2 financial planning questions you must answer

Jan 24, 2019

In May 2007, John Bogle gave the commencement address at Georgetown University. He flagged it off by recalling a story, one that is fairly popular by now.

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history.

Heller responds, “Yes, but I have something he will never have . . . Enough.

Enough. I was stunned by its simple eloquence, to say nothing of its relevance to some of the vital issues arising in society today. Many of them revolve around money—yes, money—increasingly, in our “bottom line” society, the Great God of prestige, the Great Measure of the Man (and Woman).

In his book Enough: True Measures of Money, Business, and Life, John Bogle elucidates further.

Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate.

For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails.

That message is what Joseph Heller captured in that powerful single word, enough.

There are two questions that every individual needs to address.

  • How much money would you need to gain for you to feel secure?

In What is your financial tipping point?, Nick Maggiulli urges the reader to be brutally honest and realistic: Write this number down somewhere where you can refer to it later.  It is important to write this down because there is plenty of evidence that people will revise their number upward as they approach their original goal. The hedonic treadmill is a tempting one. While $1 million might make you happy now, you might see the people with $2 million and start chasing that.

Knowing how much money you need to accumulate is important for your psychological and financial well being. Of course, having huge amounts invested need not make you feel 100% secure – that’s why we need emergency funds and insurance.

  • How should I invest my savings smartly?

Recently, Tim Ferris spoke to Peter Mallouk in this podcast. Mallouk believes that the main point of investing is to improve the quality of your life. So if you invest in things that create a ton of additional stress, and cause you to have trouble sleeping, even if they have a really high rate of return, it’s a bad investment from a quality of life standpoint.

Remember, the amount you save, your spending patterns, and the decision on where to invest are aspects of the equation that are solely under your control. But how an investment will eventually perform is not definitive. Give more attention to the former.

It’s more complicated than it sounds.

To answer both the above questions, it's crucial to conduct an ultra-customized assessment of your financial situation and savings adequacy. What is your life stage? How stable is your income? Are you the sole earner in your household? How many dependents do you have? Are you steeped in debt? What is your risk-taking ability?

Worth mentioning, it is not purely analytical but also behavioural. Be honest. And do consider the assistance of an experienced financial planner.

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