While the title makes this sound very science-based, this is still a financial planning article. Don’t worry 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 in 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 included 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 one in which people are playing Ping-Pong on a train. It states that the train is going 60 mph, and you’re hitting the ball at 5 mph. On the train, the ball appears to be going 5 mph back and forth.
However, if you are 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=mc^2.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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 the details of the personal finances of more people than you can imagine. I get the pleasure and honor of hearing them discuss their deepest, darkest wishes and desires. I’ve also had more people than you can imagine ask for a magic number or question 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 financially ‘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 million — 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 and his spouse retired at 55, and they didn’t have nearly saved what you are suggesting I need.” The answer goes back to the old faithful theory of financial relativity. What this person is neglecting to point out is that their friends were a police officer and a schoolteacher for 25 years. They now have two pensions that pay 75% of their working salaries. Plus, they have retiree medical insurance, a million dollars saved, and two Social Security benefits yet to claim. You see, everything is relative when it comes to finances.
But how can they afford all that?
How about this one that I get a lot: I’ll have clients say, “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 two 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 think. Or maybe their parents bought them that vacation home and gift them $60,000 a year. Or maybe they are spending so insanely to try to fix their marriage. Or maybe they won that billion-dollar Mega Millions jackpot.
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 at someone else playing Ping-Pong, it will totally distort your own relativity. Now, I know I say this all pretty matter-of-factly, 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 Facebook friends who 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. These same people come into my office, complaining about finances or how they are seeking something in their lives. I’ve heard them complain about marital woes and how he/she won’t stop spending. I even heard 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 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 reading this soap box. Now go enjoy your day and stay wealthy, healthy and, most important, happy.
Financial planning and Investment advisory services offered through Diversified, LLC.
Diversified is a registered investment adviser, and the registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC.
A copy of Diversified’s current written disclosure brochure which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov.
Diversified, LLC does not provide tax advice and should not be relied upon for purposes of filing taxes, estimating tax liabilities or avoiding any tax or penalty imposed by law. The information provided by Diversified, LLC should not be a substitute for consulting a qualified tax advisor, accountant, or other professional concerning the application of tax law or an individual tax situation.
Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.
related content
-
TJX Stock: Wall Street Stays Bullish After EarningsTJX stock is trading lower Wednesday despite the TJ Maxx owner's beat-and-raise quarter, but analysts aren't worried. Here's why.
-
Beware Three Medicare Open Enrollment ScamsCrooks are perfecting Medicare Open Enrollment scams to try to steal your money or personal information.
-
For a More Secure Retirement, Build in Some 'Safe Money'To solidify your retirement plan, write it down, reduce your market risk and allocate more safe money into your plan for income.
-
Five Steps to a Mindfully Fearless CareerIf, like many women, you're struggling with imposter syndrome, try developing an athlete's winning mindset. It's as simple as facing one small fear every day.
-
Six Ways to Optimize Your Charitable Giving Before Year-EndAs 2024 winds down, right now is the time to look at how you plan to handle your charitable giving. The sooner you start, the more tax-efficient you can be.
-
How Preferred Stocks Can Boost Your Retirement PortfolioHigher yields, priority on dividend payments and the potential for capital appreciation are just three reasons to consider investing in preferred stocks.
-
Structured Settlement Annuity vs Lump-Sum Payout: Which Is Better?As the use of structured settlement annuities grows, it can be tough to decide whether to take the lump sum to invest or opt instead for guaranteed payments.
-
What to Do as Soon as Your Divorce Is FinalDon't delay — getting these tasks accomplished as soon as possible can help you avoid costly consequences.
-
Many Older Adults Lack Financial Security: What Can We Do?Poor financial literacy and a lack of foresight have led to this troubling reality. It's going to take tax policy changes, education and more to address it.
-
Winning Investment Strategy: Be the Tortoise AND the HareConsider treating investing like it's both a marathon and a sprint by taking advantage of the powers of time (the tortoise) and compounding (the hare).
