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6 Questions to Ask Yourself Before Making a Financial Stretch

6 Questions to Ask Yourself Before Making a Financial Stretch

Most of us have read enough money books or listened to enough podcasts to understand that there are general guidelines and parameters recommended for how much of our income to allocate to things like housing costs, general savings, retirement savings, etc. But an important question that often gets far less attention is, how do you know if it’s okay to break those rules? When is it okay to take on a financial stretch to purchase a first home (or next home), to send yourself or your kids to college, or to leave your job and find a new one or start a business?

The reason there are very few popular financial gurus willing to give this advice may be because they are simply all in dramatic opposition to financially stretching yourself, but I suspect it’s more a matter of it being hard to give generic advice related to when and how to decide if a financial stretch is a risk worth taking. Because the reality of many successful financial stories is that they often started with financial stretches that worked out well, and the reality of many failed financial stories is that they often started with financial stretches that worked out poorly.

So, how can you decide if a financial risk is worth stretching for?

The answer is, of course, that there’s no way to be 100% certain. What makes a financial stretch a risk is the uncertainty of its outcome (as well as the uncertainty of other financial outcomes, like the overall economy, job security, etc. while you are in the stretch phase). But because not taking at least some financial risk can be, in and of itself, risky to one’s financial future, it makes sense to talk about guidelines you can use to help you decide if a stretch is worth making and if you are well prepared to make it. If honestly answered, spending time on these questions can increase the likelihood that you make informed stretch decisions that have a higher probability of coming out in your favor.

What Are Your Motivations for Making This Stretch?

There are several reasons that people are tempted to stretch financially, but many of these are not good reasons to push your budget or your savings to the edges of what it can sustain.

For example, some common, but terrible reasons to stretch financially are:

  • Wanting to buy or have something to impress other people or obtain status.
  • Wanting to buy something that is nicer or more luxurious than you can afford, but isn’t actually a long-term investment related to your core values.
  • Thinking or believing that an investment (or a job change) is a good way to beat the system or get rich quickly.
  • Trying to bail someone else (like your parents or adult children) out of a financial jam.

Keep in mind, this is not saying that these aren’t things you can’t or shouldn’t be doing with your money if you can do them within the parameters of maintaining a sound debt to income ratio, strong retirement savings, and a healthy emergency fund. If you have enough to do that and spend your money on luxury items or bailing your kids out of financial jams, that’s at your discretion to do.  But the reasons above are bad reasons to take your otherwise sound budget and financial situation and stretch it to a potential breaking point.

On the other hand, reasons that might be worth stretching financially are:

  • Making a long-term investment in something like housing IF homeownership is a core, long term financial goal. Particularly if even a basic housing purchase where you live will require a financial stretch.
  • Changing to a job that is more sustainable from a health or mental health perspective even if it means making less money.
  • Obtaining education or certifications that will allow you to pursue a new or different career path (either for quality of life or for higher pay).

These are by no means comprehensive lists of the wrong and right motivations to stretch financially, but the key point is that a financial stretch will almost always result in short to medium term financial discomfort, which will be incredibly difficult to sustain if you’re in it for the wrong reasons.

Are You Being Honest About Your Motivations?

Meeting with a trusted advisor or friend

I always recommend that folks bounce their proposed financial stretches off trusted advice givers because when evaluating the rationale behind a stretch, it can be easy to look for confirmation bias and see the reasons we have as being reflective of the second list above, when in fact, they are much more representative of the first list.

For example, convincing yourself that you need to stretch on a car or home purchase when there are less expensive options available that meet your basic housing or vehicle needs falls into the category of “wanting to buy something nicer or more luxurious than you can actually afford,” not into the category of “making a long-term investment in something like housing.”

The same can be said for pursuing a much more expensive education than is needed to make the career change you want.

So, engage the help of trusted advice givers (not just the people who always affirm your choices) to help you really sort out your motivations for the stretch, and if they are sound, move on to questions 3-6.

How Much Discomfort Are You Willing to Live Through and for How Long?

By definition, a financial stretch is likely to make you feel…stretched. That means somewhere else in your discretionary budget*, you’re going to be spending less than you do now.

You need to be clear about exactly which of those expenses you will be reducing, and by how much, to meet the financial stretch you’re about to make. But you also need to be clear about how long you will potentially need to make these sacrifices.

For example, a dual-income family where one partner is headed back to school may be looking at 2-4 years of living off a single income while in school, but they should also be factoring in how many more years of single-income living might be needed if it’s hard to find a job right out of school, or if they’ve taken on student loan debt and really need to use that second income to pay off the debt for a few years after college. The reality is, this family may think they’re forgoing eating out, cable TV, and vacations for 2-4 years, but when looking closely at the situation and all its related parts, they may need to be committed to living without these things for more like 7-10 years, depending on how the variables play out.

Similarly – with a home purchase that’s a financial stretch, often, after some time passes, wages increase, or interest rates decrease, allowing for the cost of housing to stay fixed or go down while income keeps increasing. It’s true that for many homeowners, what once felt like a BIG stretch will, someday, not feel like much of a stretch at all. But whether that day comes in 2 years or 10 years is dependent on a lot of factors that are often outside of the homeowner’s control (like interest rates, the housing market itself, and future wage increases).

Before heading into a financial stretch, make sure you’re committed to how long it might require you to stretch for, and try to avoid the temptation of imagining everything will work out just right so that the stretch won’t last too long.

*If you’re envisioning making the stretch by cutting things like how much you’re saving for retirement or emergencies, and you haven’t absolutely gutted your discretionary spending to make a financial stretch, that’s probably a good indication that you’re not quite ready for the commitment the stretch requires.  It’s not that a stretch can’t involve some short-term adjustment in long-term savings, BUT that adjustment should come only after every single ounce of discretionary spending has been cut.

