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How Much Money is Enough?

How Much Money is Enough?

I’ve been thinking a lot about the concept of enough, and not just when it comes to money, but rather about how having a concept of enough is closely tied to the ability to feel satisfaction.

It has occurred to me that if we live in a world where we don’t believe we can have enough of certain things, that it robs us completely of our ability to ever feel fully satisfied with them.

Think about how often, and nonchalantly, phrases like, “you can never have enough _____________,” or “no such thing as too much/too many ________________,” get tossed around, like little landmines waiting to undermine our satisfaction with whatever word somebody dropped into those blank spaces.

A Constantly Changing Threshold

With money, enough can feel like a hard concept to pin down. For most of us, there’s always something we could imagine adding to our lives if we had just a bit more to spend. Or a ‘feeling’ of a certain level of security we believe that a certain dollar amount in the bank or stashed away for retirement might bring. But it’s a sneaky feeling to follow, because over the course of one’s lifetime, it’s not uncommon that we just keep moving the bar on that concept of enough.

The only thing that stays the same about the phrase, “If I only made (or had) this much… then I would feel more secure (or quit my job, take a little more time off, etc.),” is that we seem to keep saying it, but every time we say it, we’ve changed the bar so it always feels just out of reach.

There IS Such a Thing as Enough Money

But the concept of marginal utility applies to money, and everyone reaches a point at which more money and more stuff doesn’t actually add more comfort or happiness in the way that they once did. In fact, what research has found is that once a certain level of comfort is reached, money, like just about everything else, eventually reaches a peak where the pursuit and accumulation of more actually detracts from overall happiness and feelings of satisfaction.

And if we are stuck in a loop that says there’s no such thing as too much money, or you can never have enough money, it’s also quite easy to just accidently spend a significant portion of our lives on the downside of that marginal utility peak… pursuing more happiness through more wealth, when in fact, it may actually be starting to take away from our feelings of joy or satisfaction.

Which is why it’s essential to define this idea of enough for ourselves.

Without a clear definition of what is or is not enough, there are so many decisions that are impossible to make. How do we know if it’s worth it to take that higher paying job or work more hours? How do we know if it’s okay to take the dream job that pays half as much? How do we know if we can take a year (or five) off of work to stay home with our kids? How do we know when to stop accumulating money to fund our goals? How do we know when we can retire? How do we know if we can give more of our money away to the causes we believe in or people who have a greater need than ourselves?

Developing a Qualitative Definition of Enough

The first step in this process is to define what a satisfying life looks like for you, now and in the future. The important thing here is not that we all have the same definition of enough, but that we each work to define a life that feels like enough for us.

A good place to start is to think about the times/places you’ve felt happiest and most fulfilled.

What does your life look like?

Where do you live?

What are you able to do without financial worry or hardship?

How much do you work?

What are the things you spend money on that add great value to your life?

What are the moments, days, and times in your life where you felt fullest and most satisfied?

What did you need from money in those times, and what elements were unrelated to wealth or earning?

What does your life look like?

Where do you live?

What are you able to do without financial worry or hardship?

How much do you work?

What are the things you spend money on that add great value to your life?

What are the moments, days, and times in your life where you felt fullest and most satisfied?

What did you need from money in those times, and what elements were unrelated to wealth or earning?

That’s really job one – defining the parameters of a satisfying life for yourself and noticing what elements of those times were made possible by a certain level of earning or availability of funds.

Because if we try to start with the dollar amount, we’ve missed the entire point of money. Money is a tool to meet our needs and to increase the comfort and quality of our life.

A Scrooge McDuck-style roll in a pile of money never left anyone feeling anything but the need for a shower. It’s not the money itself that matters, but the life it allows you to live, and perhaps some feelings of security, flexibility or freedom that it allows you to have. Start by defining that. What are the non-monetary characteristics of a satisfying life for you? In what ways does money contribute to or allow you to pursue that life?

What Does Enough Cost?

Job two is to figure out what that life costs, now and in the future, and to figure out how much money you need to earn and save to have enough to comfortably live the life that gives you the best shot at feeling satisfied.

When it comes right down to it, this is at the heart of why a lot of people choose to work with financial planners. In a world that directs us to earn and save as much as we possibly can from the minute we start working, there becomes a point at which many of us actually need someone to help us decide when it’s okay to jump off that cycle – to get a professional opinion so that we know when it’s okay to work a little less or take a lower paying job; to know when we’ve saved enough and perhaps can think about spending a bit more, and when it’s okay to retire. Without that, we may find that we never know if what we have is enough. We may find ourselves working longer than we need to, or hesitant to say yes to an opportunity that could really add a lot of value to our lives just because of its cost. But what if we can actually afford it?

That’s really at the heart of what a good financial planner does. They don’t define the parameters of your most satisfying life—that’s up to you. But they realize that it’s not really about making you as wealthy as you can possibly be. If it’s done right, financial planning is about taking your definition of enough, your definition of a satisfying life, and helping you understand what money you need to earn, save, and invest to get there.

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Hero image and image of a hand holding cash by Kaboompics

Financial Avoidance is Probably Increasing Your Money Anxiety

Financial Avoidance is Probably Increasing Your Money Anxiety

Feel anxious looking at your money?

Avoiding it is probably making that worse.

When I first say that to people who are money avoidant, they often don’t believe it. How could it be possible? If looking at my money is the source of my anxiety, how could it be possible that not looking at it is an even bigger source of anxiety?

Time and time again, after working with people to address debt, budgeting, and overall money avoidance, one of the most consistent observations we receive from clients is about how more regular interaction with their money is actually decreasing their anxiety, and how, when they occasionally slip into a busy period of time where they don’t have time for regular check ins, that’s where the anxiety starts to ramp up again.

The remarkable thing they’re starting to realize is that the antidote to that anxiety about money is actually money interaction, not money avoidance. 

Why is this the case? There are a lot of reasons, but like many avoidant behaviors, we create a million excuses for why it’s too stressful to sit down and work with our money when the reality is that our subconscious brain knows we need to do it, and that the longer we wait to do it, the more overwhelming it’s going to be.

For most of us, it’s the pressure of the subconscious brain – the one that says “okay, enough, it’s more stressful to keep avoiding this than to start to face this” that finally pushes us into action around money management, debt payoff, etc. But often, by the time that mechanism kicks in, a financial hole may have been dug that is now quite difficult to get out of, and it often results in one day of making drastic decisions to change our money situation, followed by pretty much the same old money avoidant behaviors.

In this respect, it’s a bit like doing the dishes, cleaning the bathroom, or mowing the lawn–when attended to regularly, it’s a lot easier to do. The longer we wait, the more it starts to feel like an insurmountable task. Then, when we finally do take it on, though it feels good in the moment, it’s easy to revert back to our old ways of anxious-avoidance.

So, if you find that stress and money avoidant behaviors tend to go hand in hand for you, it’s important to find entry points and routines around money interaction to help it happen more often. Below you’ll find some tips to build those.

4 Tips to Tackle Your Financial Avoidance:

1.   Make your entry point to money interaction small, regular and neutral.

When you’re first starting this process, a huge mistake can be to try and take on everything you’ve been avoiding about money at one time. That not only feels overwhelming – it IS overwhelming. And for many, if you can work up the courage and energy to tackle money in a big way, it’s often not sustainable – it leads to grandiose gestures and planning around how you’re going to fix all your money problems, but with little day to day follow through.

I often encourage folks to start with one of the following exercises just to practice daily, regular, money interaction.

Stop and notice your spending. Carl Richard’s recommends a method for this called “30 days, 3 seconds” and I think it’s a good place to start bringing basic awareness and interaction to our money. The key is a 3 second pause after spending and a non-judgmental awareness statement. Something like, “I just spent $_________ on ___________. Isn’t that interesting.” Not good, not bad, just interesting. To add to his suggestion, I might also suggest 3 deep breaths. This is about a 5-10 second time commitment per transaction.

Make a record – either as it happens, or at the end of each day, of your spending. You don’t have to keep it. You don’t need to judge it. You don’t need to do anything with it. Just practice writing it down, taking a few deep breaths, and for now, leaving it at that.

If even those feel like too much to take on at first, start smaller. Open your banking or budgeting app on your phone once per day. Just open it. Look at it. 3 deep breaths, close it.

The point here is not to move the needle on your spending or savings behavior, it’s to start to move the needle on your avoidant behavior and anxiety.

Years ago, I worked with a student who had such severe anxiety about coming to school and being at school that we made a plan for her to become my before school teacher’s assistant. The agreed upon purpose of that time was to give her a way to come to school and just sit in a neutral space for 30 minutes, and from that space, decide whether she could carry on with the rest of the day. That’s it. Sometimes we’d talk, sometimes she’d draw, and sometimes other students would come in to get help or talk, and realistically sometimes she didn’t show up.

But the key element was that the time wasn’t for her to help me, or for her to get caught up on work she’d missed, even though she had a ton of it. The point was to make the step between her and her first period class smaller, and less anxiety-inducing. It was for her to practice walking into an environment that caused her anxiety, and to give her a safe place to land on the other side. Of course, from a behavioral perspective, I knew it was more likely that she’d decide to go to first period if first period was 50 yards away than if it was 4 miles away, but I also knew that the only way to get her 50 yards away from first period was to help her create a regular routine where she could be met on the other side of the school entry way with a place to calm her amygdala down.

Step one is not about changing your money behavior; it’s about creating a micro-money routine that feels safe enough to enter into daily, or even multiple times each day.

