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Characteristics of Effective Money Management Programs

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

What works for one will not work for all

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

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

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

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

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

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

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

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

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

It considers a bigger picture than just monthly expenses.

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

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

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

It expects the unexpected
(and saves for it).

Life is full of unexpected expenses.

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

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

It leaves room for flexibility.

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

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

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

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

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

It is highly interactive and has regular opportunities for feedback.

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

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

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

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

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

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

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

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

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

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

It is not.

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

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

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

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

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

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

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

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

The real magic is in your ability
to follow it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

First, become aware of these contexts.

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

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

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

Third, keep getting back up.

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

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

First, become aware of these contexts.

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

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

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

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

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

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

Third, keep getting back up.

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

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

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

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

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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.

Resolutions Slipping? Techniques for Getting Back to your Money Goals for 2023

Techniques for Getting Back to your Money Goals for 2023

As a person who works closely with money, I know that on the journey to meeting one’s financial goals, there are many roadblocks, ups and downs, and that nothing ever goes quite as planned.

So, as we ease into and through the second month of 2023, as most new year’s resolutions (goals, intentions, whatever you want to call them) have slipped to the backs of our minds where they would like to hide out until next January 1st, it’s a great time to think about some techniques we can utilize to get back to living our intentions around better money management. So, if it feels like your financial goals are slipping or have already slipped away from you, instead of writing those goals off for 2023, try working through the steps below.

Take a break from spending photo of a person with coffee while working on their laptop.

Step 1: Pause

Take a break from money for a few days or a week. If possible, try to take a break from even your non-discretionary spending. I understand that in some cases, it’s not possible to go a week without spending at all (after all, bills, groceries, gas, and a few other items exist, sometimes with pressing timelines). But give yourself a break from all but the most essential spending and money decisions. They can wait. And likewise, don’t think about your savings goals during this time either. Just pause.

So much of our behavior around money is habitual and compulsive. It either feels good and successful, or it feels bad and out of control. And when we’re trying to create new habits, it can be almost impossible to see our way out of the space we’re in if we can’t get a break from it. Try to think of it as a money fast – you may not be able to go a month without spending, but challenge yourself to a few days, just to clear the system and the head. Use this opportunity to find a neutral headspace to work from.

Assess. An image of a person working in a journal.

Step 2: Assess

We deviate from our saving and spending goals for a lot of reasons. Sometimes, those reasons are not entirely within our control and sometimes they are. Sometimes it’s kind of a mix. From your neutral headspace, sit down and assess (honestly, and without judgement if possible) why you feel like the last week or month or two or three months have not been as financially well aligned as you wanted them to be. A few common reasons (more than one of which may be true for you) are listed below.

  1.  Some small or large unexpected expenses came up

2. You got carried away with spending in one or more of the following categories

a.  Eating or drinking out

b. Just general shopping for myself or others

c.  Entertainment or travel

3. You had an unrealistic idea of you were spending when you made your budget

4. You have friends or family who rely on you or ask me for financial support and you feel unable to say “no” to them

5.  Your kids have gotten used to a certain style of living and it feels impossible to explain to them why your family might need to make some changes

The important part is not to fix the problem at this step, it’s to be honest about what it is that’s causing you to deviate from your financial goals.

Step 3: Revisit Your Goals

Remind yourself of why you set these goals in the first place. Are you trying to improve your current life, your kids’ lives, care for your future self, get out of debt, just get a little more breathing room and control over your money so you feel less stress.

Don’t pretend like it’s just not that important, because you wouldn’t have set the goal (year after year, in some cases) if your current money situation wasn’t leaving you feeling a little or a lot less than great. Financial health is an important component of your overall health and self-care. And it’s important to acknowledge the impact improving (or not improving) your financial habits will have on your overall quality of life now and in the future.

Like any major change, you must constantly remind yourself of why this is important for you. How will it make your life better?

Changing habits is hard. Money habits are some of the hardest to change, and if you aren’t revisiting regularly why you are making these changes, it will be almost impossible to make them.

Revisit the plan. Image of a person sitting in a sweater, pondering while sitting on some stairs.

Step 4: Revisit the Plan, and Adjust if needed

The work you did in step 2 is important for this step, so if you haven’t done it yet, make sure to take the time to do it. If you don’t know how you got off track in the first place, you may not see where you need to adjust.