What is The Worst-Case Scenario if This Stretch Doesn’t Work Out and How Do You Feel About the Risk?

Above, we encouraged you to think about how long it might realistically take before you feel less stretched, but the reality of the financial stretch is, it’s a risk, and there’s a chance it just simply won’t work out at all. So, it’s important to identify the worst-case scenario, and make sure you are okay with that as a potential outcome.

For example, starting a business that requires you to take on $150,000 in loans has a worst-case scenario that you may need to declare bankruptcy on that debt. If that’s not a worst-case scenario you can live with, it’s likely too big of a financial stretch for you to take on. But starting a business with the money you have in savings and not taking on debt, only has a worst-case scenario of potentially losing what you’ve put into it, and needing to go find a job again.

It’s important to note that neither of these outcomes makes a risk worth or not worth taking. We all have different appetites for risk and different comfort levels with what we’re willing to accept as our worst-case scenarios. But before any financial stretch, you need to look the worst-case scenario in the eye and say, “am I okay with this outcome?”

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Am I okay with drawing my savings down to $0, knowing that I might have to build it back up from scratch again?

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Am I okay with the bank foreclosing on this house if I cannot make the payments and the market drops, so I cannot sell it for at least what I owe on it?

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Am I okay with having to pay back $75,000 in student loan debt for a career I thought I would want to do, but realized that I didn’t like at all once I got into it?

Financial stretches can be extremely rewarding, but we all tend to imagine only the potential rewards when we take them on. It’s easy to get caught up in the excitement of the dream and forget that a financial stretch is, by nature, also risky. How much you’re willing to risk depends a lot on your personal financial situation and tolerance for risk, but the key point is that you need to be willing to take an honest look at what you have to lose BEFORE you make a big financial commitment that stretches your budget, and then decide whether you can tolerate that much loss.

Avoiding the Worst-Case Scenarios – Does Your Backup Plan Have Backup Plans AND Outline WHEN to Use Them?

One of the most predictable ways to ensure the success of a financial stretch is to give it the time it needs to be successful. Businesses that are slow in the first few years often take huge leaps in revenue after they’ve been around for four or five years. Houses that might be over-mortgaged and under water two years after purchase, will most likely, in ten years, look like a good investment.

The more plans and backup plans a financial stretch has, the more likely it is to succeed, simply by virtue of it having enough time to succeed. You’re far less likely to end up giving up on a stretch before it has time to bear fruit if you create these plans in advance and know when you’re going to deploy them.

For example – let’s say you have $100,000 in savings, and plan to start a small business that has $30,000 in startup costs. You also plan that the business will take 18 months to get up and running and making money, so you’re planning to use another $60,000 of your savings to cover your living expenses for 18 months. You’ve run your budget, and you know that this is a manageable expectation for living costs, and it will still leave you with $10,000 in savings.

That’s your plan.

But it’s based on the assumption that you are going to be making enough money to completely support yourself within 18 months. What if you aren’t able to do that? Will you walk away from the business and go back to work (that is an option, and possibly a good one if the business has simply proven to not be a workable idea).

But what if the business is doing well, just not as well, or as fast as you had hoped it would? What are your backup plans that allow you to stay out of financial trouble, but still in business?

  • Could you do part-time work outside of business hours? Does it make sense to start this after 6 or 12 months if you haven’t met your target revenue goals, so that you can stretch your remaining savings farther and give the business more time to get off the ground?
  • What have you obstinately held onto in your budget that you might finally be willing to cut if what you needed was just a little more time, and at what point are you planning to make those cuts?

People are often forced into a situation where they’ve already gotten in financially too deep for a backup plan to help when they don’t have multiple layers of backup plans and/or don’t know when to deploy said plans.

If you decide to look for part-time work while there’s still money left in savings, then the work you need to buy your business more time can still be supplemented by what you have left in savings. If you wait until you’re out of funds, you may need to go back to work full time to keep yourself financially afloat.

If you decide to rent out a room in your house the very first month that you can’t make your mortgage payment, your backup plan may buy you enough time to right the ship without getting into any real financial trouble. But if you wait until you’ve taken out a second mortgage or taken on a lot of credit card debt before you consider this option, it’s fairly likely that it won’t be enough to keep you afloat.

You should have your backup plans in place BEFORE you commit to the stretch, as well as clear indicators of when you plan to deploy them to keep you out of real financial trouble. This will buy you what is, perhaps the most underappreciated resource of a successful financial stretch – time…

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Time for the idea to work.

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Time for the investment to grow.

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Time before you must decide whether the stretch was a success or a failure – the best choice you ever made, or the worst one.

What’s Your Track Record with Budgeting, Savings, Short-Term Sacrifice, and Other Financial Stretches You’ve Made?

This is, perhaps, the reason that no one wants to give generic advice about financial stretches. It’s true that there are a ton of variables that are out of your control that will factor into whether your financial stretch goes down as one of the best or one of the worst decisions you’ve ever made, but you are the X factor in that equation that’s hard for an outsider to account for. And it’s worth it to take a close look at your history with the financial stretches you’ve previously made.

Are you prone to getting in over your head, thinking things would go well, and then ending up with a financial hole to crawl out of when they didn’t go as planned?

Or, conversely, do you have a history of willingness to make big sacrifices in spending, or take on second jobs or roommates to see your financial stretches through so that you stay out of long-term financial trouble?

