157 | My Role as I See It

To improve individuals’ relationship with money by making finances simpler and breaking down the taboo nature of money.

156 | Seasons of Transition

In a season of transition*, two things matter…

How much cash do you have on hand?

How much is that amount changing each month?

If we don’t begin with enough cash on hand, it’s going to be a stressful, hopeless transition.

If cash is decreasing, then we need more income or less spending – there are no other hacks.

If cash is staying flat, then we’re doing something right.

If cash is going up, then we can start talking about everything else.

*Career change, more income to less income, no dependents to some dependents, old home to new home, etc.

155 | The Physics of Spending

Spending is an expectations game, and some spending has properties that are hard to see with the naked eye.

There's spending that begets more spending - the gravity of spending.

The home renovation that demands new furniture and more maintenance.

The neighborhood choice that influences your landscaping, car, and school decisions.

The travel destination that raises the bar on food, accommodations, and activities for every future trip.

The initial decision has a certain gravitational pull that draws subsequent decisions to the new level of expectations.

Then there's spending in motion that stays in motion - the inertia of spending.

Restaurant and grocery routines.

Entertainment preferences.

Online shopping habits.

These come with a certain inertia that allow them to hang around as baseline expectations much longer than we may have originally intended.

The only chance you have against spending gravity is knowing about it before you get to the new planet because it's hard to fight it once you're there.

And a way to combat spending inertia is by experimenting with the thing that is in motion to see if it really has to stay in motion.

154 | Why I Am Here 1.0

Everyone has what it takes to be good with money.

And being good with money is so much more than accumulation.

But inevitably, being good with money is not as simple as it should be.

People who we love make it complicated.

People we are around make it complicated.

People who write the rules make it complicated.

Even people who give advice can make it complicated.

Instead of knowing we have what it takes, we’re left trying to make sense of it all.

And everyone is trying to make sense of it all.

Being good with money is simple, but simple is hard.

It comes down to four things.

Generating income in a way that is sustainable.

Spending in a way that drives contentment.

Saving in a way that is accessible.

Investing in a way that is patient.

Yes, being good with money is that simple.

But it won’t feel that way until you can see it clearly.

And making it clear is the only reason why I am here.

153 | Modern-Day MapQuests

A "financial plan" - projecting your future income, spending, saving, and investing returns for the next decade or two - has been the first solution offered by the financial services industry in the post-stockbroker world.

And it seems like something that would be helpful.

But creating a "financial plan" is like printing one set of MapQuest directions today that you'll use for the next decade of road trips.

That's why they don't work like it seems they should.

152 | Freebies and Commodities

Carl Richards summarized the tension of a business model based on assets under management too concisely, not to share...

"It gives away everything that is valuable for free, and charges for the one thing that is a commodity."

That’s no way to run a business.

So, we don’t.

151 | No Credit Given

Another challenge with Monte Carlo simulations is that enormously positive actions don’t get any credit.

Changing careers to one that is a better fit.

Paying off a pesky debt.

Changing a spending habit.

Freeing up time by paying for someone to help you.

Building up cash on hand for a season.

Improving how you communicate about money with a spouse.

Increasing your level of generosity.

Every single one of these improves your relationship with money.

But if the market moves in the wrong direction in that period, the Monte Carlo will tell you you've gone backwards.

150 | Something is Missing

Two clients had been invested in US-based index funds and experienced close to the best possible investment returns for an aggressive, diversified portfolio over the previous 8 to 10 years.

But that uneasy feeling that everyone has with money hadn’t gone away - something was still missing.

Of course, the natural reaction is to assume that they hadn’t reached enough or that some arbitrary amount of more would plug the hole.

But that reasoning begins to break down when you learn that one had $300,000 and the other had…

$30 million.

We are talking about squeezing every bit of return out of a decade, and still longing for something else.

It’s hard to think of more compelling evidence that investments are in fact a distraction.

149 | The Last $10,000

I glanced at all our credit card transactions from last year and sorted by dollar amount from largest to smallest.

The first $10,000 was spent in ~10 transactions – 10 chances to say yes or no.*

The last $10,000 was spent in ~500 transactions – 500 chances to say yes or no.

If you’re trying to be more intentional with your spending, it’s not going to happen by buying fewer coffees, cancelling your Netflix subscription, or even having fewer Amazon boxes show up on your front porch.