This is the time to put a clear plan in place to deal with the things that took you off course in the first place. How will you avoid being in a situation where you’re busy, hungry, and feel like you have no alternatives but to eat out? What systems do you need in place to curb excessive retail spending? What overall budget adjustments need to be made if this plan is going to be successful? (I challenge you to avoid the trap of thinking that everything in your budget is something that you and your family can’t live without).  How will you practice prioritizing yourself and your family’s financial goals when others come to you with their financial needs? What conversations can you have with your kids to make them understand that for the financial well-being of your family, you may need to change some of the things you regularly purchase.

Flat lay of a monthly planner

Step 5: Rinse and Repeat

Don’t fool yourself into thinking that this is a one-time thing. It’s not. I help people with this for a living, and even I go through these steps regularly. For me, they’ve become automatic, they’re built into monthly routines that make me take time out of my schedule to interact with my money, how I’m spending it, how I’m saving it, and how it’s helping me live my most well-aligned life. And yes, the routines themselves come with more automaticity over time, but the need for them does not go away.

One of the most important delusions to cure ourselves of is the one that suggests that if we just get the right plan in place, we won’t have to revisit and re-adjust. But we do, constantly. Financial progress is not about financial perfection. It’s about regularly interacting with your money and your spending, trying to minimize self-financial harm when you do get off course, and finding ways to course correct regularly, habitually, and sustainably, rather than making a grand gesture towards it once a year.

So, if you’re actually here to make a real change to your long term spending and savings habits – consider what you can do now, not a year from now, to get back on track with your money resolutions for 2023.

Connect with Lorri to discuss your goals today.
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A Good Summer Read: The Behavior Gap by Carl Richards

A Good Summer Read

The Behavior Gap – Simple Ways to Stop Doing Dumb Things with Money

by Carl Richards

For as long as I can remember, summer has always felt like a time to get caught up on the books I’d like to read. Maybe it was the contests the local library was always running to see how many books or pages we could read each summer, but I still find myself getting excited about the potential for more time spent reading when summer comes around.

Full disclosure: I dislike most books about money. Although my initial interest in money sprung from reading a lot of books about it, the more I work with people and their money, the more I realize the potential pitfalls in a lot of “one-size fits all” books that are out there delivering advice to you about your money, given that they don’t really have any actual information about you or your money. My skepticism has been heightened by the fact that many of these so-called financial gurus who once gave independent advice are now running major enterprises of their own that are designed to make money for themselves and their financial partners and sponsors. 

But there remain a few gems out there worth picking up, and one of the most foundational is Carl Richard’s, The Behavior Gap – Simple Ways to Stop Doing Dumb Things with Money. Richard’s advice in The Behavior Gap is timeless, it’s forgiving, and it’s as applicable to someone who has decided to finally work their way out of credit card debt as it is to someone who is trying to decide if and when to retire.

It’s also simple.

Book cover for

This book isn’t going to tell you how much to save for your kids’ college or to put in your 401(k). It’s not going to tell you what the perfect asset allocation is for your portfolio, or at what age you can retire. It’s not even going to tell you how to figure that out. Which is one of the reasons I like it. It’s not pretending to know you and your money. It’s not delivering advice that may or may not be applicable to your unique financial situation. It’s challenging you to reframe the way you think about money and money decisions, no matter your level of wealth or stage of life.

Financial Planning at all stages of life

I have what I consider the great privilege of looking at hundreds of people’s balance sheets and net-worth statements. And I can’t think of a single financial recommendation that I would have delivered to every single client I have. Financial advice is too personal for that level of universality. As Richard’s points out “Financial products—including things like bank accounts and insurance policies as well as investments—should be judged on how well they help you reach your goals. Since your goals are unique, what might be right for you could be a disaster for someone else.” (P. 30)

And yet, I’d recommend this book to all my clients – the wealthiest, the youngest, the most financially frustrated. It’s a framework for thinking about money, and one that we could desperately use in this country. It’s a framework for making better decisions about money, no matter what your net-worth statement currently says, and it’s also an easy read.

So, before you pick up another book that’s going to tell you what to do with your money, take a few hours to sit down with The Behavior Gap, and give yourself an underlying framework for how to think about your money, spending, and saving decisions.

Retirement Planning at Any Stage

Retirement Planning at Any Stage

 Let’s look at some key things to think about at each age and career stage. 

