When I first launched Deane Financial, my vision was to help Millennials in tech to be smart with their money and navigate the world of equity compensation. I admit that as a young entrepreneur, I was quickly swept up in the industry rhetoric of “grow or die” and convinced myself that I wanted to build an enterprise-level RIA. Soon enough, I realized that I had completely misread my preferences. I simply didn’t dig deep enough.
These days, I’ve identified with the idea of being the best at what I do, as opposed to the size of the firm. I want Deane Financial to be nimble and specialized. I want to have a personal relationship with everyone I work with because this is a company that I want to run for decades. Had I not taken the time to A/B test my genuine preferences, my personal values would clash with those of my business.
A/B test your financial life
Being misaligned with our true desires can have enormous implications for our financial lives. We might think we want an early retirement, or that we prefer active investing over passive investing. But, if we don’t test these assumptions, we’ll never know our sincere preferences — with potentially significant financial consequences.
Without getting into the weeds, A/B testing is a method of comparing two versions of a product against each other to determine which one performs better. Similar to software, we can use A/B tests to study our individual preferences, especially as they pertain to our financial decision-making. With the hope of encouraging you to A/B test your financial life, I’ve put together a few scenarios that can be useful to identify your genuine preferences.
Having a goal vs. Having a financial plan
Goals and plans are not synonymous. Similarly, setting a goal holds little to no value without a plan. Hopefully, this isn’t news to you. For me, a goal is only the tip of the iceberg, as it’s merely an end measure. Knowing where you are now and where you want to be is a good start. But without having a comprehensive plan in place — the steps you need to take to get from point A to point B — all you have is a dream.
On the other hand, financial planning isn’t a destination; it’s an ongoing process. Similar to iterating and agile development — it involves agile planning, evolutionary development, continual improvement, and encourages rapid and flexible responses to changes in life. Sound familiar? Mainly, financial planning is about three key things: finding out where you stand financially, getting proximate to your core desires and goals, and creating a plan to achieve those goals.
This year, I’m working on not being tied to company goals and outcomes, but instead staying diligent and consistent with my habits and systems. It’s the best decision I’ve made so far, besides launching The Equity Shop, of course. The way I see it, if I’m setting random milestones, or even worse, adopting the goals of competing firms, I’m not setting myself up to win. Instead, I’m fine-tuning my system with the potential to set me up for long-term success.
Spoiler alert: if you don’t have a strong “why,” the “how” is going to be extremely challenging to overcome.
Thinking about retirement vs. financial independence
In my years as a financial advisor, I’ve learned that one of the most important decisions people will make is the timing of their retirement. Believe it or not, your perspective on retirement plays a significant role as well. My dad had a pretty tough time understanding why I would start a business rather than climb the corporate ladder and retire with great benefits. We eventually chalked it to up to a difference of opinion.
My perspective on retirement is quite different than my dad’s. Instead of choosing to build wealth through a professional career, my approach is to build wealth through entrepreneurship. The earnings that Kem and I save aren’t for retirement per se. It’s more aligned with our goal of financial independence. I’m grateful that I’ve found my calling. And so, I’m in this game for the long run. For me, I find purpose in being a financial guide for Millennials in tech who are working to live fulfilling lives. Eventually, my dad came around and saw things from my point of view. Now, he comes home from work, excited to talk about his 401(k) and retirement goals.
Just to be clear, this doesn’t mean that I’m in support of the FIRE movement. It’s not that I don’t think it can work; it just takes numerous outliers to be proven a sustainable strategy. For what it’s worth, the idea is mediocre at best. Rather than adhering to multiple constraints only to potentially still run out of money, imagine what it would be like to simply take a two-year sabbatical to do the things that bring you joy.
Monitoring your portfolio more vs. less frequently
Technology has made it seamless for investors to access real-time investing performance. However, research suggests that more frequent updates are likely to make investors obsess over short-term losses. That is to say; this emotional response can lead to buying investments at market highs and selling at lows — a recipe for underperformance.
Conduct an A/B test on your financial life and record how these new habits emotionally impact you. Condition A could involve checking your investments multiple times a day on a mobile app. How do you feel? Does it affect your mood or the outlook of your future? Conversely, the condition B could involve checking your investment performance annually using paper account statements. Does less feedback make you less stressed? Or are you missing out on pertinent information? If it helps, create a journal. Perhaps this is useful data for identifying your relationship with money.
Timing the market vs. systematic investing
Unless you have a crystal ball and can predict stock market activity, there’s no reason you should attempt to time the market. Even the best active managers fail to beat market returns consistently. I’ve repeated this time and time — nothing does the job like dollar-cost averaging. It’s a sure proof way to build wealth slowly by prudent investing. While diversification does not guarantee a profit or protect against loss in a declining market, it can help smooth out volatility, so don’t chase performance. Remember, investing isn’t the goal; we invest for your goals.
Instead of trying to pick the next hot stock, you should stay invested in a globally diversified portfolio specifically customized for your situation and goals. Those who display faith, focus on their goals, and ignore the noise, will see it through. Long-term thinking is a superpower, and you will come out on top.
Spending on material things vs. experiences
If there’s one thing I find annoying, it’s those financial pundits who shame Millennials into thinking every purchase is a poor decision. They find it easier to say “no” than trying to understand our unique needs and circumstances to help us make the best financial decisions. In my advisory firm, one of my priority goals is assisting clients in finding a balance between enjoying experiences now vs. delayed gratification. I’ll admit it’s not easy.
When you’re on the grind, and there’s only so much money left after your regular savings and expenses, you have to ensure it’s well spent. I suggest spending it on the experiences that will make you happy. Experiences become a part of our identity. We are not our possessions, but we are the accumulation of everything we’ve seen, the things we’ve done, and the places we’ve been.
Similarly, if you’re going to spend money on a material item, try to link the purchase to an accomplishment, so it holds sentimental value. As for me, I have a few goals of my own that are within reach, along with an online shopping cart with a Movado watch and podcast equipment.
DIY vs. Hiring a financial planner
With the technology available today, most Millennials can be DIY investors through most of their accumulation phase. If you have a simple tax situation, can control your behavior, and is prudent with financial planning, a generalist adviser adds cost while adding little to no value.
Personal finance is full of one size fits all rules and oversimplifications. Unfortunately, these rules don’t always work. The reality is that many people either can’t or won’t manage their money competently. Believe me, this stuff requires a ton of time and pristine attention to detail.
“Wild success requires aggressive elimination. You can’t be great at everything”.
– James Clear
To be more productive and successful, you should be looking for someone you trust to serve as your financial guide. Think of us as an accountability partner. And because life happens, we can also help you make any changes to your plan along the way. Even better, we can design a plan in a way that prepares you for turbulent moments and provides the comfort desired to weather the storm.
At the very least, interviewing financial planners can provide reassurance that they’re legitimately worth the extra money. The good ones, at least. And by good, I mean those you vibe with and possess the specialized knowledge needed to address your specific pain points as a Millennial in tech 😉