Being a Better Personal Financial Planner

Level 2 - Value Investor

Welcome Avatar! This is going to provide a quick overview to help you become a better planner in our cartoon opinion. From what we’ve seen people really don’t think beyond a 6-12 month horizon. This inevitably causes *more* losses later as they don’t have a strategy for their evolving wants/needs.

Part 1: Most Important Items to Decide and Recognize

It really comes down to two things: 1) you need a exit number with a time stamp and 2) you need to pencil in a quality of life change every decade at minimum. If you can’t do this, then you’re always going to be “on tilt”

If you are not making these two major decisions now, you’ll inevitably be on tilt sooner than later. This might be due to greed, it might be due to fear, it might be due to a sudden change in personal life circumstance.

Exit Number and Date: If you don’t have this, sorry to tell you we think your chances of making good decisions will be down 90%. People expect all financial decisions to be the same and this is insane. If you are happy with $4M net worth and inherit $50M from your granny’s trust, you can be max risk on with $50M for a long period of time.

In the Middle, if you want $4M by 40 (just an example) and have $3.5M with a $500K career and are age 35… You’re an absolute clown to have 100% of your assets in high risk. You can balance out the portfolio, save and get to the number. After that you can take the *future* money and just YOLO it.

On the beginning side? If you invested $50K into stocks/crypto and earn $200K a year in tech sales, you shouldn’t even look at the prices of stocks/crypto. You will double your net worth just by saving. You have an income/business building problem to solve and the stock/crypto market is meaningless for you today.

In short, write down an exit number and date/time. If you are close you shouldn’t risk what you need for what you want. If you don’t have an exit number and time, you will constantly move the goal posts which will cause massive underperformance since Lady Luck doesn’t like to reward people on tilt.

Look Out a Decade: While you can’t plan out a decade (3-5 years is more than enough), you can certainly see how your lifestyle will change in 10 years or so. In your 20s, you can do it all. Party, work, go make various foolish decisions etc. You’re completely fine going to concerts/raves/partying in Thailand/Brazil/Iceland etc.

The problem is? If you look around you don’t see 50 year olds in there. You don’t see 60 year olds in there. You see a rough age band of around 25-35.

What does this mean? It means you need to come up with the exit number and date *adjusted* for what your life will look like. While it is true long-term holding stocks/crypto/whatever is going to beat a ton of real estate. There is just one problem. Do you actually want to live in a Studio apartment at age 35? 40? 45?

Just thinking about that alone feels disgusting.

Here is quick bullet point explainer:

• Age 20s: Housing is meaningless. Studio more than enough. Whole time frame is to acquire skills, experiences and assets. Your life is a game of accumulation. Notice you can interpret experience to include fun stuff as well.

• Age 30s: Transition phase to wanting more comfort. You will not be interested in middle seat economy 10 hour flights. Even if that trip will be fun, you will begin valuing comfort, space and tranquility. This is a *transition phase* as the early 30s are pretty similar to 20s.

• Age 40s: At this point, you’re not going to be interested in anything related to insane parties at 2am. There is no chance you want to be living in a one bedroom apartment in the city. There is no way your body can handle insane constant partying and you’ll likely take up golf, tennis, hiking, swimming or other fun outdoor activities (some people just suddenly go into bird watching/national park type stuff)

At this point you’ve already decided if you want kids or not so that’ll be obvious. In the 30s range this is largely decided (blah blah feel free to debate don’t really care we’re looking at statistics - majority are not going to be worth tens of millions and turning into Trump or whatever).

In short, when you come up with your number and date be sure to include all of that in there. You are going to want to move from studio/one bedroom to larger places. If you live in a city that needs a car, you probably don’t want a broken down honda and likely want something nice but not flashy (BMW/Mercedes/Audi etc.). Pencil all of this in and *delete* out the insane alcohol/party spending that will drop off since you don’t want to end up with liver disease or in a hospital.

Part 2: Now Separate Wants vs. Needs

If you didn’t do part 1, you are behind. This is easy to figure out by age 25 or so. Simply decide what you want out of life and then add around 40-50%. Most people in this age just want to party their brains out and think they can live in a small place forever. Considering 95%+ of people don’t do this, we’ll wager your wants will change as well. Therefore go back to part 1 and really write it all down clearly. If you can’t do this you’ll never be a good investor.