For people on a traditional retirement path that intend to work until between 60 and 65, different stages of life present different opportunities for retirement planning. Making a concrete plan that predicts how much you’ll spend in retirement when you’re in your twenties can be so overwhelming (and unrealistic) that many abandon the idea of retirement planning at all. On the other hand, increasing your retirement savings just a few years before your retirement and believing that’s enough of a plan, could leave you in an untenable financial position as you age.

What we’re doing to prepare and plan for retirement shouldn’t look the same when we’re in our early working years as it does in our middle and later working years.

So, what should retirement planning look like at each stage? The answer to this question can depend on several factors, like when you begin your career and when you hope to be done working. But in general, there are some key things to think about at each age and career stage.

Young Professionals

Early Career (Ages 20 – 35)

Save as much as possible

Ideally, from the very first day you start working as an adult, you’d funnel 10-15% of your income into retirement accounts. In almost all cases, without much other planning, when I work with clients who are nearing retirement who have done nothing more than this, they are typically in reasonable shape to retire between 60 and 65. If you have a workplace retirement plan like a 401(k), an easy way to do this is to simply specify a certain percentage of your income you’d like to contribute when you first sign up for the plan. If your contributions are tied to a percentage of your salary, they’ll automatically adjust upward as your salary does.

If your workplace doesn’t offer a retirement plan, consider opening an IRA or Roth IRA and having contributions automatically moved from your checking account into this type of a retirement account each month. At some point in your career, due to the smaller contribution limit on accounts like these, this will likely not give you enough savings capacity, but it’s a good place to start.

The important point at this stage is not that you know when you want to retire or even what your life will look like in retirement, it’s simply that you put your retirement savings and investments on auto-pilot and let them accumulate.

Find Job Satisfaction and Sustainability

If you’re already envisioning the daily details of your retired life and asking how soon you can retire, it may be time to consider an accelerated retirement savings strategy or finding a job that’s more sustainable and satisfying. This is not the time in life to decide you’ll stick it out for thirty years at a job you hate. Ultimately one of the most important things to do at this stage is to find the type of work and employment that will allow you to have a sustainable, satisfying career. Looking forward to retirement can be a good motivator to save, but convincing yourself to stay in a job that makes you miserable for thirty years will likely backfire at some point down the line – possibly when it feels too late to make a change.

 Mid Career (Ages 35 – 50)

It’s important to note here that the ages specified at each stage are not a perfect representation of when you’ll hit these stages and need to do these items. The mid-career stage may come earlier or later depending on your specific situation. For many, this stage coincides with raising families, finally getting out from under certain financial burdens like student loan debt, and having a little more disposable income. This is an easy stage to let slip by, because it is often one of the busiest times of our lives. At this stage, it’s still hard to think too concretely about the day to day living and spending of retirement, but it’s a bit easier to start thinking about certain big picture goals.

Check on your automated savings

Because this stage is often associated with higher wages and salary levels, it’s important to ensure that your automated retirement savings is still on track to achieve your 10-15% savings goal. For middle to high income earners, this is the age where you may start maxing out your contribution limits on retirement accounts, but in doing so still falling short of the 10-15% retirement savings goal. If that’s the case, you likely need to consider an additional investment strategy beyond your workplace plan to save for retirement.

Identify a desired retirement date range

At this point, it’s often helpful to start thinking about when you’d like to retire—not in the “August 15, 2045” sort of way, but more in the “around the age of 60” sort of way. This type of general goal post will give you something to bounce your savings goals and progress up against. More importantly, it will give you an opportunity to identify leverage points while you’re still young enough to influence your retirement trajectory.

Run Broad Retirement Projections to Identify Leverage Points

Once you’ve got a date in mind, it’s appropriate to start doing some broad retirement projections to identify leverage points that will help you achieve your retirement goals. Try not to get pulled down into the minutiae of the details of retirement or the certainty that everything over the next 15-20 years will go exactly as planned. The goal of this type of projection is to allow you to see where you can make changes now that will impact your ability to retire down the road. Is it increasing retirement savings? Paying off your mortgage early? Adding a long-term care insurance policy? A good retirement projection at this stage should help you pinpoint the most impactful things you can do to increase the likelihood of retiring when you want to. And the earlier you develop this type of projection, the more options and leverage points you’ll have.

