Pablo Picasso was one of the most influential, prolific and financially successful artists of the twentieth century. Yet, if you had visited his studio at the peak of his career, you might have guessed otherwise. In short, it was a mess, and his work schedule was, at best, leisurely. On a normal day, Picasso would stay in bed all morning and only get to work by 2:00 in the afternoon. When he did get to work, according to a biographer, he was surrounded by “piles of miscellaneous junk,” and an array of animals. In addition to cats and dogs, a miniature monkey named Monina would sit on the artist’s shoulder, stealing his food and, weirdly, smoking his cigarettes.
Why am I talking about Picasso and his odd routine? I mention it because I see an important lesson you can apply to managing your personal finances. However unusual Picasso’s routine, the important point is that he did have a routine, and because of that, nothing else really mattered. Presumably, Picasso knew how many hours were required to get done what he needed to get done. As a result, if he spent the rest of the day relaxing, it didn’t matter. The mess, the cats, the dogs, Monina — all that was irrelevant.
How does this apply to your finances? Often, folks will ask me to review their spending and ask if I think they are spending too much in one particular area. Perhaps it is a seven-figure house or a six-figure car or another luxury. My response is always the same: If you have a sound underlying structure to your financial routine, then, like Picasso, you don’t need to worry too much about everything else.
In practice, what does this look like? What do I mean by a sound underlying structure?
If you are in your working years, the most important thing is to have a savings plan to meet your retirement goals, and to reliably put that amount in the bank each year. While life is full of unknowns, there is a fairly simple formula to calculate that number. If you have access to a spreadsheet such as Excel or Google Sheets, look for the PMT function. For example, if you currently have $250,000 saved and expect your savings to grow at 5%, and you want to accumulate $1 million by the time you retire in 20 years, this is the formula to determine your annual savings goal: =PMT(5%,20,-250000,1000000). If you don’t have a spreadsheet handy, the answer is about $10,000 per year. While nothing is guaranteed, odds are that if you routinely save $10,000 per year, then you will be able to reach your goal. And here’s where Picasso’s lesson applies: As long as you maintain that savings routine, then nothing else really matters. If you want to buy that expensive car, or send your children to a higher-priced school, the only litmus test for whether you can “afford it” is to ask whether it would impact your ability to continue saving that $10,000 per year. To put it another way, you could afford a lot of disarray in your finances as long as you maintained this one piece of structure.
If you are already in retirement, you can still apply Picasso’s approach. Here, the math is a little different — you want to calculate the amount you could safely withdraw from your savings each year in order to maintain your standard of living throughout retirement. There are a number of approaches you could use to estimate this number. I’m happy to walk you through the math with you, but the important point is this: You just want to establish a withdrawal routine that is sustainable. In other words, you want to structure a withdrawal routine that, in all likelihood, won’t result in you outliving your money. And then you need to stick to it. And while it sounds like I’m stating the obvious, that last part is key. If there’s one thing that seems to trip people up, it’s “one time” expenses. Everyone has these — a vacation, a new roof, a big tax bill — and they’re hard to to predict. But, when designing a retirement withdrawal routine, you need to allow for them in your calculations. While that may sound like a tedious task, the good news is that if you do this, you’ll likely sleep easier and may also discover that your finances permit more spending freedom than you expected.
No question, Picasso was an eccentric, but I think there’s a lot to learn from the ordinary routine underlying his seemingly chaotic daily life.