Anyone who tells you, based on their experience, that it’s worth it to make a financial stretch like buying a house because it was a great decision for them, is giving you a very anecdotal piece of advice, one that may be lacking a lot of details, like how they said “no” to all of their friends’ invitations for 10 years if they required a hotel room or a plane ticket purchase, or how 3 packages of ramen was their $1 a day meal plan for 5 years. These were sacrifices they were willing to make for something that was important to them, but they may not be sacrifices you are willing to make. And if it’s not a sacrifice you are willing to make, what was a great decision for them might turn out to be a catastrophic decision for you.

Look at your history and you will find examples of financial stretches in the past that you’ve taken, even if you didn’t give them much thought at the time (don’t forget, financial stretches can be small – they don’t just have to be big things). How do you feel about them a year or 10 years later?

Does that guitar you stretched to afford feel like the best decision you ever made, or is it sitting in your closet, not having been played for years, a relic of something that was more a dream than a commitment?

Was the car payment you took on something that you were enthusiastic about making, even after 2 years because the car added that much value to your life, or did you quickly come to resent it and wish you hadn’t committed to something quite so expensive?

Have you historically been willing to do whatever it takes (multiple jobs, roommates, etc.) to get through financially stretched times, or have these often resulted in the accumulation of credit card debt or missed bills?

You are the most important human to study when you’re trying to decide if you should make a big financial stretch. Asking Reddit if it’s worth it to buy a house that stretches your budget is far less valuable than asking yourself, “how have I done with budget stretches in the past? And what is MY track record with staying on a tight budget even when it means saying no to things I want to do?” If the answer is, “not great,” then it’s worth it to pause on the big stretch you’re considering.

At the end of the day, the thing that is entirely in your control is not just how well you make your plans and backup plans, but how well you stick to them. And if you haven’t gotten yourself to a point where you can reliably meet tight budgeting goals, you’ll likely want to practice and strengthen that skill first, before you take on a big financial stretch.

Making a Financial Stretch Work for You

Person reflecting at top of a hill

There’s no proven formula upon which to decide if a financial stretch is worth taking. We’re asking you to pause and reflect a lot here – examine your true motivations, think about your values and how much you’re willing to sacrifice in the quest to reach a financial goal that might be life changing (for better or worse), and take an honest look at your own track record.

Spending time on worst-case scenarios, how it will feel to be in those scenarios, and coming up with Plans A through Z to address them will not only give you a better chance of financial success – it will also put you in the driver’s seat, giving you a sense of agency when things inevitably don’t go exactly as planned.

The greater the stretch, the greater the risk, and the more preparation you need to tackle it. Skydivers don’t jump out of airplanes solo before they jump tandem, and when they do jump solo, they do it with a parachute, a backup parachute, and an automatic activation device. Jumping out of an airplane is an inherently risky thing to do, but so is a big financial stretch. Think of answering these 6 prompts as your financial safety gear as you decide whether or not to embark on a financial stretch so that if and when you decide to jump, you can increase your odds of making it to the ground safely.

Image attribution: Photos by Kelly Sikkema on Unsplash, Milan Popovic on Unsplash, Marcos Paulo Prado on Unsplash

Finding Budgeting Success: Reframing Goals Into Weeks

Finding Budgeting Success: Reframing Goals Into Weeks

I recently had a friend show me a poster she had purchased from 4k Weeks which was customized to her age. It showed a projection of how many weeks she’d be likely to have in her lifetime (and how many she’d already lived) as a series of small boxes on a poster. I have to say, my first response internally was, “shit, when you see it laid out like that, it’s not very many weeks.” Somehow, to my brain, the 4,576 weeks I saw on that calendar felt like a lot less time than 88 years.

Seeing her poster felt a bit synchronistic with the other thinking I’ve been doing this year, about how to help clients who struggle with their budget think more about spending accountability in weeks rather than months.

And since this is the time of year, historically, when most people tend to slip out of their January-driven New Year’s enthusiasm, it seemed like a good topic to take on for this time of year.

Ultimately, this post isn’t necessarily about weeks being the right way to structure or measure the goals you set, but rather, about the importance of considering the unit of time we’re structuring and tracking our changes around.

Annual Plan, Weekly Budget: 

One of the things we’ve found in practice, is for people who are trying to reduce spending habits, structuring their spending around weekly rather than monthly goals is a small, but impactful change.

Realistically, most of our bills recur monthly (or even less often than that), and many of us get paid only once or twice per month. So logically, it feels natural to center our budgeting around months. The problem we run into as humans with monthly budgeting is that 1) some months are more expensive than others due to non-monthly expenses, and 2) if we only pay attention to our spending monthly, it’s hard to course correct if we’ve overspent early in the month.

The change we’ve encouraged our clients to make, then, is to plan annually – accounting for all the expenses that come up through the year, not just the recurring monthly ones, but to allot their budget weekly.

The annual plan is important. Otherwise, it’s impossible to know how much you really have available for weekly spending, and you might give yourself too high of a budget per week because you’ve forgotten to set money aside for those bigger, irregular expenses or savings goals.

But when it comes to implementation, the weekly budget is an accountability game-changer for many folks. If they think of their spending in terms of a week, it’s easier to foresee expenses as they approach, and easier to make slight course corrections and adjustments. It’s mentally and logistically a really different ask to realize that you’ve spent all your funds for the week and need to go a day or two without spending, than it is to realize you’ve spent all your money for the month and need to go 10 days without spending.

Weeks work well for habit-changing goals.

I think the week tends to be overlooked as a metric for measuring goal progress because we tend to encourage people to set goals for longer periods of time… quarterly, yearly, 3-5 years, or even longer, and to focus on the measurement of outcomes.

And the truth is, with the way outcomes ebb and flow, it makes sense to measure outcomes less often. Anyone who has ever tried to hit a sales/revenue goal or weight loss goal knows it doesn’t always come in equal sized weekly chunks. 

But we also know, goal accomplishment isn’t really about outcomes, it’s about behavioral changes. If you change the habit, the outcome will follow.

