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About the Author
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YOUR MONEY PHILOSOPHY
"Darn it! I saved too much for retirement!" - said nobody, ever
What the heck is a money philosophy? Guess what? You already have a money philosophy–you just may not know it! Simply put, your money philosophy is what you feel money does for you in your life. Sure, money has a monetary value. But it also has a life value, meaning that money funds things that we value in our lives.
Everyone leads a unique life, and we all value different things in our own personal way. You may value the experience of traveling the world, while your next door neighbor values spending time in their garden, nurturing the growth of vegetables and flowers. Perhaps you value a higher university education while your friend values the lessons taught through trade school. Maybe providing a loving home for abused pets matters a lot to you, while your spouse gets excited about programs that support young children. Whatever captures your interest generally takes some level of money to support. How you use the money you have to fund your time, experience, and connection to the things you value IS your money philosophy.
Let me share with you how I developed my money philosophy. It has shaped my life and my financial business, and is ultimately why I chose to write this book.
By the time I was 19 years old, I was already a divorced single mother of two kids under two years old. We lived in a low-rent apartment complex, and I bought my groceries with food stamps. I didn't get any child support and had to desperately try to make ends meet with my minimum wage job and a welfare check.
When I looked around me, I realized that many people in these apartments had been there for years. They were never able to dig themselves out of the financial hole that they were in. I didn't want that to be what my future held. I didn't want to let the fact that I had been a pregnant teenager dictate the rest of my life. I didn't want to be another statistic. I wanted something better for myself and my children. And I realized that in order to create a better life for us, I had to learn how money worked.
So I spent my days working and taking care of my kids, and I spent my nights with my nose in a book, taking classes. This was hard. I was exhausted for about five years. But I learned a number of really important things along the way that have shaped my money philosophy, and ultimately defined how I work with clients today. Here is what I learned.
Money is not about the material things you buy. Sure, it's nice to have quality things, but that's not the main purpose of money. Money is also not about the feelings of happiness or security that many people associate with it. In my opinion, the only thing that money really does is buy you choices. When you have no money, your choices for how to live your life seem very limited. But when you do have money, you can choose to use the money you have to fund the life you want to live.
That's it–that's my money philosophy: money buys you choices. So how does that connect to confidently knowing when to pull the retirement trigger? Here's how. When it comes to retirement planning, any advisor can give you graphs and charts and numbers. Heck, you can even create that yourself on the internet these days if you really want to. But what I am really, really good at is understanding what's most important to you, and then helping you align the money you have with the life that you choose to live. And that is what a good retirement plan is all about.
I have used that very money philosophy to create value for hundreds of clients as I built my financial planning practice. What started as a simple desire to provide a better life for myself and my children has taken me from welfare to wealth management. By studying hard, I was able to obtain my Certified Financial Planner certification, and I now lead a large financial planning practice staffed by an amazing team of talented advisors. We are headquartered in South Dakota, with nine affiliated offices across the Midwest that serve clients nationwide.
My passion in life–my purpose, if you will–is to inspire people to create their own best future. If I can show you how to use the money you have to create the life and retirement that you want, then I feel I'm living my purpose. There is truly no better feeling than having a positive impact on someone's life and future.
So how do you really dial into what your money philosophy is? Let me give you three questions to consider that will help you get there.
1. If you had all the money you'll ever need or want, what would you spend time doing?
2. What legacy, if any, would you like to leave? What is important to you about the impact you leave on this world?
3. What was money like for you growing up?
The answers to these questions inform your money philosophy. They tell you what really matters in your life, and that you probably will want to allocate money in your retirement toward those things. What does that mean? Here are some examples.
In question one, if you said you would spend your time traveling the globe, then you might want to build a travel budget into your retirement plan for the first 5-10 years. If you said you want to spend your time painting all day, you might want to include money for art supplies and studio space. Perhaps you want to spend time volunteering at the local soup kitchen. Consider the idea that you may also want to make monetary contributions as you volunteer.
In question two, if you said the impact you want to make is showing your children and grandchildren that spending time with family matters, then you may want to include money in your plan for airfare to visit long-distance family. If you said your legacy is to leave your wisdom for generations to come by writing your memoirs, then perhaps you want to set aside funds to self-publish your book. Perhaps you want to provide a college education for great-grandchildren–then you may consider isolating a chunk of your retirement assets for that specific goal, or consider funding that legacy through a life insurance program.
