If You Can’t Measure It, You Can’t Change It

Estimated Reading Time: 9 minutes

We no longer have opinions, we have data

There is a saying we use around my company. We no longer have opinions, we have data. Even if you haven’t been paying attention, in today’s world data is pretty much king and the vast majority of people hand it over unknowingly. Truth be told that is a little scary. Data is power in today’s world. How you ask? Well, for one thing it can identify purchasing habits and since everyone is a consumer people marketing to us in possession of such tools have a leg up. They might know what we want before we even realize it. Imagine being able to craft a product to sell that people will buy before they even know they want it.  Cost of acquisition and development decrease. Margins increase. The big corporations become richer while the middle class becomes more ingrained to the big machine. When it comes to my finances I let Personal Capital do the heavy lifting for me.

Do you think it is coincidence that loyalty programs exist and suddenly target you products you purchase or might purchase? By promising value and deals by signing up for their card they track your purchases and spending habits. They occasionally offer discounts but are able to manage their yield by not offering discounts on things they know you need. If they get this formula correct on the demand curve they have raised their profits. Now, the savvy shopper will use multiple stores to spread out their data enabling them to pick and choosing the best deals. Essentially cherry picking. But they are smart. They will offer you a deal to real you back in. And the cycle continues. It isn’t ironic that I get a Starbucks “star dash” offer in my inbox for one of the handful of things my family purchases out of a very extensive menu after I haven’t been there in a while. No chai latte offer has ever appeared but a lot of mocha and americano’s have. Get the point?

This dynamic continues in a lot of facets. The evolution of Facebook should be evident enough. It’s not really a social media platform. It’s a data platform with a social media front end to engage people willingly. Of course, it probably didn’t start like that. Mark Zuckerberg probably didn’t have the intent of what it has become but he had to find a way to monetize it to appease shareholders.

Airline Sales Distribution is the next wave

I happen to have a little knowledge on this front. Airline revenue management and distribution is one of the more complex selling models out there. What other industry can have prices reflect so many variables and disparity between what you paid for the seat compared to the person next to you? There’s a pretty good joke that was featured in Travel Weekly back in 1998. What if airlines sold paint? If you have the time check it out, it will make you chuckle. I have some news for you, however. This is going to intensify in the coming years. In an effort to better understand their customers the airlines have attempted to bypass the GDS (because they weren’t able to handle the rich content) to obtain the customer data and that was positioned in industry circles to better show an “apples to apples” comparison to the consumer. Side note: it probably also had something to do with reducing their cost of sale. Anyways, we can all agree that it is really tricky to understand what your total all-in costs are when you travel and the a-la-carte models airlines are offering have been the trigger to this. Do you want to check your bag? Do you want food? Do you want to pick your seat in advance? You can’t just look at the ticket price, you must factor in all these other elements to get your total price when comparison shopping. Making it more challenging is that some airlines are offering “bundled fares” and have introduced “fare families”. You probably know the drill.

So what does this mean?

You are probably asking yourself why you should care. Well, as this progresses eventually airlines will be able to tailor or customize their offering based on your purchasing habits and data they’ve collected knowing what type of consumer you are. Ultimately once enough data is collected you won’t even be offered that great $49 sale fare because the data points might suggest you have a propensity to book higher yielding products and they want to squeeze as much money out of you as they can. Some might argue this is great because it reduces the number of options and they are overwhelmed in the purchasing path. I might argue that the playing field shifts dramatically. Those that aren’t savvy will get screwed, they won’t even have the option to make a choice because it won’t be offered. Imagine going to the grocery store and instead of having five shelves of different brands and price points of wine to pick from you are only given two shelves but you are none the wiser that there are really five. And it just so happens the two displayed are the “top shelf” higher price points. Yeah…I’m all about having an efficient shopping experience and being shown items that are most likely to pique my interest but what if I want to control my decision making? Maybe I’m feeling spontaneous that day. Or perhaps I just want to shake things up. After all, isn’t free will what people seek when chasing retirement? If you’re interested in this airline distribution mumbo jumbo I speak of it’s known as NDC and one of the better articles I’ve come across is this one: How airlines will sell in the future .

Where are you going with all of this?

I know what you’re thinking. What the hell does any of this have to do with me? Get to the point already. Happy to do so! I had to lay the groundwork first. If these big companies are using your data (I’m not sure “against you” is the proper phrase….yet) then why don’t you use your own data FOR YOU? That’s where “if you can’t measure it, you can’t change it” comes in. It is extremely difficult to quantify improvement, success or progress if you have nothing to benchmark against. Notice I didn’t use terms like failure, back tracking or impediment – because none of those are options for us. The point is if we don’t have a financial compass or numbers that aren’t able to be compared against something we really have no understanding of where we are.

