You’re thinking about “financial security” the wrong way

“Nah, I’m going to wait a year.”

Every winter, my hedge fund manager friend stares at a new set of golf clubs, almost buys them, and then punts until the following year. Why? His three kids are self-sufficient adults, his fund’s doing well, and he’s not a big spender. But he’s got a nagging fear. A fear that one day he’ll be broke. And so, the golf clubs will have to wait. He’s waiting to reach an elusive goal: financial security.

Having spent 15 years on Wall Street, I’ve grown accustomed to these successful folks who are “bracing” for their worlds to come crashing down. They’re smart, humble, and often from modest roots. They believe in “The Number,” a mythical amount in their bank account where they can stop worrying. But The Number never arrives.

Money messes with our minds

Money is notorious for causing smart and rational people to make questionable decisions. Let’s start with the definition of financial security. We’d probably agree that it means the ability for you (and your family) to acquire shelter, food, clothing, and healthcare. Or more bluntly, to survive — no one wants to put themselves and loved ones in danger.

Think about the word survival. As I type it, my palms are getting sweaty and my heart rate is increasing. Survival triggers our threat-detection response,which has done wonders for us as a species from an evolutionary perspective, but may have outlived its usefulness in our modern society.

Think about your last major screw up at work. Did you think that you might get fired? Did you feel like your survival was at risk?

One of the benefits of modern society is that covering your basic needs is a pretty low bar. I’m going to go out on a limb and say that if push came to shove, many RadReaders’ survival would not be at risk.

I know what you’re thinking “Well, what if I got fired? I could end up broke and on the street.” That’s probably unlikely. Many of us could move into our parents’ places; or we could significantly downsize our homes/expenditures, and get a job that provided health insurance. Many of those things sound unappealing. Moving in with mom and dad at 38 is not particularly crushing it. But it does meet the minimum threshold of our “ability to acquire shelter, food, clothing, and healthcare.”

Why’s this so confusing? Besides the fact that our threat-detection reflex impairs decision-making, we often confuse financial security and what I’ll call a life well lived.

Untangling two very different questions (and utility functions)

So what does a life well lived consist of? For starters, it probably doesn’t include living with your parents. It may include where you “rank” relative to your college roommates. And it could include luxuries such as a car, vacations, and cocktails. Living a life well lived is a legit aspiration (and quite possibly, life’s sole purpose) but it is absolutely critical to separate it from financial security. “Am I financially secure” and “am I living a good life” are two very different questions (with different utility functions).

To further complicate things, lets add a gray area between the two — the Messy Middle (of Meaning). Society’s default mode for a life well lived is often simply reduced to fame, status, and money. But in the Messy Middle you find a lot of the new-age woowoo: meaning, freedom, health, lack of stress, relationships, learning, hobbies, sleep, liking your coworkers, et cetera, et cetera.

Herein lies the conundrum, the perceived trade-off between the Messy Middleand a life well lived. For example, if you want to make the income of an investment banker, you probably have to sacrifice sleep. And here’s where over-indexing your “financial security” kicks in.

What trade-off are you prepared to make?

Let’s say that in your core, you want to attempt to write the next great American novel (thus optimizing for meaning). You probably would sacrifice income to do so. But your “financial security” is not at risk. You could live with your parents for a while or move to a shoebox apartment in a non-gentrified neighborhood and drive an Uber part time. That may impact another component, status (and by extension, your dating life) but you probably wouldn’t not be without shelter. Here are a few trade-offs that people make:

  • Optimize for learning, at expense of status (by joining a little-known company, with a great management team)
  • Optimize for peace of mind, by joining a company that doesn’t e-mail on the weekend
  • Optimize for “lifestyle” (i.e. picking kids up for school), at expense of inflexible (i.e. lots of travel) roles

1+1 = 3

But there’s more. These are not always zero-sum trade-offs (aka “abundance”). There are some high-growth companies that prioritize employee well-being. With remote work, you can truly live anywhere and access employment reserved to big, expensive cities. Every intense company/industry has amazing mentors/teachers (they may just be harder to find). And there are more and more companies pursuing a mission AND make a lot of money.

Reapplying the framework

So we now have an expanded toolkit: A true understanding of Financial Security, additional levers to pull in a life well lived and a key insight, that the trade-offs are always zero-sum.

When I left my career on Wall Street, by objective measures I had a lot of financial security and this enabled me to jump into the unknown. But each time I contemplated my bank account it would always invoke my own threat detection. This kept me from knowing the existence of the Messy Middle an in fact, when I left, my decision was actually based on maximizing extreme wealth.

But with time and a lot of uncomfortable introspection, I began to be more explicit in our family’s definition of a life well lived and gained an understanding of what the Messy Middle meant to us. And don’t get me wrong, in the past 2.5 years, there have been many times when we tested the (old definition) of financial security, (such as when our COBRA ended or the leveling up of spending that came with having a second kid). But when you spend some time poking around the Messy Middle, you realize two things. First, it ain’t that messy. Second, Meaning may emerge.

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