Have you ever had questions like these about your own finances? Wondered how to figure out the answer?
- Should I take more salary or more equity?
- Should I take RSUs or options?
- I’m 35 years old. How much money should I have saved?
- When should I sell my company stock after the IPO?
- How much money do I need to be financially independent?
I get these questions all the time from my clients. It is, after all, what I’m paid for.
And I’m happy to discuss them, happy to offer up an opinion. But “opinion” (one might even say “guess”) is honestly the best that’s possible for questions like these. There is no One Right Answer. There are usually plenty of “reasonable but arbitrary” answers. And I always preface such discussions with that fact. You simply can’t get any better than that. Anyone giving you answers that are The Right Answer is either ignorant or lying.
On the flip side, there are also questions in personal finance that have more, shall we say, “reliable” and definitive answers.
How much do you need to save to buy a home in 2 years? Well, that’s just straight up arithmetic. You want to put 20% down on a $1M home. You already have $50k saved. You need to save another $150k over the next two years. That breaks down to $6250/month. I am confident that that specific answer will work out well for you.
So, what explains the difference between questions that have only “reasonable but arbitrary” answers and questions that have “reliable and definitive” answers? The (un)knowability of the future.
You cannot know what your company stock’s price (or any stock price) is going to be in the future. Tomorrow, next week, or next year. Therefore I can’t calculate for you whether options or RSUs are a better idea, or when you should ideally sell your company stock.
You cannot know what’s going to happen in your life and in the world in the next 60 years. Therefore, I can’t tell you definitively how much money is enough for the rest of your life, or how much you need to save for retirement.
The best answer will only ever be known in retrospect (when, let’s review, it’s too late). You are making decisions with incomplete and unknowable information. Your decisions are, per force, somewhat arbitrary. (Anyone else get a little thrill of intellectual snobbery when you write the phrase “per force”?)
How Do You Make Decisions About the Future, then, if the Future is Unknowable?
You gotta do something though, right? Yes, you have to make decisions and plans and execute on them. But how do you do that when you don’t and can’t know what will happen in the future?
Embrace the unknowability of it all. Realize that personal finance—whether you’re doing it yourself or working with a professional or reading books—is both science and art. That art part is where the “reasonable but arbitrary” comes in. You have to get comfortable with the fact that you will not, can not, know the answers. No one can. And don’t believe anyone who says they do.
Start all your financial planning with a deep understanding of you. Your finances. Your family situation. Your goals. Your behavior. Your fears. Your desires. Those things you can know (even if it takes a little bit of work). And precious little else. What is “reasonable” for you might be unreasonable for someone else, and vice-versa.
Have faith. No, not of the religious sort. I mean, if you’ve got that, I hear it’s pretty amazing, but that’s not what I’m talking about. I mean faith in yourself, in your resilience. Whatever comes up—and plenty will come up that you cannot plan for—have faith that you have what it takes to adjust. You have the skills, the family, the friends, the professional network, the smarts, the grit to get through it.
Think back to some crappy time in your life when things were really challenging or disappointing. (Maybe cast your mind pre-2020, as we’re still all struggling through this current challenge.) Did you get through it? How? If you did it then, you can do it again. (I’m partly trying to convince myself, to be honest, as 2020 is so hard. I struggle frequently to find the faith that I will get through it and things will be better eventually.)
Adjust as you go. It is true that right now, you cannot know what will happen in December. Or 2021. Or in 5 years. But eventually you’ll be in December, in 2021, or 5 years from now. And at that point, you can reevaluate whether your existing plans still seem reasonable. Do you have any additional knowledge that you didn’t used to have? Should you tweak or perhaps even radically overhaul the plans you put in place a month, year, or decade ago?
That’s one of the reasons I don’t particularly like doing a one-time financial plan, because it’s a snapshot of the Now, with all the plans based on the current reality. And 2020 has taught us that reality can change quickly and frequently. I’d rather you have a high-level, even incomplete complete plan that you revisit every few months or year than a really thorough plan that you don’t revisit for years.
Do you want someone to help you continuously adapt your financial plan to your life as it changes? We’d love to hear from you. Reach out and schedule a free consultation or send us an email.
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Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Flow Financial Planning, LLC, and all rights are reserved. Read the full Disclaimer.