Podcast Episode 23 – Financial Wellness

Hey there. Welcome to this week’s episode of the walk, the talk podcast by her retirement. I am your host ,Lynn Toomey. And in this week’s episode, I want to start by asking you a question who wants to achieve financial wellness? Well, I think I know the answer, but when you want to focus on achieving financial wellness, there’s actually three things you need to do. Number one, you need to build wealth. Number two, you need to protect wealth. And number three, you need to distribute wealth. Some people in the industry often illustrate this as a mountain and that they say basically, when you’re climbing up the mountain, you’re building your wealth. When you reach the peak, you’re protecting your wealth. And as you descend down the mountain, you’re distributing your wealth. I actually prefer to think of it as a continuum of life and where there’s more or less emphasis at different points on that continuum or in your life on those three phases of wealth.

So I do believe that there’s more emphasis in your younger years of building wealth. You also want to protect it, but also when you retire, you’re going to start distributing your wealth. But at the same time, I think it’s important to continue to protect your wealth, to protect your loved ones and your family. And I also do believe that in retirement, you can continue to build your wealth. You shouldn’t abandon that part of your overall strategy. So let’s talk about building wealth. Building wealth is about three things. It’s about making more money, spending less and investing and appreciating assets. And I would like to ask you a question, do you know how much money you can earn over your lifetime? In our smarter spending tracking tool, you can actually see how much you earn over your lifetime. It’s a pretty interesting calculation math problem. And to see the result actually can make you feel a little bit better.

Um, but depending upon what you’re spending from, what you’re earning can maybe not put you in the right mindset, but let’s talk about this for a moment. Let’s assume that you have a 40 year career with 3% annual increases. If your initial income is $50,000, your lifetime earnings will be just over 3.7 million. If your initial income is twice that at a hundred thousand, your lifetime earnings is just over 7.5 million. But the question is not necessarily how much you earn, but the real question is how much will you keep? So did you know that most Americans could become millionaires except for two things? Number one, they actually spend way too much money on cars. Yes, cars. And number two, they get divorced. Divorce is one of the most devastating impacts on building wealth. So the moral of the story is drive a used car and stick with your first spouse.

I know that’s almost nearly impossible for more than half of our population and those shiny fancy cars rolling off of those assembly lines just are sometimes too good and too wonderful to pass up. But it is a little tongue in cheek, but the data still supports the fact that we could build more wealth. If we could control our spending habits and we could build more wealth if we did in fact not get divorced. So I want to talk to you about how you can make more money. And there’s this concept in Japan, it’s called Ikigai. And this concept refers to something that gives a person a sense of purpose or reason for living an icky means life and guide describes value or worth and Ikigai leads many Japanese people to longevity and happiness. In fact, I think they’re number two in the world for longevity.

And so if you apply this concept of Ikigai to your life, you may enjoy more wealth, longevity and happiness and icky guy is basically combining a lot of different things. It’s, it’s doing what you love. It’s your passion, it’s your mission. It’s what you are good at. It’s what the world needs. It’s about vocation and profession and what you can do and be paid for. And icky guy is really the intersection of all of those things in your life. That combines to not only help you generate wealth, but generate happiness because after all money can’t buy happiness, but money can buy financial independence. So one concept that, um, is often cited in the world today for young people, especially is that when you get a job, go to work, you want to get there early. You want to stay late. You always want to do more than what you were paid for and become the most valuable worker in the company.

You’ll be promoted faster and paid more than your peers who might come to work late or leave early. And they do as little as possible for the paycheck. Um, the other concept is starting your own business. So entrepreneurship, where you have more control and independence, there’s pros and cons to being the employer or the employee or being self-employed. But if, if you work hard and you put your nose to the grindstone, there can be some financial rewards they’re not guaranteed. And that’s why I say there can be because you still need to work hard, whether you’re an employee and employer, you’re, self-employed, it all comes down to hard work. So that’s really a basis for building work for building wealth, right, is to make sure that you worked hard at your vocation, whatever you’ve dedicated your life to doing that allows you to earn an income as Abraham Lincoln once said, whatever you are be a good one.

So I, I really liked that quote a lot. And the other part of this concept about work and understanding how to earn an income that is key to building wealth is a concept of riches and niches. So they say that if you find your niche, it will make you rich. So knowing what it is you want to do, finding that niche, and it will make you rich is a really nice concept to consider. So I want to emphasize that people do not become millionaires, or they don’t become wealthy because they don’t make enough money it’s because they spend too much of the money they make. Next, I want to talk to you about a concept called opportunity cost. And I really want to make sure you understand this and its impact on building your wealth. So, as an example, you could go out and buy a brand new 20, 21 vehicle for $65,000, or you could go out and buy used 2019 vehicle for $30,000.