2.   Start to Build Your Plan of Micro-actions.

If you’ve done 30+ consistent days at step one, then it’s time to start thinking about moving the needle on your money situation.

The smaller the parts you can break this process into, the more likely you are to do them, because they are far less likely to feel overwhelming.

Make them present and maybe a tiny bit future focused. Spending a lot of time at this stage thinking about why you don’t have any savings or how you got into debt is not actually very productive. Similarly, spending a lot of time thinking about retirement or buying a house if you’re buried in a pile of credit card debt is also likely to just kick that avoidant-anxiety into high gear. What small action could help improve your money situation today? What might you want to try and accomplish this week with your money?

What kind of “small action” are we talking about?

Depending on your financial situation, what you need to move the needle on your money situation may be different than what someone else needs.

The following examples aren’t suggestions for your situation, but rather, designed to illustrate the size of the action you might want to consider taking on as a next step:

Opening a savings account.

Starting an automated $10 per month contribution to your current savings account.

Submitting an application for assistance with a utility bill.

Canceling a single subscription that you’re not using much.

Making a trip to a no-barrier community support resource like a food bank so that you have enough to pay your rent this month.

Calling a credit counseling company about a debt management plan.

Don’t ask all of these of yourself at once. For example, if your next step is to open a savings account, focus on that this week. Perhaps next week or the week after, your next step can be to automate a $10 transfer per month into that savings account. And 2 months from now, you might increase that to $15 per month.

The key here is to pay really close attention to making the steps small enough at first that you can reasonably tackle them without anxiety stopping you. If you create a task that you don’t accomplish – ask yourself: how can I break this into two manageable parts and do the first one?

What is interesting about micro-actions is at some point, they often will lead to more actions, and you’ll do more than you set out to. Don’t resist that when it comes, but it’s important to also not expect it or be disappointed if it does not immediately have that impact.

You might ask yourself to only open the savings account this week, but once you’re on the bank website doing it, you might also find that it’s not much more difficult to set up that automated transfer now.

You might plan to cancel one subscription, but once that momentum is going, you might feel called to cancel a couple more.

The key is that the extra step is not the expectation. You can do it if you want to, but to get today’s gold star, all you have to do is the single small task. If you happen to WANT to do more, do, but if you just do the smallest task, that’s still a big deal, and it’s enough for today.

In the “pile of dirty dishes” analogy, the ask is simply to walk over to the sink and wash one plate. If you also happen to wash a fork while you are there, that’s just extra credit 🙂.

Remember that the idea or the goal here is to build small, intentional action items that help transform your feelings about interacting with your money from anxious and avoidant into neutral, and eventually positive.

3.    Just keep doing it, adding small intentional money interactive steps.

It’s funny, we make money out to be this thing that’s different from other things. Like somehow, the steps required to become better with our money are different than the steps required to become better at anything else.

Think of it like a hobby or a sport. You don’t become good at it overnight, and you don’t become good at it because you made a new year’s resolution to become better at it. You become good at it because you learn about it, you receive coaching and support where needed, but most importantly, and I cannot stress this enough, you become good at it because you practice it regularly.

Consider for a moment trying to become a better piano player or a better ballet dancer. If someone said to you, “What is a better way to become better at this, practice it every day for 5 minutes, or practice it four times per year for an entire 8-hour day?” – it’s a no-brainer that 5 minutes a day will make you better than 4, 8-hour days of practice with nothing in between.

It is, in fact, the exact same time commitment, but one will yield far better results. This is also true for money.

4.   Notice how your consistent interactions shift your feelings about money.

One of my favorite client moments was talking to a client who, after a year of working with me, came to our meeting and told this story:

Last weekend, we took our kids to a Mariners game with their baseball team. We got caught up in the moment and spent more than we intended on everything. I was feeling really anxious about it, which a year ago would have led me to more spending, relying on credit cards to get through the month, and feeling like I wanted to give up. But the next day, we just sat down with our budget and realized, we really only spent $80 more than we had intended to, and if we just cut back on a few of our more expensive grocery items for the next couple of weeks, we’d be right back to even. And we had a lot of fun that day at the game, so it felt like a worthwhile tradeoff

My financial planner heart did some backflips for the client in this moment. What a big deal – a huge moment for them to not only have this experience, but also to have such awareness of it and how much they had changed.

The quicker you go back to full engagement with money after spending more than intended, the less likely it is that the runaway train of anxiety takes over. You’re also more likely to spot a quick solution to alleviate the impact of overspending. And the better you build your routines around low-stress daily money interaction, the more likely you are to do this. And the more you notice it working, the more you’ll come back to it.

But notice another key element of this story… it happened after A YEAR of work on this. A year of advisor-supported work with this.

This change doesn’t happen overnight.

And whether you’re working with a financial coach or advisor, an accountability partner, or simply tackling it on your own, at the end of the day, it’s the daily habits, the daily interactions, and the regular engagement that will not only move the needle on your overall money picture, but that will actually alleviate that intense feeling of anxiety that follows some of us around when we go out of our way to avoid dealing with our money.

Want to learn more?

Get in touch with Lorri or Gabbi to talk about your financial goals today!
CONTACT US

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Hero image by Alexander Grey

Characteristics of Effective Money Management Programs

8 Reasons Your Money Management System Might Not Be Working for You

What works for one will not work for all

A lot of financial advice (and certainly most non-professional financial advice) falls into a category that can be best summed up as “this worked for me, so you should do it.” This isn’t unique to financial advice. As former math teachers, we could tell you a million stories about the specific ways in which every parent, English teacher, doctor, or supermarket clerk wanted to inform us about the best way to teach math. And we could also tell you that it’s all pretty much based on the notion that what worked for that individual person will work for everyone.

But when you spend hours and years teaching the same ideas to thousands of young people, what becomes readily apparent is that what works for one is not always what works for another.

In fact, what might be an impeccable, flawlessly designed lesson on any given topic will almost certainly leave a few kids completely in the dark. That’s not a failure of the lesson or the teacher, unless the teacher fails to realize that there’s actually no one activity or one way of teaching an idea that’s going to resonate with every single student. But very often when financial advice is delivered casually, it is claiming to do just that: give a single piece of advice that is going to work for everyone. But it won’t, so it’s a pretty hit or miss strategy to take advice from your uncle, father-in-law, or that person who has a show on MSNBC or a channel on YouTube.

And what it also means is essentially, even as financial advisors, we can’t actually, with 100% certainty, prescribe or teach a money management method that will work for all of our clients. We can give them things to try, things that can be tested and modified, but ultimately, what works for some will not work for everyone.

That being said, what we can do is talk about the elements that all effective money management systems have. Because without each of these in place, what can seem like a good management system, can end up leaving us feeling like a failure if/when it doesn’t work (maybe tomorrow, maybe a year from now, maybe 30 years from now), when in reality, it may have been that we missed some key elements of planning in our system, even if we implemented it with fidelity.

So, as you continue to work to find the money management system that works best for you, keep in mind that any system that’s going to work for both short and long-term money management needs to have the following characteristics:

It pays attention to what we can control, and it’s fundamentally simple.

There’s no magic in money or budgeting, it comes down to the same thing.

Two controllable components: What you earn, and what you spend. And a budget that’s not working has only two levers to make it work better – spend less or earn more.

It considers a bigger picture than just monthly expenses.

A simple list of your monthly bills is going to underestimate your cost of living.

It doesn’t account for expenses that occur irregularly, like once a quarter or once a year, or even once every three to five years. And though lists of expenses often account for things like gas and groceries, they often underestimate discretionary spending. 

A money management plan that is going to be effective must account for all of your expenses, even those that don’t occur every single month.

It expects the unexpected
(and saves for it).

Life is full of unexpected expenses.

Even if you have done a great job budgeting for your irregular, non-monthly expenses, a budget that doesn’t have a category to save for unforeseen larger expenses (like unexpected vet or medical bills, or major home and car repairs) is going to come up short, it’s just a matter of time.

Murphy’s law is as applicable to your financial situation as it is to anything else – if it can go wrong, it will go wrong. If you’re pretending it won’t, you’re working with a money management plan that will ultimately come up short when it does.

It leaves room for flexibility.

This sounds like “expects the unexpected,” but it’s a little different. “Expect the unexpected” means regular and intentional savings for big expenses you do not see coming.

Leaving room for flexibility means not committing your spending down to the last dollar of your income. It acknowledges that some months you might have to put an extra tank of gas in your car, or perhaps just a fun thing comes up to do with friends that you weren’t expecting that costs some money.

If your income is committed down to the last dollar in terms of expenses, even a small unexpected expense breaks the budget.

Notice the difference here – it is fine to have a plan for all of your dollars – but you need to make sure you’re not committing each one to a specific expense. Some of your dollars need to be committed to flexibility.

Budgets need breathing room. How much breathing room probably depends a lot on how much of a planner and categorizer and tracker you want to be, but every money management system needs a way to roll with smaller expenses that you don’t expect, without having to tap into its savings or emergency system.

It is highly interactive and has regular opportunities for feedback.

If you are a person who gets to the end of a month only to realize you’ve once again not met the savings goals you have for yourself, or, worse yet, added more debt to your credit card – you need more regular check-in points.

A common thing to do in budgeting is to plan it, set it aside, and look at it again at the end of the month (or maybe many months later) only to realize it didn’t go according to plan. Money needs to be interacted with regularly. It’s impossible to believe we will be successful in money management and accomplishing our financial goals if we only take stock of them once a month or a few times each year.

