Welcome back to another Sci -Fi episode, where
psychology and finances intersect, and we'll
continue to examine how we think, feel, and behave
with money. For today's episode, we're going
to be talking about simplifying financial planning.
Now, I would love to say five simple ingredients
for financial planning, but nothing about financial
planning is simple. If it were... I would be
out of a job. If you can just take these areas
that I'll be discussing today and explore them
further, that would give you more confidence
and hopefully through practice a little more
competence as you are planning out your financial
journey. I provided a class to an installation.
It was a very large class. We had over 1 ,100
participants. And so I got some really good survey
feedback. I'll share that as we go through, but
I offered some survey questions throughout. So
we got some live statistical data just from that
population. And to give you an exact number,
there were 1 ,122 participants. So when I give
you percentages, it's an average of all of the
surveys that I provided for those six different
classes that reached 1 ,122 people. Let me give
you those areas of exploration. Spend planning,
tax planning, debt management, retirement planning,
and estate planning. And if you are new to finances,
you might be thinking to yourself, oh my goodness,
that's overwhelming. No wonder people don't get
this right. And it's not about getting it right.
It's about continued exploration, continued experimentation,
and knowing where to find the information and
the tools that you need. I've been doing this
for a while and I still come across new tools
and resources that I think to myself, wow, this
could have been awesome to know earlier, 10 years
earlier. But I don't need to stop and beat myself
up over that. I just need to enjoy the moment
that, wow, I found a tool that actually works
with my personality and I enjoy it more. So hopefully
that's something that you gain from this today.
Let's talk first about cash flow. If you don't
like the word budget like I don't, that's good.
Let's stay away from that word. But let's talk
about cash flow because that makes the actual
spend planning a little more approachable because
all you have to do in a cash flow is get your
income. Deduct your deductions. So really, if
you just have your net pay, but you should take
a look at those deductions to make sure if you
are putting money into a savings account that
you have a ledger that also tracks what you're
putting in that savings as well. You don't want
to sell yourself short on that area. But cash
flow, simply your net pay minus all of your monthly
expenses. It shows where you've been. A net worth
statement shows where you are. You simply list
all of your assets, which are the things that
you own, but only the value of the things that
you own. And then you list your liabilities,
and that is what you owe on the things that you
own. So again, you subtract those liabilities
from your assets that lets you know what your
net worth is. For some of us, we have a positive
net worth, which is where we want to go. It helps
you understand if you are building wealth or
not. For some folks, it lets them know they're
building debt. If you have a positive net worth,
you're moving towards building wealth, and that's
where you want to be. If you have a negative
net worth, Take a look at all of those debts
and how can you get rid of those? How can you
prioritize your spend plan to pay down those
debts faster? Now for some folks, they're going
to have a negative net worth because they just
purchased a home. Maybe they're younger, they're
just starting out, it's their first home purchase.
Perhaps they'll have a negative net worth until
the value of the home increases and the principal
on the home decreases. We don't want to make
anyone feel badly if they have a negative net
worth or to imply that they're doing something
wrong if they have a negative net worth. It depends
on your developmental stage, but you'll know.
As soon as you sit down and you get these numbers,
you'll know what's healthy, what's unhealthy.
Okay, and then we get into turning. If a cash
flow shows where you've been and a net worth
shows where you are, then a spend plan shows
you where you want to be. And there are multiple
methods in how to develop a spend plan. I personally
like the zero method where you give every dollar
a job and you neither have a surplus nor a deficit
because you have given every single bit of your
money a category to follow. savings investing,
debt repayment, those things. So here's an interesting
thing that we found in the actual class. This
again, this was a live class with live stats.
So I asked the question, do you have a written
or recorded budget that you follow? Now I did
have to say the B word so folks knew what I was
asking, but truly we're saying spin plan. 60
% said no. They do not. And that falls in line
with the national statistics that are generally
published by different financial experts and
what they find with folks. 60 % do not have a
spend plan. And here's another question that
I asked. Do you track your spending on an app
or... A register. It could be a debit register,
a check register. You know, depending on our
personality, not just age, we have a different
method of how we want to do that. 65 % said no.
So not only do we have 60 % not recording where
their money is going, how their money is coming
in, and where their money is going, but even
5 % more are saying that they're not even tracking.
as they're spending. That's dangerous. So if
there's anything that you can explore here, it's
how am I tracking my money? And I like to stock
my money. So every month I sit down, I go over
what's coming in, I go over what's coming out,
I adjust. If I got it wrong last month or I had
to incorporate a new section and I adjust accordingly
and then I put it into my tracking app and then
I track every day. So I am stalking my money
every day so that I do not go outside of my boundaries.
