How to use RPE in Financial Planning

All experience is subjective. - Gregory Bateson

What is RPE?

When I exercise, I track the number of reps, weight used and, I judge the difficulty of each set by estimating my rate of perceived excretion (RPE) on a scale of 1-10. Rate of Perceived Exertion is a way to measure the intensity of an exercise. It is based on a 1-10 scale, with 1 being a very light effort and 10 being a maximal effort. In addition to tracking the RPE of each set I do, I also judge the RPE for each training session as a whole after completing it. 

RPE is both qualitative (e.g. RPE 7 is easier than RPE 9) and quantitative. RPE is subjective. Rating a set’s RPE is influenced by how I feel and not necessarily what actually happened. Using a subjective rating of fatigue (using RPE) may correlate better to injury than objective metrics like load use, volume, etc. Meaning performing an exercise that generates too much fatigue could result in an injury irrespective of the actual weight used.

How does this relate to financial planning? 

When planning for retirement, you often have to make sacrifices today in order to achieve a desired future state. This often requires you to save a portion of your current income, invest in assets that could experience market volatility, and purchase insurance you hope to never use. All of these require you to delay/reduce gratification today to some point in the future. There is certainly a level of self-restraint that is needed to do and is often more difficult for some.

This is where RPE comes into the mix, meaning creating a plan that requires you to live like a monk and forgo all worldly pleasures would likely require a lot of effort to maintain and inherently unsustainable for the vast majority of people. Therefore, the greater the perceived effort you have to put into something the shorter the duration it can be sustained. Meaning some people could only sustain a self-imposed subsistence lifestyle for a few days, while others could live this way for their entire life, regardless of their income. There is no right or wrong here, just the fact that everyone is different and perceives things differently.

The same measure could be used for investment strategies. So people can handle the market volatility that comes with a 100% stock allocation, while others begin to lose sleep when there is uncertainty in the markets. Keeping a higher percentage allocation to stocks will be more difficult for some to maintain than is it for others regardless of the size of their portfolio.  

How to Use RPE in Financial Planning

Within a given year you could have periods of increased savings (effort) to fund a short-term goal or to pay down debt. These periods could be viewed as “sprints” or short intervals of elevated effort followed by a period of normalized effort. This would allow for a break in between the sprints so that you can "recover" from reaching a goal.

The subjective nature of RPE is why I see it being useful in financial planning. Often, using rules of thumb for someone’s savings rate or stock allocation does not adequately account for their perception of difficulty in implementation. When a task is perceived to be more difficult relative to their perceived ability, it can lead to them feeling overwhelmed, and not able to perform the task competently.

If you could instead ask their opinion on how difficult they perceive something to be or much effort it would require to accomplish a task, you may have a better chance of getting the desired outcome. With that being said you can then frame the effort you are placing towards your long-term financial goals on a 1-10 scale of perceive difficulty to find a good balance for you. Meaning something that is sustainable in the long-term but will allow you to still meet your goals. You can also incorporate periods of increased effort (sprints) followed by periods of normalized effort to reach shorter-term goals. 

Planning for perfection is not prudent. You must find the balance between living for today and preparing for tomorrow. Persistence and adaptability are required and finding a sustainable level of effort you can put towards your desire outcomes will be key to your success. 

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By Gage Paul, CFP®, RICP®, EA