budgeting

Live It Like You Mean It
photo shows sunrise over a lake at the Louisville State Rec Area

You may know already: we generally advocate simplicity in most things. Once our basic needs are met, we’ve got some choices to make. So how do we keep things simple?

When it comes to budgeting, this takes the form of “paying yourself first.” You save and invest to meet your goals, and then spend the rest as you see fit. No need to track every nickel; you will get where you want to go so long as you’re getting yourself paid.

But it doesn’t hurt to also review your outlays in greater detail once in a while. Fixed expenses are those that cannot be changed in the short run: if you don’t pay the electric bill, the company will shut off your power. You have to pay the bills. Total up these kinds of items. You’ll need to know what sort of fixed expenses you can expect each month in order to figure out how much is discretionary—what’s left over for the things you want?

This exercise can be useful because it may point you to those expenses that are regular but are not fixed. For some, it might be a gym membership that doesn’t get used. It might be a streaming subscription for shows you don’t watch anymore. These services are just a few examples: there are plenty of things in life that we try out or that once made sense but no longer serve us.

And when we root these things out, it’s like giving yourself a raise!

We each have long-standing habits or hobbies whose costs we may not have considered for quite some time. Taking a fresh look at our spending gives us a chance to make intentional choices about how we live, going forward:

  • What are you not doing that you wish you were doing?
  • What do you wish you had that you do not have? A few more adventures, a new skill or pastime, something for the house or the yard?
  • Where might your money save you some time?

And the big question: what would you have to change in order to afford that new choice?

This isn’t necessarily “just” a budgeting question, because rather than shift your spending around, you might elect to invest more each month. All else being equal, investing more means you reach financial independence sooner. Access to options: that’s what we’re buying when we pay ourselves first.

We don’t mean to make any of this prescriptive. After all, you are the one who must live your life—not us! We just suggest that taking a step back to look at where our money goes, being intentional about how we spend, these are things that come naturally when we try to live life on purpose.

Clients, if you would like to talk about this or anything else, please email us or call.

Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

Live It Like You Mean It – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Special Relativity

© Can Stock Photo / Alexis84

A friend wrote to me recently about the two kinds of time. The time that gallops onward in an undistinguished blur, versus the time that resolves itself into perfect crystal moments that stretch on to forever. Haven’t we all had those kind of peak moments?

We seem more prone to the ‘undistinguished blur’ sort of time as the years go by, and routines get set. Perhaps breaking the routine, new experiences, are what sets those forever moments apart.

My friend concluded that if there is a secret to keeping time in a bottle, it must involve moving forward – a special kind of special relativity. This notion has some interesting aspects, including one that bears on our work for you, I believe.

Many financially independent retirees have noted that they spent much time when younger worrying about having enough money in later years. Then, when they get there, they discover that money is abundant, compared to time, which is finite.

If we spend our working years on a treadmill of accumulating a fortune for enjoyment way down the road, perhaps we live life in a routine, in which time is an undistinguished blur. This shortens the subjective experience of our lives.

Alternatively, we can work to understand and perhaps moderate what “enough” means, and balance living in the moment against our longer-term objectives. Would this leave us open to more new experiences, new ways of thinking and being, and that sense of moving forward that might bring about more of those ‘forever’ moments?

Hey, I don’t know either. But I’m in favor of more special moments, and less undistinguished routine. Clients, if you would like to talk about this or anything else, please email us or call.

Liquid Assets

© Can Stock Photo / sparkia

One of the keys to successfully weathering the downturns in the market, large and small, is having sufficient cash to do what you need to do in your real life. That helps avoid selling long term investments at bad times.

A few weeks back we went through investment advisory accounts to check cash balances for ongoing monthly distributions and make sure we had cash positions to last several months. And in our reviews with you, we inquire about upcoming cash needs.

As our lives unfold, our situations may change. For example, we talked with a pair of young adults a few weeks back, a brother and sister, who each are completing advanced degrees. In infancy, they received a gift of shares of stock from their great-grandfather, an old friend of mine.

Their holdings grew over the years. Each one called to talk about the strategy for paying off student loan balances later this year with the value of the accounts. When it became evident that the holding period was down to months, we advised the sale of sufficient stock to clear their balances, at once. Money that you plan on spending in the short term should not be invested for the long term.

The moral of the story is to communicate with us about exceptional cash needs that develop. If together we manage your liquidity to avoid untimely sales of long term investments, you and we will both be better off.

Clients, if you would like to talk about this or anything else, please email or call.

Hammer or Pliers?

canstockphoto14054970

Recently a client asked us a common question. With a little room in the budget, should more money be added to retirement savings, or a regular investment account? Which one is better?

Of course, the answer depends on the situation. In the early and middle career stages, one might not put funds to be used before retirement into a retirement account. Saving for intermediate term goals like buying or trading homes, or buying a boat or camper, perhaps should be done outside of a retirement account.

