The Overfinancialization of Everything
The Overfinancialization of Everything
You can't DCF your life.
Author Jack Raines September 08, 2022
If you are addicted to social media (I am), you probably saw a certain "net worth" TikTok make the rounds last week. If you don't want to watch this embodiment of pure cringe, I'll give you a quick summary:
Guy with $500k net worth (really cool!) goes on a date night with his wife. He repeatedly checks his ($500k) net worth at dinner to ensure they are still on track for their portfolio goals, before ordering two $13 cocktails. LINK
Seriously.
Our man was quite proud of his fiscally responsible decision-making. I imagine if the market had been red that morning, his wife would have been stuck with a ham sandwich and water for dinner.
This video was (rightfully) dunked on across social media, but this dude's behavior isn't as farfetched as it first appears. While most of us aren't basing our date night budgets on the intra-day movements of the S&P 500, we are guilty of more subtle examples of this same phenomenon:
The overfinancialization of everything.
As many of you know, I'm in business school right now. The decision of whether or not one should attend graduate school is quite common for mid-to-late 20-somethings these days, but how does one figure out what they "should" do?
Typically, we ask if it makes financial sense.
Many of you are probably familiar with discounted cash flows, or DCFs. For those who aren't, DCFs are financial models that we use to estimate the value of a company now based on our projections of a company's cash flows in the future. You model estimates for cash flows for X number of years, and you use a "discount rate" to calculate what those future earnings would be worth in today's dollars.
In layman's terms, a DCF can model the current value of your future earnings in different scenarios.
Oftentimes, especially for people already working in high-paying jobs, the math says "No!" to graduate school. If you are making $150,000 per year for example, why would you abandon two prime working years to take on $100,000+ in debt to go back to school?
The numbers just don't make sense.
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