The Toyota Approach to Personal Finance
Continuous improvement isn't just for building cars
Good morning,
I love a good Cuban sandwich.
If you do too, be sure to get one today as it’s National Cuban Sandwich Day.
Elizabeth and I have started looking at replacing my 2008 Toyota 4runner.
It still runs great and only has 140,000 miles or so on it which is nothing for a Toyota.
But as we regularly drive back and forth between Atlanta and Lake Oconee on I-20, we feel it’s time to get a newer set of wheels with more up-to-date safety standards.
I’ll likely get another Toyota or something very similar.
But how did Toyota achieve their reputation for quality and reliability?
Well, it revolves around the concept of Kaizen.
Kaizen is a combination of two Japanese words that together translate to “good change” or “improvement.”
Most people familiar with Kaizen think of it as synonymous with “continuous improvement.”
If you’re interested in learning more about Kaizen, you might find these interesting:
The third bullet above links to the long, but interesting and worthwhile article from Taylor Pearson. In his article, Pearson relates aspects of Kaizen to compound interest, a fundamental tool for long-term investors.
But where I find the most helpful application of Kaizen to your personal finances is its core concept of “continuous improvement.”
As I’ve written before, there are many challenges in personal financial planning. But chief among them is making decisions and assumptions in the face of an uncertain and unknowable future.
How long will we live?
How healthy will be be?
Will I stay with my current employer all the way through my planned retirement age?
Where do interest rates go from here?
Who wins the next US Presidential election?
What happens if real estate goes through another period like 2007-2009?
What will the stock market do over the next 3 months? The next 3 years? The next 3 decades?
Will my aging parents be OK?
What about my adult children?
Am I saving enough? Too much?
Should I be taking more or less risk with my investments?
Am I doing everything possible to increase my chances for a good outcome in the future?
And the list goes on…
Which is where Kaizen comes in.
Your plan doesn’t need to be perfect.
In fact, it can’t be. (see unknowable and uncertain future above)
So don’t let “perfection” become the enemy of progress.
Instead make some good decisions, and get on with living.
Then after a little time passes, do it again. You’ll have the benefit of new, more up-to-date information and experience which will better inform your next set of “good” decisions.
And remember, if you’re headed in a direction (financially) that feels uncomfortable or maybe even dangerous, simply turn the wheel and go another way.
Many people mistakenly believe a financial plan is some mystical document to be honored and adhered to come hell or high water.
And the financial services industry and many financial advisors are to blame for this belief.
For many, financial planning is such a painful, guilt-ridden, burdensome process, they can’t imagine subjecting themselves to “financial planning” any more than once every 3-5 years.
And in many corners of the financial advice world, this is how financial planning was sold to folks like you.
The following sound familiar?
Let’s go through this complex process we call financial planning to create what, for many advisors, was nothing more than an over-engineered proposal for you to buy their investment portfolio or insurance policies.
I know I wouldn’t want to endure that experience any more often than absolutely necessary.
In fact, I suspect many people would buy into whatever was being pitched to them to make a speedy escape from any more “financial planning.”
But that’s not REAL financial planning.
That’s merely financial product sales disguised as financial planning.
That’s developing a financial plan once to sell you something today. And the “plan” may or may not ever be looked at again.
With the Kaizen approach to REAL ongoing financial planning, your financial plan is the central nervous system at the heart of every financial decision you make and strategy you employ.
It allows you to stress-test the probability of your plan working in the face of an uncertain and unknowable future alongside “what if” scenarios to explore your own possible futures.
And I believe that the Kaizen concept of continuous improvement is well suited to explaining how ongoing financial planning can and should be delivered to and applied to your life.
What say you?
What do you think about the idea of continuous improvement in your life and in your financial planning?
Hit reply and let me know.
Links & Things
David Booth is the Chairman and Founder of Dimensional Fund Advisors. In this recent article, he makes a good argument for thinking of your wealth in much the same way you think about your wealth. In the past, I’ve written about the impact of health on your retirement.
In this article by Amy Arnott for Morningstar, she outlines what she doesn’t own in her investment portfolio. I would have felt comfortable putting my name on this article as I agree with each of her points. Remember, it’s what you don’t invest in that can often make the difference in your long-term outcomes.
Thank You!
I’m grateful to have you as a reader.
If you have any questions or an idea for a future newsletter, blog post, or YouTube video, I'd love your input.
Just hit reply - I read (and truly appreciate) every email you send.
Until next Wednesday,
Russ