Let’s say it had 13,000 miles. Really not a lot of difference with how cars are lasting so long. These days, the 13,000 miles won’t make a big impact on the quality of the car, but yet the additional $35,000 that you spend could have a really big impact on your wealth. And this is called opportunity costs. So let’s assume instead of putting that $35,000 into the newer vehicle, you invested that at 6% and 30 years, that $35,000 would be worth over $210,000. In 40 years, it would be worth over $383,000. In 50 years, it would be close to $700,000. At 8% in 30 years, it would be over 382,000 in 40 years, 850,000. And in 50 years, 1.8, eight, 5 million or close to 1.9 million. So the opportunity cost is greater than the actual cost of the item. So when you make that choice to purchase that new vehicle, it’s called opportunity cost because you were losing out on what that additional money could be used for, ie investing and building your wealth.

So people lose money because they want things fast when life is long. And that was a quote by Gary Vaynerchuk. I want you to remember that you only live once you’re on your own. The decisions you make can have significant and long lasting effects on your wealth. So really think long and hard when you make these decisions, whether it’s buying a vehicle or multiple vehicles, whether it’s making that decision to stay married, to get divorced, um, obviously divorces sometimes the only choice that people make, I myself have been divorced. So I understand, but just make sure you understand the effects that that will have on your life. And in fact, at her retirement, we connect you with certified divorce consultants who can help you financially through that transition, that major emotional transition so that you can, uh, protect as much as your wealth as possible and it have as little disruptive impact on your financial situation as possible.

The only person who’s going to take care of your older self is your younger self. And that’s an important idea and message that we get across. Or we want to get across at her retirement to our younger women. The only person who will take care of your older self is your younger self. So if you are listening to this in your younger, or if you have a child or grandchild, this is a really great message to pass on to that younger generation. Next, I want to talk a little bit about financial wellness because a lot of people don’t really understand the concept of it and what it truly means. So financial wellness has to do with your relationship with money. It refers to how secure your money is given all the variables involving an unknown future. So we are sitting here making plans, trying to prepare ourselves for an unknown future.

That’s really scary. So what we have to do is we have to consider some things and take into consideration some things that may happen. Those are the what ifs. And I actually recorded a previous podcast about how to prepare for those what ifs. So some of the things that are important in achieving financial wellness is increasing your financial knowledge, really getting a priority, prioritizing and dedicating yourself to financial education. This is something that is mentioned at the very beginning of the homepage of the her retirement website, because we believe 100% that you need to prioritize your financial education, which leads to financial wellness through taking action. So it’s getting educated taking action, which leads to financial wellness. Financial wellness also depends upon you changing your attitude or your behavior on spending and having a savings mindset versus a spending mindset. So there’s nothing wrong with spending, identifying those things that are important to you, prioritizing what you want to spend on.

That’s just a fact of life, but if you can also embrace a saving and investing mindset and a set of values and behavior, you’re going to be well on your way to financial wellness. You really need to establish that habit of saving money and then investing money. You want to create behaviors that include money and financial planning. So many people don’t do it. I think 85% of women don’t have a written retirement strategy. So failure to plan is planning to fail. And I do 100% believe in that, but again, I’ve been a lifelong planner. Um, I’m almost obsessive about my planning, but again, failing to plan is planning for failure. And finally you want to be confident in achieving realistic financial goals. So, you know, when you start out, when you’re younger, you might say, oh, I want to be a millionaire. Well, the fact of the matter is that you will earn potentially millions over your lifetime, obviously, depending upon your salary.

So you will be earning millions. It’s just, how are you choosing to spend it next? I want to talk about some common obstacles to financial wellness. Number one, not having a plan and failing to set those priorities. Number two, having too much debt spending more than you earn. So when you take on debt, you are not only paying what you borrowed, but you’re paying the interest on that amount you borrow. And that can be like quick sand, um, or running through mud. You’re really not going to get anywhere. You’re just always going to be behind because you’re not only paying what you borrowed, but you’re also paying the interest on what you borrowed. And oftentimes, you know, the appeal is get a credit card, buy now, pay later. But when you pay later, you’re paying what you borrowed plus a lot more in this case, you’re spending more than you earn.

So if you have the mindset that you’re only going to spend what you earn, you will never have to be in that debt. You never have to rely on that credit card debt. Again, the idea of debt, if I didn’t mention it before, is that there’s good debt and bad debt. So oftentimes to purchase a home to live in that’s considered good debt. Number three, not having any emergency fund or having an insufficient emergency fund unplanned expenses can hurt your savings and cause excess debt. So I don’t know the statistic, but there’s so many, many Americans that are, uh, you know, less than a month away from having absolutely no money because they are not saving in an emergency fund. So typically you want to save six to 12 months in an emergency fund, uh, six to 12 months of your salary in an emergency fund number for divorce.

