I was talking with a client who was 10 minutes into his first pickleball lesson when he went back for a shot, fell flat on his back and broke said back. An inauspicious beginning to a sport that is supposed to be easy for everyone. But because it is sacrilege to speak ill of pickleball, I will instead apply to financial planning some lessons that I learned from the University of Utah's U Health "Do's and Don'ts of Pickleball Safety."
Pickleball Rule No. 1: Know your risks. While you can end up with an injury from playing pickleball, not fully understanding your risks in financial planning can potentially prove to be more dangerous because it can be more enduring.
We have had clients whose homes have burned down or been destroyed by hurricanes, and clients who were part of condo associations and were liable for common-area costs when their homeowner's association had inadequate coverage. We always recommend that you have an annual meeting with your property/insurance carrier to discuss what coverages you have and, as important, what coverages you are choosing to not have. As costs of construction continue to rise, having full replacement cost on your homeowner's policy is a starting point. If you have personal assets of any size, having extra liability coverage in case something unexpected happens is an inexpensive way to protect yourself. Insurance should be for the things that would be challenging for you to cover, not as a reward to pay for things you can otherwise afford. Get better coverage with higher deductibles as a potential way to pay for it.
Life insurance is used to create an estate when you don't have one or to pay estate taxes when you do. But for most people, life insurance needs are not forever, so match the term of your life insurance with your needs timeline. Same with disability insurance. This is important to have when you can't afford to be without income, but if you are able to be self-sufficient, your financial risks have been reduced. Disability insurance should protect spending needs, not necessarily be income replacement.
The purpose of investing is to eventually spend or give away what you have invested. That means that you face two real risks: volatility and inflation. Volatility is a short-term risk, inflation a long-term one. Markets go up and down, so you manage the risks of volatility by being appropriately diversified and matching your investment decisions to your time horizon. Inflation is more insidious. If your savings account is earning 4%, you are potentially falling behind after taxes and inflation. You protect yourself against inflation risks through accepting volatility. Return ranges shrink over longer periods of time (a 20-year return's range will be smaller than a one-year's).
Pickleball Rule No. 2: Talk to your partner. In pickleball you don't want to run over each other, you need to talk to each other and plan a strategy. Well, I can't tell you the number of couples we counsel who are talking to each other about money for the first time while sitting in our offices. Oh, sure, they may have had money arguments or unstated agreements, but they had not set up ways to not run over each other when they talked about money. Regardless of who earns the money, a marriage is a partnership where each partner gets to have a legitimate say in what they want today and how they picture their future together.
Pickleball Rule No. 3: Don't forget to stretch. If you want to avoid injury in pickleball, you need to loosen up before you play and stretch after. If you want to have a good financial life, you need to understand how and when to properly stretch. Clients often utilize a myth of conservative assumptions because they don't want to count on things even though they have a high likelihood of occurring. A young professional with a solid job is probably going to have steady earning increases so may stretch a bit for a home. If you have elderly parents and are likely to inherit something, consider that in your planning. It's prudent, not greedy. But stretching needs to be conscious and planned. It isn't an excuse to mindlessly spend.
Pickleball and your money can bring you enjoyment if you understand how to play the game.
Ross Levin is founding principal and president of Accredited Investors Inc., Edina, a fee-only wealth management firm.
