Relationship with Money
A blog that knows money is more than numbers
171 | Patient Investing
Investing with some clue about what you're doing and a genuine belief that it will work.
Knowing there are only two guarantees:
1. Someone will always have better returns than you.
2. The way you behave, especially when it's uncomfortable, will determine your lifetime returns.
Being an owner offers the most potential reward.
Spreading your eggs across many baskets makes the uncomfortable times less painful.
The longer you're invested, the better chance that it works as expected.
And a little more patience than the next person is the only shortcut.
And…
Investments will almost always be a distraction in your relationship with money.
170 | The Trouble with Timelines
Baked into a 10-, 20- or 30-year timeline is the assumption that reaching the end will somehow change things.
Once the time passes, you'll be able to adjust your level of effort or move on to the next thing.
But that's not how our relationship with money works.
There will always be trade-offs to spending money.
And your investments will never move based on your personal plans.
The skills you develop within this time horizon are the same ones you'll need for the next horizon, and the next one, and the one after that too.
It gets easier because you're getting better, not because the time is passing.
169 | Discussing “Enough”
If we're not legitimately interested in discussing enough, then we're not going to be a good fit.
That's not meant to be judgy or snarky.
Only an honest admission that I don't like doing less than my best work and my best work is revealed when we're trying to identify enough together.
That doesn't mean we'll know a number on Day 1 (because there is a never a precise number!).
But it does mean that every meeting, conversation, and interaction will be designed to further refine our understanding of enough.
I guarantee the way we do things won't feel like what the financial services industry has trained you to expect, because enough doesn't tend to reveal itself in investment updates, insurance analysis, estate planning, or even tax planning.
If you're up for starting the journey, then let’s do it together.
It you're hesitant, then remember to come back later when you're still looking for enough.
168 | A Percent of What?
The entire industry is built on rate of return.
Your portfolio returned 21% last year.
This investment has returned 10% per year for the past 5 years.
We project that you can earn 8% per year over the next 20 years.
But percentages aren't that helpful.
When we're dealing with small numbers, the percent return is useless.
A 20% return on $10,000 means that you have $12,000 and that isn't going to change any lives.
When we're dealing with big numbers, the percent return is equally misleading.
A 20% return on $1,000,000 could be a couple of extra years of spending or a college education or a down payment on a home - significant increases in financial freedom that would still exist at 15% or 17% or 22% or 26%.
All the percent sign does is beg us to compare ourselves to others, which isn't very helpful at any number size.
Or forget what we were aiming for when we decided to invest.
167 | The Amazon Box Effect
My hypothesis is that Amazon boxes on the doorstep create more tension in a relationship than bad investment performance.
One person orders something, then the other person sees it on the doorstep, and then the benefit of the doubt is rescinded.
ANOTHER box?
How much did it cost?
P1: What did we get?
P2: I'm not sure what's in THAT one.
P1: You mean you've bought so much you've forgotten what you ordered?
But most Amazon purchases fall in the last one or two $10,000s.
They feel like an easy litmus test for assessing spending, but it's a little bit like using gas prices to evaluate the state of the economy or the president's approval rating.
Just because it's in your face, doesn't mean it's a useful indicator or has to have the last word.
*Thanks to GH for the inspiration on this post!
166 | So Little Control
We can do everything right when it comes to investing - control costs, manage taxes, properly diversify, get the right blend of stocks and bonds, have a long horizon, and behave as well as the best investor.
But the actual timing of returns is still so far out of our control that it's scary.
Most everyone would be comfortable, probably even recommend, using the past 30 years of returns to project the next 10 years of returns.
Anything more elaborate than that quickly becomes a waste of time and energy.
But on our journey to life changing returns, the timing of those returns can change the trajectory of our life.
In 1988, if you had $250k invested and used the return for the previous 30 years to predict your balance by 1998, you'd expect to have $428k, but would have ended up with $1.1m. Check the math here.
Saving for an addition to your home? How about an addition and a second home and a career change and a college education or two?
In 1999, you'd have expected $629k by 2009, but would have ended with a meager $190k.
In 2011, you'd have expected $543k by 2021, but would have ended with a whopping $947k.
And remember, this is the experience when you're investing the right way.
It seems like we have two choices.
We can try to saddle up for the bull ride of investing and tether our financial well-being to every jolting buck.
Or we can acknowledge that while powerful, our investment returns tend to be a distraction from where our life - generating income and spending and saving it - is actually lived.
165 | $@&% Happens...or Does It?
When we reduce a financial misfortune to "Things happen" or the fruitier *$@&% happens", there's still a lingering feeling that you could have dodged it.
Look no further than the last time you saw someone else's misfortune and thought that you could have avoided it with better judgment or more will power.
But when we chalk it up to "The cost of doing life", there's a deeper acknowledgement that something was eventually going to happen regardless of the precautions taken.
Of course, the specific misfortune is going to be different for everyone, but misfortunes are guaranteed.
The most careful still have fender benders.
The most diligent still crack their phone screens.
The most organized overlook an expired passport.
