Building Resilience Instead of Grasping for Certainty
The only thing that we know about the future is that it will be filled with more uncertainty than we can imagine.
It is easy for financial planning to fall into the trap of attempting to “predict” the future to reduce or eliminate uncertainty.
Certainty (or probability of success!) will increase if…
You can make a certain level of income for the next 30 years.
You spend a fixed amount inflated by 3% for the next 30 years.
You max out your 401k and/or Roth IRA every year for the next 30 years.
You achieve investment returns of 7.5% for the next 30 years.
In theory, this is supposed to help you do “financial planning” and oftentimes this process is called a “financial plan”.
In reality, this process encourages grasping for certainty, focusing on things that are out of your control, and transforms a "financial plan" into a financial services “product” that exacerbates society’s tendency to over-spend (i.e. consume) or over-save (i.e. hoard).
Real financial planning is knowing that we can only build resilience to navigate through an uncertain future adjusting course when new information is learned and improving our relationship with money each step of the way.
Resilience looks like…
Generating income from something that leverages your natural gifts and skillsets, allows you to manage risk of burnout, has a long (or indefinite!) time horizon, and allows you to spend time doing things that matter to you.
Spending in a manner that brings lasting contentment and is aware of spending that is relatively fixed and hard to change as well as the spending that is discretionary and can change relatively easily in the face of uncertainty. Generosity often increases contentment, debt often decreases contentment.
Saving, on average, in proportion to your level of income and into buckets that will be accessible in the near and distant future when you need the dollars the most knowing that cash on hand provides flexibility in the short run and durability in the long run.
Investing in a manner that you believe in and in which you have a baseline understanding knowing that, regardless of strategy or plan, the only guarantees are that someone will always outperform you and that how you behave during the inevitable unsettling times will be the biggest determining factor in your lifetime returns. Owning businesses tends to increase potential returns, diversification tends to make the ride smoother, long horizons tend to increase the probability of positive returns, and above-average patience is a superpower.
Grasping for certainty is inflexible, rigid, exact, unrealistic, disappointed by course correction, and ironically abstract because it tells a story with numbers that does not match up with the lived experience.
Building resilience is flexible, fluid, imprecise, realistic, expects course correction, and ironically concrete because it tells a story with numbers that matches the lived experience.
Additional Reading
The Magic Certainty Button by Carl Richards
Endless Uncertainty by Morgan Housel
God at Work in an Uncertain World by Rev. Daniel Mason