And when it comes to changing habits or incorporating new ones, weeks often provide an exceptional unit of measurement for many reasons:

  1. Weekly planning – We tend to plan our lives around what lies in the week ahead, so there’s a natural way to incorporate planning and monitoring behavioral change on this schedule.

  2. Easier to envision – Our “one week from now”-self is a relatively easy future-self to envision. Think about it this way… when folks ask, “where do you see yourself  _____________ from now” the longer that time period, the harder it is to “see” ourselves. But if someone asked us, where do you see yourself one week from now, most of us have no problem at all seeing that future version of ourselves. In fact, we could probably even tell you where we plan to be and what we plan to be doing.

  3. Less failure – Tracking a daily habit “daily” can, for some folks, lead to a sense of failure and defeat if they miss a day. Even daily habits are best thought of as “almost daily” to avoid the sensation of falling off the wagon when you inevitably miss a day.

  4. Faster course correction – Shorter tracking periods allow for smaller, and more manageable course corrections.

  5. More success – Shorter tracking periods allow you to recognize success more often, retraining your brain to believe you will be successful at this endeavor.

What weekly measurements look like in practice:

For example, if my new year’s resolution is to take a 30 minute walk each day and to start intermittent fasting, the outcome I might be looking to achieve might be weight loss, or possibly just better overall digestive health, physical health and/or mental health. The outcome isn’t really that important, this is the action plan for behavior change I’ve created to achieve it. Using the numbered points above:

  1. Weekly planning – I can look at my calendar and see where my days will have room for my daily walk. If my initial plan was to walk during my lunch hour, but I realize I have lunch meetings on Monday and Thursday, then I will need to plan for another time of day. My weekly calendar is accessible for me to plan around, beyond a week, it can be hard to predict what life brings.

  2. Easier to envision – I’m not doing this for some hypothetical version of me that I can’t envision. I have a perception of where I’ll probably be one week from now, and I can envision that future version of myself feeling good about accomplishing this small set of steps.

  3. Less failure – That being said, I also understand life is challenging and throws unexpected things my way. Rather than feeling mad at myself if I don’t accomplish this goal every day, if I can look back each week and realize that I’ve done it 5 days out of 7, I’ll be able to consider that ‘meeting expectations’ (bonus if I get all 7). In fact, if I realize I have a late dinner and drinks scheduled with friends on Friday night, I’m not even going to worry about that for fasting, I’ll just plan to take that day off.

  4. Faster course correction – At the end of the week, if I’ve only actually gone for 4 daily walks, I’ll be able to remember fairly clearly what got in my way of walking on the days I didn’t do it and make a plan for how to tackle those obstacles next week.

  5. More success – Finally, if I did get my 5 walks (or more) in, I’ll be able to recognize that as a success, and start to reframe my brain into thinking that I am the type of person who sees things through, rather than abandoning them a month into the year. Each chance I have to give my brain evidence of this is building the neuronal pathways that lead me to believe I will be able to take new habits on and stick with them. (If you have been providing your brain a lifetime’s worth of evidence to the contrary, it’s extremely important to start stacking up these pieces of evidence, so the more often you check in, the more of them you can build.)

What goals are best left checked on longer time periods

I don’t think it’s really a matter of goals, so much as outcomes vs. behavioral change. I think weekly is a great way to monitor habit change and implementation. Whether it’s spending, saving, eating, exercising, or screen time, these types of small behavioral changes benefit from a dedicated time, about once a week to reflect, plan, adjust, and recommit.

Outcomes, on the other hand, deserve different timelines, somewhat dependent on how long they will take to achieve. But be careful about checking outcomes too often, before you’ve let the processes do their work. I find that the obsessive checking of outcomes is often a bigger discouragement than encouragement, as we tend to let them dictate how we feel about our success when they are not, always, entirely in our control. In reality, the consistent application of improved daily habits will eventually lead to improved outcomes given enough time.

For example, if I:

  • set an emergency savings goal of $10,000, and

  • put in plan a place to save that much this year, and

  • stuck to my budget all year, but

  • due to a major unforeseen car repair, end the year with only $5,000 in my emergency savings account,

That’s not a failure. I still did my part, and, given enough time, those spending/saving habits that I’ve created will get me to my $10,000 balance and beyond. The important thing is to keep my focus on the amount I’m spending each week, so that I can keep up the habit I’ve built of adding to my savings.

You Don’t Really Want Goals/Outcomes…You Want Feelings:

I also think an interesting thing to notice is how unimportant certain outcomes become if we have changed behaviors in ways that improve our mental health and relationship to money, food, work, or smart phones. Many times, I have started a behavior change with an outcome in mind, successfully changed the behavior, and forgot to ever check on the outcome. Years later I will find some sort of note I jotted down about a savings goal or a physical health goal, that at some point I surpassed (maybe on schedule, maybe not), but the reality is, the behavioral change was rewarding enough that I just kind of forgot about the outcome. Because at the end of the day, it was probably never about having $10,000 in savings, but rather, it was about feeling confident and comfortable living within my means and knowing I had enough for a rainy day. It wasn’t about the number on the scale – it was about feeling healthy and strong in my own body. And those feelings are built on habits, not outcomes.

Photo acknowledgement: Photo by Jazmin Quaynor on Unsplash, Photo by Paico Oficial on Unsplash, Photo by Sincerely Media on Unsplash, Image by Leo from Pixabay

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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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!
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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.

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.

How much rent or house payment can you afford?

How Much Rent or House Payment Can You Afford?

This is a question I get frequently from clients, and there’s unfortunately no “one-size fits all” answer to this question. However, whether you’re considering rent or a mortgage payment, there are some key financial metrics and guidelines that can help you make this decision.

