#19: What's your number?

25th January, 2021

Welcome to the Idiot Money newsletter. The newsletter that tells you numbers are numbing.

This week: becoming wiser with money by understanding that if your destination is a number, you’re probably a prisoner.

I’d like you to meet Nigel. Nigel was an awkward, miserable, client. The sort of smart-arse pernickety type that made my boss hunt for excuses to not see him. For most financial advisers of the ex-insurance salesmen variety, clients that ask questions are the worst part of the job.

Nigel’s business, which seemed to cause him nothing but grief, and which he stuck with more because he’d built it than because he liked it, was looking like it could be sold.

‘So how much would be enough?’ my boss asked. ‘How much would be enough to do whatever you felt like for the rest of your life?’

‘£2.5 million,’ Nigel rushed back, clearly having calculated it already.

Fast forward six months. Nigel’s back. He’s brought his wife with him, albeit it looks like this was not his choice. He’s sold his business.

‘So how much did you get?’

‘£10 million.’

We’ll see how Nigel’s story ends in a second. The point I’d like to focus on now is the calculation.

How did Nigel come up with £2.5m? He was only 40-something. He’d only really been making adult decisions about money for 20 years, and had dedicated most of those to something he didn’t like all that much and was now potentially not going to be doing. And he was not going to be doing it for maybe another 60 years. There’s a lot of uncertainty in there, before even making any assumptions about inflation, investment growth, or tax rates. And yet he was certain what his ‘number’ was.

A lot of people are.

Some even get competitive about it, apparently believing saying something like ‘Oh no, my number’s much higher – I’m thinking £50m’ makes them sound like anything other than a miserable idiot.

Whether it’s a total asset value, or an income (usually a naively pre-tax one), or even a total asset value ‘calculated’ by multiplying a desired income by 25 because you heard something about a ‘safe withdrawal rate’ of 4% once, most people have an oddly accurate idea of what their ‘number’ is.

I did.

When I was about 25, I was pretty sure how much I ‘needed’. I was also jolly proud of myself for how modest it was. Reader, it wasn’t that modest.

25! I’d been doing my first proper job for less than two years and was doing it precisely because it was the sort of job that kept my options open. When asked upon joining to write a note to ourselves in five years’ time, while everyone else scribbled great essays about titles, and salaries and whatnot, I wrote one word: ‘oops’. No way would I still be there in five years to get that note back! (I left after five years and two days, but to do much the same thing.)

I was so sure of the uncertainty ahead, and yet at the same time ‘knew’ what my number – the cost of dealing with that uncertainty for a lifetime – was, almost to the penny.

But falling prey to the end-of-history illusion – the idea that much as we may have changed before, who we are now is pretty much who we’ll be forever more – isn’t even the dumbest part.

One beautiful bonus of working with those that have accumulated vast wealth is (assuming you’re paying attention to how well it’s worked out for them) it robs you of the idiotic notion that there is a ‘number’, and, by extension, that it should therefore be the focus of your daily endeavours. Idle speculation and calculating certainty out of its opposite is one thing, but blind fixation on an arbitrary and ultimately irrelevant number is quite another.

In case new or negligent readers need reminding, the value of money in our lives is always about the narrative, never the number.

These calculations come so easily because they’re not calculations. They’re stories. ‘Needing’ 20k or 200k a year isn’t because you’ve worked out that’s actually what you need to flourish (aka how needy you are). It’s a slightly less socially obnoxious way of parading how you value life in terms of money – and in every case, high or low, showing that you do, indeed, value life in terms of money.

Challenge anyone on this, and few will admit that yes, they would become a much better person if they won the lottery or moved from earning five figures to six, but we act like it all the same. We are agonisingly self-deceived.

But as long as we’re not actually psychopaths, these self-deceptions can be shifted. All Nigel needed to do so was a nudge from his wife.

‘Wow. Congratulations,’ my boss said on hearing the £10 million offer. ‘So is that it? Have you left yet, or are you still winding down?’

Nigel’s wife smiled. Or rather smirked.

‘No, no. I’m staying on, actually,’ said Nigel. ‘I’ve an earn-out deal that means if I stay for another five years, albeit without a salary – I could get another £15 million.’

Nigel had no plans for this extra money, of course. He’d already got four times as much as his ‘enough to do anything’ sum. In his hunt for justification, he did not say anything about what he’d do with the money, for himself, or others. Instead he bumbled out some noises about stewarding the business, and ‘being there’ for his team. After none of these survived an interrogation that never progressed beyond a gentle tickling, my boss was moved to suggest that whatever message Nigel was struggling to send, the one being received was that Nigel was choosing to spend his time with his colleagues rather than with his wife and two young children.

His wife agreed.

Nigel wasn’t really choosing this, of course. But when a brain wired by a lifetime of unhelpful messages about money met a great big sack of it, he saw only numbers, blind to their more important narrative consequences. Through the narrow lens of ’20 years to make £10 million, and only five more to make another 15!’ there was only one choice. His wife, however, could see other choices more clearly. Ones that would undoubtedly enrich their lives in ways extra money could not.

In the end, Nigel walked away from the job. He still sends my old boss a card every year to thank him for the tickles.

(We’ll look another time at the argument that in the face of such uncertainty, the safe play is to hoard as much as humanly possible, ‘just in case’.)

Money Maxim of the Week

This week: Trigger #21: Just in case

Train to hear these words and phrases as you do you own name across a crowded room, then stop and check that the belief underlying your automatic reaction is true.

The trouble with phrases well-loved by parents, like ‘better safe than sorry’, is that they get so unquestionably embedded from such a young age that it becomes very difficult to keep them to situations befitting of their pithy wisdom. There are people out there with ‘rainy day’ funds big enough to survive a Biblical flood who still panic about making ends meet. Others clutter their cupboards with more ‘on the off-chance’ stuff than stuff that actually makes them smile. Don’t be one of those people.

Living only ever happens in the here and now. Living that happens in the future is only a dream, inspired by nightmare thoughts of ‘just in case’ or ‘better safe than sorry’. Much of financial planning is about seeking security. Yet poorly done it is more often the security of a stagnant pond, not a beautiful waterfall.

Money worries come from viewing money in a non-natural way, focusing not on the stability of one’s ability to be rewarded with it for the value one provides to the world, but on what would happen if one lost what they had – which leads, inevitably, to believing that one can never have enough.