This would be like expecting to transform our fitness by taking Zumba class once a month, or to improve our dental hygiene by flossing only once a year.

If you have a monthly budget but you only check it at the end of the month, how could you possibly correct for any overspending or missteps during the month?

And for those of you who may be clamoring that you are quite successful with money and staying in budget, even though you don’t budget or track regularly, I would posit that you have a lot of small, intuitive, subconscious, and/or casual interactions with your money regularly, and that you are not actually avoiding or ignoring it for months at a time. You may not need this level of intentionality in creating more regular check-in points, because you’re doing it on autopilot, but this blog post probably wasn’t written for you anyways.

The other reason this is important is because sometimes a system that worked for you at one point, may no longer be working for you, and it’s important to see that and make changes to it sooner rather than later.

The use of debt is minimal,
strategic, and intentional.

Debt – while not an enemy of a good money management plan, should only be included in ways that involve a full analysis of the costs and benefits of taking it on (say, for education, or a home purchase), because debt payments can severely limit your agency and flexibility to make and adjust your money management plan.

A person who carries very little debt can often, in a pinch, substantially reduce living expenses for a month or two if that is needed; a person who carries a lot of debt has no such option.

About 50% of Americans are currently carrying credit card debt (that doesn’t get paid off, in full, each month), and there is nothing that wrecks a money management plan faster than letting this be an okay way to deal with cost overruns.

It is not.

It is crippling, and it’s typically related to some type of avoidant thinking about money that allows us to believe that even though there’s not enough of it now, surely there will be so much more of it in the near future that we will be able to not only cover our future expenses, but also help pay for the ones we took on in the past.

Credit cards are also quite psychologically elusive. It’s easy to feel like the charges you put on them are not real, and not immediately taking away from your quality of life or other wants or needs that you have. But they are real, and in fact they are taking MORE away from those other things, since the 20-35% interest rates most of them carry mean you’ll be paying a lot more for that $500 charge than $500 of the real dollars in your bank account. 

There is not a good money management system out there that uses credit cards in any way that doesn’t include paying them off, in full, every single month.

It hasn’t forgotten about
a future version of you.

In the hierarchy of needs, we all have a present bias (and should). After all, if we can’t survive in the present, it seems unlikely that we’ll need to plan for the future.

The problem is that we also tend to have present-bias for our current wants over our future needs. Once your current needs are met, the next critical step in a money management plan is to start putting money aside for those future needs.

Even an extremely effective current money management system will likely leave you feeling let down if it fails to consider how it needs to provide for a future version of yourself.

This is why underearning – even if you don’t have any credit card debt – can be so insidious for your financial health. If you’re able to live comfortably on your current salary but aren’t able to save for the future-you, then that is also setting you up for future failure. In fact, spending mindfully and within your means while also not being able to save is a sign that you might be underearning what you need to make to live comfortably.

The real magic is in your ability
to follow it.

Don’t get me wrong, having the plan is important.

And a plan that ignores any of the above items is likely going to leave you feeling unsuccessful and in a financially vulnerable position, even if you implement it with extreme fidelity. But the implementation, that’s where the actual magic happens (and where things tend to really fall apart) for a lot of people.

The magic of a plan that fits you – that works for you, is that it takes away a lot of the unnecessary barriers to your successful implementation.

  • Hate tracking?
    If you hate tracking and can’t seem to do it, you need a money management plan that can keep you in budget without asking you to track or categorize your spending in an excessively detailed way.

  • Always have $0 in your checking account?
    If you tend to spend down to the last penny available in your account, you need a plan that automatically takes those funds out of your account and puts them towards your savings goals (likely in a completely separate savings account you won’t see next to your checking account) so that you never see that money as “available” to spend.

  • Credit card debt keeps sticking?
    If you just can’t stop building up credit card debt that you can’t pay off at the end of the month, you need a plan that doesn’t involve a credit card. At all – get rid of it.

  • Avoiding looking at your money?
    If you simply have a hard time looking at your budget and your money regularly, and a daily or weekly calendar reminder isn’t getting you any closer to the regular interactions you need to have with your money, you may need an accountability partner or a coach.

  • Can’t find a plan that works for you?
    If you’ve really struggled to find a plan that works for you, think about something unrelated to money that used to be extremely difficult to navigate, but that you have since set up the systems and processes in your life to make more functional. What systems or processes did you put in place to make that change? How can those be translated to your money management? 

The beauty of a good plan is that it works for your brain and your way of living.

But no plan is going to go through the hard work of saying “no” to something you want to spend money on because it’s simply not in the budget, that’s on you.

GPS can only get you so far – the rest is on you, the driver

Yep – we’re repeating point 8, and giving it its own section – that’s how important it is.

The plan (aka your GPS) itself can’t go through the process of pursuing more or higher paying work because you’re simply not making enough to pay for what you need or want.

If you’re trying to spend less, but you haven’t found yourself in a situation where you, in the moment, make a conscious decision to turn down something that sounds good to eat or fun to do, the plan may not be the problem.

You need to put your attention and effort on implementation, on staying present in every spending decision and making them in alignment with your plan. A plan that is a good fit for you will remove unnecessary barriers to its success, but a plan that is a good fit for you won’t remove tradeoffs and hard decisions. You’ll still have to make those.

That might mean being honest with yourself about what contexts really push you to make spending decisions that actually aren’t in alignment with your budget or values, and avoiding those contexts where you tend to overspend – at least until you clearly develop the habitual ability to say “no” to items you never really intended to spend your hard-earned money on.

Here’s an example of how this has worked for each of us:

Being mindful of the fact that we’re not trying to say “what works for us will work for you,” we also think sometimes, examples of what this implementation and “setting yourself up for success” piece looks like in practice can be helpful. (And it’s good to have evidence that even your financial planners have to work hard to keep good money management plans and habits in place, and that each of us approach this a little differently.)

So here are a couple of examples of how we have created contexts that set us up for success.

First, become aware of these contexts.

I have realized that it’s never worth it for me to take a casual trip to Target or the mall because I always leave with something I didn’t intend to buy.

Second, put a system in place to stay away from the context that’s pushing you to spend when you don’t logically want to.

I learned to only go to Target or the mall if I have a specific need and to try to squeeze those trips in between other meetings/events. Why? Because I can’t spend an hour casually browsing (& finding fun things to spend money on) if I have to get to work in 20 minutes. I have to run in, grab my vitamins, and leave!

Third, keep getting back up.

The important trap to avoid here is to think “well I already messed up, what’s the point in continuing?” whenever I do end up going to Target for some mindless spending. I try a more compassionate, forgiving approach with myself and it usually works to think “I probably shouldn’t have gone to Target today and I plan to avoid it for the near future until I’m feeling more in control of my spending.” Basically “I messed up and I’m going to do better by avoiding it” (owning my mistake and committing to action to improve).

I definitely recognize that we’re not all going to be perfect robots sticking to our budgets and systems (remember the flexibility piece above??) – so I recommend working with your humanity to practice both radical honesty and accountability with yourself about messing up, but then taking action to do better. And again! I’m not saying this will work for you – it’s just an example to help give you more concrete detail on how you might translate it to fit you.

First, become aware of these contexts.

I place an extraordinary amount of value on spending quality time with my friends. What that means for me is that in times when I am earning enough to meet all my current and future needs, I budget a good portion of my discretionary funds for expenses related to this – I consider it to be very values-aligned, if all of my other needs and goals are being funded. But there have been many times in my life where my budget has simply been too tight to really spend money going out with friends, and I’ve had to be really careful of my tendency to overspend in these contexts. 

Second, put a system in place to stay away from the context that’s pushing you to spend when you don’t logically want to.

I learned that it was unrealistic to think that I’d be able to go out and say, buy a beer, and not have a second beer and maybe get some food also if I was with good friends and having a good time. Suddenly an $8 outing has turned into a night where I spent $40-$50.

So, there have been many stretches of time in my life where I simply didn’t say yes to an outing that involved eating and drinking out with friends. I knew I simply wouldn’t be able to resist the urge to spend more than I had intended.

But I didn’t abandon my friendships entirely – they are, after all, very high value. Instead, there were more walks, bike rides, and backyard bonfire nights. Ways that we could connect and spend time together, without having to spend a lot of money to do so.

Another key piece of this for me was honesty. Though it’s hard to say to friends, “I simply can’t afford this right now.” I found that it has been critical to set that context with them right from the beginning, so that I didn’t have to come up with an excuse not to go out and eat and drink, and so that they knew I was not avoiding them or not wanting to hang out, but rather, I was just prioritizing not overspending.

Third, keep getting back up.

I like that Gabbi used the words “radical honesty and accountability” about messing up, and talked about taking action to do better. I have found that, when my budget is tight and lacks flexibility, a clear and immediate tradeoff is the key to making better decisions in the moment, and quickly getting back on track. I don’t like the feeling that things are spiraling, and I’ve had many times where even a penny over budget was more than I could sustain. I’ve learned that it’s important for me to make a quick correction so that my brain stops worrying about a past poor decision and how it’s going to impact my bottom line at the end of the month. The easiest way to do that is to find an immediate tradeoff for what I just overspent.

