11 | From Linchpin to Bottleneck

In a recent conversation with a friend, we discussed the strain on cash flow that often comes in the season of life with young children.

The strain can come from increased living expenses, reduced household income, or some combination of both.

For this particular friend, increased living expenses had impacted their particular situation and had led to a conversation around reducing their ongoing 401k contribution from 15% of their salary to 13% to provide a little cash flow relief.

The 15% rate was sound advice the friend had received right out of college and had lived into for nearly 10 years. Job well done!

In this current season, the savings rate had become an anchor that felt arbitrary, a little out of touch, but also untouchable.

Was a change "allowed"? Would a change knock them off track for saving for the future? Was a change the biggest "mistake" they could make?

A tactic that had once been the linchpin of financial freedom had slowly morphed into a constricting bottleneck in a different season.

I think behind these feelings sits the implied assumption that "more" saving is always better. The challenge is that sometimes "more" isn't possible and life circumstances demand something else.

Some seasons require "more" of other things - more time at home, more spending on things that are important, or more flexibility in where your savings land.

Your financial well being is not tied to the precise percentage that is saved into your retirement account for 30 consecutive years.

Your financial well being is more closely tied to your ability to slowly build resilience instead of grasping for certainty.

10 | The Beautiful Gray

My wife described a vision of a piece of art that she wanted to add to our home.

On one side of the painting, it would be solid black. On the other side of the painting, it would be solid white.

Both would converge in the middle to a messy mixture of black and white that appeared gray without being a solid, uniform gray. The "Beautiful Gray" is what she called it.

Not that we are old, but as we add years to our life experience it is becoming more apparent that the squishiness, ambiguity, and uncertainty of "gray" defines nearly every life experience that involves people.

There are no "perfect" answers or "clear" understandings, only trade-offs, emotions, differing perspectives and values, incomplete communication, and ever-changing facts and circumstances.

Yet, this reality is all too easy to forget each day.

The innate desire for black and white leads to...

Relationships that become rigid and transactional instead of nimble and forgiving.

Past decisions that are declared a wild success or are crippled by feelings of shame and regret.

Labels of rich or poor, Conservative or Liberal, friend or enemy, supporter or detractor.

Outcomes (outside of sports!) that are either a win or a loss. Nothing in between.

I've received the advice that if a decision seems too big then it is probably more than one decision.

I would add that if a decision or conversation seems too emotional or complex then there is probably more "gray" to be acknowledged.

It seems like the ability to see and talk about the "gray" is unique and infinitely more important than seeing and talking about the black and white.

9 | When Did Paying Cash Become "Creative"?

“Home Buyers Get Creative With Cash Deals to Fend Off High Mortgage Rates” is a headline from the Wall Street Journal from the last 60 days.

The first case study is a man paying $965,000 in cash for a townhouse in Colorado.

Raise your hand if you have $965,000 sitting in cash right now.

If you raised your hand, keep it raised if you’re up for parting with all $965,000 for the purchase of a townhome.

Wow.

Honestly, it is just disappointing to see this as a headline.

In a current housing market where refreshing a mortgage calculator feels like you’re in a cold shower that you can’t turn off, we get a headline that tells us the “trick” is to save a ton and pay cash for a home purchase.

The fact that the article is applicable to 0.000001% of society is unfortunate given that it was likely read by much more than 0.000001% of society.

The fact that saving a ton and paying cash for a home is considered “creative” is just misleading and publishing an article about it in one of the largest publications in the United States is just plain reckless.

The article was full of financing and tax planning tactics (and beautiful pictures of course!). Not once was there mention of purpose or “why” the home purchases were important to any of the highlighted folks. Per usual, tactics before purpose.

I don’t mean to beat up on the highlighted people or even the writer. I am bummed because articles like this only continue to compound the confusing, complex, and taboo nature of personal finances. Tiny glimpses into glamorous spending decisions without any context aren't improving our collective relationships with money.

8 | Confusing Compounding

Compounding is tricky.

It seems like some folks intuitively understand how compounding works and others learn once it is too late to matter.

Because the near side of the curve is so flat, it’s hard to have the patience to get to the far side. It seems like it’s always out of reach.

Because the far side of the curve is so steep, it’s hard to get oriented if you happen to make it there. It seems like the goalposts keep moving because the next “score” is so financially valuable.

To further complicate our relationship with compound interest, we get quotes like, “The first rule of compounding: Never interrupt it unnecessarily.”