Consider Hiring a Financial Planner

Though I think people could benefit from good financial planning at all stages in their adult life, mid-career is often a pivotal time to work with an experienced financial planner, especially if the tasks specified at this stage feel overwhelming to you. Hiring a financial planner to help you navigate the complexities of mid-career and help you think forward to retirement can help you take advantage of opportunities to impact your retirement while there’s still time to do so.

A group toasts

End Career (Ages 50 – 65)

It’s often easy to spot the living costs that will decrease in retirement, but it’s also important to get a good sense of what costs may be added. Will you be paying for health insurance out of pocket until Medicare kicks in? How will your spending change now that you have more free time? Will you need a bigger budget for travel or recreation? Now is the time to start to develop a realistic spending plan for retirement.

Think About and Plan for Added Costs

As you approach the ten years or so leading up to retirement, it starts to become appropriate to think about retiring with more specificity. You likely have a better sense of what your life and spending will look like after you’ve retired and a clearer picture of the resources that will be in place to fund your retirement. Now is an appropriate time for many to start identifying that actual date or year of retirement.

Develop a Plan for Cash Flow

What are your sources of income in retirement? One of the most crucial pieces of information to figure out at this stage is where your money comes from at each phase of the rest of your life. Will you be taking distributions from retirement accounts? How much will you take and how long will the accounts last? Which accounts will you take from first? When will you take social security? If there are pensions in play, will you take them right away, or wait a few years? Make sure you have a clear plan for where your funds come from over the duration of your retirement, not just for the first few years of it.

Shore up Potential Risks

I was a very young (non-financial) professional in the early days of the 2008 stock market crash, but one thing I remember clearly is the number of people whose retirement plans were very suddenly and quickly derailed. It wasn’t so much that they couldn’t ever retire, but they were going to have to wait a few years longer than they had planned.

Particularly if you are planning to fund your retirement with retirement accounts, it’s important to think about the impacts of a major market crash and work to make sure your investments are either protected against this type of a downturn, or if they’re not, understand the impacts a big market crash right before or at the beginning of retirement could have on your plan. Are you willing to work a few more years? If not, it’s vital that you have your money invested appropriately for what are both your short and long-term goals in retirement.

Couple watching an ocean view
Take Care of Big Expenses and Debt

Though not all of life’s big expenses can be planned for, it’s a good idea to plan for the ones you know are coming, and to take care of them in your working years when you have a plentiful and replenishing source of income to do so. Though a retirement plan should incorporate this type of expense, if you know you need need a new car, are planning on a major renovation to your home, or have any other big expenses in mind, the years before your retirement are a good time to get those taken care of so they are not creating an immediate strain on your finances as soon as you retire.

It’s also a good time to focus on paying down debt. Not only does debt put a strain on monthly cash flow, but if you’re having a hard time staying out of and paying down your debt, it may be an indicator that you need to revisit your retirement plan and get a more realistic picture of what your actual spending will be like. If your retirement plan has you spending less than you currently make, but at your current income you’re over-utilizing debt to make ends meet, it may be an indicator that you need to be more realistic about what you are going to spend in retirement and adjust the plan accordingly.

As you get closer to retirement, the biggest leverage factor impacting whether you’ll have enough money in retirement is typically your retirement date, so it’s extremely important to understand income sources and realistically plan for expenses before making the transition from your working years into retirement. 

Is Term Life Insurance a Scam?

Is Term Life Insurance a Scam?

At a time when we can’t collectively agree on much, a healthy distrust of insurance companies is an opinion that almost everyone can get behind. After all, most of us will spend decades of our lives paying for insurance and, if we’re lucky, never see any tangible return for that payment.

For many, high on the list of products that seem suspicious is the term-life insurance policy—one where you pay fixed premiums for a given term (typically ten to thirty years), and then, when the term lapses, if you’re still alive, either the insurance itself is gone, or you are given an opportunity to renew the insurance, but at a much higher premium.

It’s easy to see where the notion that this is a scam comes from. Most people are sold term policies when they are young, and unlikely to die. Then, twenty years go by, the notion of mortality becomes a bit more real, and suddenly, they’ve paid for something for most of their adult lives that is gone or suddenly becomes cost-prohibitive to keep.

But the truth is, in most financial plans, term life insurance plays a vital role at some point in our lives, particularly if others (like a spouse or children) count on us to provide for them, or if we’ve made joint financial commitments and obligations that won’t evaporate just because we’ve passed away.