So that is spend planning. Now, I could do a
whole episode just on that, but that is just
something for you to further explore. The next
exploration topic would be taxes or tax planning
and how you can reduce your tax liability. So
I asked a question during this segment, which
method is illegal? Tax avoidance? Tax evasion
or both? Well, 59 % said that both tax avoidance
and tax evasion were illegal. But thank goodness
41 % got it right and said that tax evasion is
the only illegal method. So a lot of folks don't
even know that tax avoidance is a good thing.
thing. It's encouraged by the IRS because they
give us so many methods for reducing our tax
liability, whether through our traditional contributions
into the Thrift Savings Plan or for other folks
that may not have access to the Thrift Savings
Plan, your 401k, any tax deferred contributions,
that helps reduce your tax liability. And for
some folks, they really need... to do that in
the current moment. But for some folks listening,
Olivia, I don't even know what tax liability
means. I don't even know how to reduce it. What
I like to tell folks is when you are planning
your finances, whether you are rich or poor,
and by the way, I don't even like to use those
terms because there are people who don't have
a big income but can still manage their money
well and have a higher financial well -being
score than folks that have higher incomes. So
I really don't like to use rich or poor, but
just for this discussion, I will. Because whether
you're rich or poor, you... you could pay better
attention to reducing your tax liability. You
could pay better attention to knowing that I
don't have to give more to Uncle Sam than is
not required. So for example, We have in the
federal government, we have the flexible spending
accounts for dependent care and health care.
A great way to reduce your tax liability, especially
if you have small children and you're paying
so much money in daycare or you have special
needs children. And even if you don't have special
needs children and you pay a good amount of money
every year. towards medical needs, or you have
children that are ready for orthodontic care,
or you have rambunctious boys who are always
going to the ER and you have copay upon copay.
This is a great way to reduce your tax liability.
So again, further exploration, finding out. And
by the way, a lot of these links will be provided
to you in the post below. So just take a look
at that when you're done listening. But here's
one of the bigger things that a lot of folks
don't know, whether you have the flexible spending
account opportunity. or not. And a lot of non
-federal entities also provide this. But one
of those things is adjusting your withholdings
so that you get more money in your paycheck every
month, so that you're not giving Uncle Sam an
interest -free... loan throughout the year where
they just hoard your money that you're giving
them and then give a lot of it back to you at
the end of the year. Instead, you're saying,
you know what, I would like to have that money
now so that I can save more or so that I could
pay down more debt or so that I could meet those
financial obligations that are pressing in the
moment. Because for some folks, there are folks
that get 10 ,000, 11 ,000 ridiculous amounts
back in tax returns. And if they could have a
portion of that added into their monthly income,
that would make a huge difference for their financial
well -being. So talk to a tax preparer or even
just go to the IRS estimated tax withholding
calculator online. That's something that you
can look up. It will tell you what documents
you need to get the best calculation. But that
helps you to figure out what you need to place
within your employer's withholding section for
your payroll so that you're not getting a large
amount of money at the end of the year, but you're
getting more money in your paycheck every month.
Now, some folks, and for some folks, that may
not work. But I will tell you, psychologically
speaking, There are folks that would do better
having smaller increments coming in every month
to be used, I guess, efficiently and productively,
whereas a lot of folks who receive a lump sum
are going to be more impulsive and be, I guess,
they would not use that money in the best way.
So if you know that you have a set income every
month, you're more likely to do better things
with that money and make better decisions. But
it really depends on your personality. It depends
on where you are financially. There are a lot
of pros and cons to each. So it's up to you to
explore that further. Let's talk too about some
other tax considerations. When should I seek?
professional guidance. So a lot of folks have
filed their taxes on their own for several years,
and that's good. It's good to understand how
to do that, maybe make yourself a little more
confident and understanding what your deductions
are. But when you reach a certain point in life,
it is actually recommended by financial experts
that you seek out professional tax guidance.
So that might be when you have a side hustle
or a business. or when you have an income property.
And some folks might even say when you own a
home. But it really depends on your comfort level,
how things are going for you. But there are differences
in those tax professionals. You can seek out
an enrolled agent. You can seek out a certified
public accountant. But did you know that there
are also folks that are considered tax preparers
who have no official designation? or certification.
So if you didn't know that, that's worth exploration.
