Most of us understand that striving for perfection, whether it relates to our careers, health, or relationships or in any part of life, can be useful, even if most of us know that “perfect” is often an unrealistic standard. For people with high aspirations, the idea of trying to attain supreme excellence or completeness can lead to the extraordinary achievement they desire.
This idea also relates to our personal finances. After all, striving to make sound financial decisions on a consistent basis can help move us toward financial independence; greater feelings of confidence; and a wider range of choices about how we live our lives.
But we also know that there is a downside to making perfection a goal in and of itself. As someone who has dealt with my own struggles with perfectionism, I can personally relate to the idea perfection is overrated, if not completely unhelpful at times.
So what does this have to do with those of you facing mid-life career change during the times of Covid-19? As I have noted in my recent posts about this unique life stage, the time when you are in transition is an opportunity to assess your future in both financial and non-financial areas. And I have often observed that people, even those who are not self confessed perfectionists (unlike me!), often approach their financial planning with a degree of “perfection” in mind.
As you review your personal finances during this important transitional point in life, the lense through which you look at your personal finances creates an important framework for decision-making. Your mindset and approach in thinking about finances can lead to decisions which may or may not improve the quality of your life and happiness.
Read the Memo: “Financial Optimality” Is Undesirable
So, let me weigh in with my strong opinion that financial perfection is undesirable. Financial decisions do not need to be 100% optimal, nor should they be entirely based upon what may produce the greatest amount of wealth. For some, I am sure that this idea may sound so obvious that you may be wondering why the discussion deserves an entire article!
However, there are others who have been diligent savers over a long time period. Your habits are so well ingrained that it may actually be hard to think about your finances differently. I truly commend you for that discipline and commitment to making sound decisions for your long-term welfare. The purpose of this post is NOT to second guess those excellent habits since they have likely served you well!
But the playbook for your next life stage may not need to be the same one you have used in years past. At some point, whether now or in the distant future, you will no longer be a saver, and you will eventually be withdrawing money from your savings when you are no longer working. If you are not consciously aware of this shift and its potential implications, you may inevitably have conflicting feelings as you approach various financial decisions. Worse yet, you might also miss opportunities that could increase the quality of your life.
Stop Saving and Start Spending!
So, let me introduce an important idea: it is okay to spend some of your money and to not focus on being a saver forever, especially when you ultimately decide to leave the workforce!
As long as that withdrawal rate is not unsustainably high (a subject for another article!), taking money from your savings is a completely normal activity. However, it does require a very different mindset and may even create a certain degree of anxiety for closeted financial perfectionists and non-perfectionists alike.
Having worked with so many individuals over the years, I have frequently observed an unconscious bias (and sometimes conscious too!) toward making financially optimal decisions wihtout considering all the possibilities. Many have expressed feelings of guilt or even shame about certain financial decisions they have made in the past or about the occasional “splurge”.
These hidden feelings are sometimes unhelpful in the financial planning process, and especially so for those people who have been consistent savers over the years. These biases are in reality NOT optimal since they could lead you in directions that may produce less happiness. The role money in our lives is to financially enable the lifestyle that will provide joy and satisfaction for that person and/or their family members.
Once you are comfortable that you have more than adequate resources to meet your basic financial needs, you should feel the freedom to make any financial, investment, or spending decision that you wish, as long as that decision is not financially imprudent and could not materially damage your long-term financial welfare.
The financial planning process is best served when your “qualitative” goals (the things you want personally and/or professionally) drive the financial decisions. In other words, you should think about the lifestyle you and your close family members want for your future, and then attempt to organize the financial strategy (with the help of our firm or another wealth manager) around those priorities.
The possibility that any decision may be less than “financially optimal” should only be a consideration if it would present a material risk to your long-term financial welfare, or if you truly want to organize your financial affairs solely around non-discretionary needs. That does not sound like too much fun to me!
We realize that most households do not have endless financial resources and that financial decisions must be very realistic. However, experience has taught us that starting first with your lifestyle goals may usually lead to more satisfying and sustainable long-term financial decisions. The trade-offs between your lifestyle goals and financial considerations are often not as “binary” as you may expect.
The truth is that financial planning is all about striking the right balance between what you want in your finances and your goals for the “non-financial” areas of your life. And each individual can have legitimately different approaches about how to juggle those considerations based on their family needs, personal values and other factors. I will be writing soon about how you can strive for that balancing act, while simultaneously trying to remain confident about your finances whenever you leave the world of work!