Map of the world

Understanding the Role of Life Insurance in a Financial Plan

No amount of forward-thinking financial planning allows us to predict the future. We make financial plans with the understanding that the minute we make them, things will likely start to deviate from the plan. Drawn diagram by Behavior Gap explaining how to evaluate your plans In, “The Problem with Plans,” Carl Richards describes this as analogous to a pilot creating a flight plan. Every pilot starts out with a plan for their flight, but almost no flight goes exactly according to plan. There are so many variables that cannot be predicted with precision during a flight, that while the plan is important, it is not actually a map of exactly how the future will unfold. The pilot must be able to adapt to changing conditions, and in some cases even worst-case scenarios, to safely take the plane from Point A to Point B.

Similarly, no financial plan, no matter how good the planner is, or how diligent the clients are, is a map of how the future will play out. So, any good financial plan will not only help clients prepare for small bumps in the road, but also worst-case scenarios. It isn’t just about saving, investing, and watching your money grow, it’s also about thinking in advance about the potential for catastrophic loss, and, where possible, protecting against it.

For most people insurance (not just life-insurance, but all forms of insurance) is one of the most effective ways to protect a financial plan from catastrophic loss. Life insurance protects families from being financially devastated by the loss of their major income providers. And though there’s very little that can protect us from the emotional hardship created by the loss of a loved one, to be able to prevent undue financial hardship alongside that emotional loss is one of the most responsible things we can do to protect those who rely on us as providers.

Family of hikers at a summit

Why Term Insurance?

Financially protecting our families from our loss is more important at certain times in our lives than others. Our need for life insurance often changes drastically depending on our age and situation.

In many cases, when a couple or young family is relying heavily on the income of one or both partners to meet their financial obligations, it’s extremely important to financially protect against the loss of these income earners. There are often many current and future expenses to consider: mortgage, future college costs for kids, and the financial obligation of meeting basic monthly living expenses on a single paycheck. At this age and stage, a lot of life insurance is likely needed to provide this type of protection.

Once a couple is retired, their kids are financially independent, and their mortgage is paid off, the loss of a partner’s or parent’s current and future earning potential is usually not nearly as impactful to the surviving family’s ability to maintain their current lifestyle.

A permanent, or whole life insurance policy, though it has the appealing feature of not evaporating into thin air at some point ten to thirty years down the road, often does not account for the changing life insurance needs a person has as they age. Further, a permanent policy with a high enough face value to provide real protection for one’s family when they are young and in a wealth-building phase of life is more likely to be cost-prohibitive. For example, the average cost of a 20-year term policy with a $500,000 face value, for a forty-year-old purchaser is $27 per month, but a permanent policy with a comparable face value for the same applicant has an average cost of almost $500 per month. The end result is often that policyholders who will only consider permanent forms of life insurance are often severely under-insured—carrying too little coverage when it is most important, and in some cases, more than they actually need in their later years of life.

Determining How Much Life Insurance You Need

Part of my job as a financial planner is to help clients decide how much and what types of insurance they need. But if you’re trying to determine your life own insurance needs, a good place to start is by asking the question: What do I want to make sure is paid for if I am no longer around to provide for my family? Items like mortgage payoff, kids’ college expenses, and a certain number of years’ worth of salary replacement will often make the list. If you total up what these things would cost, that will tell you roughly how much the face value of a policy should be to make sure your family has adequate protection.

The length of the term should depend on how soon these expenses will be paid for or paid off. For example, a family whose kids are and 14 and 16 with ten years left on their mortgage and nine years until retirement would probably be well covered by a 10-year term policy. But a family that’s just starting out, with very young children, a 30-year mortgage, and 30 or more years until retirement should consider a longer term, like thirty years.

It’s important to remember that while you may have the option to renew at the end of your term, it will likely cost you a lot to do so, so you want to adequately plan for the term you need when you are purchasing a policy.

