Transcript

Hi, Everyone. Welcome to the Wiser Financial Advisor with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money.       

This is Josh Nelson, Certified Financial Planner and founder and CEO of Keystone Financial Services. We love feedback and we’d love it if you would pass it on to me directly: josh@keystonefinancial.com . Also please stay plugged in with us, get updates on episodes and help us promote the podcast. You can subscribe to us at Apple Podcasts, Spotify or your favorite podcast service.

Let the financial fun begin!

Thanks for joining me today. Dave Ramsey has said that you can create a lifestyle and you can create wealth, but it’s hard to create both. T Harv Eker said that rich people look at every dollar as a seed. Well, in America we are really good at consuming, and my message today is not aimed at people that are good at consuming. In fact, my message today is aimed at people that are not very good at it. I’m kind of kidding but kind of not.

During the thousands of financial conversations I’ve had with people over the years, I’ve noticed there is a group of people that are not so good at spending. In fact, they’re so good at being the millionaire next door that they have a hard time spending money even though they could. Especially once they get into retirement, although that was supposedly the time they were planning to be able to spend money. So that’s what we’re talking about today: What if you do such a good job saving and investing and building that you have a hard time actually spending the money once the time comes?

First of all, let’s eliminate the fear of running out of money. That’s important because for retirees the number one fear by far is fear of running out of money sometime in retirement. There have been a number of studies showing that is fear number one. You would think that the number one fear would be dying, but that’s not the case. So since the number one fear is running out of money, we want to eliminate that fear first, because that will help us really get some freedom to be able to make some different decisions.

Okay, so the reason anybody saves or invests and builds wealth is because they want income. And what we’re doing when we build a portfolio is building a money machine. Your money machine might look different than somebody else’s. Some people have worked for the government for years, and really, they’re counting on a fairly large pension to be a big part of their money machine. But let’s assume that we don’t have guaranteed income sources. Let’s assume it’s just a portfolio we’ve built. Let’s not assume a rental property income.

Let’s say we need a big pot of money built up. What we do for that is to use a simple rule. We like to call it the 4% rule, which simply means that we draw out no more than 4% of our investment net worth in a given year. Investment assets that make up that net worth do not include things like home equity or rental properties. Those are a whole different kind of deal.

We can run all kinds of calculations. We can do spreadsheets and all that, but more than anything we focus on taking 4% of whatever the portfolio assets are. We look at what that is and take no more than 4% per year. If you look at that 4% amount and you can say, “Yeah, that covers my expenses plus,” then you are in good shape. You’re not guaranteed. There are no guarantees in life for investments and financial planning. But you’ve got really high odds that you will not run out of money, especially if you’re flexible in your approach.

Let’s look at it this way. We are going to have bear markets happen. That’s just part of being an investor. Bear markets come around every 3-4 years historically. So we’re going to have another one and another one and another one. That’s just part of being an investor. When they happen, we’ll make sure we take a look at 4% of whatever the net worth amount is. If portfolio assets drop 20%, then if we start with a million bucks, now we’ve got $800,000. If it’s a 30% drop, now we’ve got $700,000. Taking 4% of whatever that amount is means you’re being flexible in your approach, and that will give you much higher odds of not running out of money. And once you reach that level of confidence and you know you’re not likely to run out of money in retirement; once you feel really good about that, you will feel the difference.

The good news is that a great Certified Financial Planner or Fiduciary like us here at Keystone Financial or somebody else you end up finding, should be able to run all kinds of calculations for you and develop “what if” scenarios to make you feel comfortable. You’ll want to know, “Am I still going to be okay if I have a bear market right after I retire? Am I still going to be okay if inflation is double what I thought it would be before?” There are all kinds of stress tests that your Fiduciary or Certified Financial Planner can run for you to help you feel confident as you think and plan.

It’s helpful to do some planning around spending. I’m not talking about planning out new vehicles or things like that. Yeah, things like that that come up, but let’s just talk about in general, what do we want our lives to look like? I like to sit down and do some thinking, on paper ideally. One of my mentors is Keith Cunningham. For years he has scheduled “thinking time” three to four days per week. He starts with a question and then he writes about that question. He sets a timer so he goes a certain amount of time. He sits quietly in his same chair using the same pen and the same journal. Then when the time’s up, he’s done. He does that three to four days a week religiously and Keith attributes thinking time to being one of the keys to building an enormously successful business over the years.

