spending habits

Letters to Our Children #2: The Journey

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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.

Financial Wellness

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We put a lot of time and energy into researching investments and managing portfolios. But there is more to financial wellness than being effective investors.

It is handy to understand where you are financially. Putting together a summary of what you have, and what you owe, is a great first step. What you own (your assets) less what you owe (your liabilities) is your net worth. This is a key indicator.

Not everyone is going to be great at creating and following a detailed budget. But it behooves each of us to think about where and how we spend money. At 228 Main, we don’t really have a lot of time to hector you or lecture you about spending money—you are the boss of balancing life in the present moment and preparing for the future.

When you know where you are, and understand the spending that needs to happen in your household, you can go to work on two ways to grow your net worth:

1. Reduce liabilities by paying debts off. One proven method is to pay some extra on the smallest one. When that is paid off, the amount of its payment plus the extra can be put on the next one until it is paid off, and so forth.

2. Increase assets by increasing your regular contributions to retirement or savings plans, or starting new accounts.

Once your plans are on track, there are some other niceties you might attend to, such as an emergency fund, managing your credit score, and beginning to think about your long-range goals.

What good is your money if it doesn’t connect at some point with your real life? That’s why we work to understand where you are, where you are trying to go, and the strategy and tactics you might use to get there.

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.

Moving Target

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We have observed that spending in retirement is a moving target. One theory says we spend more money in the early years of retirement than in the later years. Financial planner Michael Stein describes it this way: the Go-Go years, the Slow-Go years, and the No-Go years.

Spending in retirement impacts some of our most fundamental plans and planning. Retirees have a wide range of lifestyles, avocations, and circumstances which take money. It’s a personal thing.

In our experience we see people spend less as they age. When we first noticed this trend, we wondered if that was because some people run low on money. However, we recently have taken note that people with resources tend to spend less as time goes on. (Health expenses may run counter to this trend, increasing toward the end of life).

Each person has their own objectives and habits, and life throws some curve balls too. Case by case, it could make sense to plan on spending more in the early years of retirement. Bucket list items, to be done once, might come early in retirement.

The Alaska cruise, trip to Hawaii, or tour of Europe should be undertaken when you have the time and money and health to do it. The boat or camper, if one is desired, should be purchased when one has more years to enjoy it.

One of the most gratifying parts of our work is working with people on their plans and planning. We’ve worked with some of you from mid-career all the way into many years of retirement. Each one of you is as different as a fingerprint.

Clients, if you would like to talk in more detail about your retirement aspirations 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.

 

Simple or Complicated? You Choose

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The object of a household budget is to end up with control of your finances.

If you Google “steps in budgeting” you will find results ranging from three steps to ten steps. Each one involves accounting for all of your outlays to the penny. The process must be repeated every month, and requires ongoing work to maintain.

Budgeting works well for some people, particularly when money is tight. If you might not be able to afford food unless you pay careful attention, you probably better pay careful attention.

But another, far simpler method works for many others. You pay yourself first, and spend or save what is left over. Paying yourself first can take many forms, but the most fool-proof methods are automatic.

• 401(k) plan contributions at work, by payroll deduction.
• IRA or Roth contributions, by automatic monthly bank account transfers.
• Investment account deposits by automatic bank debits.

You may need to do some arithmetic to see if your monthly investment amounts are likely to get you where you want to go. (We can help with this.) After that is done, all you need to do is pay yourself first!

Some of you enjoy keeping careful records of spending, and we would not discourage that. At a minimum, being mindful about our outlays makes sense. But for others, the simpler method may fit in better to your real life. It is a personal choice.

Simple or complicated? You choose. 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.

No strategy assures success or protects against loss.

Invest Wisely, Spend Well

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A client came in, hat in hand, apologizing profusely for requesting the withdrawal of a few thousand dollars. He seemed sure the request would upset me.

I’m opposed to clients giving their hard-earned money away to scammers or nephews buying bars, so I inquired as to the use of the funds. It turns out that his home needed a modification to accommodate his wife’s changing health.

Of course, I told him that I would be upset if he didn’t use his wealth to make the home improvement. Relieved, he told me that his previous advisor would get agitated about any withdrawals from his investment accounts. It sounded as if that advisor forgot whose money it was.

We devote most of our time and attention and thoughts and words to our version of investing wisely. But what is it all for? There is no reason to be the richest person in the cemetery.

A more balanced view is captured in the short phrase, ‘invest wisely, spend well.’ We aren’t suggesting that you chop down the orchard to sell it as firewood. But it is OK to use the fruit crop to make life better for you and people you care about.

The same lesson was driven home by other friends. In their 70’s, this couple took their extended family on a vacation to a fabulous destination. In the telling, she raved about how great it was while he silently shook his head. I asked him if he had a different opinion. He said they should have started those trips twenty years before.

Many of us need to be diligent about saving and cautious about spending in our working years. Building toward financial independence in the face of everyday expenses can be a struggle. If we do it right, the struggle fades away as the years go by. At a certain point, we may need to warm up more to the idea of spending well.

Clients, we are always thinking about your long term financial position. Your situation seven or fourteen years from now matters—we plan on being here, and we plan on you being here too. But the idea isn’t to pile up the most money you can—it is to strive to have the resources to do what you want and need to do.

Invest wisely. Spend well. If you would like to discuss how this applies to you, 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.

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

Should You Spend Like You’re Rich?

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When children think about rich people the mental image might be something like Rich Uncle Pennybags from the Monopoly game: a monocled fat cat in a top hat with bulging sacks of money.

Obviously, the reality is much different. As we mature we typically develop a more realistic picture, but there is one surprising realization: it is usually much, much cheaper to be rich than to be poor. Having money enables us to live more cheaply and avoid many painful financial pitfalls.

To begin with, paying cash is often cheaper than paying with credit. If you are able to lay down cash for major purchase such as vehicles or even houses instead of having to borrow, you don’t just save on fees and interest, you may even be able to negotiate a better price. If you are funding large items on a credit card, you are likely to wind up paying many times what they are worth. If you are hard up enough that you need to turn to high risk credit in the form of payday loans, things get even worse.

There are other ways that having money allows you to stretch your money out, too. Buying quality merchandise may take more money up front, but if the alternative is buying shoddy products need to be replaced more often, you may save money in the long run by paying more up front. (Of course, care must still be taken to select your purchases carefully: higher cost does not always correlate to higher quality!)

Also, when you have a life of plenty you have the luxury of being able to shop around and wait for a better price. If you have two of everything, it is not an emergency if one breaks or gets used up. Without that surplus, you may find yourself having to go out and buy a replacement whether you like the price or not.

These habits, paying cash and shopping carefully and not being in a hurry to spend, are ones that all of us can use to help us build and maintain our own wealth.

The wonderful conundrum that some have discovered is this: the less you spend, the more wealth you accrue; the more wealth you have, the less you need to spend. Please call or write if you would like perspective or conversation about your situation.


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