Where to Buy Life Insurance

It’s a good idea to shop around for multiple quotes, as they can vary widely between insurance companies and agents. If you work with a broker, rather than an agent who is captive to one company, they can often get multiple quotes for you from different companies. It’s also a good idea, when reviewing quotes, to evaluate the underlying financial health and reviews of the companies you are considering. Often paying a bit more for a policy from a company that is well-rated and has a strong underlying financial position will be better in the long run than simply looking for the cheapest policy out there. Typically, an insurance agent or broker should be able to provide you with the ratings from Moody’s, Fitch, and A.M. Best, the three major organizations that review the underlying financial positions of insurance companies. Additionally, it’s always a good idea to check with your state insurance commissioner’s office, as they collect and maintain a lot of data related to claims coverage and complaints.

While many people have life insurance available to them through an employer, this is not always the most affordable or strategic way to purchase term life insurance. Often, an applicant in good health can get better rates by shopping the private market than through a group employer-provided plan. In addition to possibly being more cost-effective, private policies will stay with you if you change employers or lose your job, and many group plans offered by employers have rates that increase as you age, but a term plan will lock in your rate until the term expires. By locking in a rate with a private insurer early and when you are in good health, in the long run you could save a lot of money and ensure your family’s protection even in the event of job change or loss.

Turn table

What happens when the Term Expires?

For many folks, this is when the feeling of anger at an insurance company can emerge around their term policy. Typically, just before the policy expires, consumers may be provided offers to extend the term, at a far higher monthly premium rate than before. Since ten, twenty, or thirty years may have passed, it’s easy to see how some consumers may have forgotten why they chose their original term and face value amount in the first place. It was because they anticipated that their life insurance need would be far less at this point than it was when they bought the policy. And if their original decisions around term-length and face-value amount were well informed, and their financial situation isn’t too different than they expected it to be, it’s likely at this point that it should be just fine to let the policy go. It did its work, for a relatively low cost, protecting their family for as long as they needed it to. And it was always designed to be more like a subscription streaming service than a comprehensive hard copy of your favorite music collection that you would own forever. That’s why it was so affordable to begin with.

Understanding Your Emergency Fund

Understanding Your Emergency Fund

Of all the personal financial terms I hear people use, emergency fund is the one that seems to be most inconsistently applied when people are discussing their financial situations. While everyone seems to know they should have one, opinions about what it’s for, how to build it, and ultimately how much is enough to keep in it seem to vary widely.

What is an emergency fund for?

Almost all misconceptions about emergency funds are rooted in a highly variable definition of what constitutes an emergency.

One of the most common complaints I hear about trying to create a stable emergency savings fund is that it never accumulates because things—irregular, but not entirely unpredictable expenses—keep coming up that require the person or family to dip into their emergency fund. As a result, even though there may be a regular savings plan to get money into the emergency fund, it never grows to its optimal size.

Typically, this results from not having a plan to pay for irregular but relatively predictable expenses. Ideally, something like a new appliance for a house, a repair or maintenance bill on a vehicle, or an unexpected trip to urgent care or the vet wouldn’t rise to the level of emergency fund. As home or vehicle owners, parents, or pet owners, we can anticipate that these expenses will exist (even though we may not know exactly what they will cost or when they will come around).

On the other hand, it’s best to think of a true emergency fund as a fund for things you don’t see coming at all. If the answer to the question “what is this fund for?” leads you to a list of inevitable expenses that are likely to happen (new roof, car repair, vet bill, etc.) then you need a different way to plan and save for those expenses.

Your emergency fund should be for the truly unforeseen – and often, the way you’ll know you’ve got the right mindset about an emergency fund is if you answer the question “what is this fund for?” with “hopefully nothing, ever,” because if you can see the potential expense on the horizon, that’s a cue to plan and save for it.

puppy with owner in a yard

How to stop dipping into your emergency fund for non-emergencies

Of course, if you want to stop dipping into your emergency fund for irregular but not entirely unexpected expenses, you also need a plan to pay for those things. Otherwise, they will always rise to the level of borrowing from your emergency fund.

I think a three-part approach is often needed when trying to plan for non-routine but relatively predictable expenses:

1)

2)
3)
A budget for predictable, irregular expenses
A buffer savings account for when those expenses go over budget
A separate savings plan for anticipated big-ticket expenses.
  1. A budget for predictable, irregular expenses
  2. A buffer savings account for when those expenses go over budget
  3. A separate savings plan for anticipated big-ticket expenses

First, plan your monthly budget (based on your historical spending) to include these expenses.