Who am I paying and who am I trusting to file
my taxes? And depending on your situation, you
may only need an enrolled agent, but in other
situations, maybe you do need a CPA. So let's
move now to the third exploration. Debt management.
Understanding the cost of debt. There are several
calculators that you could just Google and pull
up. What will it cost me if I have this balance
and I pay the minimum monthly payment at this
APR or annual interest rate? It will tell you
how long it will take to pay that off, and it's
quite sobering. It's a great educational tool,
not just for yourself. But it's also a great
educational tool for your kids that might be
getting credit card offers in the mail. Usually
when they're 18 years or older, they start getting
those offers. So that would help them understand.
And also what would happen if I take out a...
cash advance, understanding that the daily percentage
rate starts as soon as you take that out. And
it is a daily percentage rate, not an annual
percentage rate. So there are things to consider
in that regard. So how do I pull my credit report?
Where do I pull my credit report? How do I get
a truly free? credit report? Well, that's through
www .annualcreditreport .com. You will not be
asked for your credit card. You will not be asked
for a trial. Everything is free. You can pull
a free credit report weekly if you'd like. And
there are three major reporting bureaus. And
if you haven't checked your credit report in
a while, it would be a good idea to pull each
one of those credit reports over a three -week
span to make sure that there's no nefarious activity
and also to dispute any items that are not yours
or to dispute information that is incorrect.
I've told people I've corrected the spelling
of my name. You never know why that may have
happened. Hopefully it was just human error and
not someone attempting identity theft. So it's
a great idea to stay on top of that. And also
educating yourself and exploring. Your children's
credit reports, what do you need to know about
that? When can I access them? When should I access
them? When should I start seeing if everything
is okay with them and are they protected? But
one of the bigger tools that I like to educate
folks on and one of the best exploration tools
for debt management. is PowerPay debt reduction.
And PowerPay is a free software program. And
again, I'm going to be providing the link below,
the one that I use. It's very effective, very
user -friendly. Please do not feel like you need
to pay for a demo or pay for a class. Play around
with it. Click around. You'll figure it out.
But this is a place where you can either use
what you have heard in maybe different podcasts
or what you've read where you can use the snowball
method. You could use the avalanche method. It
doesn't say those terms, but snowball is simply
just paying lowest balance first and then taking
all those other minimum monthly payments that
you've paid off those other debts and rolling
them into the next debt payments. The avalanche
effect is where you... shoot for paying off the
highest interest rate first. And so that wipes
out a lot of that interest. So you'll save more
money in that way. But it will provide for you
the total savings for each method. And psychologically
speaking, a lot of folks do better with the snowball
method because they know that these smaller debts
are... going faster and then I can feel good
knowing that I've taken that off. But it really
depends on your situation. If you have a payday
loan, we definitely want to get that paid down
first. The interest rates on those, a lot of
people don't even understand the interest rates
on those. Or if you have a buy now, pay later,
those are kind of wonky and almost becoming scam
-like and you can't even get people on the phone
and they're not being responsive. So making sure
that you pay those things down faster. And then
security clearances, favorable and unfavorable
practices. For those that do not have a security
clearance, maybe that's not something that you
have to explore, but there is a different episode
that I have recorded on your money, your defense.
If you have a security clearance, go back and
listen to that. And then the next phase of exploration
within your financial planning journey is saving
and investing. Understanding the difference between
the two. One is short -term, one is long -term.
One is quickly liquidatable, the other isn't.
understanding what your own financial goals are,
what you need, when you need it. Those are things
to explore and understand. And for federal employees,
we have the Thrift Savings Plan and understanding
contributions and understanding the matching
that you would receive. Where does that go? How
much comes in? There are TSP webinars for that.
And if you are not a federal employee, whoever
employs you, work with your benefits team. It's
usually with your... and resources team who can
shed more light on the different webinars that
might be available or classes that might be available
on those benefits to you. And a lot of folks
say that they're ready to invest beyond their
401k, but if they're not meeting financial obligations,
if they're not paying their bills on time, they're
not paying credit cards in full every month,
or have emergency funds set aside, or they're
not covered adequately for insurance, then maybe
not. Maybe it's not their season to do that.
But when it is your season to do that and when
you're ready, make sure that when you hire a
broker or advisor that you are checking them
on FINRA. broker check to make sure that they
are not barred, to make sure they have no actions
against them. And you can also go to FINRA Investment
Education and take these free investment courses.
