CommentaryDecember 2020 Commentary

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Does Your Spending Match Your Values?

We have been extremely fortunate to work with many high-income individuals over the almost 20 years we have been in business. For the most part, we’ve found that they have fallen into three categories when it comes to their emotions around their financial situation. Those three categories are:

“It is never going to be enough!”

“Are you sure I have enough?” or

“I can’t believe how much I have.”

What’s the differentiating factor for the perceptions people have when looking at their financial picture? In our opinion, assuming there is a reasonable amount of money to keep someone in a healthy lifestyle that most would find comfortable, the differentiating factor is whether or not they are taking the time to consciously match their spending to their true values, within the confines of their financial reality.

As always, money is never about money.

Let’s break down each of these three so you can see what we mean.

“It is never going to be enough!” This personality type looks content on the outside- they certainly have fun, but in a private financial planning meeting that mood can change quickly. They don’t have enough to sustain their lifestyle, and although they may (most probably) made good, if not great, money throughout their careers, their mindset is to “live life to the fullest” and spend at or beyond their income. It’s not unusual for them to have the highest income of their peer group, but not the highest net worth. Their lifestyle can give them great thrills, but they are not necessarily fulfilled individuals, as their pleasure is brought about by spending- it’s not naturally internal, and it’s not long lasting.

“Are you sure I have enough?” To be clear, with this personality type, we are talking about people who clearly do. They are often the wealthiest in their pack, and often feel a responsibility to help those around them, or at least have the ability to do so in an emergency. But they don’t usually have someone who can help them maintain their lifestyle if something goes wrong. Most of the time, these folks have made the right decisions with their money, and will continue to do so with proper guidance, but they have lots of anxiety about it and there is a disconnect for them. Because of this, sometimes they have trouble enjoying their purchases they have made, but also feel a sense of loss when they don’t spend on something they desire.

“I can’t believe how much I have!” We are not going to lie- we have found these are the happiest of the three personality types. We have also found them to be the rarest. They have more than enough to sustain their lifestyle. They are outstanding savers and may or may not have financial peers in their pack. The difference with this group is that they are so genuinely happy with what they have that they live in an abundance mindset all the time. They are the most likely to spend easily on items they truly desire but are the least likely to desire much of anything.

What’s the key to being most like group three? We believe strongly it is matching your spending to your true values. When we say true values, we don’t mean, “I would truly value having Jeff Bezos kind of money.” And we’d like to remind you that good old Jeff just went through a heck of a divorce after having inappropriate pictures he sent to his mistress be “exposed”. No, what we do mean is to really examine your personal consumption and ask if it’s what you really want/value/want to sacrifice for.

Let us give you a few examples. John and Liz are well off with kids and living the A Life. Big house, big cars, big trips. They both work phenomenal careers that they love- but they are in constant motion. Lots of things in their life are on autopilot. But they will not be able to maintain their lifestyle long term unless something changes. The longer they wait, the more it has to change.

In scenario one, before their kids are in college, they take a long, hard look at their spending. They realize they can drive their cars a few years longer before trading them in. They look at their regular spending in terms of how they are consuming. They decide not to order dessert and just eat a couple bites anymore (and LOTS more little examples of this). They cancel a monthly wine subscription. They actually stick to their home improvement and travel budgets each year instead of blowing through them. They love parties- but they have so many that they are wearing themselves out and cut back.  All of these changes add up- fast. All of a sudden, they feel a sense of control over their cash flow that they remember from their early days out of school when they were paying off student loans and saving for their first house. They keep it up, and year after year, their spending tends to go down further and further. Their nest egg gets stronger in relation to their cash flow needs. Happiness follows.

In scenario two, John and Liz didn’t look at their lifestyle before their kids went going to school. Instead, they waited- wasting dollars on items that if they would have reviewed could have been saved and compounded early. Now, they have a bigger gap in what their nest egg needs to be and what it will be if they don’t make changes. Now they are five to ten years away from ending their careers (assuming neither is terminated or there is not a health emergency). Bigger changes have to be made. The house should be sold- while the mortgage is not out of control, the maintenance is a lot, and too much of their net worth is wrapped up in it, not creating income. The kids don’t get the difference between want and need and are constantly in need of “a little help”.  But John and Liz make some tough choices. Their freedom later is more important to them, and even if it wasn’t, security is. After working so hard for so long they don’t want to lose it all. The kids are shocked and follow suit. Contentment follows- eventually, with some sorrow about missed opportunities.

In scenario three, John and Liz are good to go, in their opinion. And then the wheels come off. You know what this looks like- all hat and no cattle.

The point is, the sooner you examine and adjust your spending to what matters most to you, acknowledging the limits you have, and the more likely you are to find that inner peace with money. Recent studies have shown that after $95,000 of annual income, more money doesn’t make anyone happier. Unfortunately, so very few people even have a chance to realize this level of income and wealth to sustain it. But if you have worked hard enough and have been fortunate to reach that level, and you still aren’t feeling secure, free, and happy, then what is off track may not be your nest egg, but your spending and your connection to what is truly important to you.

Eleanor Roosevelt said, “The Person You Are Today is Because of the Decisions You Made Yesterday.” 2020 has been an insane year for everyone, yet most people we have spoken to are counting themselves very fortunate. This is the perfect time to sit down and evaluate what you truly want in your life, and what is excess as we both get through the pandemic and reshape our lives after. We are grateful to be here with you and for you in this journey.

 

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The Planned Approach, Inc.

420 W. 98th Street
Kansas City, MO 64114
(816) 941-0098

Our Disclosures/CRS FORM

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The Planned Approach, Inc.

420 W. 98th Street
Kansas City, MO 64114
(816) 941-0098

Our Important Disclosures

Insights for Your Life Stage

The Planned Approach, Inc. is an Investment Advisor registered with the Securities and Exchange Commission. No client or prospective client should assume that any information presented or made available on or through this website, is a receipt of, or a substitute for personalized financial planning consulting advice. Financial planning consulting advice can only be rendered after the following conditions are met: 1. Delivery of our Form CRS, Form ADV Part 2A and 2B to you; 2. Execution of an Investment Advisory and/or Financial Planning Engagement Letter between us. You may obtain a copy of our ADV Part 2A Disclosure Brochure containing similar information by sending a written request to The Planned Approach, Inc., 420 W. 98th Street, Kansas City, MO 64114. Additionally, please note that hyperlinks included throughout this site are provided as a matter of convenience and we disclaim any and all responsibility for information, services or products found on websites linked hereto. Please contact the firm for further information. The Planned Approach, Inc. is not engaged in the practice of law and does not provide legal advice. Always consult with an attorney regarding your specific legal situation. The Planned Approach, Inc. is not engaged in the practice of tax consulting. Always consult with your tax advisor regarding your specific tax situation.