photo by: ErikaWittlieb via Pixabay
A friend of mine, Karen Spero, says that, “financial planning is bringing the future back into the present so we can do something about it today.”
Karen is retired now. She is also my mentor, and a fellow financial planner who taught me a lot about how to help my clients achieve their dreams. In order to achieve our dreams, we first must envision them.
Karen is a great example of an advisor who lives her own advice. When she established her financial planning firm in 1972, all she wanted to do was earn a living and help people. She did not realize that she was a pioneer, on the vanguard of financial planning and a woman in a male-dominated profession.
Her firm grew larger than she ever expected it would. With that growth came additional responsibilities, to her clients and her own family. Over the years, she developed a business succession plan, bringing in a partner who would ensure the continuity of her firm after she retired, so their clients would be taken care of.
During this time, she also developed her own retirement dreams. She and her husband started vacationing in Vail, Colorado during the 1980s. Their affection for the ski area grew over the years, and they bought a vacation condo, then a larger home their children married and had children of their own, vacationing in Vail. As they spent more and more time there, the Vail community became a true second home for them. Many other people feel the same way, and there is a lot of social life and culture there, in addition to great skiing. During the 1990s they decided to build a home and retire. They had envisioned their dream.
How did they achieve it?
Her husband is 10 years older than she is, and she knew he wanted to retire at age 70. She knew that at age 60, she would not be ready to completely retire at the same time.
Because they spent a lot of time in Vail, and had lots of friends, they were able to gather information about the cost of living there full time. Karen used this information to develop her own financial plan. They followed their plan and saved and invested accordingly. She also had another significant asset, her business, the value of which played a key role in her plan.
Around 2000, they began building their home. They were still working, so they had income to help finance the construction project. They began spending a week each month in their new home. After about two years, they began spending two weeks there each month. In 2005, Keith retired and they moved to Vail full time. Karen sold her business to her partner and began spending one week a month in Cleveland, working remotely as needed. Her role in the business became that of an advisor rather than an owner, and she has been fully retired for several years now.
It is awesome to see how happy they are and how they are living their dream. Their home is wonderful, built on the side of a mountain overlooking the ski slopes. They have a strong community of friends and family in the area, and they enjoy a healthy, active lifestyle. They pay attention to where they are spending their money. For example, they said they don’t eat in restaurants often. There is a lot of social life based on entertaining in one another’s homes and cooking in rather than eating out. They know the reasonable stores for shopping, driving 45 minutes to Costco for staples, and using the local grocery only when necessary. They enjoy the theater and symphony when good shows are in town. They get annual ski passes and know when is the best time to arrive at the slopes to get free parking. They also travel internationally from time to time. They have everything they need and live very comfortably, but not lavishly. They told me most of the other year-round residents are just like them.
In my experience, people who accumulate a lot of money have strong habits about being careful how they spend their money. By choosing not to spend money on eating in restaurants, Karen has the ability to redirect that money toward owning a house in a desirable resort town in the mountains.
I believe that understanding spending is critical to developing a financial plan and an investment policy to carry out the plan. Knowing what it costs to maintain your standard of living, as well as the breakdown between fixed and discretionary spending is so important. Our spending is one of the few items we have some level of control over. Especially once we retire, and our ability to earn more money is greatly diminished.
When we know where our money is going, we can more easily make plans for the future. It has been my experience that clients who have a written financial plan are more successful in achieving their goals.
This is the power of a plan. When you envision your dreams, you can develop the roadmap to achieve them. It is important to have the vision for the future, and the financial plan that outlines the small steps we take in our day-to-day lives that will get us there.