I received this touching letter from a user who asked me to share it on my blog:
There are different kinds of middle-class families. All of us must live within our means, lest we head towards financial ruin. The basic necessities of life form the core of any budget: food, shelter and what it takes to support human dignity. The poor cannot afford even that. The middle-class does better, in that basic needs are met, with a little left over. It is very easy, however, to want too much and in that greed, to borrow from one's own future. Personal financial planning, to me, is a means by which to learn how much I should want, so that my lifestyle can remain forever affordable.
Fortunately, my own needs are not so materialistic. I need the food, the shelter and the rest of the basic stuff. I want those resources that can facilitate my intellectual pursuits (a computer, and access to information) and that can support my physical and mental well-being (exercise, entertainment, and vacations). Basic needs are getting seriously more expensive. Informatics and information are getting cheaper. Walking is free, and fun seems to be pretty steady cost-wise. But budgeting for expenses alone can't tell me what I need to know. Can my lifestyle remain forever affordable?
On the other side of the equation, we have income and savings, and hopefully also income from savings. Expenses are relentless. Income is unstable. I am likely going to have a steady income until I choose to retire, but then my income will shrink. In the meantime, I am living well within my means, so that I can save and invest a little (but only a little). It's anybody's guess how those investments will perform. I am putting some faith in past trends, that over the long term, investments tend to grow faster than inflation. The longer I work, the more I save, and the higher my pension. That affords one important thing: resilience. It puts less reliance on my meagre investments beating inflation. Working longer costs me as well: although I like my job, I have other interests as well and those would get delayed.
Then, there is the biggest issue of all, the elephant in the room: death. I think that I can predict the stock market better than I can predict how long I will live. Young people know that they will live forever. At some point, mortality sinks in as a possibility, then is eventually accepted as being inevitable. I'm healthy now and do what I can to be healthy, but I am not immortal. The problem, financially, is not knowing when it'll all be over. Should I work those extra years in order to ensure solvency through my 90s? What if my time runs out at 70, or even sooner? Both outlooks on lifespan, optimistic and pessimistic, come with their own risks and opportunities.
To make things even more complicated in formulating a personal financial plan, I am not alone. It's not all about me, my needs, my wants, my incomes, my investments. I have a family, and they have needs and wants and incomes and investments and uncertain lifespans of their own. Children, in my case adults, are expected to fend for themselves, but it would be heartless to deny them what they might need in a time of crisis. My spouse is not someone that I will let loose to fend for herself. Her needs and wants tend to align with mine, but her financial portfolio, although healthy, is very different from mine. Her financial trajectory is both intertwined with mine, since we're a couple, and independently managed, since that's the way it works best for us. My wants cannot trump hers, nor hers mine. We need to coordinate the plan, hoping for the best, but fearing the worst. I am not financially ignorant, but neither am I financially savvy, so it's a struggle for me to understand. I do, however, believe that there is an optimal strategy, taking my family's values into account, that may or may not align with generic teachings. Everyone's priorities are their own, and can't be simplified to a simple formula or a list of dos and don'ts. It necessarily takes a little more work than that, to get a personalized plan.
First, I need to revise my original objective. It was "Can my lifestyle remain forever affordable?" Instead, it should read "Can our lifestyle remain forever affordable?" That's a big distinction, even if my spouse and I are generally on the same page. Many couples fight over money; we don't, and we don't want to start. Given that objective, I can frame the problem as follows:
- Can my lifestyle remain forever affordable?
- Can her lifestyle remain forever affordable?
- If (i) and (ii) are not both true, then can our lifestyle remain forever affordable, even if:
- I die before her at some arbitrary time?
- Or, she dies before me at some arbitrary time?
My selfish objective is to know when I can retire without jeopardizing our financial solvency under all scenarios above, so that I can pursue my interests full-time.
The Money-Ready App lets me ask those questions. Not being particularly rich, it took some work for me to find viable scenarios just for me to be able to satisfy my own needs and modest wants long-term. I now understand what my "means" are, so that I can live within them indefinitely. I also learned that I can't retire early, because if I did, I'm overly vulnerable to market performance, and would equally risk my spouse's well-being in the long term. The Money-Ready App let me ask those questions, and gave me the answers that I needed in order to plan for our long-term future. Things change, and plans change, but from this current perspective in 2020, things are in control and I don't need to worry about them. I used to worry a lot. A tool such as the Money-Ready App is a big stress reliever. It looks like we'll be okay.
There are different kinds of middle-class families. Many are not financially literate, and some live in ignorance or in denial. The DIY crowd, for which the Money-Ready App is ideal, can immediately appreciate its value. The rest of us, who need help the most, would be wise to spend the little bit of effort to learn, with the help of this tool, the basics of financial literacy. It opened my eyes about personal financial planning, and let me appreciate what's important and what's not about long-term financial solvency, for me and my family. I appreciate the effort that went into the design and development of this tool, that I can use to help steer my family's financial plan as life presents its opportunities and its challenges.