Very useful if your goal is to make as much money as possible.

Somewhat less useful if your goal is to use money to fill a life as full as possible.

Not useful if life happens and you are forced to “interrupt” compounding at a less than ideal time.

I can’t argue with the power of compounding and the importance of letting it happen over time. The results on a spreadsheet or account statement are profound.

The tricky part is the squishiness of a word like “unnecessarily”. At some point, you’re going to have to “interrupt” compounding if you plan on using money to live your life instead of living your life to make money.

Once you understand how compounding works, I think the biggest growth opportunity is to get clear on what it means to “necessarily interrupt it”.

7 | My Least Popular Belief

This won't be my most popular post, but it's still important to say out loud every so often so we keep ourselves honest.

Most (I want to say all!) personal finance tactics pale in comparison to having some way to consistently track your spending.

As a matter of fact, I think the other tactics are primarily trying to accommodate the fact that as humans we refuse to reflect on our spending.

Enormous levels of income can mask this reality for some period. Enormous levels of financial wealth can likely delay it a little longer, but eventually the conversation will end up in one of two places.

A question of viability - where's the money going?

Or a question of contentment - is the money going where you want it to go?

Honestly, I think this is a good thing, even if it doesn't seem like it on the surface.

I don't think we will ever define our lives by how much we earned or where we saved or how we invested.

I think our financial lives get defined by how we spend what has been earned, saved, and invested.

All the colorful pieces of life come back to the quality of our spending and yet we still avoid talking about or tracking our spending like it's the plague.

The very thing with the most impact is constantly pushed to the bottom of the list because it's too complicated and too hard.

The fact that it's hard and that most people don't do it might be a pretty good indicator that figuring it out is the secret.

Additional Resources

The Biggest Returns by Morgan Housel

Budgeting Equals Awareness by Carl Richards

Accounting (and small business) by Seth Godin

6 | Meandering Through the Cone

I had a conversation with a friend who has dreams of a radical career change.

He had already started to converse with people in and around the industry. He had already started building up income and setting aside cash surplus. He had a recently developed understanding that it's a long race and the power of compounding applies to relationships, knowledge, and habits just like it applies to money.

After sharing what seemed like incredible progress, he asked, "What else should I do? What's next?"

Persist, my friend. I didn't know what else to say.

---

For 10+ years, I have been pursuing a new vision of helping people with money.

I have seen plenty of people do exceptional work helping people with money, but I have never seen my vision in practice.

Along the way, I have had...

Infinite conversations that had useful nuggets and useless nuggets.

Career changes that directly contributed to acquiring experience and included extra responsibilities that felt like a drag.

Continuing education that pushed me forward and felt like a waste of time.

Reading, tons of reading, much that felt relevant and much that felt totally worthless.

Writing that forced me to crystallize thoughts even when I felt like I had nothing to say or the ideas felt too abstract.

In the conversation with my friend, I described it as feeling like I was in a giant cone.

At the start, the vision had infinite inputs and outputs that all fit into the top of the cone.

As conversations, career changes, reading, and everything else happened, I began to "intentionally meander" into and through the cone.

I have never known my precise location in the cone, and I don't believe there is a bottom.

There is a no destination - only the refinement and clarity that comes from moving down the cone.

When it comes to desiring change and casting a vision, I think the most important thing is to get in the cone, stay in the cone, and see where it leads.

Helpful Perspectives

The lonely unicorn by Seth Godin

5 | Grow a Tree, Don't Fill a Bucket

With a bucket of water, there’s only one way to fill it up - more water. With a tree, we know the basics that help it grow, but the exact blend of those basics is never the same.

A bucket of water can be sheltered from the elements. A tree gets a front row seat to every storm for its entire life - water, wind, and even fire can contribute to its growth.

With a bucket of water what you spill is lost forever. When a tree loses a limb, it recovers with time.

It’s always easy to track progress to a full bucket of water. With a tree, it's impossible to know how it will grow each month, season, and year.

A bucket of water will never grow on its own, but a tree will.

It's easy to fall into the trap of believing that building financial wealth is like filling a bucket of water.

If you don't believe me, wait until the next time you hear someone say...

"I want to wait until things are more certain and then I’ll invest." They're filling a bucket.

"I want to invest, but I don’t want to lose any money.” They're filling a bucket.

"Once I get to a certain amount, then I will feel secure." They're filling a bucket.

