A hearty welcome to “Grandma’s Wealth Wisdom” with your neighborly hosts, Brandon and Amanda Neely. This is the only podcast that helps you take charge of your cash flow and leverage your assets, simply and sustainably, the way Grandma used to.
Amanda: Hi, I'm Amanda and welcome to Grandma's Wealth Wisdom where we help you break through to a smart, stable financial future with the tried and true wisdom Grandma used.
Brandon: Hey, and I'm Brandon. Today's episode is Number 49 and is titled “Financial Flexibility: Handling Money as Life Changes.”
If you haven't noticed or remembered the cliché lately, we’ll remind you that the only constant is change. Have you ever heard that, Amanda? The only constant is change. Probably way too many times.
Amanda: Absolutely, and I agree a hundred percent. At least in my life, it feels like things are always changing. But that's not always true for how professionals, financial professionals, look at their clients and the individual life cycle stage. [01:14.8]
And our apologies to any financial professionals who listen to this podcast. We're really sorry for what we're about to share/not sorry, because I think this is a part of the financial industry that it might need to get some perspective on. If you're listening and you're a financial professional, let us know what you think about this. We invite you to a dialogue.
Most financial professionals talk about four or five life stages in an individual's financial life cycle, something along the lines of –
- Stage 1, entrance—you start earning money.
- Stage 2, accumulation—you start to stockpile some more for the long term.
- Stage 3, growing and managing your wealth—this is really about going after and getting that wealth as high as you can.
- Stage 4, preserving and protecting—making sure you don't lose your wealth. [02:02.0]
- Finally, Stage 5, transferring—giving what you didn't use to future generations or to charity, or a combination of the two.
Now, we don't know about you, but at least in our life, it hasn’t been that straightforward. Sometimes we're focused on accumulation. Sometimes we just want to stay out of debt and make sure we don't go into it. Plus, speaking of debt, where does debt even fit into these life stages that are so focused on wealth accumulation?
Brandon: For example, entrepreneurs like us, we don't really fit into a lot of life stage scenarios. Whether we start our business and our twenties or our fifties, we know business goes in cycles. Sometimes it's very short cycles and sometimes they're very long cycles.
Winter could be slow, especially during a polar vortex like we had in the past in Chicago, and summer could be booming because of tourism, and then an industry change could eliminate the sales of a major product or service, and we have to pivot and make something else work, and we have to make it work fast. [03:18.9]
Amanda: Yeah, that's a really great point, Brandon. Entrepreneurs, in particular, don't really fit into a life-stage approach to financial planning. Ultimately, this highlights, really, a key flaw I think in this approach.
I would ask the question, should accumulation, growing and preserving really be separate stages where you focus on one and then you focus on the next one, or might you want the wealth that you are starting to accumulate to be growing and be safe as you accumulate it? Wouldn’t it be better to take a more holistic approach to say, as you're earning money, how can you accumulate some wealth that's growing and is safe, so that you can make sure that you have enough for yourself and leave the legacy you want for future generations and poverty? [04:06.4]
Let's create some financial strategies that do all of those things.
Brandon: And for the entrepreneurs, how does building wealth mix with building a business? Does it?
Amanda: Great question to add to that, Brandon. Good point.
So, today we want to talk about how to handle your money, no matter what life stage or life cycle, or wherever you're at in life, and no matter what's going right or wrong about life right now. If you're like us or like most people, there's some right and some wrong at all times, and those things change all the time, so how do you handle your money when the only constant in life is change?
Brandon: There are three things we think are super important here and they are all related to making sure your money stays flexible. If life is constantly changing, shouldn't your financial strategies and tools be able to adapt to your lives seasons? [05:01.7]
Amanda: Yeah, so we're going to talk about those three things and then be sure to listen all the way to the end for an important note about the danger of being too flexible.
Don't forget to download your very own wealth journal to take what you hear in this episode and apply it to your unique situation. You can get your copy at Grandma'sWealthWisdom.com/49, the number of this episode, 49.
Brandon, take us away with the number one thing we want to say about financial flexibility.
Brandon: All right, I'm ready to do that. Financial flexibility begins with one of Grandma's fundamental beliefs. Make sure at least some, if not most of your money stays accessible, without penalty, so that you can handle the change. Again, change happens and it happens for better or worse, almost like marriage, for better or worse.
Can you imagine the double whammy of going through an emergency, and then, on top of that, getting something like a 10 percent penalty because you needed your money to handle that emergency? [06:14.2]
Amanda: For example, if you lose your job for six months or more, what's going to happen? Let's say, you've got $20,000 in your former employees 401(k) plan. Theoretically, you could try to qualify for a hardship withdrawal exemption and avoid a penalty, but there are a lot of hoops to jump through, a lot of things that make it so that you can qualify for that hardship withdrawal exemption.