For example – if you review expenses from the previous year, and realize that you’ve spent $600 on vet bills, $900 on car maintenance and repair, $3500 on unexpected home-related maintenance and repair, and another $1000 on other necessary but irregular costs, a logical conclusion is that you probably need to budget an additional $6000 a year or $500 a month for these types of expenses. This is one of the reasons it’s so important to get a clear sense of your monthly cash flow.

Additionally – for those big-ticket items that are the eventual reality of something like owning a home or having a kid, it makes sense to portion off a separate savings bucket.

In the same way that you might use a college savings account to put away money for your kid’s schooling expenses that may be ten or fifteen years down the road, it’s a good idea to think about inevitable home ownership expenses – like a new roof, with a long-term plan in mind to save for them separately from routine or smaller home-related expenses.

Of course, with the way money ebbs and flows, that extra $500 a month in your budget may not be enough to cover higher expenses one month, or too much in months without a lot of extra expenses. So, you also need a way to flex a bit with the variability of expenses from month to month.

For this, you can utilize some sort of buffer savings account. This account is exactly what many have been utilizing their emergency fund for. It’s truly there to pull from as needed in more expensive months and build back up in less expensive months. Ideally, because you’ve also budgeted for those irregular expenses monthly, you shouldn’t be pulling from this all the time. In fact, in months where irregular expenses are lower than planned, it’s a good time to fill this account back up. This buffer lets you flex easily with the irregularity of monthly expenses, while not tapping into your emergency fund.

Continuing with the above example, if you budget $500 a month for irregular expenses, and have a buffer savings account that you try to maintain a $2000 balance in, when a month comes up that has a $600 vet bill and a $400 car repair bill, you’ll spend the $500 you’d already planned, then borrow the remaining $500 you need from the buffer account. Over the next few months, you may have fewer of these irregular expenses, so you’ll use the excess from that $500 you had planned to build the buffer account back up to your $2000 benchmark.

The benchmark dollar amount that you are aiming for in a buffer fund should be directly related to how many potential irregular expense-producing people, animals, or items make up your life. A homeowner with two cars, kids, and a dog is probably going to need more in their buffer account than someone without kids who rents a small apartment and uses public transportation.

Diagram showing how to plan your emergency savings around monthly income

How much should an emergency fund really have in it?

The most common recommendation for an emergency fund is 3-6 months’ worth of living expenses. The lower end of that recommendation is typically for folks who have a fair amount of income stability, and the higher end for folks whose income in more variable or more at risk.

Saving up this much takes time, and as mentioned in the previous section – it may need to move at a slower pace once you realistically start planning to budget for irregular expenses and fund a buffer account.

It’s okay to fund the true emergency savings a bit more slowly, provided you stick to your commitment to access it only during actual emergencies. However, you should have a goal in mind for where you want it to be eventually, and a plan to fund it regularly, even if it’s just a small monthly contribution.

The flip side, of course, is that if you truly hope to never access these funds, you don’t want to overfund your emergency account. Otherwise, you risk holding a lot of money in cash that could be better put towards different types of savings and investments. So once you’ve built the fund up to the desired amount, continuing to fund it slowly (or not at all) will likely give you the flexibility you need to start putting your money to work towards other financial goals.

What situations would trigger accessing the emergency fund.

Depending on your stage in life and savings-building, different things will trigger your need to access the emergency fund. Early on, as you learn to budget and build your buffer savings, you may still find yourself tapping into the emergency fund if an expense comes up that’s way outside of the norm that you haven’t had time to plan for. 

But as you evolve financially, learning to better budget and prepare for life’s predictable expenses that show up at unpredictable times, ideally, the list of things that trigger you to tap into the emergency fund should grow smaller and smaller. In fact, if it’s an expense that you can name, and that is inevitable (like needing to replace a vehicle, a furnace or roof for your home), ideally you save for it before it happens, rather than counting on your emergency fund to bail you out.

Considering Work in a Private or Non-profit Sector?

Leaving a State or Teaching Job for the Private or Non-Profit Sector?

Here's what you need to consider before walking away.

I recently spoke with a client who wanted some advice related to a job offer he had received. It was a dream job, complete with a significant salary increase, a lot of vacation days, good health benefits, and a great retirement plan. Perhaps even more importantly, it was the exact work he wanted to be doing. But he reached out because he wanted to know how leaving a job in the state retirement system for the non-profit sector would impact the retirement plans that we had previously made for him. 