Conventional Rules of Thumb for Monthly Housing Costs

Most conventional recommendations advise limiting your total monthly cost of housing to 28% of your gross (before-tax) monthly income. So, for example, if your gross pay is $7000 per month, you’d be wise to shoot for a maximum housing allowance of about $1,960 per month for a rent or mortgage payment. And while this is a good rule of thumb to consider, there are other factors that may be at play in your personal financial situation that you want to take under advisement as well.

When considering the 28% recommendation for housing – look at how it factors into your other key financial ratios:

50/30/20 Ratio (For Renters and Home Buyers)

The 50/30/20 Ratio states that, as a general rule, 50% of your take-home income should be spent on non-negotiable needs (Rent or mortgage, utilities, groceries, insurance, and minimum debt payments), 30% on wants (Shopping, eating out, happy hour, concerts or sporting events), and 20% should go to savings, or to making additional debt payments if you are trying to get out of credit card or other non-secured debt. So, in the example above, if your $7000 monthly gross income results in $5,600 in monthly take-home pay, you would be wise to not exceed $2,800 per month in spending for necessities. And if the $1,960 per month that you’re spending on rent or a mortgage pushes you over that limit, you may want to reconsider whether it’s financially feasible for you to take on that payment or whether you need to look for a lower-cost housing option.

Overall Debt to Income Ratio (For Home Buyers)

Your total Debt to Income Ratio basically demonstrates to lenders what percentage of your total monthly income is going to pay off existing debts and is an important factor to consider if you are thinking of purchasing a home. Typically, a good or ideal debt to income ratio will have no more than 35% of your gross monthly income being spent on repaying debt (including the mortgage payment you’re intending to take on). So continuing with our example, if you were making a gross income of $7000 per month, ideally no more than $2,450 of that would be spent on paying down debt. That means that in order to afford your $1,960 per month mortgage payment, you’d need to have less that $490 in other monthly debt payments.

Don’t Neglect the Cost of Your Escrow Payment, Increased Utilities and HOA Fees

For first-time home purchasers, a major source of monthly-payment shock can come in the form of what you pay monthly to cover your escrow account payments. This amount essentially goes into an account that your property taxes and homeowner’s insurance are paid from. Because property taxes vary so widely, it’s hard to give an exact prediction of what this amount will be, but you can anticipate that it will typically be at least several hundred dollars, if not more in higher priced housing areas. When working with a lender on pre-approval, make sure they provide you with total monthly costs including escrow for different purchase amounts, and make sure to take that into consideration when evaluating the total cost of housing as part of your 50/30/20 Ratio. Utility costs often increase for homeowners as well because certain utility payments are factored into the cost of rent that will have to be paid separately when you own a home. And for condo purchasers, it’s also important to factor in the cost of monthly HOA dues.

Can You Cut Back Other Expenses to Commit to a Bigger House or Rent Payment?

If you were my client, I would advise against this as a plan without testing it first. If you were insistent and committed to it, I’d ask you to prove it to me. Prove to me that you can sustainably cut expenses elsewhere before you commit to a 30-year monthly payment on a home that exceeds recommended ratios. And the catch is, you can’t take it out of the 20% savings category. If you’re confident that you can reduce your “wants” spending to say, 15% so that you can afford more in the needs category, spend a year doing that before you commit to doing it for 30 years. And take that opportunity to save that extra 15%. After all, you’re about to embark on a purchase that will inevitably require a bigger buffer savings account than you needed when you were renting, so you might as well start now.

But if you’re already having a hard time meeting your 20% savings goal with your current monthly expenses or have already accumulated some credit card debt because you overspend monthly or when things come up, you are fooling yourself if you think that suddenly buying a home that increases both your monthly expenses AND your potential unexpected expenses for large-ticket items is going to fix this. It will not, no matter how alluring the idea of home-ownership is.

What If You Live in a Place with a Very High Cost of Living

This is very much a reality for many folks, and I’m not naïve to how variable housing costs are in different areas of the country. That being said, I think it’s important to have the conversation about the tradeoffs that come with being a lower-income earner in very high cost of living areas. Long-term, it is likely not going to be a sustainable way to live unless you are 1) actively pursuing a way to make more money, or 2) willing to explore alternative options for housing, like living with or renting to roommates, or possibly renting or purchasing a very small space. All of these are viable options, but otherwise, it just doesn’t compute. It’s not ever going to get easier to make ends meet living in an area where you can’t afford the cost of living unless you have a plan to either make more money or find creative ways to spend less. High cost of living areas are often filled with opportunities to make higher salaries, but if you are not pursuing those opportunities and are not willing to reconsider where you live, you may need to reconsider how you live and who you live with in order to make the available housing options affordable to you.

At the end of the day, there really is no one right way to do this. No exact rule that can answer this question for you. But ultimately, I’ve seen far too many people try and make high-cost housing options work that end in nothing but financial heartbreak and frustration. Keeping your housing choices within the realm of what you can afford is extremely important for your long-term financial health, and it also factors into preserving the life you want to live today (after all, for most people it’s a big tradeoff to let go of all their “wants” spending simply to buy the house they want… especially when considering how long the commitment to a mortgage is). But above all, I encourage you to avoid the trap of thinking you can make something work if you haven’t taken the time to prove to yourself that you can sustainably live on what’s left over after you’ve taken on the bigger mortgage or rent payment. That’s something to test before you make a life-changing financial decision, not after.

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Setting a Fraud Alert

Setting a Fraud Alert:

A Simple Step to Protect Your Credit

Years ago, when identity theft started running rampant, many of us were advised to freeze our credit. It was free, not overly complicated, and ensured that no one would be able to open a line of credit in our names.