But most people would do one of two things. They would either, a) take the penalty and forget about all the hoops they have to go through, and get that $20,000 out of there and pay $2,000 in penalty, and then also pay taxes, whatever, or b) maybe more likely for a lot of people, they would just go into debt on credit cards during those six months because they would want to avoid that $2,000-penalty and they keep thinking, That next job is right around the corner. I just have to go into a little bit of debt. But then, if the job didn't come right away, they'd go into significant debt. [07:11.5]
They get the double whammy of losing their job, having to go through that really hard time, and then either going into debt or paying a penalty because all of their wealth is locked up.
Brandon: Now, on the flip side, what if you get a great opportunity? Would you take a 10 percent penalty or forgo the opportunity because the penalty is just too much? Opportunities definitely don't qualify for a hardship exemption, at least not in my world.
Amanda: Yeah, I think the best example here is people who want to invest in real estate. They get a really great opportunity to invest in real estate that could, over the next 30 years, with some high degree of confidence, yield them a really good return on their investment. But the only investment that they have is currently locked up in an IRA and they really just have two options for taking advantage of that real estate opportunity. [08:04.9]
The first option, they move their IRA to a self-directed IRA and pay a lot of fees to make sure that they stay within the law and at arm’s length with their investments and all the different regulations there, or, two, they take the 10 percent penalty on the funds to get them out of that IRA and use that money however they like, as in the real estate.
I guess the third option is to just miss the opportunity, right? But if you'd want to take that opportunity because your money's locked up, there's going to be consequences.
Brandon: Access without penalty is important for the, quote-unquote, “normal” stuff of life—medical bills, car repairs, dream vacation—but it becomes even more important for business owners and the self-employed. And the thing I believe is, it's an increasing percentage of our population who are becoming independent contractors and entrepreneurs.
We’ve heard that the average age of an entrepreneur is 42, so I'm a little above average, which is good I guess. [09:10.3]
Amanda: I don't know if that's a good above average to be, Brandon.
Brandon: You're below average. There you go. If you're in your twenties or thirties right now and think you might want to be your own boss in the future, stashing away accessible wealth is one of the most important things you could do to make sure your future business is a success.
Amanda: Absolutely. I couldn't agree more with that. And to wrap up this point about financial flexibility and making sure your money is accessible without penalty, we do need to give an important word of caution. Your long-term savings is for the long term. You likely don't want to raid your wealth that you're setting aside for retirement and for other long-term things for just anything and everything. You still want to be thoughtful when you have cash that you can access without penalty. [10:05.5]
The idea here is to give yourself more options for when life changes. And we just asked the question, isn't having more options more responsible than leaving your money in prison while you go into debt or miss an opportunity because there would be a 10 percent penalty?
Brandon: Okay, so that's the number one idea we wanted to share about keeping your money flexible.
Grandma always said, “Eat your vegetables. Look both ways before crossing the road. And never risk your financial future on elements of the market you can’t control.” That Grandma, always good for some tried-and-true advice. And although some of her wisdom seems to have skipped a generation, you don't have to be left behind.
Download “Grandma's Top Tips for an Independent Financial Future” absolutely free, when you visit Grandma’sWealthWisdom.com. Don't wait. Get Grandma's best tips today.
Brandon: Now, onto a much less controversial Number 2 idea.
Amanda: Yeah, so Number 2. And, by the way, I have to say, Brandon says “assessable” and I say “accessible.” Let us know which one you say. How do you pronounce [“accessible”, like] “assessable” or “accessible”?
Brandon: I’m from the South. I think that’s what you do. That’s what you say.
Amanda: We'll see. We want to hear from our listeners. How do you say it?
Okay, Number 2 here—review income and expenses with a monthly money meeting. Seriously, track all your income and expenses, every single dollar that comes in and goes out of your life. Then sit down to review those numbers on at least a monthly basis.
Brandon: If you're just starting to track your income and expenses, you might want to review them weekly to start, but eventually you'll be able to move to monthly.
Amanda: Great point. The idea behind this monthly money meeting is to look at what happened over the last month, see what needs to change or move for the month ahead and make adjustments. [12:11.7]
We're not talking about traditional budgeting here. We're talking about taking an inventory once per month and simply asking the question, How can I make my money work smarter next month?
Brandon: Sure. It might mean cutting here and setting aside more there, but there could be some more creative solutions that you come up with during this time, like doing some shifting. And we're not talking about shrinking our way to wealth here. We're just saying keep looking at it. Be aware of it.
Amanda: Now, for those of you with the significant other, you want to stay flexible and you want to have this monthly money meeting, and that's super important to do. You have to stay on the same page about your flexibility and how you want your money to change as life changes. [13:00.0]
Our biggest tip here for doing these monthly meetings with your significant other is to add some fun to the meeting. Make sure that it's enjoyable. Go to your favorite independent coffee shop or ice cream shop. Get a special food to eat or wine to drink after the kids are asleep. Maybe while the kids are asleep in the morning, you have your favorite breakfast. Be creative with making sure that the time you spend together doing these money meetings has an element of fun to it.
Brandon: Now, if you don't have a significant other, still make a monthly money meeting with yourself and still absolutely add some fun to it.