The first two questions also help assess your emotional readiness as you contemplate retirement. Many people are unsure about how they will spend their time once they stop working. They question how to stay mentally sharp and socially engaged. People tend to feel more confident of their next step when they have given thought to how they will remain active and contributing members of their community. These questions open the door to dream about how you might spend your future time in a way that feels purposeful, productive and peaceful. The more narrowly you hone in on this, the more emotionally ready you will be to pull the retirement trigger.
What does question three indicate? There is a strong link between the lessons we learned about money as we grew up, and the way we feel about money right now. If you grew up feeling like money was no big deal and there was plenty to go around, you are more likely to feel comfortable with higher levels of risk. You most likely don't lose much sleep worrying about having enough cash. You would probably prefer a strategy with a bit more emphasis on growth potential vs. protecting against loss at any cost.
However, if you grew up where money was tight or even nonexistent, you are more likely to worry about there being a scarcity of money later in life. It can be difficult to feel safe or secure, even if you know there's money in the bank. You are likely to be more concerned about not losing money vs. actually growing it. Your strategy would probably require more emphasis on protecting value, as opposed to growing at high rates.
Of course, not everyone fits perfectly into one of these "types," but generally speaking, you probably can recognize yourself in one of these viewpoints. It is important to know this, because it speaks directly to how much risk you should blend into your retirement portfolio.
You may have heard the term "risk tolerance" and are wondering what that really means. Simply put, risk tolerance means how much fluctuation you can stomach in your own accounts as markets move up and down. There is no right or wrong with risk tolerance. It all just comes down to how you feel. If you can handle the ups and downs without losing a wink of sleep, then you have a more aggressive level of risk tolerance. If the value of your account dropping–even just a bit–makes your stomach churn, then you have a more conservative risk tolerance. Oftentimes, people land somewhere in the middle of these extremes, and we call that a moderate risk tolerance.
Over time, your tolerance for risk is likely to shift. As you get closer to pulling the retirement trigger, you may find yourself moving from aggressive toward more moderate. Or from moderate toward conservative. Everyone is different, but what's important is that you determine what your own level is.
So how do you know what your risk tolerance is? Fortunately, that's really easy! There are dozens of short quizzes that you can find on the internet or through your financial advisor to really zero in on your personal risk tolerance level. We have assembled a Strategic Retirement Tool Kit that you can download for free from our website. It includes a number of tools that we'll talk about in this book, and among them is a Risk Tolerance Quiz. It has a few questions and a simple scoring system that will help you determine how much risk you're comfortable with. Maybe a little, maybe a lot–who knows? The important thing is that you determine your risk tolerance level, as it is an important piece of your money philosophy.
A good retirement plan will align the money you have with the life you want to live. It will fund the experiences and activities that matter to you. A strong strategy will connect the value of your money to the people and things in life that you value. It will also identify exactly how much risk you personally feel comfortable with in your retirement portfolio. Therein lies your own personal money philosophy, which is the foundation of your retirement planning.CHAPTER 2
"I wish my wallet came with free refills!"
Retirement has been called the Golden Years, the Eternal Saturday, and the Final Chapter. Personally I don't think any of those labels apply anymore. The retirement your grandfather desired probably consisted mostly of sitting on the front porch in his rocking chair, watching the world go by. While you are likely looking forward to time spent relaxing, the retirements of today are dramatically different and usually much more active than the retirements of yesteryear.
In fact, many people simply have no idea how they will actually spend their time when they stop working. The questions begin to swirl again. What if I'm bored? What will I spend time doing? What if my spouse gets sick of me hanging around the house? Once I get my list of projects done, what will I do next? What if I end up wishing I hadn't quit my job? Can I afford to do the things I actually want to do?
Let me share Helen's story with you. Helen spent her career as a distinguished college professor in the upper Midwest, teaching art history to young talented minds. Her love of both the old masters and contemporary artists created a learning environment for her students that inspired amazing work. She had spent time during her academic years creating her own art, but it was always sandwiched in when time allowed between her teaching job and raising a family.
When Helen was contemplating retirement, we spent time visiting about what really mattered to her. She discovered that she had a dual desire: to create beauty in the world, and to help the less fortunate living in third-world countries. Helen had saved around $500,000 in retirement accounts, and I was able to help her design a strategy to include funding for both desires in her retirement plan. We allotted a set amount for studio space, gallery and show fees, and painting supplies, so she could create new art to brighten the world. We also included funds designated for charitable giving and travel expenses in her annual budget during the first five years of her retirement, so Helen could contribute to helping those in need.