But getting it down to fine points, some retirement plans have provisions for using money before retirement without penalty. We believe you can gain an edge by paying attention to the fine points. We like to outline all the alternatives so you can make a good decision.

On the other hand, money to be devoted to growing the orchard – a pool of capital that you may someday live on – should almost always be sheltered from taxes, if possible. This typically means into some form of retirement plan. The tax advantages may make a big difference over the years and decades ahead.

And retirement plans come in different flavors. Individual retirement accounts, employer plans of various kinds, Roth… there are many options.

Just as one cannot know whether the better tool is a hammer or a pair of pliers, one cannot know the best way to invest without understanding the job the money is supposed to do for you. That’s why we talk back and forth! You ask us things about our area of expertise, we ask you things about yours. A meeting of the minds is just the thing to make progress, with a collaborative process.

Clients, if you would like to talk about this (or anything else), please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

 

Letters To Our Children #6: Investing, A Tale of Three Buckets

© Can Stock Photo / kevers

We talked about human capital, the traits, characteristics and skills you possess which others value. This is the source of your earning power. When you spend less than you earn, you develop savings. Our topic today is how to manage those sums.

Think of having three buckets. The first one you have is short term. This is where you go to find money to deal with emergencies. You also use the short-term bucket to save for annual expenses like real estate taxes or insurance premiums. This bucket must be stable and liquid, to provide money when you need it. Returns are secondary.

On the other end, you have a long-term bucket. If you ever hope to retire instead of going to work every day, or accumulate wealth for other long-term goals, you need one of these. Unlike the first bucket, this one may endure more volatility in the hopes of garnering higher returns over a long time horizon. You should plan on not tapping this bucket except for those long term goals, short of an emergency which can be met no other way.

Naturally, the third bucket is in between. You may have goals for things that happen in a few years, on an intermediate time horizon. It might be for a major purchase like a boat or camper, to meet educational expenses for a child who is a few years away from college, a down payment on a home you intend to buy at some point in the future.

Not surprisingly, the third bucket may balance stability and higher returns with a middle of the road approach. This is in between the strategies of the short-term bucket and the long-term bucket.

There are other aspects of investing that we will explore in future letters. But the idea of three buckets is a helpful way to understand the functional purposes of investing. You will need to know something about the basic kinds of investments, styles of investing, some tax considerations, and the options available in retirement accounts.

Clients, if you would like to talk about this or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Saving for a Successful Retirement

© Can Stock Photo / 4774344sean

When you picture a successful retirement, what does that look like to you?

To some people a successful retirement means luxury cruises, European vacations, and a big house with a pool for the grandkids. To others a successful retirement might mean a quaint cabin with a porch to watch the wildlife from. Some people picture retirement as never having to work again, others might view retirement as a new stage in their working career where they can focus on their hobbies and passions.

The answer to this question is going to have a lot of impact on your retirement planning. If you want to build your dream house and have a second vacation home on the beach, you will need to save a lot more than if you just want a quiet cabin near the fishing hole.

When you go looking for financial planning advice some sources will recommend saving as much as 25% of your earnings for your entire working career. We have known some impressive savers in our day and watched them build incredible nest eggs through the magic of compound returns. We know many more who saved far less than that, though, and not many of those would consider their retirement a failure.

A cynic might conclude that financial planners have a vested interest in trying to convince you to save and invest as much money as possible with them. A more charitable interpretation might be that they want to make that luxury retirement lifestyle possible for you. That takes a lot of money, and if that is the retirement you want you would do well to heed those aggressive saving recommendations. But you might also consider whether that is the retirement lifestyle you want or need and adjust your financial plans accordingly.

There is no one size fits all plan for retirement, and you might not even know what you want to do with your retirement at this point. Obviously, the more you save, the more options you will have in retirement. But we think it is also important to have a little fun every day. You never know how long you have left, and it does you no good to live like a monk to fund a retirement you may not get a chance to enjoy.

Clients, if you would like to discuss your financial planning, please call or email us.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Letters To Our Children #3: The Outlines of Planning

© Can Stock Photo / gina_sanders

The object of planning is to figure out your primary aim or goals in life, and what you need to do to get there. The habit of rethinking these things from time to time and assessing your progress keeps you on track.

It is helpful to think in terms of narrative – stories – that describe what you are thinking about. For example, if your story involves retiring to a home in the mountains, your life between now and then will be shaped by that goal. You might vacation in your intended destination, get a feel for the lifestyle, the real estate market, activities, how your life might look in retirement. The narrative may motivate you to do what you need to do to make it a reality some day.

No matter how distant your goal, you’ll be better off if you know how much wealth you might need to get where you want to go. So there is some arithmetic and financial planning to do.