So, for example, if I went out intending to spend $8 on a single beer, and ended up ordering dinner and a second beer, and all told spent $40. That’s $32 I didn’t intend to spend. I may have a $30 weekly budget for groceries – and so the next day I might sit down and look at my budget and decide to skip a week of grocery shopping. In my case that doesn’t mean I won’t eat… it just means I’ll be living on peanut butter, and whatever random assortment of food that’s left in my house that won’t excite me, but will sustain me.

And while a diet of expired canned green beans, ramen noodles, and peanut butter may feel like “self-punishment” to some, it doesn’t feel that way to me at all–it feels like choice and agency. In fact, if I do find myself in the exact context I’m trying to avoid again, I can quickly and easily frame up the conversation with myself as “if you have another beer and order some dinner tonight, are you willing to eat oatmeal for every meal this week since you won’t have it in your budget to grocery shop?” and if the answer is yes, that’s great. I have full, guilt-free permission to spend and not feel bad about it. And that’s a form of self-care, because I have agency and flexibility in making that decision, and don’t have to feel bad about it if I do.

Have a question or want to reach out to Lorri or Gabbi?

GET IN TOUCH WITH US

WA Changes Socially Responsible Investment Option for DCP and Plan 3 Members

WA Changes Socially Responsible Investment Option for DCP and Plan 3 Members

A huge change just occurred for Socially Responsible Investors participating in WA’s DCP and Plan 3 Retirement Systems. And if you haven’t made any changes to that account since the fund change went into effect (April 2024), you may suddenly be invested in a far more aggressive portfolio than you were before.

What is the change and who does it impact? 

Prior to April 2024, the Socially Responsible Investment (SRI) Option for DCP, Plan 3, and JRA Members was the Boston Trust Walden Balanced Fund. A 70% Equity, 30% Fixed Income Blended Fund that would be a relatively suitable “whole portfolio” investment for the average investor. 

As of April 2024, the approximately $350 million dollars that WA state investors had in that fund are now invested in the Alliance Bernstein Global Thematic Fund – which is a 100% Equity fund. That means the stock-bond blend you may have been holding in your portfolio is now 100% stocks (about 60% U.S. stocks, and 40% international stocks).

So, if your entire DCP or Plan 3 account was invested in the SRI option, and you haven’t changed it at all, your portfolio has just taken on 30% more equity, increasing both your opportunity for long-term growth, but also substantially increasing your risk. This may be perfectly okay if you are 30 years old with a high level of risk tolerance, but if you’re in or nearing retirement and/or simply have a lower risk tolerance related to your investments, this change has a substantial impact. 

This is particularly concerning considering that a much higher percentage of SRI fund investors in the WA State plan are over the age of 50 years old, and a much lower percentage are younger investors. (Source: DRS Record Keeper Data)

What’s the rationale behind it?

The Washington State Investment Board (WSIB) started working on this analysis in 2021 and announced this choice along with the rationale behind it about a year ago. You can see the highlights of that recommendation here.

The rationale behind moving to a more aggressive equity-only fund was essentially that the fund was most commonly being used as a portion of an investor’s overall account rather than as a single investment designed to “do everything.”

According to their report, once it was determined that an equity-only fund would be a suitable replacement for the current fund, the WSIB screened investment fund options by looking for a fund that had stated, intentional objective alignment with the United Nations 17 Sustainable Development Goals (SDG’s). 

The other main difference between the two funds was in overall strategy – with the new fund claiming a predominantly active investment strategy in SRI causes/themes, and the Walden fund being more of an exclusionary-only approach, designed to keep investors out of certain types of investments. 

Is the new fund more socially responsible or a better investment? 

On paper, it all sounds great:

  • more proactive investment (active vs exclusionary-only) 
  • a wider range of SRI targets based on the UN’s SDGs
  • more opportunity for investment growth due to a more aggressive investment strategy

But does the new fund really pass muster? 

Realistically, most SRI funds fall well short of what SRI investors are asking of them and what they are claiming to do, and both the previous fund and the new fund are no exception. 

But in an independent comparison by the non-profit As You Sow, while the two funds scored similarly on fossil fuel exposure, prison industrial complex exposure, and civilian firearms exposure, the new fund actually scored worse on military grade weapons exposure, and substantially worse on gender equality and deforestation than the old fund did. So, while the stated objectives of the new fund as they relate to the 17 SDGs is certainly admirable, a closer look at whether they’re doing a better job meeting those objectives reveals something less impressive. 

Additionally, although the average annual return over time of the new fund is higher than the old fund (which we would naturally expect given its more aggressive investment approach), its measure of risk-adjusted performance is not nearly as good as the previous fund. So, I would generally say no, I don’t think this is as shiny of an object as WSIB is trying to convince us that it is. But as an investor in these accounts, it is, now, the only SRI option that you have. And it is certainly better screened than any of the other funds within the state’s investment offerings.

How does it impact investors in the socially responsible fund? 

Possibly a lot, and possibly not much at all. It really depends on what percentage of your overall current and ongoing investments are in the socially responsible fund.

At its most extreme (100% of your investments in this fund) your portfolio just increased its stock exposure by 30%, which is not insubstantial. But if you only have 10% of your current and ongoing investments in this fund, your stock exposure only increased by 3%, which is likely not that big of a deal.

What should I do about it?

You really have two main options for making sure your investments are invested the way you intended them:

If you want your old allocation back

If maintaining the pre-April 2024 stock-bond ratio is important to you, then you need to make an adjustment in your overall investments in order to reset that ratio. 

Remember, before this change, if you were invested in this fund, you had some money invested in stocks and some money invested in bonds. The easiest way to re-implement this is to just offset the new SRI fund with the Washington State Bond Fund using the following formula: 

Old Percentage SRI Fund * .30 = New Percentage Washington State Bond Fund

Old Percentage SRI Fund * .70 = New Percentage SRI Fund

If formulas are not your thing – here’s an example to show you how it works: 

Let’s say, in your DCP account, your current investments are 55% in the SRI fund, and your future ongoing investments are set to go 50% into the SRI fund, and 50% into other plan investments. 

To make your current investment allocation reflect what you had it at before this change: 

55% * .30 = 16.5% to Washington State Bond Fund 

55% * .70 = 38.5% to SRI Fund

To make your future investment allocation reflect what you had it at before this change: 

50% * .30 = 15% to Washington State Bond Fund 

50% * .70 = 35% to SRI Fund

Without making this adjustment, in the example above, you’d end up with 15-16% more ongoing stock exposure than you had before they made this change.

If you’re fine with increased stock exposure

It may be that the increased market volatility and risk is fine with you, and that you’re happy with the new, more aggressive investment strategy. If that’s the case, no changes will be needed.  However, considering the overall age demographic of most people currently utilizing the SRI option, I think it’s important to make sure your investment strategy stays well aligned with your risk tolerance and financial planning goals, and this fund change may have substantially impacted that strategy if you haven’t actively made any adjustments to your investments.

If you’re not sure whether your investment strategy is aligned with your risk tolerance and financial planning goals, feel free to schedule a free 30-min call here, and we’ll see if we can help point you in the right direction.

Using Difficult Financial Stretches as a Metric for Measuring Progress

Using Difficult Financial Stretches as a Metric for Measuring Progress

Back when I was teaching, I used to have a lot of conversations with high school students about how we show up on our “worse than average” days as being far more important to the general trajectory of our lives than how we show up on our “better than average” days. That if they wanted to make substantial and significant changes in their lives, to their wellbeing and their success (however they chose to define it), that their energy would be best spent thinking about how to make small, incremental improvements to the 50% of days that were below the median.

Why?

It’s relatively easy for most of us to show up on our “better than average” days—to do what we need to do to progress. On the best of those days we might be hitting figurative home runs, and on the just slightly “better than average” days, we might just be getting on base because we got hit by a pitch. But hey, we’re still on base, making progress in meaningful ways towards a life that we want.  

Then there are the days that ask a lot of us. And the truth is – financial days and financial stretches are no different. We will have days where it feels like the world has been generous with us and we are making great financial decisions effortlessly, and days when it feels like everything bad that can happen has happened to us, including some of the financial decisions we’ve made. And we will likely have a lot of ho-hum days in between.

And while I’ve talked about strategies for coping with and getting through the worst of these financial seasons in the post Getting Through A Money Slump, the topic of this post is a bit different. I want to talk about using our slumps as metrics of our progress. Because if we’re going to place a high value on improving the “worse than average” 50% of our financial days, we ought to have some way to acknowledge our progress.

The Problem with Best Day Metrics:

I love things that I’ve learned how to do as an adult because I have a much clearer memory of the trajectory of my progress. Skiing, golfing, playing guitar – these are all things I’m quite average at now, but I remember being quite bad at them. And unlike things I learned to do as a kid, I have a good memory of my learning curve and critical points along its path, including all those highs that came when I accomplished something that had at one time felt impossible.

Best day metrics are relative, depending on skill level, but I can clearly remember the first time I broke 110, or 100, or 90 on the golf course, the first (and, so far, only) time that I skied down a run with a black diamond on its sign, the first time I played a song all the way through with no mistakes on my guitar. It was a rush, a total high, and a pretty good recipe for a let-down because it usually brought with it the expectation that this was the new normal, creating a wildly unrealistic metric for the average and bad days that would follow.

Best days make good metrics for future best days. They make terrible metrics for the other kinds of days. It’s no different with money.