But, if you’re anything like me, after one or two attempts to open a new line of credit in my own name, where at least one of the credit bureaus made it nearly impossible to remove the freeze in a timely manner, the credit freeze started to feel more like a hindrance than protection. It was, to say the least, frustrating. After all, I froze my credit to keep others out, not myself.

I know many who have gone through similar experiences to my own and have given up their attempts to protect their credit through a freeze. And, not wanting to pay for the more costly but easier to use credit “lock” services, many are now relying solely on a free credit monitoring type service or aren’t really monitoring their credit at all.

And while a free credit monitoring service is definitely a good idea, it’s not actually a proactive way to prevent someone from using your personal information to open up a new line of credit in your name. It simply gives you a fairly timely alert when somebody does.

But is there anything you can do that won’t lock you out of using your credit for several business days when you need it, but could potentially stop someone else from accessing it? Fortunately, the answer is yes. By setting a fraud alert on your account with the credit bureaus, you basically communicate to them that it’s okay to open up a line of credit in your name, but they need to call you first to authenticate that it’s actually you opening the line of credit. It takes only a few minutes to do, and once you set a fraud alert with one of the credit bureaus, they have to communicate that with the others, so that they’ll all be forced to call you before you (or anyone else) are able to open a line of credit in your name. I personally find the Transunion site to be the easiest to navigate when it comes to setting and removing fraud alerts, but it can be accomplished using Equifax or Experian as well. No matter which site you choose to set the alert on, once you’ve set it, you’ll receive confirmation in the mail from the others letting them know that they’ve added a fraud alert to your account.

It’s a simple step to put a little bit more hassle in between your credit and someone trying to take advantage of it. While not impenetrable (if someone has your phone as well as your social security number, and other personal info, they’ll be able to get around this), the truth is most people looking to commit fraud are out there looking for something easy to accomplish, and the more layers of complexity they have to go through, the less likely they are to see their nefarious mission through.

The catch is that a fraud alert only lasts for 1 year, so you’ll want to set a calendar reminder each year to reset the fraud alert as part of an annual money maintenance routine. But once you’ve done it, it’s a relatively easy thing to go in and set again, and unlike a credit freeze, it won’t prevent you from opening a new line of credit (you just need to make sure to have your phone handy if you’re applying for financing, as you’ll typically receive a call almost immediately).

Like any level of credit protection, it’s also important to realize that this can’t protect you from everything. Credit/debit card number theft for already existing lines of credit and someone filing a tax return in your name hoping to collect on your refund aren’t protected by this measure. But this will put an added barrier in between you and someone trying to take out a $50,000 car loan in your name, or someone opening up a new credit card and running up a bunch of fraudulent charges. And since it takes only minutes to set up (but often weeks or years to resolve identity theft cases) there’s no reason not to put a fraud alert on each year as a minimum level of protection for your credit.

Got a few more minutes to spare? People who make a life and a living out of stealing your information are often deterred by anything that makes their job more difficult. After all, why spend hours or days on something if someone else is making their accounts accessible in seconds or minutes. So set aside some time to regularly change your passwords on your accounts (particularly money-related accounts and the email account you use for 2-factor authentication), and read up on what makes it harder for someone to brute-force break your password before choosing new ones. An hour a year spent putting a fraud alert on your credit and protecting your accounts with new and strong passwords is a small time investment that has the potential to protect you from all but the most targeted attacks on your identity, and potentially save you a lot of time, hassle, and money. So don’t put it off.

What’s driving your impulse spending?

What’s Driving Your Impulse Spending?

Let’s face it. When it comes to spending, 99% of us are making choices that involve tradeoffs. More money spent today means less to save for the future. And even if we just consider the tradeoffs in our current lifestyle, more money spent in one category of our budget means less that’s available for another.

In one of the earliest Sustain Financial blog posts, I talk about using a question to help us evaluate these tradeoffs: In this more important than…? But in this post, I want to explore another tool or strategy to help you on the path to making more consistently aligned spending decisions: taking the time to think about what the underlying feeling is that’s driving your impulse to spend.

To make any of these strategies really work, the first thing to recognize is just how much of our spending is a choice. That’s not a criticism of unnecessary spending. I, too, enjoy spending money on things that are wants rather than needs. But many of the “essential” items on our lists: expensive groceries rather than budget-conscious groceries, cable and streaming services, new clothes, new phones, etc. are not exactly the necessities we sometimes make them out to be. That doesn’t mean it is easy or comfortable to get rid of them. But if we really are honest about what our families need to survive, it’s basic foods that can be prepared with inexpensive staples, a roof over our heads, clothes on our bodies (old clothes will do) and not a whole lot more. So, everything else is really a choice we’re making about what to spend money on.

And while it helps to weigh that choice in terms of whether it’s more important than another option or choice, sometimes if there’s a really pressing feeling under that impulse to spend, just asking the “is this more important than…?” question may not be enough to override that impulse.

This may seem overly simplistic, but I think a few concrete examples may be a good way to illustrate how there is often a lot more to this question than what meets the eye.

So, a great series of follow up questions are… 

“What’s the underlying need
that’s driving this decision?

Will this spending even actually
meet that need?

Is there another way to meet it
that won’t blow my budget?”

The examples I’m going to explore here are:

1) The need to buy a new item for your home

(decoration, piece of furniture, storage containers, lawn chairs etc.)

2) Unplanned eating out

In my work with people around budgeting I find these two categories are really common places where people don’t plan for a lot of spending and often end up consistently over-budget. Which means that they are likely a place that a lot of unplanned, impulsive spending happens.

Let’s start with that new item for the home.

