Read Time: 7 minutes
Welcome to the 45th edition of the Tech Financial Planning (TFP) Newsletter.
I’m not sure if it’s coincidence or timing but lately I’ve come across some great financial wisdom that I wanted to share with you.
Advice on saving, managing uncertainty, wealth, and investing in down markets
In this newsletter I’ll share 4 excerpts from blogs / books I’ve read lately with some thoughts & observations.
TL;DR
The best saving advice is to save what you can
There’s no such thing as certainty, particularly in financial planning
The goal isn’t all the money
It seems counterintuitive, but down markets can be good, particularly for regular savers and investors
How Much Should I save?
This comes courtesy of Just Keep Buying from Nick Maggiulli.
I’ve only recently started it but it has some great insights into saving, spending and investing.
“This is why savings rules like “save 20% of your income” are so misguided. Not only do they ignore fluctuations in income, but they also assume that everyone can save at the same rate, which is empirically false…When we have the ability to save more, we should save more–and when we don’t, we should save less.” (emphasis added).
I love this.
I’m definitely guilty of paying too much attention to savings rates.
And yes, they can be helpful guideposts, especially at certain points and incomes.
If you make $500k and only save 5%, there probably needs to be a conversation.
But to blindly recommend someone save 20% (or 10%, or 30%) isn’t helpful.
Someone making $100k is going to have a much harder time saving $20,000 than someone making $500,000 saving $100,000.
“The biggest lie in personal finances is that you can be rich if you just cut your spending…The most consistent way to get rich is to grow your income and invest in income-producing assets…The main point is to tighten up where you can, then focus on increasing your income.” (emphasis added).
I like Nick’s measured take here.
Yes, managing your expenses matters, but you’re better off increasing your income.
He has a great breakdown in the book that for many families (particularly lower income), there’s not much to cut.
Easier said than done, but you also shouldn’t feel guilty for spending on things you enjoy.
There’s No Such Thing As Certainty
It should come as no surprise that I’m a huge fan of Meg’s work.
My last post was hugely inspired by her own conversation with a doctor.
All of Meg’s work is must-read, but I’ve really enjoyed her post on the lack of certainty in financial planning.
“If we had certainty, then we’d know, without a doubt, what to do now. Without certainty, we can’t be sure that what we’re doing right now is the right thing. When it comes to financial decisions like “How much should I be saving?” this lack of certainty can be painful.”
First, I didn’t plan this but I love that Nick talks about how much to save and then Meg comments about how uncertain it is to know how much to save.
The hard part is so much of what we are planning for is way down the road.
College. Retirement. Sabbatical. Flexibility. Etc.
And there’s just so many unknowns and changes that we can’t predict.
“How do you manage risks in your financial life? Nothing here will likely surprise you. It’s possible you haven’t done these things, but most people have heard of them before.
Build a robust cash cushion. Save more than you think you need to. Trust me, in a crunch, you will love your cash so much you’ll want to marry it. (I will, however, also caution against saving everything as cash. We have many prospective clients who reach out to us in part because they’ve built up a gigantic cash pile and don’t know what to do with it.)
Get the right insurance policies: life, health, disability, auto, renter’s/homeowner’s, liability, etc.
Draft your estate planning documents with an attorney.
Get other legal documents drafted whenever you’re engaging in a big financial transaction (ex., buying a home, getting married) with another person.”
These are all the basics, but it’s astounding how rarely people have this dialed in.
At least with the people I work with, most have a solid cash cushion.
But very few have the right insurance and estate documents in place.
And up to date beneficiaries.
The Goal Isn’t All The Money
I loved Psychology of Money which led me to Morgan Housel’s blog.
His latest post on striving and attaining wealth definitely made me think.
“Think of it this way: Would you rather make $100,000 a year with a spouse who loves you, children who admire you, good friends, good health, and a clear conscience, or make $1,000,000 and have none of those things? It’s so obvious.”
We all know this logically, and yet it’s so easy for our behavior to deviate from reality.
The media doesn’t help either.
There’s no Forbes list for people who could have kept going but decided to slow down.
“I think what many people really want from money is the ability to stop thinking about money. To have enough money that they can stop thinking about it and focus on other stuff. It’s this weird relationship: They become obsessed with making money with the hope that someday they can ignore it altogether.”
But even rich people continue to worry about money.
And we know that happiness starts to plateau after income hits a certain level.
On the other hand, I think it’s easy to say “don’t worry about money” and a lot harder to live that out when you’re trying to buy a home, retire, raise a family, save for college, or whatever else you’re focusing on.
It seems like there’s this tension between obsessing about money and completely ignoring it.
I’m not sure what the right level is - something to reflect on more.
“No one is going to remember you in 100 years. So you might as well focus on what’s going to make you happy now, instead of what money might buy you in the future. There is a Scottish proverb: Be happy while you are living, for you are a long time dead.”
Almost no one remembers the richest person in the world from 200 years ago.
Spoiler alert: it was a guy named Stephen Girard.
The man was the richest person and the world and basically no one knows who he is.
Maybe this depresses you a little, but it gives me some measure of peace.
No one will remember Joe Marshall in 100 years, and definitely not how much money I made.
I’m not even sure this applies, but I will use this to plug a quote from my favorite book series of late, Red Rising.
“All that we have is that shout into the wind--how we live. How we go. And how we stand before we fall.”
Bad Returns In the Market Aren’t Always Bad
Just an absolute banger from Ben Carlson.
“The idea here is that you should want poor returns early on in your investing lifecycle assuming you are a periodic saver over time (most of us are). You shouldn’t be cheering for all-time highs ever day. You should get on your hands and knees and pray for corrections, bear market and market crashes…If you are just starting out as an investor the best thing that could happen to you is a series of down markets.”
Obviously this is counterintuitive to everything we know and want.
I want to see the numbers go higher, just like you and everyone else!
But depending on a whole host of factors - age, timeline, etc - “Poor returns aren’t always a bad thing as long as they lead to better returns down the road.”
Put another way - as long as you are consistently buying and investing, “down markets allow you to buy more shares at lower prices, higher dividend yields and lower valuations.”
I don’t want to sit here and be a blind optimist.
2022 wasn’t a whole lot of fun.
But if you bought consistently then (and now), this could set you up very well for years to come.
Putting It All Together
I’ve written about this before, but one of my goals for writing is to help you connect your finances with your life.
So you can better structure your saving, investing, and spending and in ways that work for you and your family.
Conventional wisdom and Google and the financial media have seemingly made finances more complex than ever.
I hope some of these passages are helpful to you.
I’ll leave you with one last thought on the topic of complexity.
The principle of Occam’s Razor.
I’m oversimplifying here, but it argues that the simplest answer is often correct.
Think of it similar to Return On Hassle
You probably don’t need to create 7 LLCs for a side business to save a little on taxes.
You probably don’t need to invest in real estate and art and crypto and farmland and small businesses and private debt and (fill in the blank).
You probably don’t need to switch high yield savings accounts every 3 months to find the one with the highest interest.
Simple is beautiful.
It won’t make headlines, but is that the goal?
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