I’ve been known to enjoy watching a movie from time to time, and as such, I recently started a Letterboxd account. Letterboxd is an app that allows you to track the movies you watch, give ratings, write reviews, and create a watchlist for movies you want to see. Since getting the app about a month ago, after every movie I take a few minutes to give it a 1 through 5-star rating and jot down a little review.
A few Saturdays ago I was hanging around the house and decided to flip open Netflix to see if there was anything that caught my eye. The featured movie at the top of the screen was the 2011 classic Transformers: Dark of the Moon. I couldn’t remember anything about this movie other than it being the third installment in the Shia LeBeouf Transformers series, so I gave it a shot.
As I opened the app to give it a rating after it ended, I was conflicted. The plot really doesn’t make sense, the pacing is disjointed, and there was just a lot of Shia Lebeouf screaming in danger. Yet at the same time… I had a blast watching it. Each action sequence was more ridiculous than the one that came before and I was enthralled. I couldn’t wait to see what came next.
Was this a perfect movie? No.
Was it a good movie? Not really.
But it was very entertaining and it worked for me on that Saturday afternoon. The movie did its job.
I realize I may be grasping at straws here and this analogy may not make sense, but I had the thought as I was writing my review that an imperfect yet entertaining movie can be applied to our personal finances.
You don’t need a perfect financial plan in order for it to be effective.
There are people who spend so much time and effort in search of the best investment that will generate 1% better returns each year. They’ll move from high-yield savings account to high-yield savings account for a 0.02% higher annual yield on their cash. They search high and low for a hint of tax deduction. They have a massive, detailed excel spreadsheet with exact dollar amounts of what they need to save with precise investment return expectations to be able to retire by a specific age.
The issue with trying to be exactly precise is you’re going to be wrong. It’s impossible to make a perfect financial plan. To do so you’d have to be able to perfectly predict the future and unfortunately, I don’t think anyone has quite figured out how to do that yet.
You would need to know which asset class or business is going to outperform the rest over the next 30 years, future tax rates and government regulations, what inflation will be, your exact lifetime earnings, and so on.
But even if you could get all of the numbers right, what might be more difficult to predict is how you’ll change over time. Most people’s beliefs, values, and preferences change as they age. How can you know for sure what you’ll want to do 30 years from now? Or who knows what curveballs life will throw at you?
Oftentimes the quest for exactness can hinder progress—which is the key to building wealth.
But the good news is you don’t need to be optimizing for every last dollar to have financial success. A “good enough” plan sustained for a long period of time can lead to extraordinary results. The best financial plan is the one you can stick with.
“Most financial mistakes come when you try to force things to happen faster than is required. Compounding doesn’t like when you try to use a cheat code.
Most people can afford to not be a great investor but they can’t afford to be a bad one.” — Morgan Housel
Simplicity and consistency tend to trump complexity and intensity.
Just as a movie doesn’t need to be critically acclaimed to be enjoyable and entertaining, you don’t need a perfect financial plan with exact details. What you really need is progress toward a general objective with permission to pivot and change along the way.
Thanks for reading!