation of wealth. I'm saying you must be cognizant of the high risk/high reward of business ownership.
More is better. To diverge from Mr. Obvious above, you need to build your wealth through multiple avenues. Don't overdo it and spread yourself thin. Having too much can be expensive, unmaintainable, and completely dilute any good investment you have. However, the opposite - focusing everything on one major asset often ends with a boom or bust outcome. Using your assets in a balanced manner. Take on a healthy mortgage you can afford. Put the right amount of time and money to make your business grow. Invest enough in your 401k while not totally sacrificing your current standard of living…
You can have it all. The American Dream is a great dream we personalize to our aspirations. A nice house with a white picket fence, 2.5 children, three car garage, 9-5 job, healthy 401k, little or no debt. Or is it a small business, vacation home, great income, flexible schedule… When planned for accordingly, your personal version of the American Dream is not only very attractive, it's also very achievable. Don't blindly throw all your effort, energy and finances into one thing and hope it works out. Yes, there are a few, very rare people out there who achieve financial success this way. When it works they look like geniuses. No one hears the stories of the multitudes that fail. For every massive success, there are thousands of miserable failures. How often does everything go right? Perhaps better to look like a genius when everything goes wrong. By following the wisdom of the ages – don’t put all your eggs in one basket – you could be off to a very good way to start.