4 ms·

One thing I've always struggled with in these "financial planning" products is how to make the numbers make sense on a gut level. My problem is that, after doin

by g_sch 5y ago

One thing I've always struggled with in these "financial planning" products is how to make the numbers make sense on a gut level. My problem is that, after doing some level of "taking charge of my finances" to make a savings/investment plan, it still feels like I'm treading water and barely making any progress toward my goals. Yet when I plug my numbers into any financial planning app (including this one), they inevitably not only tell me that I'm going to be a millionaire when I retire, but also that I'll have tons of money within just a couple years. This usually makes me reflexively dismiss their conclusions. I realize that part of the problem is that it's hard for my brain to extrapolate a few months of observations into a decades-long trendline, but I really would love to see a product that helps my brain bridge the gap between my own perception and the big money chart.

hirako2000 5y ago
Yes. And these tools will always provide significantly inacurate forecasts, I think, because 1/ it is hard for humans to predict their spending habits, since spending often increase proportionally to income, and not just inflation. 2/ most people have a very different path ahead of them, along with so many unknowns in the equation. That's probably why people serious about their money consult a professional, who has hopefully historical data at hand and in his head, who produces a forecast, each year, that is very tailored to the person, the person's personality, habits, job industry and many other important factors that a financial planer coded with if and else, avg and linear projection etc can't match. Maybe machine learning can get decent results of training properly on very good data sets. And about most planners showing we will be millionaire in a few years, I'm tempted to say it's for the exact same reason demo data and screenshots for a CRM or analytics system always tend to display over optimist income/sales.
sgtnoodle 5y ago
My entirely speculative guess is that the discrepancy is in human behavior that's not modeled. The tools assume the money is invested in a timely manner, but in reality folk procrastinate and their saving spend arbitrary months / years sitting around in low interest rate accounts. My first 5 years of full time employment with a salary, I was making enough to live comfortably and contribute to a 401K, and finances and investing aren't inherently interesting to me, so I didn't really think too much about the money accumulating in my savings account. The money definitely lost value over those 5 years because of inflation. I finally figured out how to put money into ETFs, and 5 years later that same amount of money has at least doubled in value. A lot of that probably has to do with the economy being crazy, but I suspect I missed out on a lot of compound growth not investing those savings initially. That is to say, my savings over time didn't look like a "PERT" plot until I took concrete steps (and the associated risks) to invest in the market. Not to say that sitting on money or being slow to invest in higher growth accounts is good or bad. There's risk and everyone has their own personal risk tolerance, and diversification is important. If all you have is $5000, dumping it all into the stock market would seem pretty risky and perhaps foolish. That $5000 sitting in a checking or savings account is losing value over time rather than growing, though. I suppose that could be another example of it being easier to live frugally when you have money, i.e. buying a $100 pair vs. $20 pair of work boots. On the other hand, many folk with very little savings still seem to find a way to buy luxuries like iphones and vacations. In addition to luck, personal discipline and sacrifice must factor in to some degree when it comes to achieving a financial goal.

by g_sch 5y ago

hirako2000 5y ago

Yes. And these tools will always provide significantly inacurate forecasts, I think, because 1/ it is hard for humans to predict their spending habits, since spending often increase proportionally to income, and not just inflation. 2/ most people have a very different path ahead of them, along with so many unknowns in the equation. That's probably why people serious about their money consult a professional, who has hopefully historical data at hand and in his head, who produces a forecast, each year, that is very tailored to the person, the person's personality, habits, job industry and many other important factors that a financial planer coded with if and else, avg and linear projection etc can't match. Maybe machine learning can get decent results of training properly on very good data sets. And about most planners showing we will be millionaire in a few years, I'm tempted to say it's for the exact same reason demo data and screenshots for a CRM or analytics system always tend to display over optimist income/sales.

sgtnoodle 5y ago

My entirely speculative guess is that the discrepancy is in human behavior that's not modeled. The tools assume the money is invested in a timely manner, but in reality folk procrastinate and their saving spend arbitrary months / years sitting around in low interest rate accounts. My first 5 years of full time employment with a salary, I was making enough to live comfortably and contribute to a 401K, and finances and investing aren't inherently interesting to me, so I didn't really think too much about the money accumulating in my savings account. The money definitely lost value over those 5 years because of inflation. I finally figured out how to put money into ETFs, and 5 years later that same amount of money has at least doubled in value. A lot of that probably has to do with the economy being crazy, but I suspect I missed out on a lot of compound growth not investing those savings initially. That is to say, my savings over time didn't look like a "PERT" plot until I took concrete steps (and the associated risks) to invest in the market. Not to say that sitting on money or being slow to invest in higher growth accounts is good or bad. There's risk and everyone has their own personal risk tolerance, and diversification is important. If all you have is $5000, dumping it all into the stock market would seem pretty risky and perhaps foolish. That $5000 sitting in a checking or savings account is losing value over time rather than growing, though. I suppose that could be another example of it being easier to live frugally when you have money, i.e. buying a $100 pair vs. $20 pair of work boots. On the other hand, many folk with very little savings still seem to find a way to buy luxuries like iphones and vacations. In addition to luck, personal discipline and sacrifice must factor in to some degree when it comes to achieving a financial goal.