A tree can't be protected from the storm, it will probably lose a limb or two at some point, and it never reaches a final size or shape. But none of these things keep us from growing trees.

Grow a tree, don't fill a bucket!

For those that can't get past the fact that a tree can die, read more here.

4 | I Didn't Sign Up for That!

A friend of a friend who is an avid cyclist and extreme mountain biker recently broke both elbows in an accident.

Two slings. Restricted movement. Weeks of disrupted eating, dressing, sleeping, bathing, and everything else.

In reflecting on the accident, the friend of a friend said something along the lines of, "Yeah, it's sort of what I signed up for."

I am certain he hadn't listed all the potential downsides of extreme biking, but he clearly knew they existed.

I am also certain he will be back on the trails soon rather than later.

It's easy to see all the upsides on the front end of the decision, and bemoan the downsides when things inevitably fall apart.

Getting paid a salary feels secure and comforting. You're also signing up for uncertainty during lay-off season, needing approval for vacation time, and micro-management that is a little tighter than you might like.

Buying the cheapest option feels frugal and responsible. You're also signing up for functionality that might disappoint you, perpetual jealousy towards "better" alternatives, or sooner than expected maintenance.

Running a household with no cash in the bank feels efficient and return-maximizing. You're also signing up for a sleepless night or two wondering where you'll find your next dollar or having to say "no" to something when you'd like it to be an automatic "yes".

Owning stock in companies feels thrilling and glamorous. You're also signing up for moments of paralyzing fear about the future viability of the company or someone picking a better company than you.

The "falling apart" is inevitable.

Being able to acknowledge that you signed up for it is a superpower.

3 | Professional Bravery

In a recent conversation, a friend shared an anecdotal observation that "professional bravery" within careers seems to start drying up somewhere in the 40s for many people as the reality of the career slog sets in.

The specific example in the conversation was a pastor counting down the Christmases left before "getting" to call it quits on a career. The countdown had started with 20+ Christmases to go, not 2.

Initially, you might gasp, but I think there are countless other examples of this perspective across every field, and I don't think we need sophisticated research to confirm it.

Innovation and ambition replaced by status quo and not rocking the boat.

Working for a purpose replaced by working for an income.

The flexibility and freedom offered by change replaced by the hypothetical cost and fear of change.

Life circumstances certainly play a role - many of which might be out of our control.

I still think there are at least two things that are always in our control but have a sneaky way of slipping through our hands if we let them.

Slowly losing clarity on the "why" behind what you spend your time doing.

Slowly tethering your lifestyle to a specific, high level of income.

I think the combination of these two things is deadly when it comes to professional bravery.

When we stop the process of editing and refining our "whys" and our lifestyle, it seems like "professional bravery" is going to slowly start to evaporate.

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.

1 | The Gap Between Plan A and Plan B

Plan A is what you're pursuing now.

Plan B is what you'd pursue if couldn't pursue Plan A.

The bigger the gap between Plan A and Plan B (and I'm not just talking about money!), the greater the chance of disappointment and the more fragile Plan A becomes.

When you're looking for a new home, the moment there isn't a Plan B is the moment you've lost all bargaining power and invited a disappointing outcome to the party.

When you're negotiating income, the moment there isn't a Plan B is the moment your boss tells you what your new income will be.

When you're taking kids out for dessert and Plan A is closed, I hope you have a Plan B.

Plan B is not a synonym for paranoia or worst-case scenario.

Plan B ensures you know the alternative and next steps if needed, but Plan B also strengthens and stabilizes Plan A.

Exploring and defining Plan B can also breathe new life and purpose into Plan A.

Seth Godin has said, "Power might be in the form of money, access to plenty of lawyers, or simply a willingness to burn it all down to the ground."

It's easy to skip over that third option, because the first two seem so obvious.

"Burning it all down to the ground" seems a bit intense, but being willing to walk away, pivot, start over, or try again is a choice that’s available all the time.

What's your Plan B?

Intentional Observers instead of Anxious Critics

Recently, in a conversation with close friends, we got to the topic of finances.

The question was posed, "How do you make intentional decisions about your money?"

Maybe the question was too open-ended. Maybe we jumped at the opportunity to hear ourselves talk. Maybe we thought we knew more than we did.

It felt like we rambled for 30 minutes and by the end arrived at a point where tactical takeaways were the "solution".