Amanda: Absolutely. Now, reviewing your income and expenses monthly can be transformational in and of itself. Just start there. We've seen people that have had lots of transformation just by tracking income and expenses and asking, How can we make this smarter?
And we still do this ourselves, personally. Brandon and I sit down on the last day of each month and we look at the last month. We set the tone for the next month. We ask that question, How can my money work smarter? [14:09.7]
Our final point today about making sure your money is flexible adds another layer to this monthly meeting on a semiannual basis.
Brandon: So, Number 3 is review savings every six months. That's twice a year. A monthly money meeting could be extended, both in time and in fun, and you want to add a review of your savings as well in this extra-long meeting that you're having with yourself or your significant other.
Amanda: Yeah, so if you're meeting monthly and you're asking, What is our money doing for us and how can we make it work smarter? every six months, you're going to ask the same question about your savings. How is the money we're setting aside for short-, medium- and long-term expenses working for us? And how could we make it work smarter? [15:04.0]
Brandon: Why semiannually and not annually, Amanda?
Amanda: Two things. I think because life changes more than just once per year, right? You have new tires you need or a job change, maybe a raise. The kids decide they want to play soccer instead of the piano, whatever it is. Life is just changing.
Secondly, if you've got short-term savings goals, say, a holiday that comes up every December or a summer vacation that happens every summer, reviewing annually isn't going to give you time to make adjustments. If you do the meeting in January, you'll forget about it by the time you get to December, or if you do the meeting in June, you won't be able to change enough by the time you get to the July vacation or whatever it is. But every six months, you're going to be able to really hit those things.
Brandon: These meetings can be very simple, but two important things to remember here.
Some of you listening are probably thinking, But I can't even save. There's no money left over each month to put into that little bucket there. [16:08.5]
We encourage you to start with the monthly money meeting and plan for your first six months savings review in six months. So, you're going to put that on the calendar and put it in July, August, somewhere in there, and six months from now. You might surprise yourself with what happens as you are tracking your income and expenses. You're going to be finding smarter jobs for your dollars, while keeping in mind that you want to start setting money aside. Just keep an open mind and keep looking for creative ideas with your money.
Amanda: Yeah, and don't forget that reviewing your savings means reviewing your investing, too. If you have a 401(k) at work or something along those lines, that's part of what you're going to review every six months and say, Is this really the smart thing to be doing with my money right now? and so on and so forth, what needs to shift in terms of how much I'm putting there, that kind of thing. [17:13.7]
Then, the second really important thing to hear, to remember when you are doing these every-six-months reviews of your savings is that finding ways for your savings to work smarter might not be easily found.
There are over 400 different financial products out there. You don't just save in a 401(k), right? There are so many different options. Be open to making the best choices that you can right now, and when you're ready for a guide to help you navigate the deep waters of the financial industry, we hope you'll reach out to us. Or if you're already working with a financial professional, but you're not a hundred percent sure that they're helping you create a smart, stable financial future, we'd love to give you a second opinion.
All you have to do in either of those circumstances is go to Grandma’sWealthWisdom.com and click Request a Meeting. [18:02.8]
Brandon: Now, before we sign off today, we also need to say what “stay flexible” does not mean. It does not mean you act like Gumby and go out willy-nilly with your spending and saving. Your money might not need to be so flexible that it can do the splits. Grandma would remind you to follow her other tips and be responsible, too.
For example, just because you have the money available to buy a Lamborghini doesn't mean you shouldn't get the pre-owned car you would typically have got, right? “Stay flexible” means how you enact Grandma's tips might look a little different in different seasons of life. Perhaps you get a pre-owned SUV instead of your usual compact car because you need the extra space for kids or transporting business inventory, but then you go back to a compact when the extra space isn't needed anymore. That's just one example. [19:10.5]
Amanda: Yeah, and so financial flexibility has things it means and does not mean, and I think, Brandon, you and I have done a great job in my humble opinion of covering that today. But we're talking in generalities here. You need to take what we've shared today and think about how you might implement financial flexibility in your own life.
We’ve created a simple wealth journal with four big questions that you can ask yourself and kind of journal about and explore maybe with your significant other or on your own, or separately and then together, whatever, with friends, and you can take what we've talked about today and figure out what it means for you and your unique season of life right now.
To get your copy of that wealth journal, go to Grandma'sWealthWisdom.com/49, the number 49, or that link will be in the show notes, if you want to just open up wherever you're listening right now and click that link, instead of having to type it in. [20:07.8]
Brandon: Awesome. In the next episode, we're going to help you strategize how to make the changes you believe you need, but don't quite have the courage to change, at least not yet.
Now, change is hard, even if you know it'll put you in a better place. If you're having a difficult time making a change that you desire to make, the next episode is for you.
Amanda: Until next time, keep building your wealth simply and sustainably, so you can break through to a smart, stable financial future.
The topics presented in this podcast are for general information only and not for the purposes of providing legal, accounting or investment advice. On such matters, please consult a professional who knows your specific situation.
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