The time Helen took to dream ahead about how she wanted retirement to look and feel made all the difference. She solidified her emotional readiness by carefully considering what mattered most, and allocating resources to it. So here is your chance. What do you really want? I invite you to envision your future without judgement. This is not the time to worry about the "how"–we will flesh that out later. If your dream is to retire and open a bakery in Paris, don't worry about the details of the work visa, focus on the taste of the chocolate pastry! I don't know if you'll be able to align your money with fulfilling every one of your dreams, but I do know that in order to try, we have to understand what those dreams are made of.
Next, we begin to connect the emotional readiness with the financial data. By developing your own personal Money Philosophy in chapter 2 and with the work we'll cover in chapter 3, you'll be able to use that information to build the framework for your financial needs during retirement. For this step, you'll need to take a look backwards at how you have been spending money, and then look ahead at what you will be spending money on in the future.
Some of you reading this might be starting to cringe as you anticipate the dreaded B-word. Believe me, I fully recognize that no one likes the word "budget"! In fact, some of you may want to put down this book and stop reading altogether. But don't! I'm not suggesting that you need to live on a budget, or that you have to follow an exact budget once you pull the retirement trigger. Let me show you how a budget plays into your planning without making it too complex.
There are two ways to create a framework for determining the moment when work becomes optional. The first way is to estimate your needs. The second way is to use a budget tool to lay out a more precise cash flow plan.
If you want a rough estimate, use your tax return as a guide. Take your gross income and subtract your federal and state taxes, your FICA taxes, and your retirement plan contributions. This will give you an approximate idea of the amount of money you're currently living on. The upside of estimating is that it gets you a number quickly and easily. The downside is that estimating really only shows you how you've been living in the past, not how you plan to live going forward.
If you want a more definitive number, use a budget tool as a guide. First, find a budget tool that you feel comfortable with. Some self-proclaimed math nerds like me opt to use Excel spreadsheets. Others prefer a paper ledger. We have created a fantastic Budget Tool as part of our Strategic Retirement Tool Kit that you can download for free. Word of warning: not all budget tools are created equal. There are certain things a strong budget tool should include:
1. The budget tool should show a monthly as well as a yearly view. Expenses like property taxes may only happen twice a year. If your budget tool is only a one-month look, you're likely to miss some things that don't occur each and every month.
2. The budget tool should have space for incomes and space for expenses. A strong tool will have formulas built in to show where you have gaps between income and expenses once you've entered your information.
3. The budget tool should suggest categories for you, including ones that are easy to forget. Do you spend extra in December for Christmas gifts? What about lawn services in the summer and snow blowing in the winter? Did you include getting your hair done every two months?
4. The budget tool should clearly note which expenses are fixed–meaning they don't really change much month to month or year to year. You also should be able to easily see which expenses are variable–meaning they are likely to shift and change over time.
5. The budget tool should give you a place to note your future incomes as well as your future expenses. This will make the creation of your final retirement strategy much simpler in later steps.
Once you have settled on the right budget tool, pull together all the information on what you have been spending. Gather your checkbook, your bank statements, and your debit and credit card histories for the last three months. Use this information to fill in the expenses section of your budget tool. At this point, don't worry about the income side–that will come later. For now, we're only concerned with learning what you have been spending and what cash needs you are likely to have during your initial retirement years.
First, go through the statements you've gathered and plug in the relevant numbers to get an idea of what you are actually spending money on right now. Then think through the rest of the year to bring in the items and experiences you spend money on that are occasional, rather than monthly expenses. Enter those things into your budget tool.(Continues…)
Excerpted from "Ready to Pull the Retirement Trigger?"
Copyright © 2017 Mary Sterk, CFP.
Excerpted by permission of Morgan James Publishing.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
CHAPTER 1 Your Money Philosophy,
CHAPTER 2 Looking Ahead,
CHAPTER 3 Where Are You Now?,
CHAPTER 4 The Healthy Truth,
CHAPTER 5 It's All About The Benjamins!,
CHAPTER 6 Time To Strategize!,
CHAPTER 7 Shaky Trigger Finger?,
CHAPTER 8 Confidently Pull The Retirement Trigger,
About the Author,