As I mentioned earlier, it can negatively impact your income and your wealth, and finally not maintaining a good credit rating. And the effect of that is that it increases your interest rates on loans. So the money that you borrow is a lot more expensive. If you don’t have good credit rating, I am planning to do a podcast on credit. And if you find yourself in a situation where your credit score, isn’t what you’d like it to be. That podcast is going to talk about ways that you can increase your credit score, but even just one late payment can affect your credit score. I didn’t even realize how significant just being late can significantly impact your credit score, which impacts your ability to borrow at favorable rates. So the next thing is have a plan. Having a plan helps you set priorities. And I think it’s really important if you’re coupled up, if you’re married, but you need to agree on these priorities, not having that agreement is another thing that can impact your family’s wealth is, you know, there are two people that aren’t not on the same page and they’re kind of off doing their own thing.

When in fact they really should be working in building those priorities together and building that plan together and having a plan helps you figure out what you’re saving for retirement college, first house children, whatever it is that plan will outline what those priorities are. Remember earlier, I mentioned, if you don’t have a plan it’s really hard to achieve your goals. A plan helps you determine how much you can or how much you should be saving, and it will help you determine when you will need this money. Okay? So you’re going to do these projections in your plan, and it’s going to say, here’s what my savings and investments are going to be worth. And here’s how it’s going to help me retire or pay for college or pay for that first house. The plan also will accommodate, uh, the changes that you need to make to accomplish your goals.

So it will say, you know, in this situation, we’re going to do this. If this happens, we’ll do this. So those contingencies are outlined in a plan and a plan helps you determine how you’ll measure your success or failure. So a plan shouldn’t just be kind of open-ended it should say, okay, how will I know that I was successful? How is that going to be measured? How do we measure success? And finally, a plan will help you determine whether you need some outside help. So at her retirement, we’re all about connections and con conversations. And so we help you not only talk about your money and what you in your wealth and what you want to do with it, but we also help you figure out if you need some outside, um, financial help, investment advice, income planning, advice, tax planning, long-term care, Medicare, whatever it is that you’re facing financially, we can walk you through that and help you figure out if you need that outside financial help.

I want to spend a few minutes talking about retirement, uh, saving for retirement and investing for retirement for many retirement can seem a long way off. Some people listening to this podcast, you might be a year from retirement, or perhaps you’re already in retirement. However, ask anyone who is retired or even age 50. And they will tell you, it comes much quicker than you think. And saving for retirement is harder than ever. We’re faced with low interest rates, market volatility, changing government policies, inflation, and the constant pressure to keep up with the Joneses. This all makes saving and investing for retirement difficult, but building longterm wealth doesn’t just happen. Whether you were 10 months, 10 years or longer from retiring, there are a number of key considerations and number of things you need to address in retirement. So let’s talk about a few roadblocks to becoming wealthier and having a comfortable retirement.

Again, it’s failure to plan. It’s also cost of living. There’s a burden of taxes. There’s procrastination, which we all do this competing priorities. And there’s a lack of financial knowledge. All of these are roadblocks to becoming wealthier and having that comfortable retirement. So let’s talk about roadblock. Number one, failure to plan. Like I said, when you fail to plan, you plan to fail very famous proverb. And I think my mother probably said it to me more than a few times in my life, but the first road block, many people have to overcome is the failure to plan this pattern of doing little or nothing to prepare for retirement in this case means that you’ll have to accelerate savings or you’ll have to retire later. According to a report by the employee benefit research Institute, only 42% of us workers have tried to determine how much they need to save for a comfortable retirement.

Think about this for a minute. About 58% of workers have no idea how much they’ll need for a comfortable retirement. That’s a crazy statistic. And in the case of her retirement, it’s the statistic we aim to change. As it relates to women, we want women to plan so to prioritize financial education, financial wellness, and get a plan. So let’s talk about retirement. Reality preparation is important in order to deal with the realities of retirement. So 42% of workers, age 18 to 29 have no retirement savings. 26% of workers, 30 to 44 have no retirement savings. 17% of workers, age 45 to 59, have no retirement savings. We have a savings problem in America at a time when the burden of responsibility is placed more on us. I E there’s fewer defined benefit pension plans, and there’s going to be some social security shortfalls. The savings rate in America has been mostly declining since 1980 and remains around 3.3%.

