Planning for a 3,000-Mile Journey (and How We Solved It)
Updated: Apr 4
The struggle with financial planning is the distance between the decision and the outcome.
In technical terms, this is called a feedback loop.
The decision you make today generates a result and becomes the input for the decision you make tomorrow. Every financial decision has a consequence but the time between the decision and the outcome is long – sometimes as much as 30-years. Once that result becomes an input, the situation is galvanized and it is only in hindsight that one says, “If only I had…”
As a runner, I have always been fascinated by the Transcontinental route. This is a 3,067-mile journey running across the entire United States.
Pete Kolsteneck, two-time Badwater 135 winner, holds the record for crossing the United States. He left San Francisco City Hall on September 12, 2016, and just under 43-days later arrived at New York City Hall on October 24, 2016.
The journey was not easy to map out on paper.
There were over 100 pages of directions, and with the help of a 4-person crew, they had a plan. He had to log 67 miles per day at a certain pace with this amount of nutrition and this amount of rest. The playbook was precise, but they knew curveballs would come their way. He battled snowstorms and their support van was totaled in an accident. He still beat the record despite all of these obstacles.
Financial Planning is similar.
The journey is super long. Each day has a routine and is frankly very boring. It is a consistent accumulation of seemingly invisible forward progress. And then massive unexpected (good or bad) events along the journey that must be maximized or overcome.
Financial planning is about setting yourself up for opportunity and protecting yourself against failure.
Why We Built BluePages
In 2012, I was very thankful to know Charles Quinn . At that time, he was the founder and President of Highgroove, and he gave me the confidence that we could turn our menagerie of spreadsheets into a financial planning application.
He paired me up with Andy Lindeman, EA , and in less than a year, they made BluePages a reality. We were not trying to launch rockets. We just wanted a simple app that enabled simulations of realistic outcomes to stress-test the financial decisions we all have to make. We were building financial strength to make that journey. We wanted to make wealth strong.
I am still amazed that 13 years later, financial planning software has not evolved beyond its prediction-based algorithms when they should be using scenario-based hypotheticals.
Run Your Life Like a Business
If we think about financial planning in its simplest form, it is just like a small business. You have income from a skillset that you have honed over the years and command a wage for that expertise. This is your Family Revenue. You have expenses like mortgages, tuition, health insurance, vacations, and lifestyle.
This is called Lifestyle Cash Flow. The more successful you are the more income tax you have to pay. Lifestyle Cash Flow + Your Income Tax = Family Overhead.
Every business needs a profit to survive.
Family Revenue – Family Overhead = Personal Profitability.
Anything below a 10% Personal Profitability puts you at risk, and anything above 15% creates long-term family wealth. That’s it. The foundation of financial planning is that simple.
Once you have a high enough Personal Profitability, you can plan for both good weather and bad accidents. (Note: You don’t have to be rich to have high Personal Profitability. #LeanFire works too.) The next step, and most important step are the simulations.
Financial Planning is a Flight Simulator
The purpose of a financial planner and financial software is to attach an emotional response to a financial decision, so you feel the impact of that decision today, not 30-years from today. Pilots train in flight simulators to encounter situations in a controlled environment so they know what to do and how to react when things don’t go as planned.
The job of a financial planner and financial planning software is to create a realistic hypothetical to test the financial outcomes of our decisions before we make them.
Here’s what BluePages lets you simulate in minutes:
Pay off the mortgage or invest?
More expensive house in better public school district vs. less expensive home that requires private school?
Pay tax today with a Roth 401(k) or take the tax deduction with a traditional 401(k) contribution?
Take the job in NYC or the lower-paying job in Dallas?
What happens to my spouse and kids if I get sick or pass away?
These decisions on the surface are hard to imagine—until you see them clearly explained with a cash flow comparison. That’s what BluePages is for.
And among the most misunderstood yet impactful financial decisions for high-earning employees at publicly traded companies? Deferred compensation.
Deferred Compensation: Where Smart People Still Get It Wrong
Working with highly-paid employees at publicly traded companies for over 30 years, it is one of the most powerful tools available to save a lot of income tax. Sadly, most people don’t participate or if they do, they don’t make the best choice.
How do you decide if you don’t know where you will be in 3-years, 5-years or 30 years? The price of getting it wrong is a tax bill that all but wipes out one of the most beneficial tax benefits for high-earning corporate employees.
We are developing a tool to help people optimize their deferred compensation elections, and we are going to be opening the doors to BluePages. It is something we kept private to only clients of the firm, who will soon be available to help people make better financial decisions.