If you’re interested in a deep dive on thinking time, Keith wrote a great bestselling book called The Road Less Stupid on that very topic. The idea is to take some time to really think, asking yourself, “What do I want this to look like?” and having that be a focus for a chunk of time, maybe 20 or 30 minutes. You map out different areas and with that in mind.

I want to give you some food for thought here in thinking about spending. I have three thoughts for you today.

Number one. It’s okay to spend and that’s what you’ve been planning for years. We’ve been building up this money machine and really, the planning we’re doing is so that you can spend it. It’s so you can actually do that. For example, one of my clients years ago sheepishly asked me if it was okay for her to buy a nice couch she’d been wanting to buy. I told her, “Let’s look at what you’re spending.” And of course, the answer was yes, go buy the couch. She was so happy. But we always joke about that now when she comes in saying, “Is it okay for me to buy this or that?” It’s a running joke with us, but she, like a lot of people, has been very good at building up portfolio assets.

Back to our quote from the beginning: Rich people look at every dollar as a seed. Well, it’s hard to unwind that, and I’m not asking you to. If you’ve got that mentality, great! Because very few people do. Most people are just great consumers. They spend all their money and have a wonderful time but don’t end up with a whole lot of portfolio assets or net worth or income in retirement, so that lifestyle is not going to continue for them forever. They’ll only be able to do that as long as they’ve got job income that supports that.

So, as long as you’re not going into debt and you’re abiding by that 4% rule, I’m completely fine with spending it. And if we figure out that you’re only drawing maybe 2% or 3% per year of your portfolio, that leads us to the next couple of points.

My second point is, it’s okay to give it away. I firmly believe that it’s better to give than to receive.

While there’s nothing wrong with receiving, one of the most fulfilling parts of life, in my life at least, is contributing to other people’s lives. Of course, we can do that in non-financial ways. A lot of us do, right? We give our time to help on a service project. Or maybe we go visit lonely seniors at a care facility. There are a lot of great things we can do with our time. There are also a lot of people that could use our help and we can receive great fulfillment from giving money to people we care about. So, isn’t it interesting that by making a contribution we get to receive too even though we’re giving. In the end I think that’s one of the things we are going to look back on and be glad about. We’ll look at the ways we were able to contribute to people’s lives and to organizations. I think giving money to people we care about and organizations that have a mission we believe in leads to a lot of fulfillment. Certainly, it has for me over the years and it’s something to consider as you’re planning on what to do with your money.

Number three, you can’t take it with you. I usually hear that phrase uttered on the opposite end of the spectrum. People say that as an excuse because they want to spend money when they know they shouldn’t be spending. They shouldn’t be buying that boat or that car or whatever. They don’t have their financial house in order in those circumstances. But what I’m talking about here today is really for people who just haven’t been very good at spending money. That’s just not their habit. They have a hard time maybe going out and buying a new wardrobe or doing some things to their house. Maybe it’s buying new furniture or having the house painted.

Probably seven or eight out of ten people are thinking, “Wow, this conversation is kind of crazy. I have no problem spending money.” But for people that are so geared toward saving, people that have been good savers over the years really do have a hard time spending. So for those of you who are like that, please do recognize yourselves here. We run the numbers for our clients all the time—cash flow reports and financial projections. And sometimes we figure out that, gosh, your projection here is you’re going to have a boatload of wealth to pass on someday.

What I find is that when people start getting older; once they get into their 70s or 80s, they really start feeling confident that, “Yeah, I’m not going to spend all this money.” Then sometimes we do find they start to loosen the wallet and not only contribute more to charity but also help out kids or grandkids.

So this today is just to throw out a few ideas to spur your thinking time. This is not meant to be saying, “Hey, you should do this or you should do that.” It’s just ideas. It’s observations on things I’ve seen people do over the years to be able to help other people they care about.

Here’s a neat thing: I’ve got a friend who keeps a money clip in his pocket and there’s always a thousand bucks in that clip. It’s what he calls “walking around money.” And he uses it to tip generously. For example, if he goes out to a restaurant or goes to a show and has his car valeted, he tips generously. He wants to make sure he’s always got the opportunity to give money away.

Another way that is really fun, something I think we’ll do a podcast episode about at some point, is buying an experience for people. Sometimes our clients tell us, “You know, our kids are all in pretty good shape financially. They don’t need us to give them cash at this point, but we can create an experience that they wouldn’t have had otherwise.”