They are all part of the last $10,000 – too many individual decisions with too little impact.

Even when it’s this obvious, I still think it can be a lifelong journey to trust the math.

It seems like this could be a helpful nugget when we’re tempted to evaluate someone else’s last $10,000 too.

*This year, our first $10,000 will be spent in two decisions, because that is how life happens!

148 | Without a Mirror

I asked a client which financial habits were most impactful for them over their lifetime.

With a sheepish look and tone, the client said, “Well, I don’t know, I’ve just tried to glance at my credit card statement most months for the past 25 years and reflect on the past month’s transactions – sometimes it can be sort of fun.”

“Ah yes, that was a great meal with those friends.”

“Oof, that didn’t turn out like I expected – I probably won’t do that again!”

“Oh, I forgot about that one, but I wouldn’t change it!”

No tracking, no budgeting, no judgment, no rights, no wrongs – just reminiscing.

It’s too simple to think it works, until you realize that most people don’t do it.

It’s as if we’re trying to manage our weight, not without stepping on a scale, but without even glancing in a mirror.

147 | Does it Make a Sound?

Much like the falling tree in the woods that makes no sound.

If you build financial wealth, but don’t use it, does it still count as wealth?

146 | Just a Bad Guess

Once you add up what you made and subtract what you saved or spent in certain ways then you can figure out what you owe in taxes.

If you paid less than that during the year, you'll have to pay more at tax time - you didn't "stick it to the government" and you didn't necessarily do anything wrong.

If you paid more than that during the year, you'll get some back at tax time - you didn't "win" or do your taxes any better than the next guy or gal.

In both cases, you just made a bad guess - because you probably couldn't have all the information - and are fixing it.

145 | There Are No Loopholes

When you make money, you pay income taxes*.

If you don’t make money, you don’t pay income taxes.

The fastest way to reduce your taxes is to reduce your income.

But there’s the rub.

We like the sound of less taxes, but not so much the sound of less income.

So we’re left with two choices…

You can spend in certain ways to pay a little less in taxes.

You can save in certain ways to pay a little less in taxes.

But the key is actually saving or spending in those certain ways to pay less in taxes.

There are no loopholes.

*Of course, someone is going to note that you don’t pay taxes on municipal bond interest – so I’m noting it here.

144 | You’re Paying for One Thing

You’re paying me for one thing – to help you do something that you have been unable to do yourself.

It’s up to me to understand what you’ve tried to do or want to do.

It’s also up to me to help you figure out how to do it.

But I’ll spoil the ending…

There’s a good chance the way to do it has already crossed your mind or is simpler than you imagined.

This creates a tension – why am I paying for something simple or that I “could have done on my own”?

But just because it’s simple doesn’t mean it’s easy – you’d have done it by now.

And a mental list of hypothetical solutions isn’t the same as knowing the solution – it just seems that way once you’ve heard it.

If the simple answer brings you relief, then we’ll be a good fit.

If it leaves you underwhelmed, then it’s probably going to be a tough go for us.

143 | A Tough Look

Baked into a Monte Carlo simulation is the reality that there could (will!) be seasons of abysmal returns at some point in the future.

The purpose of the exercise is to see through those seasons and still assign a probability of success that funds will last beyond those tough times.

But the problem is that once you’re in that season – the season that you predicted would happen – your single metric for measuring odds of success fails you.

“We were 95% certain we can handle the bad times, but now that we’re in them, we’re only 70% sure we can handle them*.”

That’s a tough look – if you knew something would happen, how can you be less certain of the future once it actually happens?

*I’m not speaking to legitimate qualitative things that might change an outlook on the future, I’m only speaking to the way the math actually works with Monte Carlo simulations.

142 | Abstraction At It’s Finest

Monte Carlo simulation is a tool used to run thousands of scenarios of the future to predict whether someone’s assets can last a lifetime regardless of future investment returns.

There are plenty of downfalls to the tool and one is its ability to abstract our real life experience with money.

In a particular instance with a client, every scenario we showed - good returns and horrible returns - confirmed a near 100% chance that the client would not run out of assets from age 65 to age 95.

As we turned to questions and comments, the first reflection was the following…

And I can’t make this up…

“Well, we’ve got to do something because we’re going to run out of money in July.”

