Everyone survived Thanksgiving

This past Thanksgiving, my parents hosted my boyfriend’s parents.  Nobody died, and nobody tried to kill themselves or anyone else, so it was a success.  All joking aside, it was a lovely evening.  After some ill-attempted guitar playing (my dad’s repertoire of American song consists of ‘I Will Survive’, The Beatles, and not much else), we played some friendly yet intense rounds of Associations.  The game is straightforward: you pair up, and one partner attempts to give hints to the other in order to guess a word, by using associations.  So for instance, if the word is ‘dog’, you could give the clue ‘cat’, or be clever by anticipating your partner’s associations.  Inevitably, there were frustrations (my hint ‘shiny’ was met with the guess ‘ring’ instead of ‘chandelier’ which is clearly the more obvious answer, my dad outsmarted himself and everyone else with one of his words, etc).

The craziest part is that if you know the word, the hints make absolute sense and seem completely obvious.  If you’re unaware, it can be really hard to grasp what the common thread is.  This makes me think of money (of course) because lately it’s become obvious to me that saving a lot (such as with the goal of being financially independent), and generally being smart and resourceful with your money is attained through a state of mind, not by keeping a budget or meticulously following a set of rules.  Like with other lifestyle changes, such as diets or formal education, you can provide someone with all the information they need, or with all of the resources and advantages of life, yet nobody changes their diet to be more healthful, or focuses their academic interests, unless they want to.

For some people, money is a source of terror and stress.  It doesn’t make sense that people who are short on money or dealing with large bills tend to avoid looking at statements, right?  Yet that happens all the time.  Money is such an emotional topic that it’s probably a large endeavor for people to train their brain to process finances differently.  So it really feels like a successful book or blog is the one giving you an ‘aha’ moment where you realize you’ve been operating under not entirely sane assumptions, or else disregarding some significant component for achieving financial goals.  I love when my brain goes through such shocks.

Here’s some math that I’ve heard before, but suddenly understand better than ever before.  Basically, the amount of money you need when you retire is correlated with how much you spend, rather than how much you earn.  Let’s also assume that at a 4% withdrawal rate per year, you can take from your invested money with a high probability of not running out of money (while you take money out, it also grows through investments).  If you have a robust saving’s rate of 70%, you need 30%/.04, or 750% of your yearly spending, which would take you about 10.7 years to save (given your current rate, without considering compound interest).  But the crazy thing is that if you’re saving 60% instead, it’d take you 16.6 year to be in the same position – relatively confident the money will last you.  This is totally nuts.  I love nerding out on calculations like this.  To me this can be way more powerful than the mushy advice or patronizing suggestions in personal finance books.

Anyone else find this information alarming and amazing?  On another note, the hardest word I’ve ever played in Associations is ‘whiplash’.  Surprisingly hard to describe – it’s a precise word lacking synonyms.