If more people took their financial futures into their own hands started to plan today. The statistics might look very different. Now I’d like to talk about roadblock. Number two, the cost of living or stated in another way, inflation, rising prices can have an effect on everything from the cost of a home, to a hamburger. And as an example, a vehicle purchased today for $40,000 in 10 years, it will be close to $54,000. In 20 years, it will be over $72,000. Inflation impacts our purchasing power. So when you’re doing your retirement planning, this roadblocks must be considered. You won’t be able to control it because it’s out of our control, but you can mitigate the impacts of inflation with some very specific strategies. So roadblock number three, higher future taxes tax rates are currently at historically low levels suggesting they may be higher when you retire with all the economic problems facing our country.

Where do you think tax rates are going? The math is very clear. Taxes may be going up. The question is this how much sense does it make for someone to have all or most of the money in fully taxable accounts? Would it be better to have some of that money invested where withdrawals would be tax-free, good question. It’s something our podcast on tax planning and our webinars and our masterclasses that we do on retirement planning can help you address as well as planning with a financial planner, roadblocked blocked, number four procrastination, the high cost of waiting. So the cost of procrastination can be pretty steep. So here’s a hypothetical example of the high cost of waiting. We have Donna who decided to invest a hundred dollars per month, immediately and earned a 6% rate of return. Well, Tom, we did 10 years and then began investing the same amount and earned the same 6% rate of return after 30 years. The difference between the values of their accounts was rather dramatic. Tom, who opted to wait 10 years before investing would have accumulated over $46,000. Donna who started investing immediately would have accumulated over a hundred thousand dollars. That’s more than twice as much as Tom, as you can see procrastination when you’re saving can be very expensive, but one point is clear. It just doesn’t make sense to put off making preparations for your, for yourself, for your future. So, as I said, your future self will thank your younger self for saving and investing.

Okay. Next thing I want to talk about is competing priorities, roadblock, number five, there’s so many demands on our time and our money trying to balance competing priorities can sometimes feel like a fool’s errand. But if you identify these things that may compete and decide how you prioritize them, this won’t be as big an issue for you. So number one, make sure you identify those priorities and then figure out how you are going to balance them so that they aren’t competing and they aren’t eroding your wealth. The final thing that I want to talk about is help and how it impacts your finances and your wealth. Financial help and personal health are more connected than you might think. A 2019 bank rate survey showed that more than half of Americans lose sleep over money, troubles, high levels of financial stress manifest through physical symptoms, sleep loss, anxiety, headaches, migraines, compromised, immune systems, digestive issues, high blood pressure, muscle tension, heart arrhythmia, depression, and a feeling of being overwhelmed.

Financial wellness and help are very much related. And a study done by health really reinforces that concept. And I will provide a link to that study in the notes for this podcast, the statistics are actually pretty alarming. One study found that 20% of those with debt report having severe depression compared to 4% without another study saw a 14% increase in depression symptoms with every 10% increase in personal debt. Additionally, 29% of those with debt suffer from severe anxiety relative to just 4% without. And a Canadian study found that the neighbors of lottery winners were more likely to incur debt and file for bankruptcy. And another study, the more your neighbors earned, the less happy people tended to be feelings of inferiority, feelings of shame, and high-risk self-sabotaging behavior. These are examples of how your relationship with money can affect your emotional health. So one of the really important things that we do at her retirement is we have this conversations with women about their health and how it’s related to their wealth and the things that they can do to get more mentally stable around their wealth.

And when they, when they prioritize financial education and financial wellness, the benefit on the mental and physical health will follow. We also talked about to people about how they can get more physically and mentally healthy. And why doing that outside of wealth building is so important to happiness and longevity. And now I’d like to wrap up this episode of the podcast with some simple tips for financial success. Number one, pay yourself first, make saving a priority. Number two, invest regularly and automatically number three, save at least 15% of your income and try to increase that to 20%. If you’re older and closer to retirement, increase it even more. Number four, invest in appreciating assets. You don’t get wealthy by putting your money into depreciating assets, cars, boats, RVs, phones, clothes, shoes, and computers all go down in value every day. Number five, create a budget and track your expenses.

Number six, spend less than what you earn. Simplify your life. Number seven, establish an emergency fund. Number eight, pay off your credit cards. Use cash for purchases. Number nine, find ways to earn more money side gigs, side hustles part-time work. Number 10, work with a financial coach or a team of financial professionals. Get that plan done. Number 11, protect yourself and your family with insurance products. The last thing I want to say is marriage is hard. Divorce is hard. Choose your hard being in debt is hard. Being financially disciplined is hard. Choose your hard. Obesity’s hard. Being fit is hard. Choose your hard life will never be easy. It will always be hard. Choose your hard pick wisely and finally prioritize your financial education and your financial wellness. Here’s to getting her done. Thanks for listening everyone. And talk to you next week.

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