Stop What You’re Doing …

Cuz I’m about to ruin the Grumpus sense and style that you’re used to?

In the now timeless words of Chris Farley, “Holy Schneikes!”.  I saw a lot of negativity on the interwebs this week, which made me regret getting a Book of Face account.  I only got an account in order to run a Financial Independence (FI) blog.  Prior to that I was as anti-FB as they come, and had never had an account.  In fact, I still do not have personal account, just this semi-awesome public persona with his two avid followers (thanks kids!).

I used to simply listen to podcasts about the cognitive dissonance people engaged in on the internet, now I get to see it first hand.  I used to read well thought out news articles that would lay out facts, points, and counter-points forcing me to think about all sides of an issue.  Now I get sucked into the visceral, opinion laden, and nonfactual diarrhea that spews out from peoples’ minds, through their thumbs, and into their comments box.  Is it me, or do people just like to shout “fake news”, strap into their echo chambers, and argue past each other with no intent, or hope, in reaching common ground.  It’s enough to make a grumpy guy like me point out that people suck … I mean REALLY suck.

What does any of that have to do with personal finances, FI,  and retirement planning?  I don’t know, but I felt it needed to be said.  If that loses me an occasional reader, so be it.  As Bob Dole once said, “…the exits, which are clearly marked, are for you…“.

Truthiness in FI Numbers?

Wait!  On second thought, I may have spoken (or typed as the case may be) too quickly.  Not about the “people suck” part, that was typed at the correct pace.  Are we clear on that?  People REALLY suck.  Questions?

What I meant is that there may be a clear correlation between my above rant and a person’s journey to FI after all.  If you think about it, achieving FI requires an open mind; the ability to distinguish facts from fiction; an acceptance of the facts; a willingness to examine the problem from multiple sides; and an ability to be truthful with yourself.

For instance, if you are spending more money than you make, no amount of rationalization is going to change the fact that you’ll never get out of debt until you stop spending so much.  If you are not open to the idea that your lifestyle would have to change in order for your financial situation to change, then no amount of assistance or advice will help.  If you are unwilling to strip your financial problems down to their essential elements, do some hard work like tracking your money, then you’ll never be able to develop and implement a plan to overcome them.  If you lie to yourself about your ability to earn, save, and invest, you may not be hurting anyone else, but you are surely hurting yourself.

Me thinks … I’m in a Skrillex video.

Achieving FI requires critical thinking too.  That may be the issue I lament most about social media.  A lack of critical thinking.  However, failing to think critically is a sure way to end your efforts to achieve FI.  Allow me to indulge in a thought experiment to prove my point:

How do you calculate Net Worth?  Any first year accounting student would probably tell you to total your assets (stocks, cars, house, etc.) and subtract your liabilities (debts like your mortgage) to get Net Worth.   They would be correct.  Mathematically expressed it can’t get much easier than:

N = A – L

That is a smooth, clean, and easy calculation right?  No need to argue about the final number.  Pure math plain and simple.  Great, I’m glad we had this talk.

Wait, what is that you ask?  How are stock, car, or home values calculated?  By a market of course.  What is a market?  It is a group of buyers and sellers (people) who for whatever reason (either rational or irrational) decide they are willing to pay for, or sell, an asset at a certain price.

So is A an objective or subjective value?  Does the value of 50 shares of Apple change day to day?  Does the housing market go through regular boom and bust cycles?  The answer of course is that A is subjective.

What does that make N then?  Subjective or objective.  Considering that A is subjective, most people would probably argue that N is also subjective.  I would argue “it depends”, which is where the critical thinking comes in.  Would taking N at face value serve you well in most cases?  Probably not.  Anyone remember the “irrational exuberance” comment made by Alan Greenspan in the mid-1990’s describing the behavior of the stock market during the Dot Com Bubble?  He made that comment in 1996, four years before the Dot Com Bubble burst.  The bubble created a lot of Net Worth millionaires on paper in the run up through 1999.  It also eliminated a substantial number of them after it burst in 2000.  This happened because the market collectively thought one way about the value of the tech sector for four years, and then seemingly changed its mind overnight.

Alternatively, is a positive N value better than a negative N value?  Is having a $1 million Net Worth better than a negative $1 million Net Worth (i.e. owing creditors $1 million)?  Certainly a positive net worth is better than a negative.  That is an objective answer that calculating N can give us.  So as I said, it depends, and requires critical thinking.

What’s the (FI) Point, Grumpus?

One of the original reasons I became so interested in personal finance, and my personal finances specifically, is what I perceived as the purity of the numbers.  After years of dealing with the often subjective results of military deployments to places like the Middle East, the hard sums of personal finances proved akin to a syren’s call to me.  As I just showed you though, I was only partially correct in my assessment in the purity of the numbers.  Numbers can be both objective and subjective — often at the same time.

YES! Wait a minute. That’s calculated in positive ‘000s, right?

Why am I telling you all this?  Well, I am trying to establish a mindset prior to Part 2 of this post.  In Part 2,  I show you how I ran simulations against my retirement plan using a high powered retirement calculator, so that you can do the same.  While I want you to have confidence in the numbers you calculate, I do not want you to place all your faith in any single number or calculation.   What you will discover is the numbers are probabilities for success, the accuracy of which not only depends on the accuracy of the input you provide, but also on how the calculators themselves were programed.

With that, I conclude my post, but not before I assign some more homework. Ah yes, the lovely groans of the three adults who stayed tuned for the entirety of this post.   Well, what can I say?  I am not the expert on retirement calculators, but I know someone who is.  I am going to send you to my friend Darrow Kirkpatrick’s blog, Can I Retire Yet?, so you can make yourself smart on retirement calculators, just like I did.  If you get there through the link above, scroll down to the bottom article and work your way up.

If you like what you read, please leave Darrow an email (he doesn’t do comments) telling him so.  Feel free to tell him I sent you too.  I don’t get anything out of it, other than the warm fuzzy knowing that I drove some traffic to the site of a good guy.  At the end of the day, at least I am not asking you to do anything I have not done myself.  In fact, I might just head over to Can I Retire and review that section of his blog in order to refresh my knowledge.  As we say in the military, never stop learning … but if you are one of those people who REALLY suck, feel free to stop at any time.