Are You Financially Functional?


Alexander Cortes Tweeted out about the need to be able to "perform basic bodyweight movements like squats, lunges, dips, pullups, pushups, situps..." He has a lot of good info related to working out. Being able to do the movements he mentions relate to basic functionality. I've become a big fan of the word healthspan of late. Quite simply, it means being able bodied enough to do basic life tasks for as long as possible but I also think of it in terms of being able to do the things that interest you for as long as possible. For whatever reason, when I think of the word healthspan I picture someone being able to bend down to pick up their grandchild or great-grandchild--it involves squatting and lifting a little bit of weight.

This morning we went on our Sunday morning hike with our friend Judy. We've been hiking on Sunday with Judy since about 2003. We usually hike on one of two trails one of which is five miles and the other one is just shy of seven. Today we did the seven miler to celebrate Judy's... 75th birthday. I often talk about Prescott being a place for successful aging and Judy is just one of countless examples (including the 78 year old dude at my gym who decline benches 500 pounds). I have no idea if Judy's success is more about genetics or behavior but it doesn't matter, she has always exercised and is a success for it. She is also functional in that she has the stamina for a side hustle that supplements her income.

The picture accompanying this post is on the Switchback Trail up to Klahhane Ridge at Olympic National Park. We love to go to National Parks to look at neat stuff and go on challenging hikes (sometimes you need to hike to the neat stuff). The Switchback Trail is very challenging and I would I hope I could continue to hike it or trails like it for a very long time. Some portion of this blog's audience probably likes doing similar things. Going out on a limb, you'd probably like to continue to be able to hike for the rest of your life.

If you accept the premise underlying Alexander's Tweet that there are certain things we need to be able to do physically, then there are also things, very basic things, that we need to do financially, financial tasks that are just as elemental as being able to do some push ups and air squats. While these things aren't new ideas, it is quite clear that many people have not done them.

First is some sort of emergency fund. You'll find plenty of content to tell you how much but I think everyone is different in this regard. There is a psychological aspect, is there a cushion that makes you feel secure? Your answer is relevant. Is there visibility for you to have to bail out or otherwise help a family member financially? We've done that a couple of times over the years. It'd probably better to not have to take a HELOC in order to do that.

Kind of related for people over 50, if you had to retire now due to unexpected job loss, could you? Do you have enough retirement savings to make it until you can collect Social Security? This is pretty much a close to worst case scenario whereby you're unexpectedly out of work and not able to replace the job with a similar income. In that light, are you far enough along with your retirement planning where a side hustle or two can fill the gaps or a job with a significantly lower salary can get you buy? I think this is an important one to know you're vulnerability so that you can avoid being caught totally offguard if it happens.

An easy way to address the above scenario is another fundamental thing we can do which is live below our means. It's better to figure this out early on but it is never too late to stop upgrading your vehicle and spend less money buying stuff.

We all need to save money aggressively for retirement. I appreciate there is a balance between not sacrificing the present for a future that might never come (harsh possibility). First, is that if you live below your means you can do both; save aggressively and do whatever interests you. Saving aggressively gives the future you a lot more optionality. I allude to this above, being in your 50's and unexpectedly out of a job. If you're just about able to retire at 55 and then find yourself out of work, you have the optionality to look for work or not which is far better than having your hand forced into a job you know you'll dislike.

Have an investment portfolio you understand. This is more important for do-it-yourselfers as opposed to people to delegate the task. I am a huge fan of learning about funds with sophisticated strategies, I have used some of them for clients over the years and have written about this regularly. No one can understand the strategy underlying every sophisticated fund, that's not a big deal. What is a big deal is owning a fund whose strategy you don't understand. Perhaps the inverse VIX funds are a decent example here given how the blew up in early 2018 in what Bloomberg's Eric Balchunas dubbed as VIXmageddon.

Costs matter as in the expense ratios of the funds you use or the costs embedded in your 401k. There's plenty of content to tell you about this, so I would add to be well-read enough to understand when costs don't matter, more specifically what I mean is understand when costs should not be the top priority. If you're going to have a core position around a large cap or total market, domestic equity fund, then yes, figure out the cheapest way in your circumstance to own that exposure. If you're then going to incorporate some sort of fund to help manage volatility, it might make more sense to pick what you think is the best strategy even if it is more expensive. If you want a narrow exposure like marijuana, I believe there are now four ETFs out there to chose from with more coming, it is important to understand the differences. They all have different methodologies. For anyone interested, I would suggest looking at all of them and picking what you think is the best strategy regardless of the expense.

Two other things not to skimp on are real food and your feet (shoes and socks).