These purchases can seem like innocuously small things, often bought with no real forethought, but whose accumulation over time really adds up. The thought that goes into purchasing them is often something like, Wouldn’t that look nice or be nice to have in the house or yard, and it’s only $30. But then it’s $30 here and $20 there, and pretty soon it’s several hundred dollars in a month that you hadn’t planned on spending.

So, what would it look like to dig into what’s behind that spending desire. Really common underlying forces in this type of decision are a feeling that this item can fix or make you feel better about something you’re not fully satisfied with in your living environment or your life. Boredom with your current home environment, clutter, or jobs that need to be done around the house that you don’t really want to do, are all common reasons we seek to add something to our living environment. No matter what it is, it’s really important that you clearly identify the current problem with your home or your life that you think this purchase will fix. If I’m tempted to buy new plants or outdoor furniture, but when I really think about it, my yard has a ton of weeds in it. The plants and the furniture are a distraction. I should probably head home from Target (or get off Amazon) and start pulling some weeds.

If the current problem is a lack of seating, and you’ve landed on a $500 chair that you really can’t afford right now, then the next question would be, is there a way to fix the problem with a less expensive solution? But it’s highly probable that the need you’re trying to fill may not actually be quite so directly linked. For example, you may be feeling bored with your home. It might be that your house doesn’t look how you want it to – and rather than cleaning it, or sorting, organizing and donating items you don’t need any more to reduce the clutter that’s actually underlying your dissatisfaction, it’s easier to just simply buy an item that will add a little novelty for a little while until it, too, eventually becomes something you are bored with and/or adds to the clutter.

It may be that you’re missing backyard parties with friends or camping with family, so buying a new cooler or lawn chairs might make you feel excited about that being a part of your life again. It’s not that the cause will be the same for everyone, but rather, that it’s extremely important to identify the cause to evaluate whether the purchase you’re about to make will alleviate your underlying feeling of boredom, dissatisfaction, etc. for more than a few hours or a couple of days. And it will give you an opportunity to think about what will alleviate that feeling if this impulse purchase will not. Is there something you can clean, re-arrange, organize, donate, etc., or can you start planning the next camping trip or backyard barbecue? All of those are much more likely to create a more lasting impact on that underlying feeling than buying that item will.

Eating out, particularly unplanned eating out, is a trickier example, since it’s typically linked to hunger, and food is a basic human need

But like the $500 chair, it is a good example of where there are opportunities to assess whether the trip to McDonald’s, the café next to your work, or the local taco truck are really the only ways to address your underlying need.

The “underlying need” question is not really whether food is a way to satisfy your hunger – of course it is. But rather, it’s whether eating out is really the only way to meet the need and to assess the other underlying feelings that are leading you to convince yourself that it is. Just like in the first example, though, these are often decisions made at the last minute and impulsively.

And they are also ways that $30 here and $20 there can end up adding up to hundreds of unplanned and unbudgeted spending at the end of the month. In the moment, they never feel like that much, but they add up quickly.

For example, if I’m driving home from a long day at work and I’m hungry, and I don’t have a plan for dinner, or I have a plan for dinner that’s labor intensive or doesn’t really sound very appetizing, going out or picking up takeout may seem like an irresistible decision in the moment. It might even feel like a need. And your hunger will, in fact be satisfied by this purchase. But the importance of identifying the other feelings at play here, whether they be boredom, convenience, etc. is that you won’t be able to see another option to satisfying your hunger if you can’t first identify what’s driving the desire to eat out when you hadn’t planned to.

If you’re simply feeling too busy, hungry, tired, or overwhelmed to actually prepare food, the solution can be as easy as stopping by the grocery store for a less expensive, low-effort option – like a can of soup, or making sure to keep a snack handy that will satisfy your hunger long enough to give you the energy to make dinner when you get home.

But, if you’re feeling bored with the food options you have at home, it may be time to put some effort into re-thinking whether the meals you’re planning have become too routine, and to introduce some new recipes into the mix. And in the meantime, since that’s more of a long-term solution, is there something you already have that you could do tonight to change it up that won’t involve the expense of eating out, like making breakfast for dinner?

If a lack of time in the morning has you running out the door before you pack a lunch, you could prepare a lunch the night before. But if it’s really that you’re bored with the sandwiches you keep pulling out of your lunch box, that won’t fix the compulsion to eat out instead of eating your sandwich. So maybe it’s time to think about adding something new to the lunch menu.

No matter the driving force behind all this unplanned eating out, the importance in identifying what’s driving it can’t be understated. Because if what’s really causing you to eat out is boredom with your current food options, but you misidentify it as being too tired to prepare food, then any of the alternative options you explore that will cost you less likely won’t be appealing to you because they’re not addressing the underlying issue that you’re just kind of bored with the food you’re preparing at home. A good way to recognize that you haven’t quite hit the mark on identifying the underlying driver behind your impulsive spending is that none of the alternative sound appealing or satisfying.

Looking for alternative ways to meet what underlies impulsive spending is not always easy, and it’s not always comfortable.

In fact, at times, you can be led down a path of realizing that you might be rather bored or generally dissatisfied with life, and that your impulsive spending may be your way of trying to avoid or distract you from that feeling. After all, it does provide momentary relief. But at what cost? It’s temporary (sometimes so temporary that only minutes later, you find yourself looking for another way to alleviate that discomfort), and it’s harming your ability to care for yourself financially.

So, if your path to uncovering what’s behind your unplanned and impulsive spending is deeper than just meeting a more superficial level of dissatisfaction with your menu or your home or the cold weather, it might be worth it to seek help from a qualified therapist to work through some of these bigger feelings of dissatisfaction that your overspending might be trying to alleviate for you. And the sooner the better, because overspending, particularly if it involves accumulating debt, is a problem that will only get worse the longer you put off dealing with it.

Ultimately, it’s not about whether or not it’s okay to spend money on things that are not necessary. 

