Your Plan

Well, probably not for you. Unless you’re the person I wrote this for.

Awhile back a good friend asked me for some general money planning advice. This person is pretty amazing; constantly doing more for others than they do for themselves. They’ve worked extremely hard, and though money was tight for decades they’re finally in a place where income is abundant. But like just about every single person in this country, they don’t know where to start when it comes to making a financial plan. On top of that, my friend has been through some tough shit when it comes to money, so they’ve become allergic to the subject-again, pretty normal in our society. This friend is much more emotionally intelligent than me, but as with many, this ability is met with an inverse desire to spreadsheet shit out and math the fuck out of things.

Looking at their situation, it seemed pretty clear what they should do. I don’t think they’d have to engage in any stupid hard core saving like I did, but instead could just change the order in which they fund things and modify a few of their existing practices. If I were giving this advice to some fellow money nerd, I’d just write out some equations and link to the necessary supporting data and IRS codes. But to reiterate the above, this person A. hates talking about money and B. has little desire to pour through the numbers and data that I could spend years wasting my life on.

These two points have had me thinking hard about how to detail a plan that is both engaging and not bogged down by math. Below is what I came up with. I’m posting it here because maybe someone else might find it useful, and I’m hoping to get some ways to improve it in the comments. I know all my readers are both smart and good looking😉, so I hoping you all could provide some much needed peer review.

Here we go!

After we talked, I’ve been thinking about how you could best build the life you want. You’re in a great position to take action, and I think everything you want is well within reach. All you have to do is prioritize what you want, tweak a few things you’re currently doing, and then start building the life you want. Here’s the steps I think you should take to do that:

1. Get clear on your Dream Life
2. Plug the holes of your Bucket
3. Keep track of where your energy is going
4. Build your Dream Life

Let’s break it down.

Get Clear on your Dream Life

How to accomplish your goals is straightforward. Open some various accounts, monitor how much you spend, save, and determine how much your investments make. But none of that is going to happen unless you have a powerful Why. A reason why you’re doing this stuff. Because let’s be super clear here, though the mechanics of building the life you want are simple, you won’t follow through unless you really want to. Figuring out what kind of life you want, and why you want it, is way more important than how you go about building it.

When we talked, it seemed like you had a few goals:

1. Make work optional. Though you think you and your spouse will likely continue working for as long as possible, it seemed like you would like to control how much you work, and not be dependent on it. You’re realistic; you know shit could happen which would cause you and/or your spouse to stop working. And you’ve been through enough to know it would be nice that if someday shit happens to someone you care about, life would be easier if you could stop working while you tend to them and not worry about the lack of pay while you’re away from work.
   
   You mentioned saving for retirement a few times. This falls under this goal of making work optional. Really, that’s all retirement is: It’s a place where you don’t need to work anymore for money. Maybe you keep working because you enjoy it, or work because you believe in what you do. Maybe in “retirement” you change jobs to something that you really like doing, but doesn’t pay much. That’s totally doable when you don’t actually need the money anymore. That’s why this ability is called work optional. It’s about getting to a point where you don’t need to work anymore, but still can if you want to.
2. Take care of people you love. You talked about setting up savings for your Grandkids’ education, and also talked about how it’d be nice to be able to provide some support for your kids as they raise your Grandkids. You’d also like to help your kids while they’re trying to level up their education so they can get into a better career. These are all great goals, and I think you can totally do it with the resources you have. But I think it’s important to place this goal behind Making Work Optional. Why?
   
   Because unless you can take care of yourself, you ultimately won’t be able to take care of others. Sure, you could chuck all your resources at your family now, but you’d just be kicking the can down the road. At some point you and your spouse won’t be able to work. And if you sacrifice your resources to make work optional, and instead completely throw them at others, others will end up having to support you once your can no longer work.
   
   You can still help people now-just make sure you’re clear that every time you support someone else, you’ll have to keep working longer until work becomes optional
   
   
   

When we talked, those seemed to be your goals when we boil them down. Accomplishing these goals would lead to your Dream Life. A life where you and your spouse don’t need to work if you don’t want to, but you also have the resources to help the people you love. But why do you want to build this life?

I think it’s because you truly care about other people. You love your kids, and you want to be able to help them succeed. You love your spouse, but wish they didn’t have to work so much. And you know you have to take care of yourself if you’re going to have the capacity to take care of others. That’s just my opinion though. At the end of the day I can’t tell you why you want to build this life, to accomplish these goals. Ultimately, that’s up to you.

