How Would You Live If Money Wasn’t An Issue?

If money wasn’t an issue, what would you do? Because, that’s what financial freedom allows. Would you quit your job? Travel the world? Volunteer for a favorite cause? This post illustrates how it’s easier to save and invest for your financial freedom dream than saving for that undefined retirement way off in the distance.

Imagine you are a 30-year old with a degree in French literature and a well-paying job writing code for a new tech startup. No, really! Retirement, as we traditionally think of it, is 35 years away. Saving is for suckers! You’re buying the loft, the 70-inch with surround sound and an Audi Quattro.

Now, fast forward 30 years. We’ve recently been working with a couple who is nearing retirement age and want to know if they have saved enough to do so in a few years. So, we examine if their investment assets will generate enough income throughout their lives to maintain their current standard of living. Our assessment, using their estimates of expenses and our projections of their investments, says they will either have to work longer or scale back their standard of living in retirement.

Think the couple nearing retirement would love to go back in time and have a little talk with their 30-year old selves?

Now, they will be just fine with a little effort and some guidance. But, how awesome would it be if our review determined they can stop working whenever they want? Can you imagine how freeing that would be? Folks, you won the lottery, only it was you who created the payday by creating a plan, saving, and investing for many years that resulted in your financial freedom!

Early in life we’re taught that we should go to college, get a good job, get married, buy a house, adopt a Labrador Retriever, have 2 kids – a girl and a boy – then buy a bigger house, send those pesky kids to college and then, at age 65, it’s time to get the gold watch and move to Florida. There, crossed the finish line! Now, we can finally live!

I challenge you to think of this another way. If money wasn’t an issue, what would you do? Because, that’s what financial freedom allows.

Would you quit your job and do something that really helps you spring from bed each morning? Would you travel the world, or at least take time off each year to travel? Would you start the business you always dreamed of starting? Would you step back to a part-time job and volunteer for an organization you really care about?

To me, money – wealth or accumulated savings – has always meant security and peace of mind. Money to me is not as much about buying more possessions; money is about freedom and options. For instance, having enough money so I can choose what I want to do professionally without worrying so much about what it pays. Is it fun? Does it challenge me? Am I adding value to my employer and helping our clients? I’d like to escape Kentucky for a couple weeks during February and hang out someplace warm, can I? That’s just me, everyone is different.

Spend some time thinking, really thinking, about your personal definition of financial freedom. I think you’ll find saving and investing for your financial freedom dream is a lot easier than simply saving for that undefined retirement way off in the distance.



Why You Should Care That Kentucky’s Public Pensions are a Disaster

I understand a discussion about pensions is about as welcome as Lyme disease. But, while much has been written about who is to blame for Kentucky’s pension crisis and what the impact might be to participants in the various retirement systems, very little has been written about why those of us who don’t have pensions should care. Here is why we should care: because if this is not fixed, Kentucky will slide back rather than be able to invest for our economic future. Enjoy the state parks? You might have to take the kids to Opryland instead. Appreciate the opportunities that our public schools and public universities offer? Well, get ready to sell more wrapping paper and explain to your student that history didn’t end in 2002, despite when the textbook was published.

At Moneywatch Advisors, we often work with young clients who have high debts, usually student loans. The first step toward their financial freedom is to create a plan to pay off their debt. Only then can they pay themselves first and invest in their future selves. Kentucky must develop a plan for this massive pension debt so we can start investing in our future.

A quick review of the problem: $36 Billion is the total of the pension systems’ unfunded liability. In layman’s terms, that’s the amount we’re short to pay the present and future promised benefits for all those retirees and employees in the systems. Think of that as credit card debt the state has run up, only you can’t take the sweater back. That number varies depending on who is doing the calculation and what assumptions they use, but I’ll stick with $36B for our purposes here.

The Governor is expected to call a special session of the legislature later this fall to address this pension problem. Here is a secret: at best, whatever changes they make to the retirement plans will only stop the hole – the $36 Billion – from getting deeper. It won’t fill the hole.

The hole won’t get addressed until the 2018 regular session when the legislature will write the budget. That’s when they will have to figure out how to fund that $36 Billion. The preliminary estimate of how much additional state money is needed to get us on the right path is $600 Million…each and every year for a very long time. Here are the legislature’s three broad options:

1. Do nothing, always a viable option in Frankfort, and hope the changes they make in the special session will not only stop the hole from getting deeper but will eventually help fill the hole too. This option is not only irresponsible but it has consequences too – such as a lower credit rating. Similar to a personal credit score, that will increase borrowing costs for things like schools and infrastructure. Doing nothing will not only not solve the problem, it will make things worse.

