Intentional Spending

Putting together a financial plan can be a potentially eye opening experience for clients. A lot of attention is paid, of course, to asset sizes, investment selection, risk tolerance, insurance coverage, and cash flow. That’s all well and good. It’s also fair to say, however, the one thing that doesn’t get as much coverage is spending. The greatest of financial plans mean nothing if your clients are running through their savings like a bull in a china shop. A lot of damage is being done, but for what purpose. 

This is not where I’m coming in as Captain Buzzkill. The point of retiring is to enjoy a lifestyle you’ve always wanted. And I’m not here to say where that enjoyment comes from. But in most cases, a happy, fun, and exciting retirement, especially in those first 5-10 years, requires some cash. All those brochures and websites you see of retired couples dining on the beach, or sailing in Martha’s Vineyard, that stuff’s not free. 

One of the dirty secrets of the financial services industry is that no one in any capacity with any advisory firm, insurance company, or brokerage house anywhere can make you rich. We can help diversify your risk. We can help to generate income tax efficiently. We can help you protect your wealth. We can help set up estate plans, financial plans, cash flow analysis, insurance coverage, you name it. If it has to do with money, we can help do a lot of things. Except make it for you, and control how you spend it. 

I was talking to a friend the other day, he’s starting to go down this road of analyzing his cash flow in more detail, and he brought up how striking it was to him the amount of money he spends on coffee. He’s self-employed, and uses coffee shops as a de facto office quite a bit when he doesn’t want to trek into his real one. As I’m prone to do as well. As millions of Americans are also. Technology’s a beautiful thing after all, we can largely work where there’s wi-fi. But he’s drinking a lot of expensive coffee. It’s become a worn out analogy at this point, “For only the price of a coffee a day…”, but there’s truth to it. I bought a $3 coffee yesterday, if I do that five days a week, that’s $15 bucks a week, times 52 weeks a year, that’s $780/year. Real money. If I ask you right now, would you pay $780 for coffee, most of you would say no way. But it’s like the fable of the frog in boiling water. If you drop it in the boiling water it jumps right out. But if you put it in lukewarm water, and slowly turn the temperature up, it adapts to the water, and will eventually die because it doesn’t perceive the danger. 

You should spend your money. That’s why you save it after all, so you can feel financial security, and live a lifestyle you want to. What’s good about money if it sits in an account and you never get to enjoy it? But generally speaking, the path to wealth lies in making more money than you spend. Your level of wealth is determined by that spread. This is where just being frugal vs. the idea of intentional spending comes into play.

Analyze your spending, are you putting your money towards things that matter? Do you really care about coffee that much? Or those $200 shoes? Or that upgrade to first class? Some people do, and that’s cool. I’ll use cars as an example. I’m not a car guy. I grew up without much money, I remember driving an ’86 Mitsubishi Galant (in the year 2003) during college, that had no A/C, no power windows, and only a radio. Even the cassette player didn’t work. But I got from A to B, for awhile anyway. Then it broke down. I couldn’t afford another car, so I spent a summer in college without a car, taking the bus downtown to my internship at Humana. My social life certainly suffered a bit. So if I have a reliable car that gets me where I need to go pretty comfortably, with a place for me to plug my phone in and listen to podcasts, I’m good. I can’t imagine ever owning something like a BMW or Audi. They’re super cool, but they’re not that important to me. Some people care immensely about their cars. One friend owns a Corvette and he loves it. Another has a fixed up ’67 Mustang that he’s put a lot of man hours into. Other friends drive brand new pickups, or tinker in their garage on old cars. That’s their thing. I love to golf, that’s one of my things. A lot of those car guys could probably care less about playing golf. Spend your money intentionally on things that matter to you and make you happy. A good financial planner (ahem, ahem) can help you see the consequences of how you spend your money, helping you make an informed decision. But it’s your decision to make. Just do it intentionally, not frivolously. 

The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without I FP’s express prior written consent.