I can’t fault the client.

The problem is a direct result of trying to summarize how well we are generating income, spending, saving, and investing to a single number that ends in a percentage sign.

And in this particular case, the client’s bank account was going to run out in a few months if it didn’t figure out which investment account to tap first for funds to replenish it.

A 99+% chance of success in the long run means nothing when we don’t know the first action step for the problem in front of us.

In fact, it often compounds the issue by suggesting everything is OK, when absolutely nothing feels OK.

141 | That’s Impossible!

How is that even possible?

One explanation is panic in market-wide downturns.

One explanation is complete naivete.

But those seem too obvious and too far out on the tails of the bell curve.

I think the real killer is using past performance to pick your strategy.

“I don’t have a clue what to do, I guess I’ll just pick the one with the highest returns.”

“That fund or strategy has crushed mine for the past 5 years, let’s move some dollars to it.”

“I’m going to wait to invest until the market settles down*.”

I have heard these things from too many people to count and have even personally felt the urge, which leads me to believe that doing them over and over again is how it’s possible.

*Waiting “until the market settles down” is the Muggle’s way of saying “I’ll invest once I have seen the market go up”. And yes, if you’re correctly thinking that sounds like an oxymoron, then you’re probably not a Muggle.

140 | The Millennial’s Dilemma

We’re more than a decade into a passive investing boom that has allowed many to pay close to $0 using index funds to participate in the investment returns of most of the publicly traded companies in the global economy.

Plenty of evidence has shown how hard it is to consistently beat the market, so it’s only provided extra gas on the “lower-your-costs-and-enjoy-the-ride” fire.

As a result, the do-it-yourself Millennial investor has enjoyed more than a few chuckles about beating sophisticated money managers (particularly ones who have leveraged investor naivete for decades!) without any real effort.

But there’s the dilemma.

Without any effort.

In an age where convenience and low price are the primary measures of value, it was only inevitable that investment strategies would follow suit.

But inherent to “no effort” is no purpose, no intent, and no accountability.

Ironic, given it’s the same age that’s used social media as a magnifying glass on everything that’s ever been swept under a rug…

Exposing lack of purpose, intent, and accountability.

Do we take the “free” returns that are available and move on or do we have some responsibility to use the magnifying glass on our investments too?

The Millennial’s dilemma.

139 | You Are Not My Enemy

In our first years of marriage, one of our best friends shared simple, yet profound advice that has stuck with me for more than a decade.

To diffuse tension, he acknowledged how powerful it can be to take a moment, make eye contact, and say out loud...

"You are not my enemy."

Of course, this seems too simple, but so often conflict comes out of basic misunderstanding and miscommunication more than it stems from fundamentally different desires.

And look no further than money for an arena that pits us as opponents - instead of teammates - before we even know there is a game.

The opportunities for lines in the sand are endless, but neither side gets you off the “are-we-still-on-track-or-can-we-loosen-the-belt?" train.

A nice restaurant feels like a frivolous expense to one person and like the most satisfying investment of dollars for the other.

A couple pieces of furniture feel like an unnecessary upgrade to one person and the key to unlocking confidence to host for the other.

There are careers to build and there are relationships with family and friends that don’t maintain themselves and don’t last forever.

I think finances make it easy to feel like opponents because...

• It's difficult to clearly see what is happening with our finances.
• It's difficult to get thoughts and feelings out of our head and into words.
• It's easy to assume our desires are more different than they are the same.
• It's difficult to acknowledge (or easy to forget!) what we're aiming for.

But if we can create some space for these things to happen, it becomes a little easier to see that there are no enemies.

138 | Limited Options

How can the specific investments be the linchpin to personal financial health when workplace retirement plans are typically limited to 15 or 20 fund options?

Of the more than 15,000 funds available, each workplace plan has 0.001% of the fund universe available to its participants.

As a society, I just don’t think we’ve settled for a random assortment of subpar investments for the $26 trillion dollars that sit across 80 million individual’s accounts.

That would be an enormous number of folks asleep at the wheel or an epic orchestration by the investing Illuminati to keep lay people away from the good stuff.

Not to get carried away jumping to conclusions, but limited options also feel like a hint that limited tweaking might be a reasonable investment strategy too.