Four Analogies That May Change How You Think About Finances

Four Analogies That May Change How You Think About Finances

Let’s be honest – managing your personal finances can be complicated, especially when you go beyond the numbers and add the emotional complexity that comes with money. Unlike human survival and social instincts, handling money responsibly is not second-hand nature for everyone. That’s where analogies can be super helpful in understanding the intricacies of money. Below are a few analogies you might like.

Delaying Investing

Waiting to start investing is like delaying the start time of driving to an appointment. If your destination is 60 miles away and you leave an hour before you need to arrive, you need to consistently drive 60 mph to get there on time. That’s cutting it fine, but if you delay the start of your journey by 20 minutes or so, you’ll be forced to drive at much higher speed to get to your appointment on time.

The same is true for investing. Compound interest (earning interest on interest) is the best thing when it comes to investing. As your portfolio grows from the interest you’ve earned previously, the dollar return gets larger and larger. It is like the rice and chessboard parable where doubling one grain of rice per square on the board leads to enormous amounts of rice.

The number one thing to improve your compound interest is time. So, it is crucial to start investing early and often, no matter how much money it is. The best time to start investing was yesterday; the next best time is now!

Performance Chasing

Changing lanes when you’re stuck in traffic rarely works out how you hoped it would – the faster lane you merged into somehow slows down, and the lane you left somehow speeds up right after you change lanes.

Patience pays off in traffic and investing. With the internet and social media, some types of investments get a lot of hype for their short-term performance. Then FOMO (Fear of Missing out) sets in, and you abandon the original investment plan. Shortly after you do this, the investments mysteriously slow down. We’ve seen this repeatedly with tech stocks in the 2000s, real estate in 2008, and growth stocks with no earnings in 2020-2021. If you didn’t have perfect timing getting out of them, these situations often ended poorly.

Don’t be tempted to abandon what you own to chase the newest hot stock picks. It may not be as fun, but staying in your lane or sticking to the investment plan will help you reach your destination on time.

Market News

What would you do if you stepped on an elevator and saw the only two button choices were “Soar” and “Plunge” instead of “Up” and “Down?” Obviously, you’d jump right back out the door, even though they are just words.

News companies are incentivized to get more eyeballs watching their content to sell more ad spots. Using words that incite emotions of fear or euphoria increases viewership. Keep that in mind when you are reading the newspaper, browsing the internet, or watching the news on television. Words are just words and can be easily manipulated to stress a viewpoint.

While there is no harm in watching the news or CNBC, stay vigilant and take things you read or hear with a grain of salt. And always know that your financial advisor is here to help you determine what is noise and what are things you need to pay attention to.

Retirement Planning

Retirement planning is like doing a cross-country trip from DC to LA. Google Maps can give you a ballpark ETA when starting the road trip, but the ETA gets much more accurate as you get closer to California.

When we create retirement plans, we see them as living, breathing documents. No one knows the future, so it is crucial to update your retirement plan every year or so as your life changes. The closer you get to retirement, the more precise we can be with the numerous variables, such as your expenses and your goals in retirement. Just know we are here to help you set the plan and course correct as needed.

Well, that wraps up this blog post. Keeping simple analogies like these in your back pocket will help you stay on track and make smart financial decisions. When in doubt, your financial advisor is here to provide guidance.

If you need help with your finances or have an analogy you would like to share with us, please send us an email to or click here to schedule a call with one of FSA’s CERTIFIED FINANCIAL PLANNER™ professionals. See you in the next blog post!


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