Consider this situation:

You’ve been working hard to manage your money and seeing incremental progress, saving each month and building up your emergency fund. You’ve almost hit your goal of $10,000. Then, you happen to coast through an inexpensive month with no unexpected bills, and you also get a bigger than expected tax refund. Then another month goes by, similarly, no major unexpected expenses. For the first time ever, in your whole life, you now have a $10,000 emergency fund—something that at one point felt like an impossible goal to achieve. Suddenly, everything feels like it’s starting to work for you, and you’re feeling great about your money management and all the hard work you’ve put into getting here.

But then, your water heater and your transmission go out the next month, $10,000 walks out the door, and your savings account is empty. And maybe nothing at all has actually changed about how you’re managing money (or maybe because you were tired and frustrated you did some online shopping and got some takeout, adding a little insult to life’s financial injury). But emotionally, you’re crashing—you were feeling so good you accidently created a new normal out of a best-day metric and now things feel really bad. In that moment it might even feel worse than if you had $10,000 of expenses come up and no money in your savings account, because at least then, you would have continued to believe that hitting that $10,000 goal was impossible.

And even though we instinctively can’t help but make that comparison… it’s a bit like comparing your personal deadlift record to the amount you can deadlift when you have the flu.

It doesn’t really make any sense.

The Case for Bad Day Metrics:

Bad days and how you progress through them are worth noticing. They will often tell you more about your financial progress than your best day metrics, AND without all the unrealistic expectations that best day metrics create.

Let’s go back to the scenario where your water heater and your transmission go out in the same month and that emergency savings account you had worked so hard to accumulate is back down to $0.

If you stop comparing that scenario to your recent best-day stretch, and instead think back to 2 years ago, when the only option you would have had to cover $10,000 of unexpected expenses would have been to put it on a credit card, you can suddenly see that you have made a substantial amount of progress in this area.  At one time this scenario would have been a financial crisis, whereas now, while it feels like a really crappy punch in the gut, it is actually an incredible marker of the progress you’ve made.  

If you’re having a hard time managing cash flow this month because of bad circumstances or impulsive decisions, but that just means you didn’t make a contribution to your savings, and 2 years ago it would have meant dollars onto credit cards, that’s a big deal.

And the truth is, we don’t generally need a reason to carry on and keep up the good habits we’ve worked so hard to develop on our best days. The best days are, in and of themselves, quite rewarding and motivate us to keep going. But for most of us, to keep from dropping into the depths of despair, we need a way to measure progress on our worst days, to put them into perspective, to remind ourselves of how far we’ve come, and the only way to do that is to compare our worst days to your previous worst days. Our worst day metrics can tell us a lot about our progress at a time when we need to hear it the most.

Setting Realistic Expectations for Good Day Metrics:

I want to be clear, I think there’s a place for best day metrics, they tell us something about our highest potential to achieve (in a given moment), but we over assign value to them, often to the detriment of our progress. It’s not actually motivating to most people to feel defeated or less than what we are capable of being (I do want to acknowledge that for a small, fairly vocal, group of people this actually can feel motivating, but for many, it’s actually highly demotivating).

So, if we take our best day metrics, and overgeneralize them to our average and worst days, for many people, it ends up creating a sort of self-defeating space, where a bad day tested against a good day metric takes us into the headspace that looks something like:

Well, I guess I’m not any good at this after all. It was too good to be true to think I could stay on budget and have an emergency fund. This is always just going to be a struggle and I’m never going to be any good with my money, and I guess I’ll go back to my old financial ways because at least I was having more fun then.

So, it is important to have some bad day metrics to compare those inevitable bad days against to avoid this type of spiraling.

But, for those of us who are reasonably average at many things (and most of us are) with effort and time, good day metrics can and often do become average day and sometimes even bad day metrics, we just can’t expect them to be right way.

The first time I broke 100 on the golf course, the problem wasn’t in thinking that I was a golfer who could break 100, the problem was in thinking I was a golfer who was going to break 100 all the time from there on out. The truth is it took me almost a year to get back to that score – A YEAR. And it was one of the most frustrating and least fun years of golf that I have ever played, because every time I went out thinking I could break 100, and every time it didn’t quite happen, and I left quite discouraged. But now, 100 is a “worse than average” day metric for me on the golf course (and yes, for those of you who play a lot of golf with a high level of skill, you’re correct in thinking I’m still not that good of a golfer). And the fact that 100 is a bad day metric but it used to be a good day metric is a useful thing to remind myself of when I’m starting to feel frustrated.

Good day metrics have their place, and it’s fun to historically compare their peaks, but if you put them into the wrong place, you really risk a level of discouragement that can be crippling to progress. And your money trajectory is too important to let it fail because you used the wrong benchmark to compare yourself to on a bad day.

So go back and make yourself a list of those financial low points in life and remember to pull it out when you’re having a bad financial stretch. Maybe 5 years ago it was credit card debt you used to bail yourself out of a jam, then 3 years ago you had to spend down every last dollar of your savings account, and today, when a major unexpected expense came up, you still had $1000 dollars left over, and that’s substantial progress, even if no one is giving out trophies for incremental improvements on our worst days.

It’s natural for all of us to want to live up to our peaks all the time, but it’s important to realize when that’s actually getting in the way of our progress rather than propelling us forward to new heights. In those times, it’s critical to find a piece of information, a realistic metric, that allows us to take the next smallest step forward when we’re feeling discouraged, unmotivated, or disappointed.

You Should Love Your Financial Advisor

You Should Love Your Financial Advisor

(or find a new one)

Look. 

We know financial advisors don’t have a great reputation. 

We got into the financial advice industry to be disruptors of what we consider, at worst, unethical financial advising practices, and more often just apathetic and uninspiring ones.

We know this, but it still disappoints us every time we hear someone refer to their financial advisor as someone they don’t trust, aren’t happy with, or just a person who takes a lot of their money but isn’t really doing much for their financial situation. 

Whenever we hear a blasé review of a person’s current financial advisor, we just want to say “Stop! You pay financial advisors a lot of money to provide a service to you, a service related to an extraordinarily important component of your whole life. You need to go find yourself a financial advisor that you love.” 

Yes. Love!

There is someone better out there for you. And, in exactly the same way you would nudge a friend to break it off with a significant other after they complained about them for the zillionth time, we want to nudge you to go find yourself a better financial advisor. If someone gave you a terrible haircut, we’re hoping you wouldn’t go back for round two. So why is it so normal to stick with a financial advisor who is not living up to your expectations?

The only thing we dislike less than hearing that a dissatisfied client of an advisor is staying with them, is an advisor who fondly refers to the blessing of inertia in our industry. As in, “it’s just such a blessing that unhappy clients stick around because they’re too intimidated by or can’t be bothered with the process of moving their money to another financial advisor.”

(Yes, you heard that right. They are self-aware and they’re not even ashamed to talk about it with other financial advisors.)

This rhetoric is surprisingly common behind closed doors at financial advisory firms and conferences. At companies that prioritize the addition of new clients or new accounts at an unsustainable pace, reliance on client inertia leads to waning services after clients initially onboard because it’s more important to add new clients than to keep the existing ones happy (since they are, after all, likely to stay whether they are happy or not). And it’s a ridiculous thing for any advisor to be proud of or thankful for, and yet we hear it so often.

With talk like that, it’s no wonder people have such a hard time trusting financial advisors, seeing their value, or believing they could ever find a financial advisor that they love. 

And while it may be some work to find yourself a new financial advisor, it may not be as hard as you think. Typically, the hardest part for you will be finding people to interview, taking the time to talk to them, to assess their practice/processes, and decide whether they’re a good fit for you. So many people get intimidated by the prospect of moving their accounts and doing a bunch of paperwork, but in reality, a good financial advisor is likely going to make that part of the process pretty easy (and if you’re a DIY investor not wanting to move accounts at all, in this day and age, it’s also quite possible to work with an advisor who can just advise you on what to do with the accounts you have, with no transfer or takeover of assets required.)

What are some signs you might be ready for a new financial advisor? 

Beyond just outright complaining, here are some other questions to consider when assessing your current relationship with your financial advisor:

Do you consider this person a trusted financial ally for ALL of your financial questions?

Would you, for example, reach out to them if you had to unexpectedly make a big purchase, or were having some trouble figuring out how to best manage your budget, or considering making a significant job change. A good financial advisor should be your go-to for all financial questions, not just questions about your investments

Do you look at the fees they charge you each month or quarter and think to yourself, this person is absolutely worth what I pay them?

You should. Period. Financial advisors have a lot of value to offer if they are educated, proactive, and involved in your situation. If you’re paying hundreds or thousands of dollars a month to someone, you shouldn’t have any doubt that they are worth what you pay them. 

Do you trust the advice they give you?

We’ll talk about fiduciaries a little bit farther down, but a good financial advisor should give you options and financial advice that are in your best interest, always – we refer to this as the 100% fiduciary standard. And although studies show that 50-65% of Americans believe their financial advisor is a fiduciary, in reality, only about 11% of financial advisors work in a 100% fiduciary capacity.

Where should you look for a new financial advisor? 

There are fortunately good resources for finding financial advisors out there, but it’s never a bad idea to start with folks you know and trust, and to ask for recommendations. But be thoughtful about who and how you ask, and how you interpret the responses.

Good financial advisors tend to specialize in the types of work they do, so the best financial advisor for your parents might not be the best financial advisor for you. Asking people whose financial and life situations are similar to yours makes it more likely that the recommendation will be a good fit for you. And try to make it clear when you ask, you don’t just want to know if someone knows of a financial advisor, you want to know if they have a financial advisor that they love. 

