“Too hot, too cold, just right!” How the Goldilocks Rule can help you grow your wealth

After sitting on my “must read” list for some time, I’ve recently finished reading the New York Times bestseller Atomic Habits by James Clear.

As the title suggests, it outlines the important role positive habits have in daily life, as they can help you accomplish more by focusing on what’s important.

While, unlike some of the other books I’ve referenced in previous blogs, it does not relate directly to financial planning, but it does include some behavioural lessons that you can apply successfully to managing your money.

The Goldilocks Rule

One section of the book that captured my attention was when Clear outlined what he calls the “Goldilocks Rule”.

As you will no doubt be aware, in the story of Goldilocks and the three bears, the eponymous heroine comes across an empty house in the woods where she finds three bowls of porridge set out on the table. One is too hot, one too cold, but the other is just right.

She also discovers three beds, and finds one too hard, one too soft, and one just right.

From this, Clear extrapolates a rule that can be applied across many aspects of your life, including financial planning, that it’s important to try and find a perfect balance in what you do, and not settle for extremes.

The story of Steve Martin demonstrates the importance of finding the perfect balance

To help illustrate this point, Clear looks in some detail at the career of legendary comedian, Steve Martin.

From his first performances as a magician at Disneyland while in his teens, he honed his talent step-by-step by performing weekly gigs over the course of two decades. Starting in front of a handful of people, he worked ever-larger venues and audiences before ultimately selling out Madison Square Garden and becoming world-famous.

The important lesson Clear draws is that it was the small steps and weekly gigs that were important for Martin’s career development, and that made his advance manageable. He didn’t stretch himself too far, but at the same time, was prepared to take on incremental challenges.

In Goldilocks-speak, his advances were not too hard, nor too easy, but just right. This drawing neatly summarises the scenario.

Source: James Clear

Importantly, Steve Martin’s gradual gains were measurable. He could count his audience each week, and, perhaps more importantly, gauge the response his act was getting.

So how can we apply that to your personal finances?

Creating the right balance between saving and spending

To my mind, it could be possible to apply the Goldilocks Rules to your financial planning.

For example, one important aspect of your planning relates to the overall balance between spending and saving. Getting it right can be essential for your future financial wellbeing.

Obsessively saving money may result in you not enjoying your life and having feelings of resentment when you see others doing so.

On the other hand, spending too much and not setting enough aside each month could result in financial stress and debt, as well as an insecure future.

Again, the ideal scenario is the middle ground. In the same way that the ideal porridge was just the right temperature, you should be looking to live a lifestyle where you are saving enough for your future while not forsaking some pleasures in your life.

The best way to do this is to make sure you have a good idea of your spending and income, and that you create a budget that you stick to, based on your future aspirations and priorities.

By doing this, not only are your helping secure your future, but you’re also giving yourself valuable peace of mind that you’re doing so.

The importance of setting yourself financial targets

Most people react well to a challenge, but the key point is that it has to be attainable so you can motivate yourself to accept it.

Part of the balance between saving and spending is to help make sure you are saving enough for your financial future.

Again, there’s a balance that you need to strike. You can help yourself by making sure that your savings targets are not too easy, but at the same time, not beyond your financial means.

Just as Steve Martin took heart from the growing size of his audiences and the laughs he was getting, so will your confidence build as you see your savings grow.

In the short and medium term, you are likely to be targeting specific goals. These may include making sure you have an emergency fund in place, and providing the financial means for specific events, such as school fees for your children, a new car, or a “once in a lifetime” holiday.

Your longer-term objectives will revolve primarily around saving for your retirement, as you’ll likely need a substantial amount to fund your lifestyle when you are no longer earning a salary.

In each case, you’ll be setting money aside. Too little, and it becomes simple and meaningless, but too much and you’ll be discouraged.

A slight tweak on this to my mind, is that you need to aim for a ‘savings rate’ that makes you feel slightly uncomfortable, and that forces you to make some changes to your spending. This could create just the challenge you need to make your goals attainable.

It’s also important to review your progress regularly to make sure you’re on track and make any changes to your strategy that you feel are necessary.

Get in touch

If you would like to talk about your financial planning arrangements and how you could apply the Goldilocks principle to your own planning, please get in touch.

You can call me on 07769 156 250.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.