If you can afford it, of course it is. But unplanned, impulsive spending that wreaks havoc on your overall financial health or actively works against your ability to prioritize saving for the things you really value is an extremely important thing to address. And in order to address it, digging down into the underlying motivation behind it can be a critical step in the process.

Reading the Morning Headlines like a Financial Advisor

Reading the Morning Financial Headlines like a Financial Advisor

Let’s visit a single day’s worth of morning financial headlines – through the lens of good financial advisor.

Before I dive into the content for this month’s post, I think an important disclaimer here is that I don’t often read the daily financial headlines. In fact, I try to avoid them. I don’t watch CNBC, Fox Business, or Bloomberg. I don’t pay too much attention to what the market is doing on any given day, because I’m far more concerned with what my clients are doing to make the best possible decisions they can for their financial situation. And it turns out, the morning financial headlines, the market forecasts, and what the market did today have literally no bearing on how my clients or I should be making our financial decisions. They simply don’t matter.

But every now and then, when I find myself perusing the morning news for something else, I am struck by the bombardment of financial headlines. And to help you be a better consumer of these headlines that compete for your attention and emotional bandwidth each day, I thought it might be interesting to do a walk down a single day’s worth of morning financial headlines, seen through the lens of good financial advisor.

So, one morning (in early November of 2022), I took to the internet and took a screen shot of the first 10 financial headlines that I found in the Google News section. And then I jotted down the thoughts that went through my head as I read each one of them. And in a bit of a non-conventional blog-post, I’d now like to demonstrate how I read the morning financial headlines, on the rare occasion that I read them at all.

Headline 1:

Stock Market Outlook: S&P 500 to fall 16%, UBS says

16% is an oddly specific number. How could you possibly predict that? And over what timeline? And if it falls 18% will this prediction be considered correct? WHY would you put something like this out there when everyone knows you can’t predict what the stock market will do? And 16% — really. Weirdly specific.

And the certainty of that language “to fall” is wildly misleading. As if there were any way we could know that for sure.

Headline 2:

Stocks are trading exactly where they were 5 months ago, which could mean they’re poised for more gains, one analyst says

Dramatic twist. Looks like not everyone agrees with UBS. The plot thickens.

Headline 3:

A fund manager with 50 years’ experience is beating the S&P 500 this year. How he did it and the stocks he’s watching

Nobody cares. Since 95% of fund managers can’t beat the S&P 500 over time, it really doesn’t matter what they do in a year’s time – this is absolutely meaningless garbage. I hope no one runs out and puts their money in this fund. If he beat the S&P 500 this year, that ship has probably already sailed, and most likely he won’t do it again next year.

Headline 4:

S&P 500 could plunge another 30%, US faces historic recession

Take that UBS. This guy doubled down on your 16% prediction. His crystal ball foresees nearly twice as much loss. Words like plunge and historic make this one sound particularly scary.

Headline 5:

S&P 500 typically gains big in year after midterms, even when there’s a recession

We’re bordering on meaningless (let’s be honest we’re well past it) at this point. Four of the first five headlines are just making competing market predictions, half for the market doing better, and half for the market doing worse.

Headline 6:

Midterm Seasonality: Is there a 100% chance of a higher S&P 500 in 3 months’ time?

100% chance? No, of course not. There’s never a 100% chance of anything in the market (or in life). What a click-bait headline.

Headline 7:

Elon Musk would have this much cash if he sold all his Tesla stock

Oh, who actually cares? This is not news. It does not belong in the news section. Well, actually, none of this is news, but this is bordering on Real Housewives of Finance territory.

Headline 8:

Everything has a season, even stocks. Why now could be the right time to buy

This is the third headline I’ve read with the word “could” in it. Just to make sure we don’t take these crystal ball predictions too seriously and nobody gets sued when they turn out to be wrong. Which obviously at least half of them will.

Headline 9:

S&P 500 earnings estimates for 2023 take a ‘complete U-turn’ as recession risks loom, according to BofA

Ooooh. This typically means they made a prediction a few weeks or months ago that they’d now like to reverse. And even though that one was wrong, they’d like us to believe this one. This one is definitely better.

Headline 10:

The S&P 500 is mounting a comeback, and these stocks are ahead of the curve

Is it? This is news to me. I wonder what we’re supposed to do with this list of stocks? If they’re ahead of the curve on the comeback, that probably means we shouldn’t buy them, because they’ve already recovered more of their losses than some other ones that are still searching for rock bottom. But I bet the article won’t say that.

I can’t say that I read the last article to confirm whether it said that or not. I didn’t read any of them. Giving financial advice based on this would be highly irresponsible. Financial decisions (including investment decisions) should be made based on financial goals not click-bait financial headlines.

What I can say, though, is that it’s best to take headlines like this (if you have to read them at all) with an enormous grain of salt. Bring some awareness to your emotions. If you let one headline swing your brain around to convince you that doomsday is near, make sure to keep reading to find the dramatic conflict of the next headline that will tell you the market is poised for a rebound. If you’re wondering who to believe? Don’t. Neither is worth paying attention to. Smart financial decisions aren’t market driven, they are goal and timeline driven. They are personal. They involve things you can control – like how much you spend, save, and invest over time. There’s not a single thing in the headlines above that should even make you consider changing your investment strategy.

So, if you find yourself subjected to these headlines in a way that is out of your control, like on your search engine page, your radio, or an airport TV, remember to take them with levity. I know, it’s not easy when it comes to investments. But if you let them incite the emotion that they are designed to, you’re letting something that doesn’t matter get the best of you. Because no matter which of the headlines above prove to be true, it shouldn’t change the best course of action for your personal financial decision-making.

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Disclosures & Policies

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

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