Separate Wants and Needs: This is what causes people to go on tilt. They start moving goal posts. They get greedy. They get scared. You have to split your portfolio into the wants and needs category.

Example: If you’re 30 with $2M and want to get to $5M by 40, there is a drastic difference based on earning $200K or $500K a year. If you are in the $500K camp, you can take *way* less risk. If you are in the $200K camp you are pushed out the risk spectrum because you already know you won’t be happy with less than $5M.

Example 2: If you’re 20s with $200K income and $25K invested, you are in the “game of accumulation”. This means you shouldn’t really care too much about any price movement of anything. You are going all out with a scalable biz while having a couple nights out on the cheap to party in the young people part of town.

Example 3: You decided to have kids and are worth $3M at age 35. Well in this case you better have it set up so that the house will be big enough for everyone *and* you can ride out a large decline in your stock portfolio + potential job loss.

Wants: Are things that are nice to have. If you find yourself risking needs (borrowing against a house with a HELOC) for wants? We’re pretty sure Lady Luck comes by and hands you a big fat zero. Causing you to lose all your returns.

• Wants Category: Nicer house, nicer car, watches, flashy NFT, vacation home etc. Usually younger people screw this up as seen below.

Source

Needs: If you’re transitioning from living in studios and partying to a larger place in a quieter area… by selling a high risk biotech stock? We’re pretty sure it works out. This is simply how the game of life and luck works. If you’re exchanging ultra high risk stuff for things you need and improve quality of life, typically the risk asset goes down vs. the stable one.

• Needs Category: Bigger living space planning out 10 years, better health care and outdoor hobby money - golf/tennis etc, ability to afford high quality produce at all times. Note: the hobby money is a need because you’ll go crazy doing nothing all day. Remove the weekend party money and see how much of this can be shifted to something you’ll be doing in your 40s. Notice your spending will double.

Source

Part 3: Rough Estimates

Hopefully all of this will solve for the constant questions about how much risk you should take. It really isn’t possible to know because income and wealth saved is completely different for each person. Even if you said you had $3M today, it doesn’t tell us much. You might be a genius business builder making that in 6 months. You might be a trust fund baby who makes $100K and just inherited everything.

Neither situation matters (we hope you get rich in some way), what matters is your own planning.

Now for the fun part here is our assumptions based on 2024 Living Standards

General: As a rule of thumb we’d think the majority are set in the $4-6M range by age 40. This is pretty hard to argue. It does not work in expensive cities like NYC and LA. We assume that this amount is going to work for 99% of people because they could move to a city they like and we really doubt everyone reading this “needs” to live in NYC/LA. This nets out to around $1M house and $4M invested. Tough to lose outside major cities.

Upper General: If you are a big city person and want an upper tier life in major cities it’s probably a double. This means you need to be on track to reach around $8-12M by age 40. This will give you all the wiggle room you want for a bigger place even if single to having kids/family. As usual your call. This is the rough number as $8M + $2M house is going to be extremely comfortable. There is zero shot you stop working entirely as people who make it to this level are generally business builders anyway.

Joke/Video Game Money: Around the $20-30M range everything is largely the same. While you are not flying private all the time and don’t have a security team with you (more problems realistically), you can’t spend it all. You can simply invest this out diversified and nothing is out of of reach beyond nonsense like Yachts.

Before moving on here, you can have your own number. We know that people will ask about rough proxies so there they are. On Crypto Twitter Video Game money is “poor” but in the real world it isn’t. Similarly, people saying $10M isn’t enough to retire/be financially set is also cope. It’s only true in the most expensive cities in the world.

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On that note, we’re hoping this answers all the redundant questions. Do the math yourself on income/savings/your future lifestyle goals.

If you have something specific leave it here as we still have time for about 10 more questions. *Do not post your financial situation on the free side of the stack*

Sadly $5,000,000 is the new $1,000,000 from the 1990s but that’s how it goes.

Adapt or die!

Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce.

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