Whether consciously or subconsciously, methodically or haphazardly, we are all in a constant state of expectation-setting. We set expectations for ourselves, our spouses, our friends, and our co-workers. We set professional expectations, social expectations, financial expectations, fitness expectations. If you’re like me, you wake up and expect your morning to follow a certain routine, and then your workday, and then your evening. You expect your spouse to treat you with love (and often forbearance), your co-workers to be responsible and respectful, and your 4-year-old to listen to at least 25% of the things you ask him to do. You expect to work for a period of years, support your family, save, and eventually retire. Et cetera, et cetera, et cetera.
As Dickens points out in A Tale of Two Cities, how we set all these various expectations is critical. This is because our prosperity (you could substitute the term “prosperity” with happiness or flourishing) largely depends upon reality meeting or exceeding our expectations. By contrast, when reality falls short of our expectations, it is exceedingly difficult to prosper, and much easier to become upset, or worse, embittered.
My professional mission is to help my clients prosper. Helping them manage their money is an obvious component, but even more important is helping them manage their expectations. Like Charles Darnay, clients who embark on their financial planning journey with realistic expectations tend to prosper, whereas clients who expect to “walk on pavements of gold” and “lie on beds of roses,” as it were, tend to be less satisfied with their real-world outcomes.
Allow me to cite a few specific examples:
- Retirement. Most people only retire once, which means that when they do, it's not something they've experienced firsthand. Furthermore, most people only want to retire once, and they want to make the most of it. With these things in mind, setting realistic expectations for retirement is crucial. This includes framing a typical retirement lifecycle (e.g. higher activity levels, and higher real spending levels, early in retirement, gradually lessening as they age), the financial risks that retirees face (e.g. sequence of returns risk, longevity risk, and failing to meet their cash need), and more qualitative topics such as finding purpose and community after your professional career has ended. Retirement can be a wonderful phase of life, but only if you don’t expect too much from it (or from your portfolio).
- Selling a business. Many of the same considerations that apply to retirement apply here, too. However, there are a few unique aspects that can make the sale of a business far better or worse, depending on how you set your expectations. If you expect to sell your business for a certain amount but fail to plan far enough in advance, that failure to plan can have a devastating impact on what you walk away with (due to a lower valuation, higher taxes, or both). Since many successful business owners are self-made, the transition from business owner to “wealth owner” comes with a whole host of challenges and life adjustments. The sense of purpose and responsibility that comes with building and running a successful company can be hard to replace. You might struggle with competing impulses to take care of your children while at the same time not wanting them to feel entitled or unmotivated. Your personal financial situation will likely become more complex (infused with various entities and advanced planning strategies), and typically involves relinquishing control over some of your assets. All of these elements must not only be planned for, but also explicitly framed so that you don’t fall into the trap of expecting everything to be easier with plenty of cash and no company to run.
- Inheriting Wealth. Like selling a business, the best way to prepare for an inheritance is to plan far in advance. The smoothest, most seamless transfers of wealth tend to occur when the older and younger generations have engaged in open communication and put in the time to understand the planning strategies that their attorneys, accountants, and advisors have implemented. When the younger generation has no idea what’s coming to them, or how their parents’ estate will be administered, all sorts of complications can arise (e.g. rancor among siblings, litigation, irresponsible behavior, etc.). On the other hand, when wealth transfer is discussed openly and the younger generation knows approximately how much they will receive, the form in which they will receive it, and how to effectively manage it, the outcomes tend to be much more favorable.
Prosperity is a multivariable equation. In this article, I’ve briefly addressed how expectations can influence our well-being, and how the human dynamics surrounding material wealth factor into the math. I’ll leave you with two final takeaways from A Tale of Two Cities.
The first is from the lines I quoted at the outset of this article: that Charles Darnay expected to work hard, and made the best of his circumstances. Practically everything worthwhile in life (career, family, finances, faith, etc.) involves effort and work. It’s up to each of us to make the best of that work and to approach it with a positive mindset.
The second is that, in Dickens’s novel, the happiest, most prosperous characters are not the wealthy aristocrats, whose lives are consumed by vacuous ceremonies, vanity,and empty flattery (and later, the Guillotine). Rather, the central scene of prosperity is a modest house in London, containing a loving home, rich relationships, and an industrious spirit. Dickens reminds us that, when it comes to setting expectations, fulfillment is less likely to be found in financial success than in friendship.
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