Please read the above, and see if it resonates with you. If some parts do, great. If others don’t, throw them out! This is personal to you, and you’re the only person who truly knows why you want to do something. But get clear on what your dream is, and why you want it. No matter what that ends up being, the steps below will still work. But first you have to iron out your why, so you’ll have the motivation to stick with this stuff.

Once you’ve got that nailed down, it’s time for the next step:

Plug the Holes in your Bucket

Right now you and your spouse have a solid income. Every month you have little buckets of money coming in that you can dump into two pools; Making Work Optional and Taking Care of the People you Love. Sometimes when either of you gets a bonus, you get a giant bucket. But right now all those buckets have holes in them, and a lot of stuff isn’t making it to those pools. You guessed it, those holes are debt. But no fear! You can fix this with some simple steps:

• Link all of your credit cards to one checking account.
• Set each credit card to auto pay the entire balance every month. If you ever get a new credit card, make sure you do this as soon as it comes in the mail.
• Keep enough money in your checking account to cover the max balance you’ll pay each month. This step involves some math, but I’ve seen that you’ve got some solid spreadsheet skills. So I know you can do this! Go into each of your credit card accounts and plug in the last three months of balances, and then add them up. So something like this:

The above are just some totally random numbers I made up, but it works to make a point. Using this, figure out what the highest amount is you’ve spent in a month. I circled that in red. Then keep that amount plus a decent buffer in that checking account you linked to all of your credit cards back in the first step. So in the above example I just made up, I’d keep like $6500 in that checking account.

• Set up overdraft protection in that checking account and link it to a larger savings account.
• That’s now your spending threshold-if you decide to make a purchase that’s going to be more than that total amount, no big deal. Just make sure you have the cash up front to put in your linked checking account first. So in my above example, my threshold would be $6500. Using this, If I was going to book a sweet vacation that was going to cost $10,000, I would first build up that cash in my checking account, then spend that money on my card.

We did all of the above because it seems like in your case it makes sense to keep your credit cards. Some people will recommend getting rid of them completely, and you know what? That’s a great method that can’t fail. But you guys are traveling like crazy, and it makes sense to take advantage of the cards that are getting you points. Sure, if you have some random credit cards that you don’t get a benefit from, get rid of them. And if at some point all this credit card nonsense seems like too much work, get rid of all of them.

Now that we got that system which keeps any new holes from being drilled in your bucket, here’s where you should start dumping your buckets when you have extra cash after paying your normal expenses:

1. Build an Emergency Fund. This is for emergencies only. Like a tree falls on your roof and insurance won’t cover it. Or you have to pay some giant medical expense. It exists so when shit happens, you won’t go into debt to get your way out of it. With both of you still working, 2-3 x the amount you figured you’d need to keep in the checking account above should work. So in my example, that would be $13000 ($6500×2) or more. Keep this in a savings account, and don’t touch it unless it’s an actual emergency. This will also help you sleep at night. Each multiple of that amount you figured above also represents a month you can get by without either of you working. So if you keep twice that amount in your Emergency Fund, you’ve got two months of time where you can cover your expenses if somehow everything goes to shit and neither of you have an income.
2. Pay off any credit card debt! You got to tackle this first because it sucks a lot. It is probably the biggest hole in your buckets, because the interest rate is ridiculous. Once you’ve set up the system above by linking your checking account to all of your cards and auto paying the entire balance every month, you’ll never have this problem again. But pay this shit down ASAP.
3. Pay off loans. Sounded like you’ve one on your off road vehicle, and your mortgage. Pay the vehicle loan of first. Once you do that, let’s talk about the mortgage. Call me.
4. Save cash for your next vehicle. I get why you’ve been leasing vehicles, and at one point that made sense. But now you guys can probably save a few bonuses and buy your next car for cash. This will end up costing you way less money in the long run. Go find a vehicle you’re interested in, figure out how much it costs out the door, then put that amount of cash in your savings account.
5. Max out your IRA’s. Sounds like your income is high enough that a Roth IRA isn’t an option. But you can still contribute to an IRA, which reduces your taxable income. When we talked, you described how you were getting reamed by taxes, especially since you’re an Independent Contractor and your spouse’s employer doesn’t provide retirement plans. Since you are both over 50, you can each contribute $7500 a year. If you both do that, it will reduce your taxes by $15,000! To do this, each of you should open an account at Vanguard, then select “open an IRA“. Yes, you should invest this. I gave your spouse The Simple Path to Wealth (you should at least try to give it a listen-it’s not what you think); it’s hard to go wrong with the investment strategy that dude talks about. That said, if you’re not yet comfortable with investing, open the IRA and chuck that money in a money market. It’s similar to a savings account; very safe but low returns.