Getting down to details, we think there are several broad categories that need attention in a comprehensive plan. People are better off when they think about and manage:

• Human capital, or earning power, and careers.
• Investing wisely, managing financial assets.
• Spending well, managing the budget and liabilities.
• Residential plans, where do you want to wake up every day?
• Educational funding plans for children or other relatives.
• Retirement intentions.
• Exposures to loss.

In subsequent letters, we will get down to details in each of these areas. Clients, if you would like to talk about this or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Letters to Our Children #2: The Journey

canstockphoto4993676

This project is rewarding, from our perspective. We are crowd-sourcing the topics for these letters to our children about money and life. Your response has been terrific.

A wise person among you suggested ‘enjoy the journey’ is key. It makes sense to talk about this early in our series, since it has everything to do with how we go about life. The implication is that the journey, not the destination, is the important part.

When you think about it, arrival at a destination (or achievement of a goal) is a temporary thing. Once the goal or destination is reached, you’re there. Then what? A new goal, a new destination. We spend far more of our days on the way than in actually arriving.

In financial terms, the satisfaction of saving something every payday is a way to enjoy the journey. The destination, perhaps a pot of wealth big enough to retire on, is a long way off during the early and middle phases of your career. It is hard to focus on a destination that may be decades away. It’s much easier to get in the habit of enjoying small steps along the way – the journey.

Recently, in the security screening line at the airport, a fellow traveler in an adjacent line loudly inquired why the conveyer belt on the baggage scanner up ahead was stopped. The identification checker replied they did not know. “Well, don’t you think you better go find out?” Of course, the belt frequently stops when additional scrutiny of an item is needed.

The traveler immediately in front of me got to the identification checker, who asked “How are you today?” The fellow quietly replied, “Terrific. I’m grateful I’m not THAT guy,” nodding toward the foot-tapping, sighing, unhappy person. All within earshot were smiling; the dyspeptic was unconscious of his role in the conversation.

This vignette is a case study in literally enjoying the journey—or not. It’s about making the most of where you are, what you are doing, who you are with.

Our focus in this series will be more on the process, the getting there, the journey, not checklists of goals one ‘should’ accomplish. We believe this is the happier path.

If you have questions about this or anything else, or more topic suggestions for this series, please email us or call.

The Joy of Being Cheaply Amused

© Can Stock Photo / outsiderzone

Once upon a time, we went out on a Friday night – to the dollar theater. This was a discount affair, where good movies – not prime, first-run movies – could be seen on the big screen, for a dollar.

In the ticket line, we happened upon friends and clients, recently retired. They told us it was a regular part of their entertainment. They also hiked the trails at the state park, played cards with friends, read books from the library, and liked to watch the sun set over the river.

He said, “One of the things we had to learn early in my teaching career was the joy of being cheaply amused. We were not making much money, and did not really have a choice.” Even in retirement, on a good pension and with plenty of resources, those habits stuck.

That phrase struck a chord with me. I had long noticed that those who feel compelled to keep up with the Joneses, or whose happiness seemed to depend on shopping or acquiring things, were difficult clients to work with. Those traits are connected to a general desire to always want more.

In contrast, the joy of being cheaply amused seems to correlate with simpler lifestyles, longer-term orientation, and a greater sense of contentment.

This has a huge impact on lifestyles in retirement. The conundrum is, those who are cheaply amused tend to be the ones who can afford the bucket list trip to Europe or Alaskan cruise, to be generous in helping children and grandchildren, who have money for really significant activities.

In other words, some of the most successful retirees we know have grown into being able to spend well. Not having a lot of money starting out in life is good discipline for being thoughtful about spending later on.

Clients, if you would like to talk about this or anything else, please email us or call.

Up And Down Really Means Up And Down

© Can Stock Photo / webking

As long term investors we talk a lot about the need to weather short-term volatility in pursuit of long-term results. Our notion is that volatility is not risk, but an inherent feature of investing.

As years go by, many think of the market as having good years and bad years. This is based on the outcome for calendar years. The astonishing thing is how much movement there is during the course of the typical year.

“At least one year in four, roughly, the market declines.” We’ve said that about a billion times, to reiterate that our accounts are likely to also have good years and bad years, if one judges on annual returns. The object is to make a decent return over the whole course of the economic cycle, year by year and decade by decade.

But in those other three years out of four, the market also experiences declines during the course of the year. In an average year you may see a decline of 10 to 15% at some point during the year.

Our object is to leave long term money to work through the ups and downs, without selling out at a bad time. Three things help us do that:

1. A sense that everything will work out eventually, a mindset of optimism.

2. Awareness that downturns tend to be temporary, ultimately yielding to long term growth in the economy.

3. Knowing where our needed cash will come from, based on a sound cash flow plan.

Bottom line, even years that end up well can give us a rough ride. Knowing this can make it easier to deal with.

Clients, if you would like to talk about this or anything else, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Stock investing involves risk including loss of principal.

All performance referenced is historical and is no guarantee of future results.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.