2. Cut roughly $600 million from the state budget each year and redirect that money to pay pensions. There is absolutely no way that can happen without cutting investments in our future. In fact, finding dollars of this magnitude would even require cuts to the main funding formula of K-12 education that, until now, has always been off the table. Senator Chris McDaniel, chair of the Senate budget committee, was recently quoted by the Courier as saying all areas of government would have to be cut 12%, including K-12 education, to fill the hole. A 12% cut to K-12 is the equivalent of cutting roughly $350 per child in every school district in the state. Think if they have to cut K-12 that your favorite item in the state budget – such as higher education, state parks or healthcare for the poor, etc. – will be spared, think again. Not a viable option.

3. Comprehensive tax reform. Adding 1 penny to the state sales tax will raise approximately $570M each year. If the base on which sales tax is charged expands, it would raise more. In addition, about $10 Billion in tax credits and exemptions are applied to a variety of activities – some of those have outlived their usefulness and should be eliminated. Now, some of those such as the exemption of sales tax on groceries counts for a big chunk of that $10B and won’t be eliminated. Others, however, need to go away in order to help fund a greater cause.

After having spent more than 20 years around the General Assembly I’m not politically naïve – I know this is hard. And I welcome a tax increase with roughly the same enthusiasm as I do a bad haircut. So, I don’t take raising additional revenue through tax reform lightly. But I am willing to bite the bullet so that we as a state can finally put this behind us so that we may again invest in our future.

Kentucky is a special place with amazing people – a place that needs to continue to educate people at all levels as well as create and attract more jobs. Let’s cut the chain on this anvil that we’ve collectively been carrying around for the last two decades so we can focus on investing in our future rather than our past.

A Vacation to London as a Metaphor for our Financial Lives

Last week’s post illustrated how important it is for our long-term financial well-being to live beneath our means and not care about keeping up with the Kardashians in the car department. But that doesn’t mean we have to rinse out our sandwich baggies so we can use them again the next day. (Apologies to my environmentalist friends) The journey to financial freedom shouldn’t be painful! No, our financial lives, like our lives in general, should be a good balance between saving for our futures and enjoying our lives now.

An apt metaphor for this balance can be found in the premise of a new travel blog, Deal, Steal, Splurge – A New Approach to Travel, that is a good model for our financial lives too.

My friend and former colleague at UK, Amy Jones-Timoney, has created this fresh, new travel blog – find it at As the title implies, her blog identifies deals (values), steals (freebies) and splurges (worth the extra money) for destinations where she has traveled. While I can’t do this as well as Amy, here are my recommendations for a Deal, a Steal and a Splurge for London………..England, not Laurel County, Kentucky, after a recent trip there with my wife for our 30th wedding anniversary:

Deal: Pre-load an Oyster card for all of London public transportation. It works just like a debit card. You purchase a card at a machine at a Tube (subway) station and it gives you a plastic card that you “tap” on a reader whenever you enter or exit a Tube station. You can use it for the Tube or the famous double-decker buses that are ubiquitous around London. Travel this way is very inexpensive, much cheaper than a cab; quite convenient and fast; and surprisingly comfortable. We routinely traveled from our flat in Holland Park to central London – where Parliament, Big Ben, Buckingham Palace, etc. is – for 1.75 GBP. (Great Britain Pound) That’s about $2.25. A Deal.

Steal: Many travel sites recommend riding the London Eye when in London, and it is fun. A large ferris wheel that takes about 30 minutes to rotate once, it offers amazing views of the Thames, Parliament, the city center and more. It costs about $42 for fast-track tickets where you don’t have to wait in line. Fun, but expensive. For a Steal? Go to the Tate Modern Museum nearby and enter – for FREE – and go to the 10th floor viewing platform. From there you get amazing, 360-degree views of the entire city and beyond…For FREE! Read more here:

• Splurge: This recommendation may not be for everyone but we splurged and went to Wimbledon for The Championships. I don’t say this lightly but this was truly a once in a lifetime experience. Wimbledon will remind you of Keeneland – the same manicured grounds, the same wonderful hospitality exhibited by everyone, the joy that everybody seems to feel by being there – if you can picture 18 races going on at the same time. That’s the number of courts hosting matches concurrently. Tickets, afternoon tea and scones with clotted cream and jam plus the requisite Wimbledon clothing to prove to everyone that you were actually there can add up – but worth it.

So, “pay yourself first” by contributing to your retirement funds, then find some guilt-free splurges along the way along with a few deals and steals too.

Next Friday’s Post will explain why you should care about Kentucky’s public employee pension crisis even if you don’t have a pension.

