Blind Faith, the Ginsu knife, Liz Phair, and your money.
If you follow our YouTube channel (here) you have been watching a series on financial planning for high income people (I am aware that I have a face made for radio, but if not me, then who? Please don’t answer that). Last week, I focused on some of the optional paths that you might take. What is the driver of your path choice? Done properly, the driver is what you want from your money. Money is simply a tool. It is not a destination or a goal in and of itself.
Ok, Mark, this is easy. All I have do is state what I want from my money and then I can easily design and build the path. True. This is all you have to do. It is not easy.
Journey To The Center of The Mind
The more we study the brain and money, the deeper we get into the operation of the brain: emotions, feelings, biases, and biochemistry are among the topics. Seven Lessons About the Brain is just as important to the conversation as Misbehaving. Then there’s Your Money and Your Brain, Thinking Fast and Slow, and The Geometry of Wealth. Like the Ginsu knife: WAIT! THERE’S MORE!
Die With Zero. The New Retirementality. Rewirement. The Psychology of Financial Planning. The Psychology of Money. Happy Money. The Davis Dynasty. The Essays of Warren Buffett. Against the Gods. Every single one of these books, and this is but a small sample of what is available, shows us that there is no universal system when it comes to monetary decisions. There is no right or wrong regarding your monetary and lifestyle choices.
In the joyful spirit of wait, there’s more, we have podcasts, television shows, university courses, PBS shows, course from various people who may or may not actually be financial planning professionals. Why are there so many sources and commentaries on money?
Uncertainty and money do not go well together. The brain is a highly variable and unpredictable device. When we are most certain of things is when we tend to make the largest errors. We seek the one thing we cannot have with our money: certainty. You can get pretty close if you buy really high quality bonds - but you won’t get inflation beating returns, over the long run, if you hold said bonds to maturity. You can have uncertainty and a high probability of greater returns or certainty and nearly certain lower returns that are not likely to be sufficient unless you have substantial excess wealth.
And yet, the brain loves certainty. Why do we even read various forecasts every year? Forecasters are routinely wrong in a statistically significant fashion and notoriously so. Our lives are full of unpredicted and unpredictable events. From earthquake-caused tsunamis to the wildfire that destroyed Lahaina to the assassination of John Kennedy to the Long-Term Capital Management meltdown to October 19, 1987 to 9/11 to your daughter falling off the jungle gym and breaking her wrist, something occurs every single day that can affect your decisions about your life and your money and that you find unusual, unpredictable. In a sense, these things are predictable. One of them is going to happen every single day, which means we should expect one each day. Regardless, we do not generally expect them, because we cannot possibly know which one is going to occur today. So the one that occurs today, while predictable over our lifetime, perhaps, is unpredictable and unexpected.
All of the uncertainty and unpredictability we experience in our lives, coupled with the importance we attach to having money and the fact that in developed countries it is extremely difficult to ignore and/or live without money creates a thinking environment where money decisions become vertigo-inducing for many of us.
Money Decisions Under Uncertainty
Better decisions about use of capital/money come when you know what you want your money and capital to do for you. This means understanding who you are, having a clear picture of what is meaningful to you, and defining what it means, for you, to consider yourself a quality human being. The complexity comes from both the prior points and your ongoing evolution as a human. You change over time. The amount of capital and money you have changes over time, and not always positively. Each affects the other.
In a multivariable system like this, forecasting and predictability go out the window. Hopeless? I think not. What matter are adaptability and flexibility. In my own life, I have seen my financial vision change from:
I want to earn a decent living as an auto mechanic, own my own house, and actually have a place that is my home and not full of craziness (ages 16-23).
I want to graduate from college so that I do not have to work with my hands and body (ages 23-29).
I want to become a partner at a technology consulting firm, retire at age 50, and do I have no idea what after that - but it would involve being a senior executive in the firm, working with Fortune 500 companies, and having lots and lots of money (ages 31-44).
I want to have a successful marriage, I want our son to have a life better than mine, and the money doesn’t matter at all (ages 44-current).
I’d like to help as many people as I can achieve their financial goals, be a solopreneur, and not have to worry about money much by age 60 or so (ages 46-64).
I want to have control over my time, have no debt, and spend time on cool cars (well, cool to me!), my own fitness/caring for myself, and our family. At the same time, I want to help a long-time business colleague build an amazing business and work with my current partners to create the financial planning firm that makes a difference in how this business serves humans (ages 64-current).
My own financial decisions and financial planning have changed dramatically over time. My own decisions have at times been financially quite painful and yet turned out, in hindsight) to be the right thing to do at the time when you look at where I am and who I am today. Would I make the same decision to quit Accenture (in 2000) today? Would I be happier now if I had not quit? No one knows, least of all me.
My path is the same, in many ways, as the great majority of us all. What we want from our money changes. The important thing is to adapt your money vision as your life vision changes. More than that, know yourself, so that you know how to adapt your money vision.
Then you can make better decisions. Decisions that are aligned with what matters to you.
A few other thoughts here:
Keeping wealth is even harder than creating it.
Never discount the luck factor. You may not be able to recreate your past success.
Having a cash reserve provides the freedom to change financial direction when your vision changes or when the unpredicted event occurs. Both of these are highly likely in your lifetime, and probably more than once each.
Thanks for reading. All feedback is a gift.
Sundry
My favorite Liz Phair tune
I just finished The Lincoln Lawyer (the first book). It was a captivating read and I learned some things about our criminal legal system. The Netflix series is fun, too.
Hat tip to Bob Seawright for suggesting I read this article about Nashville. As I hope we all know and that I, at least, sometimes forget, there are layers to just about everything, including the culture and politics of Nashville and US country music.
Robbie Robertson, a musical genius, died this past week.