Some clients took all their kids and grandkids to Disney World a couple of years ago and did the whole deal. And if you’ve been to Disney World, you realize it is an enormous undertaking as far as planning it out and the number of things that are there to do and see. But it truly in a lot of ways is the happiest place on Earth, simply because it’s an experience that you’re not going to be able to get anyplace else. They truly have created something unique, and of course they can charge prices commensurate with that, so it’s going to be expensive if you plan that trip. But I throw that out there because it’s an experience those folks created. They’ve got memories. They’ve got great photos and video of some of the grandkids when they were little and able to really enjoy that experience. They themselves were older and say they got to mostly observe. They weren’t going on the crazy rides and things like that, but they got a huge amount of joy just watching everybody enjoy and interact. It was also a great way to get the family together.

So, it could be something like that for you. Maybe it’s not Disney World. Maybe it’s buying an Alaskan cruise and having all the grandkids and kids go on that. Maybe it’s not so expensive. It doesn’t have to be crazy, right? It could just be ordering up an Airbnb someplace over a weekend and everybody maybe covers their own flights. Or maybe you’re covering the flights. I’ve seen a number of clients do that. Sometimes it’s coinciding with a big event like an anniversary or somebody retiring. Maybe the grandparents have retired and to celebrate they decide to do something or go somewhere. Clearly, we’re more limited right now in COVID land that we’re all dealing with. Things are starting to open up travel-wise, and I assume that will continue over time. Things will become more available again, cruises and things like that.

Maybe you do a grandkids’ trip when they graduate from high school where they get to go someplace with Grandma and Grandpa, someplace around the country or around the world. I know some clients who have let the grandkids choose an international destination. Again, it was a financial contribution that created memories and an experience they probably wouldn’t have had themselves, something the grandkids would not have been able to have without that gift being made.

So really, you know, those are just a few ideas.

Another option would be to buy people stuff—things like vehicles for example. Sometimes parents buy kids a new vehicle when they graduate from college. Or maybe they help with a certain amount of money as a down payment on the first home. So, whether you’ve got grandkids or kids or none of the above, maybe there are other people you care about, or organizations you care about that you want to be able to help if you had extra money. That abundance mentality can arise after you’ve done your financial planning and you have a high level of confidence in your plan. You can really start getting creative. You can think about things in the following way: “Okay, if I knew I was going to be okay. If I was confident that my financial plan would work out, that I’m not likely to run out of money, that I’ve got a solid financial foundation that means I have a bunch of extra money—if I had to give it away, then what would I do?”

So maybe that’s your thinking time question. Put yourself in that scenario where if you truly had to do something with the money and you couldn’t hang onto it, what would you do? Maybe it’s something you and your kids or grandkids can enjoy. Maybe it’s something for other people or helping the community. It could be opportunities such as helping out for Thanksgiving. I know a group of people who do a basket brigade every single year and take meals around to the community for people who can’t afford to provide a nice Thanksgiving meal, or maybe a disadvantaged family that can’t get out. They bring all the fixings and help out the whole family and create a really nice experience. I’ve gotten a chance to go with them a couple times and it truly warms my heart to interact with those folks and see the gratitude they have for that experience.

So hopefully that gives you some ideas today. I’m sure you’ve got a million more and I would love to hear some of them. In fact, if you’d share any of those with me, I’d love to hear about big wins like that. I’d love to hear about experiences you’ve had in giving money away or just being able to enjoy the abundance you’ve created by being such a good financial steward.

I think this has been a solid topic for today, because it does come up a lot especially for people who have a higher net worth because they’ve done a lot of proper planning. Some have brought up the idea that I should do a podcast episode on spending, asking, “How do we get good at spending?” So hopefully the people who ask for that are listening today.

If you know other people who should be listening to this, please share these episodes with them. You can share the podcast page. That’s how we grow—by you helping us get out there to other people you care about. It might be your family members, coworkers or friends. Whoever could benefit, please share this out to help us get more exposure on the Wiser Financial Advisor. Our mission here is not to make a bunch of money. Our job here is to educate. We’re here to really use wisdom that’s time-tested, not stuff we just made up. This is stuff we’ve been able to use through experience or gained from people that have come before us, sometimes hundreds or even thousands of years ago, by the way. We’re using that wisdom to our advantage and learning along the way.

Thank you so much for listening today. Have a great week, and God bless.

This episode has been prepared for informational purposes only and is not intended to provide and should not be relied upon for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors. Investment advisory services offered through Keystone Financial services, an SEC registered investment service.