You Aren’t What You Drive

A few years ago my son and I parked in a parking lot here in Lexington that was filled with Mercedes, BMW’s and Range Rovers. We were in a Honda Accord. My son, 12 at the time with a keen eye for nice autos, remarked that all these car owners must be rich! For a saver like me that was a big, fat softball that I intended to slam out of the park with a valuable life lesson titled, “You aren’t what you drive.”

I proceeded to explain that we shouldn’t assume that what someone drove or even where they lived gives us a clue about someone’s wealth. “What?!”, he asked, “How can you buy a fancy, expensive car if you aren’t rich?” Ah, my young ball of clay that I intend to mold in my own saver image – “Don’t confuse income with wealth.” If someone makes a lot of money but spends it all, are they rich? Or, if someone makes less money but spends part and saves part, maybe they actually accumulate more than the person with a high income, and they’re the rich ones.

The book The Millionaire Next Door found that “living beneath one’s means” was one of the keys to becoming rich for most people. In fact, if you’re not a professional athlete or movie star it may be the only path to wealth.

Here is the best advice: “Pay yourself first.” What that means is, with your regular paycheck, automatically put a certain, planned amount each month into your retirement and investment accounts. That is paying your future self. Then, the remaining portion is used on a home, a car, travel, entertainment, etc. And, if you have already paid yourself before buying those other things, there’s no need to feel guilty for any of those pleasures.

How much? While there are many rules of thumb, the real answer depends on your personal situation. How old are you? How much have you saved already? What are you financial and personal goals? Do you have a spouse that is also saving?

Bottom line: you need to save enough so that, at some point in your life, it will grow into an amount large enough to provide you with income for the rest of your life. I will discuss this further in a future post.

Recently, a client said it WAY better than I could: She said, “We make too much not to end up with a lot.” What she meant was, we have very good incomes but, if we spend it all each month, in 20 years we won’t have accumulated any more wealth than we have now. And, the reason that is important? Because they will need that wealth to provide them income when they are no longer working.

Next Friday’s Post will talk about balancing your financial life, while saving.


What Does It Take To Be a Millionaire?

When I was 15 years old I had a paper route and, with no expenses and no girlfriend, I saved virtually every dime I made. At that same time, I became interested in stocks and investing. Now, I had no clue how stock investing worked and my parents, born 8 years after the Great Depression, viewed the stock market in roughly the same terms as a casino. What if the ball doesn’t land on black? You’ll lose it all. Now, today, one could simply Google “how to buy stock” and educate yourself in a matter of minutes. In 1979, though, one could only read the stock quotes in the newspaper and wonder what all those numbers meant while dreaming of the great wealth one must have if you were a stock investor.

Despite my utter lack of stock knowledge, I wanted to enter that world that I envisioned as a place where the wealthy were. So, I asked my parents if I could invest my life savings in IBM. My parents, probably a bit frightened by this prospect and, being wise enough to know that most children will move on to something else if made to wait for awhile, told me I could purchase IBM stock when I had $1,000. Well, much to their surprise, I met and surpassed that $1,000 goal in a matter of months and by early 1980 was ready to roll. Only, my parents had been right and I moved on to something else – probably basketball.

Recently I had this conversation with my 15-year old son, also a born saver, and we both started dreaming of what ginormous wealth I would have if I had only pursued that simple, $1,000 investment in early 1980. Would I be living in some super-mansion with a car elevator? Would I have a 4th home on Lake Como in Italy? So, out of curiosity, I Googled it. If I had invested $1,000 in IBM stock on January 1, 1980 and, reinvesting dividends but not investing any more, the value today would be worth…..$14,627.35. A nice sum, no doubt. A 7.5% compounded annual return even – very nice. But, let’s face it, not even enough to buy a new Honda Civic.

I have to admit, the result baffled me a bit and, at first, I wondered if it was just because IBM stock hadn’t done well in recent years. But, no, that 7.5% average annual return is quite healthy.

Finally, the real answer smacked me in the face like a copy of The Millionaire Next Door. Byars, I reminded myself, remember how wealth is created for us real people. Not with one super investment that pays off like a bet at the craps table. No, wealth is created by following some simple guidelines and sticking to them for years. These are based loosely on what Stanley and Danko found through their research and partly on my own experience:

• Believe that financial independence is more important than displaying high social status;
• Have a financial plan to help you achieve your goals;
• Live beneath your means;
• Save your dollars and invest them for the future;
• Make sure your investment portfolio is diversified and supports your financial plan and your goals;
• Stanley and Danko found their “normal” wealthy people did not rely on income from their parents – even if they thought they would inherit a lot, they live as if they won’t;
• Get good, professional advice from someone who is compensated solely by helping you achieve your goals and is required by law to act solely in your best interest.

I will write about each of these individually in future blog posts.

Steve provides this educational blog for free, if you want to learn more about him and Moneywatch Advisors, email him at