Review the budget more closely. Give money away. Have an annual retreat to reflect on the past and craft the future. Ensure we're saving to some degree.

Nothing was inherently wrong with any of these takeaways, but each felt sort of abstract, stale, and aimless.

After a couple of days, I circled back via email to acknowledge my discontentment with how the conversation went. I clarified that doubling down on tactics was not the takeaway I envisioned from the conversation and concluded with...

"I think identifying, reflecting, and refining our “whys” over time is what we are trying to get better at doing."

With the help of our friends, the beauty of this framework was quickly revealed...

It provides freedom. Your whys can and will change over time and that is OK.

It provides an intentional and simple start. You can identify a single "why" and then refine it with time. Then apply the same framework to your second, third, and one hundredth "why".

It provides feedback. If you've been specific with your "why", it's easier to know when it is or is not being accomplished. It's also easier to realize that it has changed.

It fosters connection by allowing us to reflect on what matters to us and to those around us.

It helps establish values without using the word "value".

It helps us become "intentional observers" instead of "anxious critics" of ourselves.

Thanks to CB and KB for helping us connect the dots!

Love Letters to my Future Self: Why a 2022 RAV4 Hybrid XLE Premium?

Why RAV4?

• We have had great success with both Toyota and Honda over the last 10 to 12 years. Both of our extended families have experienced similar success. This filtered out a number of car options as we really didn't look beyond these two brands with the exception of gut checks to ensure other brands did not offer something dramatically different. Limiting the brands from the start, felt like it saved significant time in the evaluation process.
• Allen at TLC has been a trusted mechanic for the past 4 years and he only works on Toyota and Lexus cars. This all but eliminated Honda from contention for us.
• We liked the design of the RAV4. It is a good looking car and popular on the streets in 2022. Of course, since we decided to look for a RAV4 it seems like it has been the most frequently spotted car on the road.
• The size felt like it closely resembled our existing 2004 Highlander which has served us well as mid-size SUV for transporting a handful of people and surprisingly large amounts of boxes or furniture for moves or big purchases.
• The current Highlander feels like it is bigger than we need and the price tag was a lot more than we hoped to spend.
• The current Camry costs a little less than the RAV4, but not so much less that it convinced us to get a sedan over a mid-size SUV.

Why hybrid?

• The markup for a hybrid was ~$2,500. We were not strongly considering a hybrid until we saw what we felt was an immaterial markup.
• Part of our decision was a values-based decision of trying to be more conscious of gas consumption for environmental reasons
• Part of our decision was knowing that it would reduce the amount of gas paid for in our ongoing household budget
• In a conversation with Allen, our trusted independent mechanic at TLC, he acknowledged being hesitant to get a hybrid due to the maintenance costs on the latter half of a car's life (i.e. a hybrid battery currently costs ~$6,000 and is likely replaced somewhere between 10 and 15 years of ownership
• All things considered, we felt comfortable going hybrid knowing that we were controlling our ongoing cost of gas consumption and may or may not have maintenance costs late in life that might offset some of these cost savings. It also felt silly to save $2,500 today and then have a gas only car for the next 12 to 15 years. We are at a point in time where it feels like hybrid and electric must and will become more prevalent over the next decade.

Why XLE Premium?

• Primarily for the leather seats.
• There are a number of other convenient features that come with it, but the difference in models was relatively nominal for each level up and the leather seats were not a default option until the XLE Premium level.
• We have become a little self-conscious of the state of the fabric seats in our 2004 Highlander (i.e. stains, odor, stickiness, etc.) and felt like leather seats would be a significant value added throughout the entire life of the car.
• Ironically, the first evening I drove the car home, the kids were waiting out front to see me pull up. Excitedly, they hopped in the backseat to check it out for the first time. After a few minutes, we realized Charlie had a stubbed toe that was bleeding and leaving multiple blood spots on one of the backseats - with a wet paper towel it all disappeared!

Why new and not used?

• As absurd as it sounds, new cars are currently less expensive than used cars. Due to supply chain issues, new cars are typically taking 2 to 3 months to be delivered, while a limited number of used cars are available immediately if you can find them.
• It seems that another contributing factor is that manufacturers place a limit on the price that a new car can be sold for, but there is no limit on the price for a used car. It seems like dealerships would prefer to sell used cars more than new cars right now because they can charge based on demand instead of based on pricing rules.

Why now?

