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The Theory of (Financial) Relativity
Boy, that title makes me seem like a real academic, ha. In all seriousness, I think this is a blog that everyone could benefit from. Don’t worry though if you haven’t heard of the Theory of Financial Relativity, as it was made up while I was taking a shower this morning, after my morning run. You see recently I read, Bill Bryson’s: A Short History of Nearly Everything, which is likely the first science book I’ve ever read (including grade school). About 99% of the book was over my head, although I do feel like a real scientist now.
The Theory of Relativity
One of the themes in the book was good ole Albert Einstein. It mentioned many of his theories. However, the one I kept thinking about is the Theory of Relativity. My favorite example of this theory is the famous ping pong match on a train example. It states that you are playing ping pong on a train, and it is going 60 mph and hitting the ball at 5mph. If you are on the train the ball appears to be going 5mph back and forth. However, if you are standing as an observer on the side of the train watching through the window the ball appears to be going 65 mph (60 + 5) in one direction and 55 mph (60-5) in the other direction. This basically leads to probably the greatest theorem ever in E=mc2.
The Theory of Financial Relativity
Now that I’ve set the groundwork let’s talk about the 21st century’s huge breakthrough of The Theory of Financial Relativity. You see finances are extraordinarily relative. I’ve been let into more people than you can imagine personal finances. I get the pleasure and honor of hearing them discuss their deepest darkest wishes and desires. I’ve also heard more times than you can imagine people asking for a magic number or questioning how they are seemingly doing well, but their friend/neighbor/colleague is living a better life.
My answer to all this is it is all financial “relative.” Now let me try to explain. For starters, the number one question people ask me, when they know what I do, is how much they need to retire comfortably. Seemingly, they want me to reach into my hat and pull out a number, say $4,000,000 and send them on their merry way. However, financial planning doesn’t work like that. Your retirement number is completely relative to you. It is contingent on many factors, most importantly what we anticipate the cost of the rest of your non-working life to be.
Now I’ll see many people saying well my pal retired at 55 and he didn’t have nearly saved what you are suggesting I need. The answer is back to old faithful in The Theory of Financial Relativity. What this person is neglecting to point out is their friends were police officer and a school teacher for 25 years. They both now have 2 pensions that pay 75% of their working salary. Plus, they have retiree medical, a million dollars saved, and 2 Social Security yet to pay. You see everything is relative when it comes to finances.
How about this one that I get a lot. I’ll have clients say this to me, “Andrew you are saying I need to save more money. Our neighbors, who certainly don’t make as much as us, seem to go on many more vacations plus they have a second home. How in the world can they afford all that, plus 2 luxury cars?” Now listen carefully, I have both of these types of people as clients. There is a really good chance the couple spending like crazy is in terrible personal financial shape. They likely will be working until they are 70, compared to the more prudent spender/saver. Or maybe they inherited a bunch of money from an uncle. Or perhaps they make substantially more money than you thought. Or maybe their parents bought them that retirement home and gift them $60k a year. Or maybe they are spending so insanely trying to fix their marriage. Or maybe they are the ones that won that damn billion-dollar Mega million.
Looking through the train window
The point is, finances are relative and if you attempt to judge your financial situation by looking through a train window of someone else playing ping pong, it will totally distort your own relativity. Now, I know I say this all pretty matter-of-fact, although it is likely harder to do now than ever before. We live in a social media-glorified era like none we have ever seen. I have FB friends that are always on vacation or always doing crazy expensive things. I have people bragging in my face daily about how wonderfully blessed they are to have such an amazing life.
That all said, remember in a sense I am also the executioner. I have a vantage point no one else really does. I see these people come into my office complaining about finances or how they are seeking something in their lives. I’ve seen them complain about marital woes and how he/she won’t stop spending. I even see these same people have the same complaints you or I have that their friends are seemingly spending at an unimaginable clip and how can THEY afford to do so.
At the end of the day, it is hard and unhealthy to compare ourselves, our happiness, and specifically our finances to someone else. Your financial life is uniquely you. Our job at Diversified is to help you realize your life’s potential and keep things relative, so you can live your truth and your own happiness.
Hope you enjoyed this soap box, now go enjoy your day and stay wealthy, healthy, and most importantly happy.