I would highly recommend that because it is not
advisable that you ever invest in something that
you don't understand. If you don't understand
market volatility, if you don't understand that
markets will rise and fall, if you don't understand
your risk. then this is probably something you
need to hold off on until you've educated yourself
further. By the way, I did another survey in
this class, and I asked the audience, how many
of you know your risk tolerance? Only 47 % understood
their risk tolerance or investment philosophy.
I tend to be a moderate. My husband's a little
more aggressive, but I also have several conservative
clients. So it's important to work within that
framework. If you're married to someone who's
a little more conservative than you are or more
aggressive than you are, finding ways where you
can both agree to things that are not making
one or the other sick, thinking that this is
what's going on. So, and then also when you're
ready. seeking fiduciary advising. And fiduciary,
this is a term you need to understand. And I
love how an attorney put it once. She said to
think of fiduciary and to remember that as a
mnemonic, think of Fido. Fido is a loyal dog.
A fiduciary advisor is a loyal advisor. They
are only putting your best interests at heart
and they are only seeking out. investment vehicles
and products that fit your investment philosophy
and your risk tolerance, not the firm's. So that's
a great thing to further explore. And then here
comes the fourth when we talk about retirement
planning. I asked in a live survey, when should
you start retirement planning? And I gave the
options in high school, When you first enter
your career job or when you're five years out
from retirement. There were folks that selected
when you're five years out from retirement. But
I'm here to tell you that retirement planning
really needs to start in high school. And I get
it. There are some high schoolers that may not
be ready for those conversations, but it starts
with career exploration. That's why it starts
in high school. Talking to your kids, talking
to your grandkids about what are their hopes
for the future? What kind of quality of life
are they looking for? Do they want to have their
vacations in the backyard or do they want to
have them away? And some folks may choose back
the backyard. And I think that's absolutely enjoyable
if that's your thing. But if not. then what will
help you live the lifestyle that you're seeking
while having the ability to save for your future
self? And I guarantee you, your future self will
congratulate you and thank you for taking such
good care of him or her. So one of the ways to
do this is to understand your numbers. And for
the federal employees here, we talked about the
Government Retirement Benefits Platform, short
GRB platform. And again, the link will be provided
to you. But understanding your numbers, your
retirement service computation date, that's going
to be different than your leave service computation
date. And a lot of folks don't realize that that
is not provided to you until you ask for it within
five years of elevation. retirement. But I'm
hoping with more efficient practices that our
Army Benefit Center or whoever your federal employer
is will be able to provide you that retirement
service computation date at any given time. Maybe
a system where we get to see all the different
service computation dates that are there for
us. There's a TSP service computation date, a
leave service computation date that is only tied
to leave accrual, and then a retirement service
computation date that is only tied to creditable
service that will apply towards your retirement.
And those in the federal government, we know
that those years of service are very important
when it comes to not only calculation, but also
to understand if you're even eligible for certain
retirement. Then also understanding your high
three calculations. And for folks out there that
may not have a defined benefit plan like this,
that's okay. It's all about... Retirement planning
and understanding what kind of nest egg you would
have to have from your defined contribution plan.
So what you're doing with your 401k, how you're
investing, and how much you need, and getting
those numbers, that is part of that retirement
planning as well. Understanding your social security,
setting up an account, making sure that you have
all your credits that are due to you, making
sure that all the information is correct, understanding
what your tax bracket is, it might be in retirement,
which will help you today in determining, do
I need to do more traditional contributions or
Roth contributions? And that will help you decide
how to best plan for that retirement. And here's
one that I like to give folks. Debt is a big
enemy to retirement. And so I would encourage
folks that are nearing that retirement age is
to really look at your debt and how can you get
rid of as much as you can before you retire.
And one of the ways to look at this is to project
what your retirement income is going to be. Deduct
your living expenses. and deduct your monthly
debt payments, and that will reveal what your
surplus or your deficit is in. If you have a
deficit, obviously it's not time for you to retire.
If you have a surplus, perhaps even now, while
you have a larger surplus, how can I pay down
that debt even further? And here's an extra challenge.
Two years prior to you retire, live on that retirement
budget or retirement spend plan. that you've
created. And that will help you determine if
you're truly ready. So here was a fun live survey
that I provided. I asked the question about numbers
and data for retirement planning. 96 % agreed
that retirement planning is not just about the
numbers. So no one has an excuse anymore, what
I'm about to talk about. So we're going to talk
about what you are looking for in retirement.
As Mitch Anthony wrote in his book that I do
have an episode on with reviewing the book, The
New Retirementality, he talks about your IRA
or individual retirement attitude. So know your
values. Planning includes the measurable data.
