Behaviors that will change your life – Part Six & Part Seven

by Ken Rupert. 0 Comments

I am posting these two parts together because they address the issue of investing and the investment industry.

Consider investing akin to spending

There are two basic categories of people when it comes to money management: spender and savers. Now there are variations within these two categories, but for the most part, you are either fiscally liberal or fiscally conservative. For those who are spenders, consider your investment dollars as a resource for buying your future, today. For those who are savers, resist the desire to squirrel away every extra dollar you have and live a little. That being said, let me share with you a few interesting aspects of spending money, which you need to view as retirement planning rules. First, money spent cannot be accessed for additional purchases. You can only spend an earned dollar once. Some people fail to get ahead in their retirement savings because every dollar they put away is still seen as available for spending, albeit those dollars are a little more difficult to access. If you consider your retirement money as spent money, you know you can no longer consider it available for use. You cannot go to a merchandiser and request that he or she give you back the money you used to purchase an item so you can use it to purchase another item. Barring a return of the item purchased, you cannot spend a spent dollar a second time. If you contribute to a 401k, you should never take out a loan against that account. (For reference, reread the story told in the previous behavior.)

Beyond retirement savings, consider money in your emergency fund, your sinking fund, and any other type of investment fund as off limits. Once you have made the investment, fight the urge to tap those resources unless you are faced with a dire emergency or unforeseen financial crisis such as a medical situation or a job loss. The second rule of thumb is to never commit financial resources to your retirement plan that you cannot absolutely live without. If you commit needed financial resources to your retirement, you are setting the stage for temptation and failure. Only commit financial resources to your retirement plan that you can function without. It is better to err on the side of fiscal conservatism than it is to incur tax and early withdrawal penalties. The third rule of spending that aligns with retirement planning is always communicate with your spouse about the threshold of retirement savings. Retirement planning is a joint effort. Both spouses need to be involved in every aspect. If you are a single income family, where the husband earns the income, it is imperative that the husband always, ALWAYS funds the wife’s Roth IRA first. It is alright for the husband to fund his 401k at work to the amount matched by the company, but the wife’s Roth is the next priority. Again treat these resources as spent. Do not rationalize away your wife’s future for your present day desires. The same also applies if the wife is the income earner.

Don’t do what everyone else is doing

Years ago I had an epiphany. I was reading through the Proverbs of King Solomon when I came across this little nugget. “Be not thou envious against evil men, neither desire to be with them.” (Proverbs 24:1). The reference verse was Psalm 37:1 where King David (Solomon’s father) wrote “Do not fret because of those who are evil or be envious of those who do wrong.”  Now I am not going to get all wrapped up in any theological exegesis about these statements, but I will tell you that where I was in my life at the time could have been defined as envious of others. I saw people around me doing things I wish I could be doing. I wanted to experience their life as if it were mine. The definition of envy is to desire to live someone else’s life as if it were your own. However, I have learned that in order for a person to make better decisions about anything, that person has to live life from his or her perspective according to his or her specific bent. I am not saying that people are necessarily evil (as indicated by the raw text), but the principle of the two references is that you shouldn’t desire to do or be what everyone else is doing or being. The key is this, take the energy you spend being like everyone else and turn it into energy spent on doing the things that are profitable to you.

Retirement planning is an industry. There are all sorts of companies who sell retirement products from loaded mutual funds to fixed and variable annuities. I have known far too many people who leave their retirement planning up to an “expert”. Just remember, the expert you trust with your retirement planning is paid from commissions that are generated by the products they sell you. Retirement planning requires you to become knowledgeable about the opportunities in the market place. How many people have gone to a financial planner because a friend used that person? My wife and I began our investment process this exact way. A friend told us about a financial planner who did not charge any fees for people who came to him by referral. So we decided it was time to start investing some money and we set up a referral appointment. I am a pretty analytical person so I listened for the number of times he reassured us that he did not charge any fees to clients who are referred to him by a current client. I had also read some information about loaded and no load mutual funds, which would come in handy later on in this process.

To make a long story short, I eventually figured out that he charged no fees because he would receive a little paycheck every time we invested money in the loaded funds he “recommended” for us. There was no conversation about our goals. There was not conversation about our finances except our income and how much we had available to invest. There was no discussion about having an emergency fund or a sinking fund for major purchases. Just “give me your money so I can invest it in these wonderful loaded mutual funds so I can insure my passive revenue stream.” I do not mean to be hard on financial planners. Some of my friends are in the industry. But I want you to be knowledgeable concerning what you are really getting when you decide to use a financial adviser. Financial advisers get paid from the loads you pay on the mutual funds and financial products they recommend you invest in. That is the bottom line. Knowing this, I decided that I would take the time and energy required to learn about investing. I decided not to do what everyone else was doing. I was alright with not beating the S&P 500 every year. I was alright with not being as wealthy as my neighbor. My strategy was fully developed by me, for me, so that I could be in control of our retirement planning.

The lesson I learned was “Stay away from the trap of living someone else’s life or desiring someone else’s life style.” Establish your vision, mission, and purpose for your life and stay true to that VMP. I am passionate about having a vision, mission, and purpose for life. But I do not just advocate having a single VMP. I recommend that you have at least two VMP’s if you are married. One needs to be a personal VMP. The other should be a family VMP. These two, of course, should support and enhance each other. You want alignment because misalignment will cause you to be pulled in two different directions. What did that wise old King Solomon write? “Two are better than one, because they have a good return for their labor: If either of them falls down, one can help the other up. But pity anyone who falls and has no one to help them up. Also, if two lie down together, they will keep warm. But how can one keep warm alone? Though one may be overpowered, two can defend themselves. A cord of three strands is not quickly broken.” (Ecclesiastes 4:9-12) Part of the retirement planning is to develop a vision, mission, and purpose statement for you individually and you as a couple so that there is perfect alignment concerning your future.

This behavior, to not do what everyone else is doing, cuts across so many layers of your life. While everyone else is taking expensive vacations, you need to think about retiring at fifty-five. While everyone else is buying expensive toys, you need to think about that boat on the lake in Tennessee. While everyone else is buying bigger homes and newer cars, you need to think about that paid for house and that round of golf every morning. While everyone else is using credit to supplement their incomes, you need to think about being financially independent. While everyone else is running around from soccer game to baseball practice, you need to think about the memories you will make not having to work until you are seventy-two or older. I do not begrudge anyone any of these temporal pleasures, but you need to compare and contrast the value of all of these things in retirement to a retirement where all these things can be experienced. The bottom line is to do things differently even if no one else is doing them. Think differently about how you want your retirement to look. The time to begin to work towards your retirement is not five years before you leave the work force. The time to begin to work towards your retirement is now.

 

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