Here’s the secret

There are a number of options out there but the two I recommend are the following: 1) use a good old excel spreadsheet and manually track things yourself or 2) sign up for Personal Capital and let the wizardry do it for you. I created my own template in excel that was the foundation of us going from a negative net worth to one approaching seven figures. It’s nothing fancy but it does the job and while a little arduous at times there are benefits of really becoming one with your financial situation as you comb through each transaction and track the fundamentals. If you are of the more automated mindset then Personal Capital is the way to go and the good news is it is entirely free. I actually use both with Personal Capital doing 98% of the heavy lifting and my excel sheet putting the cherry on top. Truthfully, I could probably eliminate the excel sheet but we have a bond and it is just too sentimental. I actually curated it in college for a class and it evolved over the last 18 years as I consistently tweaked it. Yes, some things are useful in undergrad! It took me a few years to finally let go of the excel sheet (maybe I have a control issue?) but now that I’ve let Personal Capital do the driving I couldn’t be happier – with a lot more free time on my hands as well!

Personal Capital puts your financial picture in a different realm

I won’t take the time to review all the ins-and-outs because there are so many of the same types of synopsis out there by a simple google search. Practically every personal finance or FIRE blog out there has addressed it. All you need to know is it is great. And it is free. How is it free? Well, they have a pretty good business plan going. When I worked for Merrill Lynch the cost of client acquisition was huge. Not only did you have to prospect but much of the time the prospecting wasn’t with qualified leads. You got a ton of rejection and when you finally had a taker you better hope they had a decent net worth. Personal Capital lets it all come to them. The consumer links their own accounts and Personal Capital is able to see who the qualified leads are (see my opening paragraph). The difference in this case is they are actually creating value for you so there is a reason to do it. You have everything in one place for a 10,000 foot view on your financial situation. Read this if you are concerned about security.  There are a ton of other useful features such as a cash flow tool, budget spend tracking, asset allocation, investment fee analyzer to name a very few. My favorite one is the retirement planner tool! It allows you to simulate a variety of different situations and breaks down the percentage of probability in which your money will last determined on the events you input. It even has a detailed cash flow table to recap what your nest egg will be at the end of each year upon taking distributions.

It sounds great but where’s the catch?

Once you link up everything your net worth is synced on a real time basis. No more missing credit card due dates or logging into dozens of different portals to check individual accounts….if that’s not winning I don’t know what else is! Of course you will get the obligatory “welcome call” exploring your interest to invest through Personal Capital as an investment advisor but it is low pressure and you are under no obligation to do so. The tool remains free. No catch. But if you do opt in to work with them on investment advice it does unlock some additional features, such as “Smart Withdrawal”. Smart Withdrawal is a tool designed to advise how much income and when you should be taking from the different buckets (taxable vs tax deferred vs tax free) and factoring in when your RMD’s hit, etc. Another great aspect is the holistic view Personal Capital takes when offering advice. They use “Smart Weighting” aka tactical weighting in their portfolio construction and provide advice on 401k’s even though their fee isn’t applicable to those accounts because they understand the need to make decisions on your total financial picture and not just the accounts under their fiduciary capacity. This makes sense because they can’t make decisions under the proper guidance and instruct what is best if the right hand doesn’t know what the left hand is doing.

I suppose we are slightly unorthodox when it comes to the FIRE community as the gurus will say stick with vanguard and depending on your time horizon invest in VTSAX or VTI with another fund to smooth out the ride, mainly because of consistent returns with low fund fees…meaning you put more in your pocket and don’t cannibalize your returns. I, too, subscribe to this formula and have a hefty balance with Vanguard but I also work with Personal Capital as we have a JTWROS brokerage account and IRA rollovers and the results so far have been promising. Another reason why we’ve chosen to work with Personal Capital is the comprehensive advice they provide outside of just investment guidance – such as tax management, estate planning, college planning and a host of other services. While each individual has different needs and perspectives we felt the .89% fee was reasonable for such a robust platform and service offering. The tax loss harvesting is a bonus! It might not be the .10% of Vanguard but it certainly isn’t the 1.5-2% some advisors charge. At the end of the day everyone must evaluate their own personal situations and decide what is best for them – just make sure whatever path that is allows you to measure it. Because if you can’t measure it, you can’t change it!

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*You should assume that any links leading you to products or services are affiliate links that we receive compensation from. While it isn’t always the case we want to be transparent if there is any possibility that could result in a benefit to us. Most often our intent is simply to share ideas, concepts or products that we see great value in and hope you might as well. If you’re curious or have concerns head over here where we’ve outlined some things. It’s definitely never a prerequisite to receive compensation when we mention items specifically but if there is an opportunity to earn a little something from time to time we might not object either 🙂