That being said, we’d also highly recommend that you do some independent research of all the options out there. These two sites are a great place to start: 

Both of the sites above vet their advisors for: 

  • Education – advisors have to have completed the Certified Financial Planner™ (CFP®) certification, which is the minimum level of planning education you should be looking for in a financial professional. 
  • Fee-Only – advisors can’t make commissions on sales of mutual funds or insurance products. (Note that ‘fee-only’ is distinctly different from ‘fee-based,’ and ‘fee-only’ is what you want)
  • 100% Fiduciary – advisors must act in their clients’ best interest 100% of the time. (Similar to the language around fee-only vs. fee-based, advisors can claim to be a fiduciary even if they only have to act as one some of the time, so it’s important that you ask your financial advisor if they are required to act as a fiduciary 100% of the time), or use one of the sites above as a way to screen for that before you start interviewing.

How many people should you talk to before making my decision? 

As many as it takes to find a financial advisor that you are enthusiastic about working with. But typically, we’d recommend chatting with at least three financial advisors so you can see what the options are like and the range of services available. 

It’s a little bit like buying a house though. You might know very quickly that you’ve found a great fit for you, or it may take months of looking at what’s out there to find just the right fit. So, there’s no rule that says you need to stop interviewing after three, nor is there anything saying that the first person you talk to won’t be a great fit (though even if they are, what’s the harm in talking to a couple more?)

What should you look for in a potential financial advisor? 

The three key components mentioned above – 100% fiduciary, fee-only, and some level of education that shows an interest in proactive financial planning (preferably a CFP® certification), are essential. But in addition to these, take the following under consideration: 

Fit – personality, trust, expertise. You want a financial advisor you feel like you can connect with, be honest with, and trust. Fit is critical to a successful working relationship. Beyond just a connection, look for someone who specializes in working with folks who are similar to you in terms of career stage and even industry. They’ll have far more to offer in terms of proactive financial advice for your situation. 

Business Model – It’s also important to consider the environment under which advisors work. We’ve met good financial advisors who work for major brokerages, but the reality can’t be ignored that the bigger the firm (like running ads on Superbowl Sunday big), the more likely the advisors’ top priority, whether they want it to be or not, will be adding as many new, big clients as they can. The problem with that is that even a good financial advisor has to put their focus somewhere, and if the focus is always on more and new, it’s unlikely that your financial situation will get the sustained, continued, and long-term attention that it deserves. I actually think great, underutilized questions to ask a financial advisor are: “Do you limit the number of new clients you take on?” and, “Does your firm expect that you add more clients constantly?”

Background Check – Did you know you can background check any financial advisor that you talk to? Want to see if someone has filed a complaint, what the verdict of that complaint was, etc? You can use the FINRA Broker Check tool to do that for any financial advisor that you interview. So in a world where it’s important to trust but verify, we also highly recommend doing your homework on the advisor’s history before making the decision to hire. 

Is it better just to do it yourself? 

There’s no right or wrong answer to this question, and we’d be highly skeptical of anyone who considers this to be a yes or no question. Financial advice is a service, just like any other. And for some people, it makes sense to pay for that service, while for others, it makes sense to do it themselves. And for some, there will even be times in life that it may make sense to have a financial advisor, and other times where they are perfectly comfortable and capable of going it alone. The truth is that any one of those choices is not universally better than the other. 

Think about this like paying for car or home repairs or maintenance. There are multiple factors to consider when deciding if you want to work on your own vehicle or remodel your own kitchen. 

  1. Do you have the expertise to do this?
  2. If not, do you have the time and willingness to learn how to do this?
  3. If you do have the expertise, is this the way you want to spend your time and energy?

This is no different than assessing whether you want to pay someone to do your taxes, work on your vehicle, cut your hair, or clean your house. But we’d have the same advice for you in those situations as we did in this one. If you’re going to pay someone for a service, don’t settle for something that’s unsatisfactory. 

Take a moment to think about someone you hire that you are truly thankful for, someone you enthusiastically recommend to your friends and/or family, someone you feel is well worth the money you pay them. Now imagine that you could feel that way about your financial advisor. Imagine you hop off a call with your advisor and feel a sense of peace and clarity about your finances. Imagine bursting with excitement about your financial advisor and wishing you could immediately tell your friends or family what a great experience you’ve just had. 

Is it possible? Yes. It is possible to love your financial advisor, and you should, because you are investing your hard-earned money to hire one! 

So, if you are going to work with a financial advisor, take the time to find one you can be enthusiastic about, and don’t be afraid to change if you are not. 

Image sources: Laptop photo by Nick Morrison on Unsplash , Magnifying glass photo by Ahmed Zayan on Unsplash

Annual Financial Hygiene Checklist

Annual Financial Hygiene Checklist

Financial planning can be a lot of things… fun, stressful, exciting, overwhelming. But in reality, a lot of the time, like many types of self-care, it can actually just be boring. So, while this can be an exciting time of year to think about aspirations, it’s also a good time of year to think about one of the most important and boring parts of your financial equation: basic maintenance.

That’s why, this year, in celebration of the new year, we’re putting out an annual financial hygiene checklist. Whether you’ve got big financial resolutions for the new year or plan to just stay the course, there are a few things we should all make sure to do at least once a year to ensure basic, ongoing financial health.

1. Log In to Your Accounts

That means bank accounts, investments, and credit accounts. I know, it’s hard to imagine you could lose track of your money, but we’ve helped more than one client track down accounts they have lost over time. That’s why it’s a good idea to make sure you know where your accounts are located, and to log into each of them at least once per year.

While you’re logged in, we recommend:
  • Changing your passwords – a task that should be done at least annually.
  • Updating your directions or guide for your Power of Attorney and Estate Executor.
    (Don’t have a guide set up? Check out Erik Dewey’s Big Book of Everything for a great place to start.)
  • Getting the information you need for an updated balance sheet and net worth statement.

2. Update Your Balance Sheet and Net Worth Statement

In a nutshell, your balance sheet is a list of what you own and what you owe, and your net worth statement is simply a calculation of the value of everything that you own minus everything that you owe.

Sounds pretty boring, right? But, we firmly believe that the only appropriate way to assess your financial progress and status is to use your past self (rather than anyone else or any random societal standard) as a benchmark, and the easiest way to do this is to build a net worth statement and update it at least once per year.

Not sure where to start? Check out Gabbi’s incredibly helpful video on this topic.

3. Check the balance of your Flexible Spending Account (FSA)

This one is a bit time sensitive. Many employers allow an FSA grace period where funds contributed last year can be spent this year as long as they are spent before March 15th. So, if you didn’t check the balance of your FSA and spend it down at the end of last year, there may still be time before the “use it or lose it” deadline.

4. Revisit your Roth and Traditional IRA Contributions

You have until the tax filing deadline to max out your personal Traditional IRA or Roth IRA for the previous year, so if you’d like to make a contribution for last year, there’s still time.

That being said, it’s also important to remember that IRAs and Roth IRA’s have income limits and rules to abide by. So, to make sure you’re staying on the right side of the IRS when it comes to if and how much you contribute, it’s good to revisit those rules and income limits annually.

To stay out of a situation where you may have to do a complex reversal or recharacterization, it’s a great idea to work with your tax professional and/or financial advisor to best determine if and how you can take advantage of traditional or Roth IRA contributions each year.

5. Establish or Re-Establish a Fraud Alert on your Credit if it’s not Frozen

If you’re not in a place where it makes sense to freeze your credit entirely, the bare minimum recommendation to protect your credit is to set a fraud alert on it annually. This will make sure no one can open a line of credit in your name without you receiving a phone call first.

And, it’s super easy to set up. For step-by-step instructions, check out this blog post we published on the topic a few months ago.

6. Check Your Social Security Earnings Record

If you haven’t heard my cautionary tale of how it’s not just a given that your employer accurately reports your W2 earnings to the Social Security Administration each year, you can read about it here.

But, the moral of the story is, it’s a really good idea to regularly review the earnings the Social Security Administration receives for you each year from your employer, because mistakes get hard to fix the longer they go unnoticed. And, it’s much easier to check your approximate earnings and spot a mistake when it’s only 2-3 years old, rather than having to rely on your memory to notice a mistake from 10 or 20 years ago.

7. Review Your Insurance Policies

We hope you have a good insurance agent or broker (or at least a good financial planner) that you’re working with to review your insurance coverage regularly, but we also know that insurance is kind of boring, and even though your agent calls you every year, you may not always respond. Coverage needs for life, disability, renter’s, homeowner’s, auto, and umbrella liability insurance all change throughout the course of your lifetime, so you can’t just set them and forget them. It’s a good idea to sit down and review your coverage annually and make sure it’s adequately protecting you and your family.

8. Check Your Tax Withholding

Did you know the IRS provides a free calculator that will allow you to check your tax withholding at any point during the year to see if you can expect a refund (or will owe money)? Checking this 2-3 months into the year can give you plenty of time to make adjustments to withholding so that you don’t end up with a big, unexpected tax bill next year.

It’s also a good idea to revisit this if you receive a major change in pay or take on a new or additional job in the middle of the year.

Even if you don’t have major financial aspirations or goals for 2024, think of this list like an oil change for your car – you may not need a new car or a new transmission, but there’s some basic maintenance that we all need to do to keep our financial picture looking healthy on a regular basis, and this list is a good place to start.

