Joanna made plans to celebrate. At 10:06 am on February 22nd, 2007, her divorce was finally final! A bit too early to enjoy an adult beverage, she headed straight for the outlets. Retail therapy was in store and she looked forward to some healing! Have any friends who’ve done this? The people who love Joanna want her to be happy, healthy and healed. But they also want her to be able to pay the bills she racked up in her celebration. Joanna’s first stop should have been to her trusted advisor. Instead, fast forward 7 years when Joanna comes into my office. She is now in her mid-50’s, has had a few health issues and is still earning about $65,000, not that much more than in 2007. What has changed, she explains is there isn’t much left in her accounts and she thinks she might have to sell her home so she can send her last son to an expensive college like the first three sons enjoyed. She pushes all her paperwork across the table.
I can see she hired an ‘advisor’ from a well-known big firm and she’s taken the time to list her expenses on a sheet I sent over before our meeting. While looking over tax returns, her spending, and her account statements, it’s clear she’s underwater every month by $5,000. I ask her what plan she’s been working off of until now and she says she was expecting her investments to do better and her money to last longer. She says at least her ‘advisor’ never charged her for his time. We lock eyes as she bears a sheepish grin acknowledging the ‘oops!’ hanging in the air. Back in 2007, Joanna walked away from her 23 year marriage with $960,000 in cash, a paid for home she thinks is worth $975k now, and a $5k/monthly support check that ended last month.
Some Thursdays are just another day of helping clients manage their financial lives, divorcing couples navigate a good financial outcome, and helping those with less funds get started through online planning. Today’s Thursday involved a midday break to attend a celebration of life ceremony for a friend’s brother who died unexpectedly. Danny, as I briefly knew him, is one of those good souls, the kind of person I’d want to be near in any kind of trouble. At the service, we heard from several who’d known Danny for decades and his kindness was universal and consistent. The whole family is like that – even the extended family. Having lived all over this country, I’ve found there are good people everywhere – you just have to find them. The Reeves family and extended family are good people.
Patsy, Danny’s widow, described their blended family as having been “grafted together with many, many ‘opportunities’ to grow in understanding and love”. When a person from Chicago (as I am born and raised) hears ‘graft’, we don’t normally consider opportunities to grow in understanding and love, but Patsy was very convincing and as I thought about it, it occurred to me that her understanding of blending families is profound and important. Grafting can mean transplanting (living tissue) as a graft. This is no easy task. It means lots of days when one could make the choice to not be understanding, not love the family member and definitely not grow. But if you took the more difficult path as Danny and Patsy clearly have, what could be the rewards for that? In winemaking grafting means taking root stock that works and placing a new vine on top of it to get something even better than that with which you started. And so it is with good people.
Here we are again. Apparently financial services firms are staging their usual hissy fits over being asked to level with consumers about who and how they actually serve or fail to. The shocking headline in a recent Wall Street Journal article indicates “Brokers Would Have to Put Clients’ Interests First” and that’s just making the big boys very, very unhappy.
Remember one of this firm’s mantras? Ask more questions, expect better answers. Let’s do a quick tour of Financial Services in America, circa 2015:
You as the consumer get to figure out if you can,
• What qualifications make the person in front of you ethical, experienced and education as anyone can call themselves a financial planner
• How your financial professional gets paid whether through fees or commissions on products they sell you
• Whether the advice you receive is covered under the ‘suitability standard’ or ‘fiduciary’ standard
• How much you’re paying in fees and/or commissions
This is a real David vs. Goliath issue with the entrenched Wall Street interests fighting to keep the old rules and threatening to take their balls and go home by suggesting everyone who isn’t wealthy will lose access to professional advice. It will take consumers insisting on the fiduciary rule for it to happen. John Bogle of Vanguard fame has long beat this drum on behalf of consumers. Robert Port, an Atlanta attorney who represents investors harmed by the misconduct of their stockbrokers or advisors, believes the financial services industry “sells trust, but only wants to be tied to the suitability standard.”
Is planning how much you spend the most tedious task on the planet?? Very possibly. Here’s the reason to do it anyway – it directly informs almost every other financial decision you should be making so this is not really a negotiable task. Money does not know or care who owns it. It’s a tool and one most effectively used when used intentionally vs. unconsciously. Below are some basic spending boundaries. How do yours line up? Notice savings is first. There is and probably always will be endless focus on retirement saving. That’s because when we no longer work, we are doing a 180 pivot generally and instead of building up reserves we are relentlessly drawing from them and we do this over a period where maintaining our health can be really expensive. We agree retirement savings is important. But so is general savings. This is such a fundamental concept but it is often ignored until some event forces us to look at it.
Saving on a general level matters because most of us have goals that include a lot more than just not working some day or working less. Financial goals include everything from the stuff we want in our lives (and must pay for) to the experiences we want to enjoy to dreams we want to pursue and to others we may wish to help. When we write down our spending and write down our goals and match them up, there is sometimes a great big hole between what we say we care about funding and what we actually do pay for. That can mean that 1) you don’t really care about those other goals, 2) you really do care more about what you are paying for now, or 3) you simply haven’t committed to changing what you’re funding now to what you do care about funding. Seems like it should be simple but often it’s not. Sometimes we might not care about paying for subscription TV but our spouse might find that important. Or we want to travel and but insist of 5 star plans and our spouse who also likes to travel is more than willing to go on budget trips. Insert friend for spouse if any of your own spending decisions are wrapped up in others’ expectations.
Just the word, divorce, can be upsetting to some people. But this word describes best what is actually happening. We could say transition, dissolution, disunion, split or several others. The reason we use ‘divorce’ is because it describes a legal declaration dissolving a marriage and our work in this area is focused solely on the financial aspects of a divorce.
Some people assume our divorce work is depressing. In fact, once a family has decided to live separately, we believe our work helps them build a healthy, secure foundation for the new life they seek and perhaps were meant to live.
When life beats you up, remember, there is no poverty where there is laughter and love.
There can however, be poverty where parties have divorced without ensuring that both parties can 1) pay their bills after the divorce is final and 2) have a foundation on which to build future wealth. In our work with couples or individuals, we opt out of the ‘gotcha’ game that the multi-billion dollar divorce industry plays so well. Attorneys are rarely specifically trained in personal finance or divorce financial planning. They are trained in law which is expertise we do not provide.
Let’s meet two smart ladies, Grace and her best friend Anna. Both 25, they’ve begun working after college and Grace earns $45,000/year while Anna is hitting it out of the park earning $65,000/year. Grace and Anna have a lot of fun together especially when they’re shopping. But recently, Anna noticed that Grace is less fun and doesn’t want to shop like she used to. Neither knows what the other one earns or spends but we do. We can see that Grace spends $2,000/month and lives with an older sister, while Anna spends $4,000/month and carries a balance on one of her department store cards. They’ve each talked about saving more but only Grace has actually begun to do so. She manages to save 20% of her gross income or $750/month. Anna says she’ll start saving in a few years when she hopes to earn even more. Grace misses having new things and shopping with Anna but she has seen her parents struggle with not having saved enough and doesn’t want that experience.
Fast forward to 2020 and Anna is now earning $78,000 while Grace has improved her earnings to $55,000. Anna doesn’t have any savings but is willing to start. Grace has consistently saved $750/month for the last five years, earned an average of 7% on her invested savings and now has $53,699 in savings.