Because when you’re busy living, it's inevitable that a bill is going to come due - an invisible bar tab that must be paid every so often so you can keep having fun.
It's just the cost of doing life.
164 | How We Talk About Money
Most financial conversations, even the one's with good intentions, are dead before they start.
They land in two predictable places...
Random numbers that mean nothing without more context - Nvidia doubled for me last year, I make $200,000, that car cost us $35,000, etc.
Or abstract nuggets of "wisdom" that mean one thing to the speaker and something totally different to the listener - buy low and sell high, pursue your passion, I remember those days when we had to tighten the belt, etc.
There's a better way, but it's not going to be as easy as this status quo.
We're going to start by pulling together a visual summary of your financial life over the past year - if we can get two or three years then we'll really have a story to share.
But we won't share it yet - there's still no context.
We'll set the stage by chatting through a handful of prompts...
What are you most vulnerable about sharing?
What are you most confident about sharing?
What would you consider your best spending you've ever done?
How have you built your financial wealth?*
What hurdles have you overcome in your financial life? Which hurdles remain?*
Why are you building your financial wealth?
Once everyone has shared these reflections, then - and only then - we'll reveal the numbers...
And your perspectives on money will begin to be changed forever.
*In the case of a relationship, it would be ideal for the less-tuned-into-the-finances person to share first.
163 | Scattered and Separate
Our financial life's natural bend is towards being scattered and separate.
The physical scattering of accounts that come from innocent things like sign up bonuses, saving for a vacation, getting married, or changing jobs - good deeds that are slowly punished.
Which compound into mental scattering when you're trying to keep tabs on progress or make a decision of any magnitude.
Because it's hard to keep score, it's hard to know how to win the game.
First, we've got to name the feeling.
Then we've got to keep it from becoming the status quo.
Because once it's the status quo, you don't recognize it as scattered and separate anymore.
162 | What Counts as Failure?
It doesn't matter what the projection says if it feels like we’re failing.
And for some people failing is...
Seeing a bank account balance go down.
Paying instead of getting a refund at tax time.
Having an unexpected expense at the last minute.
Seeing investments below their all-time high.
Being stuck in a career.
Arguing over the best use of discretionary income.
Paying $9.99 for shipping.
161 | When to Run the Other Way
When someone shows you projected levels of spending and investment returns for the next decade or two or three, that's your signal to run the other way.
They're making the future sound more predictable than it will ever be.
Or they've not spent enough time reflecting on the past to appreciate how our financial lives actually work.
160 | Why It’s Hard
From the Wall Street Journal on May 19, 2024 at 8:00am...
The Downside of Delayed Gratification
And then a couple hours later at 10:00am...
“What Was I Thinking?” The Big-Ticket Items People Regret
The same publication posting both articles before the eggs in the buffet line can get cold feels less like an ignorant editor than it feels like an unintentionally poignant acknowledgement that it's hard to spend well.
From the first article, “the mere act of saying ‘not now, maybe later’ triggered an instinct to keep putting [something] off and waiting for a better moment” which leads to a “specialness spiral” where you never actually pull the trigger on spending money for special things.
The only way this one could have struck a louder chord with me was if the author had been kind enough to open it with “Dear Richard:”.
And just as I'm really getting stoked about saying “yes” once and for all to special things, the second article knocks the wind out of the sails in two lines, “While it may be true that money can't buy happiness, that doesn't stop people from trying. And then wishing they hadn't.”
On one end, we have regret because we’ve waited too long to spend on special things.
And on the other end, we have regret because we spent and then realized the things weren't as special as we expected.
Woof...
No matter who you are, spending well is hard to do.
159 | Two Questions about Life Insurance
Should you have life insurance?
If someone else's well-being depends on income that you generate, then probably yes.
If someone else would become responsible for debt that you owe, then probably a double yes.
If neither of these statements is true, then probably no.
Would I ever sell life insurance?
Absolutely not.
I don't want to be tied to the process of approving someone for life insurance nor do I want to be compensated for selling it.
Sometimes there are disappointing outcomes that occur in the approval process. If a line is going to be drawn in the sand, I plan to be on the same side as my client.
And you don't pay someone to place you into the correct life insurance product. Someone gets paid based on the life insurance product you select. It doesn't take a genius to realize that a life insurance product requiring less effort and/or more compensation is appealing for someone with a sales quota.
158 | It Doesn’t Bother Me
I'd rather us knock it out together.
And "it" could be a lot of things - but usually it's the things that have a knack for staying on the to-do list indefinitely.
Of course, it might mean I'm watching you reset a password or type in your name. It might mean we're sitting on hold together. It might mean we're both trying to figure out how something we've never done before actually works.
Even if a moment or two feels awkward, I still want to do it together.
Because there is always going to be a grenade planted somewhere in the process - teeny parts of the financial world that derail our most honest efforts or plant seeds of confusion and doubt that make us wonder what else we don't know.
Inevitably, if we do it together, it will go faster, there will be fewer errors and second-guessing, our relationship will deepen, and it will feel like we've made real progress.
So no, it doesn't bother me to do it together.
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.