Keep Track of Where Your Energy is Going

What the fuck is money, anyways? There’s a bunch of different definitions out there, usually something about it being a medium of exchange for goods or services or whatever. That sounds a bit technical, but really isn’t going that deep. I really like Vicki Robin’s and Joe Dominguez’s definition in the awesome book you should read called Your Money or Your Life.

They drill down and ask what you’re actually exchanging for shit you buy. What are you exchanging? Well you’re working a job to make money, so you can buy stuff. Some will say that since you spend time working at your job to make money, to then buy stuff(stuff being a highly technical 🙄overarching definition which consists of things, services, and experiences), you are exchanging time for stuff. In their book, Vicki and Joe point out a crucial point though-while you can always get more stuff, you can never get that time back when you worked for it. They instead say that money is really a representation for your Life Force. I will shamelessly rip off their logic, and rebrand Life Force as Energy, as it’s slightly less woo-wooey and I have to type one less word.😉

Anywho…this logic means that when you spend money, you are spending chunks or your life that you can never get back. Fuck, that’s depressing, huh? Sorta, but not really. It just opens up the idea that hey-if you’re going to spend money on something, spend it on something that you truly fucking want.

Like if you’re bored or depressed, spending money to temporarily distract yourself won’t make you any better off in the long run. It’d be better to address the reasons why you’re bored or depressed, instead of distracting yourself by going shopping. You’ll be back to square one after the shopping trip, but if you spent that time thinking and working on yourself, you’d probably be a lot closer to being less bored or depressed.

Where do you focus your energy on then? It’s a balance, on one hand you have to spend some of it to pay the bills, to eat, and to support stuff that makes your everyday life fulfilling. On the other, you know you want to eventually make work optional and take care of the people you love. To figure out what balance is comfortable for you, and also figure out where you’re spending energy that isn’t fulfilling you, you’ve got to track it.

This is just like working out. If you just walk around, and never keep track of how far you’ve gone or how long you’ve walked, you have no idea if you’re getting better. But throw on a fitbit or whatever, and now the reality of what you’re doing becomes clear. We’ll do the same thing here.

Track how you spend your money(which we now know actually is a representation of our energy) . Track all of it, every cent, and where it goes. It really doesn’t matter how you do it, just find a method that works for you. You said you were using an app where you had to manually enter in every transaction, and I think that’s fucking awesome. This makes you conscious of spending in the moment, along with providing a log of all those transactions you view later. If you’ve stopped doing this, please start it again. And then do this:

1. For 2 weeks, at the end of every day look at how much you spent on, and ask yourself if what you bought was fulfilling. No shame, no blame. Don’t feel bad if you spent money on something that didn’t fulfill you, just try to remember it next time you’re tempted to buy something similar.
2. After 2 weeks, start reviewing your purchases at the end of every week. See how this feels.
3. After 2 months of weekly reviews, it’s up to you where you go. I still review my spending every month, as after having done it daily for years I found that this time interval worked for me-I still stayed on track after internalizing the lessons I learned from those daily reviews. But everyone is different. If weekly is getting annoying, go to monthly. If you notice your spending is getting out of alignment with what you want, go back down to daily for a while. Surprisingly, getting good with money is way less about numbers and math, and more about emotions and shit. So do what works for you.

Build Your Dream Life

Ok, so you Got Clear on Your Dream Life, you Plugged the Holes in Your Bucket, and you Kept Track of Where Your Energy is Going. Now you’ve assembled the foundation that will help you build your dream life.

You know why you want to make work optional, and why you want to take care of people you love. Now it’s time to figure out how to do it.

To make work optional, we need to know how much a fulfilling life costs. Luckily, you’ve been figuring that out by Tracking Where Your Energy is Going. It’ll take you at least a few months to get your spending in alignment with what you want. Make a note of when you think it’s good enough-no one’s perfect, good enough is plenty fine for this exercise.

