2 | The Kick Six and Your Money

In the 2013 Iron Bowl between Alabama and Auburn, the final play was a missed field goal that was returned 108 yards for a touchdown to win the game. Watch it here.

One of the most nuanced, random rules of football determined the outcome of the game.

Imagine if someone's introduction to college football was that play.

Very literally, imagine if someone watched that play with no prior context for the game of football and attempted to start learning how to play the game from there.

It couldn't be more misleading and disorienting.

There were no quarterbacks involved in the play.

The kicker would have appeared to bring greater risk to the situation than potential reward.

The "field goal return man" certainly would seem like the most important player on the team.

No part of the experience would contribute to the person knowing how to win a typical football game.

The novice spectator would be reviewing a case study in the PhD level course before they even knew they should enroll in the 101-level course.

Whether we realize it or not, it's too easy to engage with personal finance in the same way.

The different ways to invest and talk about investing are so nuanced, unique, and overwhelming that we get distracted or never even know what matters.

The different ways to save are so nuanced, unique, and overwhelming that we are led to believe that the way you save is more important than just saving.

Few parts of the experience emphasize the things that actually lead to a healthy relationship with money.

The kick six is a cool story. Most things in mainstream personal finance are more like a cool story than the secret to winning the game.

The Three P's of Inflation

It feels like inflation is everywhere.

Whether you read about it in the headlines or experience it at the gas pump or grocery store, it is hard to be unaware even if you try.

While paying higher prices can make you sick to your stomach and tips about I-Bonds can trigger FOMO, there are a few reasons to take headlines with a grain of salt and stick to your plan when it comes to your own finances.

Inflation is personal.

Inflation is not a flat fee that is applied to everyone and to every dollar you spend. It is personal and is based on how and when you choose to spend your money.

Commuters will experience inflation in gas prices differently than those who work from home.

Young families with many mouths to feed will experience inflation in food prices differently than empty nesters.

Travelers will experience inflation in airplane tickets and hotels differently than home bodies.

Taxes, mortgage payments, charitable gifts, and even other large line items in many personal budgets have likely not been impacted by inflation at all.

Inflation in the headlines is different from the inflation experienced in the individual household.

Your personal experience with inflation is the one that you can feel day-to-day and the only one that matters for your own finances.

Inflation can be participatory.

Businesses charge for value delivered to customers or clients.

This value can come in the form of a chicken sandwich, a subscription service, a couch, or a million other things.

There are times when businesses must increase their prices to cover their costs and there are times when businesses can increase their prices because they deliver value to their customer or client above and beyond the existing price.

Both scenarios lead to inflation AND both scenarios typically lead to a company remaining profitable or even increasing their profitability.

These profits do not go into a black hole never to be seen again. Instead, these profits are captured by the owners of the businesses to be distributed as income or reinvested in the business to further increase its ability to provide value.

Instead of only paying inflated prices, investing in a diverse portfolio of companies over time allows you to participate in the profitability and growth that often accompany inflated prices.

Inflation is not permanent.

Of course, everyone would like to participate in the profitability and growth part of inflation, but herein lies the beauty of competition.

Competition creates incentive for others to jump into the fray to claim their “share” of the profitability and growth.

Oftentimes, the easiest way for these latecomers to capture their “share” of the profits is by offering a similar product or service for a reduced price which in turn keeps prices from racing to infinity.

While the precise magnitude and duration of inflated prices can be difficult to predict, the inherent nature of competition naturally keeps inflation in check and helps prevent temporary price surges from becoming permanent.

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