What is possible?

I wouldn’t describe myself as a dreamer, but I dream a lot (I think there is a difference). My husband Al and I have been dreaming about a new boat for at least five years. Whenever we go away and fall in love with a new place, I dream about buying a house there. We just spent the weekend with a couple who quit their jobs as a lawyer and an investment banker, bought a 45-foot catamaran and are now half-way through sailing around the world with their 6- and 8-year old sons. Now we are dreaming about sailing around the world (or maybe part of the way around). My experience though is that people don’t let themselves dream. ‘Dare to dream’ I say. Often I am greeted with a blank look. Some of my most amazing professional moments have been with a couple when one of them vocalizes a dream that the other didn’t even know existed.

I think that what holds us back from dreaming is that we have no idea of the possibilities. Our dream seems so far-fetched that we bury it. Maybe it's quitting our job and retiring in five years. Maybe it's taking an extended sabbatical to sail around the world or go back to school. We don’t let ourselves believe it could become a reality, so we don’t even talk about it. My job becomes helping people understand the possibilities.

It seems to me that most people underestimate the possibilities. Sure, sometimes people have dreams that are wildly inappropriate for the resources they have (their assets, income and saving potential) and my role is to help them come up with something that is more realistic and feasible (that can be a tough conversation). But this is rare. Mostly I find that because people have no idea where it is possible to go, they can’t decide where they’d like to go. They don’t know how big to dream.

The reason for underestimating what is possible is that we can’t compute in our minds the power of compounding. That is, what can happen to our money when we generate interest upon our interest, and so on and so on (much like a snowball). As Morgan Housel wrote: compounding is not intuitive, so it’s systematically overlooked and underappreciated. By overlooking this magical power, we underappreciate what is possible with our money, and we let our dreams die. Or worse, we never even give them life.

Real financial planning is about exploring the possibilities and making sure dreams are not just dreams.