Three months after this good enough point, look back on your total expenses you’ve been tracking for that period. This is a pretty good estimate for how much three months of your ideal life costs. Now take that number, and multiply it by 4. By multiplying that 3 months of spending by 4, you’ve now figured out roughly how much a year of your ideal life costs. Given, you may have some annual bills or vacations that weren’t in that 3 month period, so try to estimate about how much they would cost and throw them in if need be.

This number is your year of life number (YOLN).

Right now you guys are covering your YOLN by working. But remember, you want to eventually make work optional. To make work optional, you’ve got to have some way of getting money to come in that doesn’t require you to work for it anymore. This is generally referred to as passive income. There’s a bunch of different ways to make passive income. Royalties from songs and book sales are cool, but three of the more accessible and popular methods are:

1. Owning a Business-you own the business, and pay someone else to run it. What you make after all operating expenses is your passive income.
2. Real Estate-you own some houses, apartments, storage units, whatever, and rent them out. You likely pay someone to manage these properties to make it totally passive. The rent minus all of the expenses is your passive income.
3. Stocks and Bonds-you own chunks of a bunch of different business(Stocks) and you lent some money to governments and businesses (Bonds). Coupled together, you can reasonably withdrawal a percent of these investments every year for the rest of your life, which will generate passive income.

You can go deep into any of the above, and really should before investing in any so you’re comfortable with where your money is going. Lucky for you, your spouse knows quite a bit about that business thing, and will likely pick up on the stocks and bonds thing quickly after reading The Simple Path to Wealth. Once you guys have figured out your YOLN, use this knowledge to figure out how much you need in either or both of these types of investments to cover that YOLN for the rest of your life. It sounds like your spouse will get a decent chunk of change after he completes his commitment to his employer. If you invest this amount, it may be enough so that it will kick out passive income every year to cover your YOLN. After you guys read The Simple Path, let’s go over those numbers, as it will be much more clear on how much you need.

You may have more than enough from that payout to invest and cover your expenses for the rest of your life. Great! That means work has become optional once your spouse leaves work, and you can use the excess to take care of the people you love.

If you end up needing more than your spouse’s payout so that you have enough invested to continuously cover your YOLN, no big, you’ve got some options:

1. Reduce your YOLN by figuring out ways to spend your energy more efficiently but still live a life that fullfills you.
2. Keep working to build up investments, which when added to your spouse’s payout, will cover your YOLN with passive income.

Usually it’s best to do some mix of these two, again trying to find a balance so you are living a fulfilling life now while saving for your Dream Life.

What about taking care of the people you love now though? Well that’s another good decision point. But we can’t get clear on until we know your true YOLN, and how much you’ll need invested to cover that YOLN with passive income. Like I said above, you may be at a point where you can make work optional now and still have plenty to take care of others. Or you may not, in which case anytime you take care of others financially, your delaying your ability to make work optional. If that ends up being the case, that’s ok too.

It’s fine to take care of others, just know that it may require both you and your spouse to work longer. The key is becoming conscious of this reality, and deliberately making a choice that aligns with your values.

Bringing it Together

To sum all that stuff up, you’ve now:

1. Gotten clear on your Dream Life-what it is and why you want to do it.
2. Plug the holes of your Bucket-Staying clear of Debt through some simple steps
3. Keep track of where your energy is going– Knowledge is power! This will align your spending with what fulfills you, and also help you figure out your YOLN
4. Build your Dream Life-Using the stuff you figured out, start applying your income to build that Dream Life now.

Just so we both don’t forget, there’s some points I mentioned above that we should follow up on eventually. To reiterate, please:

A. Call me to talk about possible paying down your mortgage after you eliminate all other debt.

B. Read of listen to The Simple Path to Wealth and Your Money or Your Life. Both will help immensely, and are super good books that are less about money and more about living a good life. Once you’ve read these and figured out your YOLN, let’s discuss your numbers so we can figure out how much passive income you’ll want to live your Dream Life.

Well that about wraps it up. Thanks for reading this far; I know it was a lot. Please let me know if you have any questions, or if I can make anything more clear. I know I’m not the best writer, but you know I’m always here for you if you want to talk this stuff through.

I know you can do this shit, and I’m stoked that you’re taking action to build the life you want!

Reminder to my regular readers-please let me know if you have any ideas for improving this in the comments below. Thanks!