Our conversation made me think a lot about what he needed to consider, and it wasn’t just retirement. Any change in employment carries with it a number of changing variables, and whether you’re contemplating looking for a new job, or in the middle of evaluating an offer that’s already on the table, leaving a government position for the private or nonprofit sector presents some unique considerations. These should factor into both whether you accept the offer, and how you adjust your financial plans if you do.

Two women visiting in a city at a coffee table

Health Benefits

Working as a government employee comes with certain perks, and one of them is that there are a lot of healthcare insurance options, and a large percentage of the costs for these insurance plans are covered by your employer. The value of these benefits is likely at least $10,000 a year. While some private and non-profit firms can and do show up with similarly lucrative benefits packages, others can fall far short.

So, it’s worth looking into what you’ll be paying for benefits at your new job, and what those benefits actually cover. You could be paying a lot more, not only for your premium payment each month, but also from significantly higher deductibles or out of pocket limits with a new employer. And while that doesn’t have to be a deal breaker, it should definitely factor into a salary comparison.

person instructing young adults

Public Service Loan Forgiveness

For government employees and teachers with high amounts of student loan debt, this is an essential piece to consider when contemplating taking on a new position. If you’re working towards Public Service Loan Forgiveness (PSLF) by completing 10 years of full time employment with a government agency or a non-profit, and you move to the private sector before your 10 years are up and your loan forgiveness has been approved, you’re now on the hook to pay off that debt. (PSLF is an all or nothing deal, so you have to complete a full 10 years of service in order to qualify, otherwise, you’ll never see any of that benefit).

The good news is, working for a qualified non-profit agency will also count towards your PSLF years, so leaving government work for the non-profit sector won’t disqualify you. However, if you haven’t been submitting your PSLF Forms annually, make sure you complete one before leaving your current employer, and have them sign off verifying your years of employment, otherwise you may have a hard time obtaining the signatures needed to verify employment when the time comes.

Walking away from a PSLF qualified agency doesn’t have to be a deal-breaker, but you should factor in the way it will impact your long-term financial plans, and make sure you have a plan for paying off your student loans if you are no longer counting on them being forgiven.

Flatlay of laptop with phone and planning notebook on desk

Retirement

For an individual who had planned to complete their entire career at a government agency, and is now contemplating making the switch to the private or non-profit sector, retirement is one of the most important things to think about. Most government jobs still come with defined benefit pensions that will pay you a percentage of your salary at retirement, but very few jobs in the non-profit and private sector do.

Like health benefits, as a teacher or state employee, your employer is also contributing quite a bit each month to fund your pension (typically your pay stub can tell you how much), so when comparing salary offers, it’s important to consider what the new employer is offering in terms of retirement plan contributions, which often come in the form of a matching contribution to a 401(k) or other workplace plan.

In addition to the employer contribution, many government pension plans have important vesting dates to be aware of. In the state of WA, those served by the TRS 2 and PERS 2 systems have to have worked at least 5 years for their employer in order to qualify to receive any amount of their benefit. For those serving under the TRS 3 and PERS 3 systems, it actually takes 10 years before you become vested in your pension and are eligible to receive a payment from it in retirement, but whatever you’ve contributed to your TRS/PERS 3 accounts will remain yours to keep, no matter how many years of service you’ve completed.

In the state of Washington, teachers and state employees who work for at least 20 years with the state or public school system will receive a 3% COLA each year on their pension from the date they separate until the date that they claim their pension. So, a person with 18 or 19 years of government service, who has 20 years to go before claiming their pension, might consider sticking it out for a year or two, because a 3% increase on your pension amount over 20 years can nearly double the total dollar amount that you’ll receive as a monthly payment in retirement.

Like the other factors to consider, walking away from a defined benefit pension should not be a deal breaker if it’s time to look for a new job, or a dream offer has landed on your desk.

However, it is something you should plan for. It’s important to consider how much you’ll need to contribute to your new retirement plan or 401(k) to make up for what you were previously counting on your pension to provide, so that you’re not left surprised and underfunded when the time comes for you to walk away from work entirely.

As with any job or career change, it’s not so much that any of these should be the reasons not to move on from a job you’ve outgrown and into an opportunity you’re excited about. However, it’s important to make that move with an awareness of how the change will impact both your short and long-term financial planning needs, and to make adjustments to your financial plan in response to those impacts. 

Thinking about making a career change?

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

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