• Our 2004 Highlander has an active leak that we addressed 4+ years ago. Allen at TLC said it probably was not the kind of thing that would be worth fixing at this stage of the car's life. It is actively leaking transmission fluid, power steering fluid, and some oil. He suggested limiting the car's usage to daily commuting only. Since the recommendation, we have tried to limit but inevitably have needed the car to drive longer distances and this has started to feel a bit reckless from a safety standpoint.
• We have known the date to purchase a new car has been coming and 4 years ago would have been elated for it to last 3+ more years.
• Once the purchase felt imminent (i.e. within the next 6 to 12 months), the only reason to delay the purchase was to speculate/hope that car prices might go down or that we could wait out the crazy car market - when money is the only variable impacting the decision, it's good sign to think a little harder!
• We realized, though this was not a reason for the decision, that this car could end up being a great first car for our kids to drive. Sara Brooke will be 16 years old in 10 years. We would hope that this car could last well beyond that point in time even if it required some investment at that stage of its life. Ironically, the first night we had it at home, Sara Brooke said, "Daddy, I want to drive this car when I grow up!"

Why financed and not 100% cash?

• We have historically had a strong preference towards paying cash for cars. We have even referred to the ~$60k to ~$65k of cash that we have on hand as covering our emergency/opportunity fund as well as a car purchase in the next couple of years.
• Over the past 6 months, the possibility of starting a financial coaching/planning business on our own over the next 18 to 24 months has become much more likely than before. This has led to us wanting to build up cash on hand to be able to fund and manage the first few years of starting a business.
• Currently most of our traditional investments are down 25% to 30% from their most recent peaks in Summer 2021. We wanted to leave these investments, specifically our taxable account, alone so that they could recover and grow instead of selling them at depressed values and having $40,000 no longer invested for growth. We discussed using both cash flow surplus and even investment dividends or gains over the next couple of years to accelerate the repayment on the loan.
• Some part of me wanted to experience financing a car (and to some degree purchasing a new one!) to be able to relate to other friends and clients who finance their cars and to have firsthand experience both with financing and paying cash for cars as well as buying used and new cars.

In the end, when it comes to finances, our goal is to make many good decisions and not get lost trying to make perfect decisions. It feels like we have accomplished that goal with this purchase.

Pep Talk for the Hard Times

In case you needed to be reminded what it felt like to see your account balance go down, now you likely have recent, first-hand experience.

These are times when a motivational speech is likely more appropriate than a technical lecture.

When, if necessary, not logging into your account is more impactful than any tweak you could make.

When reflecting on what we’re aiming for is more appropriate than adding up the current score.

When a hug is more appropriate than a slap on the back.

When patience is more necessary than sophistication.

Alas these types of drawdowns are not only inevitable, but necessary for long term growth. Failure sowing the seeds of progress.

As Morgan Housel puts it, “Returns are never free. They demand you pay a price, like any other product. And since market returns can be not just great but sensational over time, the fee is high. Declines, crashes, panics, manias, recessions, depressions.”

The sneaky part about investment returns is that the “price” they demand isn’t showing up on a label – it shows up in the form of sleepless nights, impulsive slashing of spending, second-guessing your own investments when you hear a friend describe theirs, higher blood pressure when you follow the news, fear that your investments won’t stop dropping until they hit $0, etc.

These are times when it is easy to forget that the “markets” are not a slot machine but instead are a group of real businesses run by real people showing up every day to add value to this uncertain world that we live in – figuring out how to operate in a post-COVID world, dealing with supply chains upended by a war in Ukraine, trying to add value to the world despite experiencing higher costs, worldwide leadership that is turning over to a subsequent generation, and on and on.

Like exercise or dieting or relationships, timing and magnitude of effort do not always match up with immediate results.

I have found that it is helpful for me to remember that building resilience will always beat grasping for certainty.

When it comes to investing, resilience looks like…

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 companies 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.

Have hope. Stay the course. Don’t process this alone. Find someone and talk to them about how you’re feeling right now. That will be more powerful than anything else you can do.

Additional Reading

Behavior versus everything else by Carl Richards
Reminder that “how you behave matters more than what you know”.

Days or decades: What’s it going to be? by Carl Richards
Halftime speech because maybe that is what you need right now.

A Market Update for Real Investors by Morgan Housel
Timeless, humorous, and a helpful reminder that effort and results are not perfectly correlated.

Selloffs Through History by Ross Mayfield
Historical context because this has happened before and will happen again.

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