And the immeasurable data. That immeasurable
data is what does your wife want to do upon retirement?
What does your husband want to do upon retirement?
What are your joint goals? What are your individual
goals? You both might be putting your ladders
up against completely separate walls. And by
the time you both retire, you're looking at each
other miles and miles away and like, hey, where
are you? You're supposed to be over here with
me. No, you're supposed to be over here with
me. This is what we plan to do. Did we? Did we
even have that discussion? So understanding what
that means for you. And then also further educating
yourself and exploring all the ins and outs if
there is a pension plan. And again, if it's not
a defined benefit plan, which is a pension, then
understanding all the ins and outs of your defined
contribution plan. And then finally, we get to
the last phase of exploration. Not to mean that
you wait until you think you're going to die
to do this, but to start planning now. But estate
planning. This is something where I can't emphasize
enough that individuals who come into my office,
widows, where their spouses have passed on or
widowers, and they don't have any money because
they can't find documents. or they don't know
what's available, or a designation of beneficiary
can't be found. Estate planning, when people
hear that, they stop and they don't think about
it again because they say, well, I'm not going
to pay the attorney to do this for me. You don't
have to. Estate planning can be as simple as
you just completing designations of beneficiary
and filing them with... Those entities they need
to be filed with. So for federal employees, your
thrift savings plan, who gets the money when
you pass, naming a beneficiary, your federal
employee group life insurance. And for folks
that aren't federal employees, that includes
your 401k, your life insurance, and any other
things. Your bank accounts payable on death,
your investments transferable on death. Just
completing those forms alone is estate planning.
But here's one even better. is putting those
documents or copies of those documents in one
area and telling your loved one where they can
find them if something were to happen to you.
So notice that a will has not even been created
yet and you've already inched toward full. estate
planning. There will be attorneys that even tell
folks that maybe you don't even need a will.
It depends on everyone's situation. Disclaimer,
everyone's situation is different. Had my husband
and I not had children, we probably never would
have completed a will because we have everything
tied to a beneficiary or a joint account or payable
on death or transferable on death. Those are
ways to avoid probate court. And 81 % of the
audience knew that. They knew how to avoid probate
court. Again, naming a beneficiary, make it in
a joint account, payable on death, transfer on
death. However, you can't 100 % make sure that
some things do not go to probate because what
if your joint account holder passes with you?
Or what if your designation of beneficiary, all
the folks that were named have also passed on?
So sometimes you cannot. help but things go in,
but you can at least help avoid as much as possible
by doing those three things. Here's something
that kind of troubled me a little bit. Well,
no, let me actually say what excited me first.
A hundred percent of folks knew that it was wise
to update their beneficiary designations when
they got married, had children, or divorced,
or remarried. So You just have to ask yourself
a simple question. If I pass, who do I want these
benefits to go to? By the way, here's what saddened
me. 31 % did not know that beneficiary designations
override wills. A lot of folks did not know that
a beneficiary designation is its own standalone
legal... document. So if I've scared some of
you guys, good. Go look, make sure they're on
file, make sure the right people are on there,
and go from there. And even read through the
form. It will tell you, if you name no one, who
it will go to next. Your spouse, your living
children, and then it goes from there. All right.
So here's some further tools and resources. I've
given you a lot to consider, a lot to explore.
But in these episodes, you'll find book reviews.
And so any of the books that you've heard, I
really recommend reading some of them. But one
of my favorites, if you really want to understand
personal finance, and I can say that I would
encourage a read because to be an accredited
financial counselor. And in order to get that
certification, I had to read the book Personal
Finance by Garmin and Forg, the 13th edition.
And I would not be able to sit here and provide
this education as a financial readiness program
manager without that book. It's called, now the
14th edition is out. I have not read through
that one, but... I would always encourage people
to read latest editions because especially as
technology advances, there's going to be some
changes in how you do personal finance. So Garmin
and Fox. are the author's 14th edition for personal
finance. And like I said, it's a textbook. It's
not going to be something that you're going to
be reading right before bed, unless you just
want to put yourself to sleep. But what I would
encourage you to do, maybe a chapter a month
and getting your spouse involved, because this
is full exploration that this book would take
you through with all, not just those five areas
of exploration, but 15. areas of exploration
and maybe you just start with the five that I've
talked about today and then go back and get all
the other ones but I would also encourage you
to listen to other episodes on the pod that might
be of interest to you and please if you have
found this information useful please rate and
review wherever you listen to the pod thank you
for listening and happy planning