How Do You Look at Your Money?

How Do You Look at Your Money?

April 26, 2022 All Articles Financial Planning Investments 0

Do you look at your money for what it is or do you look at it for what it is for? A few weeks ago, Dad came on our weekly radio program “Life Planning 101.” He shared several stories that have given us insight we use to help the families we work with today. One of these stories was about a couple who looked at their money only for what it was. Because of this, they weren’t going to be able to stay retired successfully. In other words, they were on a track headed toward $0.

When you look at money for what it is, your emotions are making your decisions. For example, if you are asked, what return do you expect on this money, what would you be basing your answer on? Probably the answer would be an emotion—something like, I want my cake and I want to eat it too. Truthfully, the answer is most often along the lines of “I want to make eight percent, but I don’t want the account to go down.”

What if, instead, you went through a process that helped you put together your life’s goals? What if you started by talking about the most important things in your life – what you really wanted your money to do for you, your spouse, and your family? What if you could determine what you needed your money to do for you and what you needed your money to do? The question then isn’t what you expect to be the rate of return on your money, but instead, what you need the rate of return to be on your money.

Imagine this:

  • You know that what you are doing with your money is the best option for you situation.
  • You have a roadmap of what you need to do in order to stay on track for your future.
  • You know your wife or husband will be okay if something happens to you.
  • You have a backup plan if things don’t go as planned.
  • You don’t worry if the market goes down or if we go into a recession.

Does it sound too good to be true?

It is only too good to be true if you keep looking at your money for what it is and if you don’t plan and implement it for what it is for.

You see, this couple Dad spoke about had “safe” money that accounted for about ten percent of their cash and investments. This was money they had set aside years ago that was in a fixed account earning two to three percent a year. They didn’t want to touch it. Then they wanted us to invest the rest of their money and earn them eight to nine percent per year. That doesn’t look like a problem… but they also wanted to withdraw six percent of the money we invested every year.

Pause. Let’s do a little Investment Education 101. If I buy 100 shares of ABC at $1 per share, I invested $100. Let’s say I need to take six percent from this or $6. In order to do this, I need to sell 6 shares of ABC. But, what if the price of ABC goes down (even temporarily) fifty percent? I still have 100 shares, but now they are worth only 50 cents per share. I still need $6. How many shares do I have to sell? 12. This is double the amount of shares. This is the risk a majority of retirees not only face, but take when they begin taking money from those dollars they saved all their life.

Now back to the story…Typically, we plan for what the money is for. We set up a bucket for money needed over the next year. We set up another bucket for money that is needed over the next two to four years. All of this money is invested to protect it against the risk you just learned about. Furthermore, they did want their cake and they did want to eat it too – they didn’t want to take a lot of risk. So, this meant that forty percent of all of their retirement money would barely be keeping up with inflation and might be losing to inflation in some years. It would require up to sixty percent of their life savings to keep them retired. It can’t work! That sixty percent would be forced to take too much risk. You have to play t-ball when you are living off of your investments. You can’t afford to take a lot of risk.

We wrote an article a few years ago on the dangers of mental accounting. We all do it. We designate pots of money for different things. The problem is that, just like this client, mental accounting is designating money for what it is and can end up costing you your retirement. Plan for what your money is for. Know holistically what your money needs to be doing, plan for it, and stay disciplined.


Securities offered through Calton & Associates, Inc. member FINRA and SIPC, a Registered Investment Adviser. Investment advisory services offered through Smart Money Group, LLC, a Registered Investment Adviser. Smart Money Group, LLC and Kennedy Financial Services, Inc. are not owned or controlled by Calton & Associates, Inc.