Header image source: StockSnap on Pixabay

Rethinking our Response to Holiday Overspending

Rethinking our Response to Holiday Overspending

Did you overspend for the holidays again?

Whether it’s travel, gifts, decorations, going out, or hosting parties or dinners for friends and family, December is one of the most common months for budget-breaking in American households. And, with New Year’s resolutions right around the corner, it also prompts one of the most common overspending responses: the desire to quickly forget it and “start fresh” tomorrow, where you will, by some magical power that has let you down a million times in the past, be better able to get a handle on your spending.

Consider just how many years you have repeated this pattern, only to end up back here again, overspent in December and overly optimistic about your ability to start fresh on January 1.

This year, instead of pushing those crappy feelings about overspending out the door as quickly as you possibly can, what if you tried a different approach to thinking about your holiday overspending that included just a little bit more time and attention to the present, tuning in to both the emotional and financial data you have in front of you?

If you’re willing to give something new a try, here’s what I recommend:
Close up shot of a pen resting on a journal

1) Sit with the discomfort and the consequences of your overspending.

This is not meant to be a shame-inducing exercise. We all need to practice holding discomfort and disappointment around choices we’ve made without shame or guilt. Imperfect choices don’t make us bad people, they make us human. But, to learn from them we must be willing to let ourselves acknowledge how they make us feel.

You shouldn’t shy away from the bad feeling overspending is giving you. You need to spend enough time with it to know it and to be able to bring it up again in the future. Try writing it down or recording a voice memo of it – something that you’ll be able to look at next November to help you remember this feeling as you head into the holiday spending season again.  

If you’re having trouble accessing the feelings directly, consider some of the following:

  • How has this choice made it harder for your future self? (For example, by creating debt that will have to be paid off or diminishing savings that was meant for something else.)
  • What are you giving up in exchange for the spending you just did? Was it worth it?
  • Did your spending provide you with any level of enduring satisfaction?

Our brains love to get rid of bad feelings and bad memories as quickly as possible. They are trying to protect us. But having a strong, aversive memory related to the feeling created by overspending at the holidays when the holiday season starts next year is one way to help combat the pressure to overspend for a dopamine hit. If your brain is trying to tell you that all this overspending is going to make you feel great, because “tis the season,” you need to have a stronger memory of how it actually makes you feel when you overspend. And then, you need to pause before you start up with the pattern again. Just take 5 minutes and sit with that feeling before you purchase a single thing for the holidays next year. Look back at your notes and journaling. If it’s uncomfortable to spend 5 minutes thinking about that memory, then do you really want to recreate that scenario all over again?

Calendar flipping pages

2) Plan for the financial ask of the holidays.

Pay attention to the details. It’s true, the holidays, for most of us, will likely always ask a bit more from our budget. And while we can pay attention to where and how much we indulge in that ask to keep that overspending to a minimum, we can also plan for that ask where it may feel like an inescapable reality.

For many, it’s probably unrealistic to think that December spending and February spending are going to be identical. But if you sit down and look at the numbers right now, you could just plan to save a little extra for December all throughout the year. If December is running you $1200 more than a normal month for gifts and food, maybe you just need to create a savings bucket for December and put $100 into it each month. The key here is – you have the data right here and now in front of you to look at, and an entire year to save for it. There’s literally no time like the present to see how much holiday spending is costing you and to put a plan in place to save for it ahead of time. And I’d emphasize again, if that’s uncomfortable, that’s all the more reason to do it.

What if that was your only New Year’s money resolution: to save enough through the year to make December not a financially stressful month, and you kept at it all year and were able to get through December without creating that financial bust feeling that it always brings. Think about how much more you might trust yourself to actually see another small financial goal through the next year, feeling good and well prepared for a month whose spending normally has the opposite impact on your feelings about money.

The consequences of overspending on anything that takes you farther away from the financial life you want to be living should be uncomfortable because it is a form of self-harm. If these feelings are not uncomfortable, you’re probably not spending enough time with them. If you don’t take some time to sit with the feelings and the data, you risk heading into the New Year with idealistic planning euphoria that will likely let you down again. To find the lesson in the choices that got you here, you need to spend some time with how they make you feel, and plan for the reality of what predictable and repeatable annual spending, like the holidays, asks of your budget.

Is It Time to Cash Out Your I-Bonds?

Is It Time to Cash Out Your I-Bonds?

It seems like only a year ago we were dealing with such an intense rush to buy Treasury Series I Savings Bonds (now affectionately known to the general public as I Bonds) at their historically high 9.62% interest rate, that as the October 31st purchase deadline approached, the Treasury Department’s website could not keep up with purchaser demand. As many rushed to get their purchases in, they found themselves unable to access the site needed to do so.

Since that time, inflation rates have settled, and the one-year mandatory holding period has now passed on I-bonds purchased prior to November 1, 2022. This has led some to wonder if it’s time to bail on their I Bonds in search of better yielding pastures. Current I Bond rates for bonds purchased during that 2022 frenzy are now just under 4%, which means a one year CD would produce a higher yield than your I Bonds.

(To clarify – though the posted rate on the Treasury Direct site is 5.27% as of November 1, 2023, that also includes a fixed percentage rate of 1.3%, which only applies to newly purchased bonds. Unfortunately for those who purchased at the 9.62% rate, that fixed rate is set at 0%, so any I Bonds purchased from May-October 2022 are currently making 3.97%).

So, is it time to looks for a better yield on your safe money? It depends a lot on why you bought I bonds in the first place, and how you think about that money in terms of your overall financial picture.

I have a ton of clients who bought I bonds during that time, and most of them fall into 2 categories, and my advice for them would be different, depending on their situation.

1

Those who were holding a relatively short-term pile of cash for something like a home purchase or home-improvement project that was 2-5 years out.

2

Those who just generally had a chunk of money around that wasn’t earning much, that they didn’t have an immediate need for, and in many cases, still don’t.

If you’re in category 1, and you bought I bonds because you were looking for a short-term place to stash some cash safely and your 1 year holding period on I Bonds has now passed, I think it’s worth considering whether your short term needs can be better met elsewhere. With it currently being possible to find CDs in the 1-2 year time-frame that are yielding 5-5.5%, I bonds may no longer be giving you the best return on this money for the time frame you’re considering. And there may be better ways to earn a higher guaranteed interest rate in the short-term.

If you’re in category 2, and you still have no real foreseeable need for those funds, consider making I Bonds part of your new emergency savings fund and just letting these bonds ride the ups and downs of inflation. Prior to the one-year holding period, I Bonds can’t really act as an emergency fund because you can’t access the money. But once the holding period has passed, for I Bonds purchased electronically, it’s typically about a 2-business day wait to get those funds transferred back into your contributing account. (For paper-bond holders, the cash out process is a bit more involved, so paper I Bonds may not actually make the best emergency fund.)

If you’re working with an appropriate buffer savings account, with the idea that your emergency fund is really just there for the 2-3 times in your life that you might REALLY need a sizeable amount of money for a truly unexpected event, then I Bonds are sort of the perfect place for them because they are:

1

Out of sight, out of mind.

They’re just difficult enough to get to that you don’t really think of them as readily accessible money. That’s exactly what you want for an emergency fund, something you basically forget about.

2

Not going to lose value to inflation, which to me, is the most I’m really hoping to get out of “earning power” from my emergency fund.

I don’t want it to be worth less because inflation has eroded its value, but I don’t need it to be kicking inflation’s butt in terms of returns either. I bonds are the perfect vehicle for this. You can rest assured that inflation is not eroding their value without having to actively be involved in their management.

3

Flexible in terms of cash out amount; You don’t have to cash out the amount you put in.

You can pull out any amount above $25 and leave the rest to continue working for you (and preserve its holding period), and I Bonds can be rebuilt in smaller and more regular increments as well if you ever do need to draw on these funds.

Remember, the goal of emergency-fund safe money is not to make as much money as possible with it, it’s to keep you from having to borrow money at high interest rates in the event of some sort of unexpected financial catastrophe. And while chasing short-term returns on things like CDs may feel like the smart money move now, it doesn’t take too long of a look back into history to remember when CDs and high-yield savings accounts were returning 0.5%.

Whether you decide to cash out your I Bonds or not, there are a few additional considerations and risks to note.

If Cash Out is in Your Near Future

1

Be aware that cashing in an I bond any time before the full 5 year holding period results in a penalty equivalent to the last 3 months-worth of interest earned.The good news is you don’t have to factor this into your calculations of what your I Bonds are worth. If you log into your Treasury Direct Account and look at the value of your bonds, any bonds held for less than 5 years are showing the current value minus the most recent three months of interest, since that’s what you can cash out for today.

2

If inflation picks back up again in the next 2-3 years, and you decide you want to purchase I Bonds again, you’ll restart with a new holding period on new bonds purchased, and you’ll be subject to the one-year purchase limitation (which, in most cases, unless you’re out there working the loopholes, is $10,000 per person per year).

3

Interest on I Bonds is taxable, so if you cash out, you’ll owe income taxes on the interest that you’ve earned thus far.

If You’re Holding for the Long-Term

1

There are times/years when your I Bonds may not return anything. In years where the inflation rate drops to 0% or below, I Bonds that have a 0% fixed rate will be making 0%. In times like these, it’s good to remember that your I bonds are keeping up with inflation just fine, there just happens to be no inflation to keep up with.

