Mike Earl, CFP®, CPWA®
Competition can be a great motivator. One of the reasons I was able to excel in school growing up was because I simply wanted to beat all the other students.
This past weekend, my colleague Adam Colby texted all of us on the team some of his spending numbers for 2018. It’s become an annual tradition for he and I: we share our annual spending numbers and have an ongoing competition to be the most frugal person in the office. And since we’re all about transparency at The Wealth Group, here are the 2018 numbers in some basic spending categories for he and I:
Now, in fairness to Adam and his wife Kristi, their children are older than mine, so they eat more food. 😊
Goal-setting is a form of competition against yourself (and others). You want to set goals that are concrete and realistic, such as working out 100 times this year (which was one of my goals for 2018), or reading 28 books this year (one of my goals for 2019).
When it comes to money, most people don’t even know where to begin when setting goals.
What’s a good savings rate for my family, based on our goals, income, and liquid portfolio?
How much should I spend for each vehicle?
How much house can I prudently afford?
When should I be 100% debt-free?
Talking about money is more off-limits than talking about one’s weight or diet plan. Schools generally don’t teach students about personal finance. Money is a very secretive thing. Even with the people that are closest to us, we pretty much have zero clue about the true state of their family finances. Sometimes, people know how much income other people earn, but they rarely have any clue about how much money people actually have (i.e. their net worth).
I’m often reminded of this great commercial from Lending Tree:
It’s one of the most challenging aspects of making wise decisions about money over the long-term: what constitutes a “good” decision or a “bad” decision? You see a friend pull up in a new BMW; people assume they’re doing well financially. But the data tells us that 58% of BMWs on the road today are leased.
That means nearly 6 out of 10 BMWs on the road today are being rented. And the stats are very similar for other luxury vehicles on the road today.
For all you know, the original MSRP of that Bimmer could be higher than the current net worth of the driver.
Big hat, no cattle?
A friend of mine recently mentioned how frugal his family is; he said they only spend $1,300 per month on groceries. He has one fewer child than me (2 vs. 3), and yet he spends about double what we spend each month on groceries. This is not to say his spending on groceries is inappropriate relative to his financial situation; rather, my point is that he didn’t have a helpful reference point for what “frugality” means when it comes to grocery spending.
Another example: how much equity do your friends in the ritzy neighborhood have in their home? Did they put 3% down or 30% down? Do they have a 15-year mortgage, a 30-year mortgage, or even a 40-year mortgage? No one talks about these things, so no one really knows how they stack up against their peers.
Beautiful home, but do they have financial peace? 30-year mortgage with 5% down payment? Leveraged to the hilt?
That’s where we come in. Throughout the course of our careers, we have worked with and counseled thousands of families about money. We know what works, and we know what doesn’t work. We know what financial peace looks like, and we know the areas our clients can make hay vs. the competition.
While it’s interesting to know what Adam and I spent on groceries and a few other categories in 2018, our clients know these categories aren’t the key aspects of spending. Saving a few hundred dollars per month on groceries and eating out is good, but that’s not going to be the difference between success and failure. It really boils down to two key areas of your life: housing and transportation. If our clients can get those two categories right, charting a path toward financial independence gets a whole lot easier.
So what is one financial goal your family can make for 2019? Here are some ideas:
Pay down more debt than you did in 2018.
Give more to church/charity than you did in 2018.
Invest more for retirement than you did in 2018.
Start a new automatic monthly contribution to a joint investment account with your spouse.
And once you have a goal set, share that goal with others. Making a goal public is one of the best ways to help you achieve that goal. We want to help you succeed financially; it’s why we do what we do.
Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.