As the school year gets back into full swing and sports teams are starting their next season, it’s natural to focus on the lofty goals we each want to achieve in the coming year. Dreams of acing tests and scoring the game winner are top-of-mind for the kids – everyone wants to make a positive contribution. However, are we focused on the right metrics? In the case of many things, improvement is not about doing more things right, but about doing fewer things wrong.
To illustrate, let’s look at the evolution of Japanese manufacturing in the 1970s. During that time, the Japanese firms emphasized what came to be known as “lean production.” Their goal wasn’t to be the most creative or innovative. They didn’t reinvent the mousetrap. Rather, they relentlessly looked to remove waste of all kinds from the production process. By building the same products with fewer mistakes, the Japanese improved by subtracting. According to an article in the New Yorker, by 1974, service calls for American-made color TVs were five times greater than those for Japanese TVs. By 1979, the Japanese could build three TV sets in the time it took an American firm to build one.
Revolutionary, innovative, disruptive change is great, but it is unreliable. It is just as important to improve by not getting worse – focusing on efficiency and dependability.
To hammer home the point, let’s look at diet and exercise. The common mindset when embarking on a new diet is to only eat healthy food. That can feel overwhelming. Instead, flip the script and focus on eating fewer unhealthy foods. Eliminate the “empty calories” in your diet and the results can be astounding.
For exercise, we often become obsessed with the intensity of our workouts – lift more, run farther, burn more calories. This too can be overwhelming. Instead, focus on missing fewer workouts. Not everything has to be a one-up. Improve your consistency and the results will come.
The same is true for personal finance. Most people are guilty of chasing a higher salary or searching for that once-in-a-lifetime investment that makes them a millionaire. While both pursuits are worthwhile, they are incredibly hard to predict. The far easier path to financial independence is to eliminate the waste.
How do you do that?
- Develop a budget to track expenses and ensure that you spend less than you make. Living within your means is financial improvement by subtraction.
- Eliminate credit card debt. Using credit cards to fund your lifestyle can be a costly mistake thanks to the high interest payments that accompany them. If you have credit card debt, make it a priority in your budget to pay off.
- Avoid investments that don’t (or won’t) meet your financial needs. Diversification is good in investing, but it is crucial to understand how to balance your investments according to your current needs and future goals. You don’t want to waste time in investments that aren’t going to provide the return you need to fund your future financial goals.
Improvement by subtraction is less flashy than improvement by addition. Every athlete wants to play a great game, every writer wants to pen a best-seller, every business wants to land a transformative deal, and every investor wants to find the next Amazon. But the power of controlling the controllable should not be overlooked.
John Lueken is the executive vice president and chief investment strategist at CapWealth. This article was published in The Tennessean on Oct. 7, 2019.