2

Interest on I Bonds is taxable, and you have the choice to pay those taxes along the way or wait until you cash out (or when the bonds mature in 30 years, if you hold them to their full term). Either way you choose, make sure you’re keeping clear records and discussing with your tax professional. Since cash out or maturity is the only time Treasury Direct actually issues a 1099-Int, if you want to pay each year as interest accumulates, it will take some effort on your part to get into your account and see how much you’ve earned, and to keep track of the interest you’ve already paid on your earnings.

3

For people at some income levels, who meet certain conditions, I bonds (And Series EE Savings Bonds) have a similar tax advantage to 529 plans, which is to say, if you use them for higher education expenses for your children, you may not have to pay any taxes on the interest earned.

Is There Any Reason to Buy I Bonds Right Now?

I think if you like the idea of using I Bonds as a long-term emergency savings fund, but you didn’t quite get enough into them last year to fully fund your emergency savings need, a more steady approach to I Bonds purchases until you meet that goal could make sense for you.

Though most people were frantically attempting to put the max ($10,000) into I Bonds before the deadline last year, they don’t have to be purchased like that.

So, if you put $10,000 into I Bonds last year, but would really like to have your emergency fund up at around $20,000 or $30,000, you could set up a more gradual purchase plan (you can buy I Bonds in increments as small as $25, and it’s possible to set up a regular contribution/purchase on the Treasury Direct site, so that this can happen passively in the background of your accounts each month). An advantage to doing this is that bonds purchased at different times have different fixed rates, so for example, an I Bond purchased today has a 1.3% fixed rate that stays with it over the course of its lifetime, so that even if the inflation rate drops to 0% or below, that bond will still be returning 1.3% for you even in times of negative or no inflation. So while the current posted 5.27% rate isn’t quite as flashy as that 9.62% rate, there’s an argument to be made for a bond purchased today as a better “long-term” savings vehicle, since its overall interest rate will never actually drop to 0.

Attribution: Header image by TheKarenD on Flickr

Rethinking Default Inheritance Assumptions

Rethinking Default Inheritance Assumptions

When having estate planning conversations with clients, one of the common questions or discussions that comes up is, for lack of a better word, who could be their “logical” inheritors. For some, there’s no question about who they want to inherit the bulk of their assets and estate. But the conversation, particularly when clients don’t have a significant other or children, often becomes a process of listing extended family that would be the next logical familial inheritors. Sometimes, these relatives are distant and hardly known to the client, other times they are siblings whose age is such that it’s unlikely that they’ll even be alive when the client passes away. Even though my clients are generally the type of people who tend to make their decisions through a lens of high social responsibility, it makes me wonder if we may all be sleepwalking a bit when we think about aligning our estate planning wishes with our values-based lifestyles and financial decisions.

Now, I want to be clear that I am not objecting to a choice someone makes to leave the bulk of their accumulated lifetime savings to their children or even a long-lost relative. It’s really none of my business who your choice ends up being. It’s just that this choice, for many, represents the largest bequest of assets they’ll ever bestow upon any recipient – so I believe it deserves as much thoughtfulness and intentionality as the other financial decisions clients make.

I have a suspicion that part this “pick the next logical family member” attitude comes from a general discomfort with the estate planning process. At any age, it’s uncomfortable for many of us to sit down and think about what happens to our stuff and our money when we die. Uncomfortable to think too much about someone else living in our home or selling it. Uncomfortable to think about a lifetime of things we consider ours just being given away, especially if we don’t have that perfect someone in mind to give it to.

Since I’ve recently been working on re-drafting my own estate planning documents with my attorney, and I, as a single, childless person, am in a very similar situation to the one described above, it’s given me an opportunity to think through this process of intentionally designating heirs. And through this thinking I’ve tried to develop a series of questions to work through with my clients when a situation arises where they may feel uncertain about who the recipient of their bequests should “logically” be.

Question 1:

What do you value and how can this decision reflect that? 

It’s important to set up this conversation as we would any financial decision – against the backdrop of your values.

If you haven’t yet tackled the “what’s most important to you” question as a part of your broader financial-decision making process, it’s worth it to do that before sitting down to make decisions about your estate plans. Because it seems like trying to answer the question of who you want to benefit from what you’ve accumulated over the course of your entire hardworking lifetime must first be a question of what you think is important.

Question 2:

Realistically, what is the need and the extent to which your family, extended family, or long lost third cousin will benefit from your bequest?

This is obviously a complex question, because we don’t always know that much about the financial situations of others. And, realistically, for most middle and even upper-middle class folks, there are very few people who wouldn’t generally feel a bit more comfort after receiving an inheritance. That being said, it’s also true that many people don’t inherit from their parents or older relatives until they are well along their own path to financial stability. And while it may be important to leave your family something to improve the quality of their lives with, by the time they receive it, it may be more like icing on the cake. And if that’s the case, it worth considering whether there might be other people or causes whom you feel may benefit more significantly from at least a partial bequest of your estate.

Question 3:

Are there organizations who might benefit from a donation, or even a specific asset in your estate?

Many clients I work with place a high value on philanthropy throughout their lifetimes, and often lament the fact that they cannot do more, and yet it’s quite common for them to never bring up charitable bequests within their estate planning wishes. If charitable giving is important to your lifetime financial decision-making though, I think it’s at least worth a consideration in your legacy.

Another way to think of this might be around what parts of your estate may actually really benefit certain organizations that you value and would like to support. For example, the bequest of a house could be hugely impactful to something like a housing and land trust whose mission is focused on the creation of affordable housing opportunities, or the bequest of your vehicle might have a bigger impact to a charitable organization that could put your vehicle to use than its resale value would represent to your estate. Similarly, heirlooms or collectibles that your family has expressed little or no interest in might be extremely valuable to a historical museum. So, it’s also worth considering whether you may have specific assets that would benefit a charitable organization in a way that far exceeds what the sale of that asset would bring.

Question 4:

Are there ways for heirs to benefit from your accumulated assets even before your death?

This one doesn’t apply to everyone, and I’d always recommend working with a good financial advisor to help with these types of decisions. But very often, retirees do hit a point where it becomes clear that they have more than they need to see their retirement through, even if they live to be 105, and need a fair amount of long-term care.

If you are fortunate enough to be in this position, it might also be worth considering upping your lifetime giving to future heirs (whether they are your kids, your community, or organizations whose mission is important to you). Not only is this a good way to put your legacy wishes into action when you can still see their impact, it also may have some underlying tax-advantages as well if structured correctly.

Not everyone is fortunate enough to have this opportunity, and again, I wouldn’t start giving things away during your life too freely without the advice of a financial advisor. But if you are in this position, lifetime giving may be another strategy to explore as complementary to your estate planning wishes.

A few additional notes to consider as you embark on this journey…

1

It’s not really comfortable to do this type of thinking.

No other financial decision brings out more of a “just want to get it over with” attitude in my clients than estate planning.

I think this is why it’s so tempting to just say – leave it all to the kids, or my brother, or this third cousin I don’t even know. The less they have to think about it, the less time they have to spend in that discomfort.

As I mentioned, I recently went through the process of making some of these changes to my own estate planning documents, and it IS uncomfortable. But what I ended up with is a set of documents that I feel represent what I would want to leave behind in this world even if I was no longer around to make a daily impact on it. A set of documents that are far better aligned with how I make my other financial decisions than my previous ones were. But it’s still uncomfortable to think about. I don’t know if that will ever go away.

2

It’s not an all or nothing decision.

Your desire to leave something to charity, or a long-term caregiver, or a good friend or mentee doesn’t mean you can’t leave anything to your family. The great thing about a will is that it allows you to make specific bequests, and it also allows you to portion out your estate. Maybe your comfort level right now is with leaving 5% of your estate to a charitable organization, but maybe in 20 years, when you’re confident that your kids are on their way to being financially stable, or your estate has grown some, you’ll feel like you can increase that percentage or dollar amount.

Portioning off your legacy by percentages, dollar amounts, or even specific assets is something any good estate planning attorney should have no problem completing for you.

The point here is not to cut your kids and loved ones out of your will, the point is to make sure your last big financial transaction is well aligned with what you value, and how you make your other financial decisions. That you’re not just doing it on autopilot.

3

It might be worth having a conversation with your default heirs about your plans.

I have a lot of conversations with clients who are likely to inherit something from their families someday about the importance of not counting on or relying on this inheritance as part of their financial plan. But not everyone has a financial advisor to give them the same advice.

And, even with that, there’s no question that in our society, it’s easy to get gifts (particularly financial gifts) and who receives them tied up with questions about who is favored or loved. So, if you are making changes to your will to include heirs that may not be your children, I think it’s worth considering whether you can reasonably have a conversation with your kids about your intentions and why you are making the choices that you are, so that they’re not left to interpret these decisions as a lack of love for them after you’ve passed.

This is not universal advice – the dynamics of all families are different and I realize in some families, this is simply not possible to do. But often, one of the major complaints I hear from my clients as it relates to inheritance has nothing to do with if they’ll inherit or even how much. It has to do with the lack of transparency and communication their parents have had with them about this particular topic. Their bigger concerns are often just whether there are appropriate estate planning documents in place at all, and what their responsibilities will be when the time comes to enact them.

Remember, the point here is not to cut your kids and loved ones out of your will, the point is to make sure that this decision is simply as well aligned with what you value as all of the other financial decisions you make over your lifetime. That you’re not just doing it on autopilot because you don’t really want to think about it.

Disclosures & Policies

Sustain Financial Inc. is a Registered Investment Advisor in the State of Washington and California.

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