Planning for the next twenty-five years, no matter what your age, will take a few key ingredients to succeed.
We have outlined the four steps we believe you will need.
What we aim to do is show four of the steps most will need to succeed over the coming twenty-five years.
But we intend to show you these steps, through messages we have shared with our clients. You’ll find links to different posts on our site: some are written articles, some are videos, some are podcast episodes.
All geared to help you be prepared for the next twenty-five years.
STEP ONE: Know Your Numbers
We meet plenty of individuals that simply do not have a handle on their monthly expenses. Before you can get to the point where you are certain your revenues exceed your expenses, you have got to know your numbers.
Where does all that money go each month? 42% of credit card debtors say they have trouble making ends meet on a monthly basis.
While we mention this point “know your numbers” in many of our blog posts, videos and podcasts, the best representation we have found comes from a video, aptly titled, “Four Ways to Stay Out of Bankruptcy Court.”
You can watch the short video here.
Knowing your numbers is so crucial. We begin the planning process with ALL new clients the same way – getting to know your numbers. We lead with planning.
Beginning with building a cash flow report and projection, we can see where you stand currently, and where you are headed. We also build a personal balance sheet for all new clients as well. The balance sheet and cash flow reports give us an indication of the amount of income the individual may need over the next twenty-five years.
That information then spills over into indicating how much risk an individual will need to take with their investments, to generate the income needed. So, knowing your numbers, really is always a critical factor.
STEP TWO: Make A Plan
We stress the importance of plans so much that we incorporate this line into many of our conversations, “we lead with planning.”
Even if a potential client simply wants to transfer their account from another investment advisor or investment firm over to us, we will still build a basic plan, as we begin. This helps the client, but also helps us gain a better understanding of how this account fits into their overall financial picture.
In “Alice in Wonderland,” Lewis Carroll wrote, “If you don’t know where you are going any road can take you there.”
As baseball fans, we know Yogi Berra improved on that by re-stating “If you don’t know where you are going, you might wind up someplace else.”
Both lines are technically correct.
The point is, without a plan, or without a guide, and without a destination or a goal, folks are letting the wind essentially take them where they may.
That works great on a sailboat, floating on the pond or a small lake.
But otherwise letting “circumstances” dictate your decisions will not get you far at all.
Two posts help drive “make a plan” home:
1. “Slow and Steady” Beats “Not At All”
Will saving fifty dollars, in the grand scheme of things, really move the needle? You need to lose this mindset, and start on a new plan. You don’t have to be “content” with saving fifty dollars. It may be what you’re capable of doing right now. You need to change direction and move forward.
2. “Four Surprises in Retirement”
Retirement can last longer than expected, you might continue to work in some capacity, things WILL cost more in the future. Without a plan in place, without some preparation, you may come up short. No one wants that.
STEP THREE: Get your Will and Power-of-Attorney in place
Do you know when you will die?
Do you know when you will be incapacitated?
Not many folks can say with certainty when these events could happen. From the “Seven Habits of Highly Effective People” comes the reminder to “begin with the end in mind.”
Interpreted in many ways, we like to focus on the fact we simply do not know when we will fall ill, become incapacitated or die. Leaving it all to chance leaves nothing behind but a mess for loved ones to clean up.
Is that what you really want family members to remember about you? We’ve all heard stories about the bickering, ongoing family squabbles and estate disasters left behind.
Make an appointment with an attorney. It won’t be free but should be considered a good investment in helping your loved ones in the future.
A good attorney well-versed in estate planning will know the questions and areas to focus on, which will make preparing for a future without you that much easier.
Likewise, having a medical directive, or medical power of attorney, gives the authority to a trusted contact of yours to express your desires to the doctors and medical professionals. This document allows this trusted person to legally speak on your behalf.
Additionally, having a financial power of attorney is another necessary tool in estate planning. One of the worst phone calls we get is from a devoted spouse asking how to get access to money to pay necessary bills and be able to meet expenses. “My spouse handled all of this, but now he/she is in a coma. What do I do now?”
Getting these documents prepared properly and professionally will not be cheap or free, but will be money well spent.
For additional information, check out these posts:
3 Documents Everyone Over 18 Must Own
Estates Should Have One Executor
STEP FOUR: Don’t Interrupt The Compounding!
When Warren Buffett turned 65 years old, in 1995, he had a net worth of $8 billion dollars. In 2020, at age 90, his net worth is over $80 billion dollars.
Buffett has not made more investments in the past twenty-five years. In fact, he has probably made fewer. Much of the gains have come from one primary source: compounding.
Think about that: $8 billion at age 65, has grown to $80 billion today.
We’re surprised when folks tell us they “want to get out of the market at retirement.” We hear it more than we’d prefer.
Folks are telling us they want to stop the compounding train when they may have another twenty-five years of inflation to keep pace with.
The problem for most investors is much (nearly all) of the returns from compounding come much further down the road than people expect. The only way to get further down that compounding path is through patience.
Buffett’s business partner, Charlie Munger, has a very famous line. “The first rule of compounding: Never interrupt it unnecessarily.”
Yet day after day, we meet individual investors who had shot themselves in the foot by deciding they cannot tolerate the risk, or someone on TV suggested “taking profits.” Listening to the financial media can do more damage to your long-term returns than many other methods. Don’t interrupt the compounding!
Check out these posts here, over here and also here, where we discuss the power of compounding in more detail.