On my previous post, the metaphor of building a great financial plan is like building a house, starting with a solid foundation. This post is to expand on the topic and help you understand that the kind of knowledge you have about finances is the material you will use to build your successful house.
Is your house made of Straw or Bricks?
Remember the story of the 3 little pigs? Each made their houses with different material, straw, wood, or brick. I hope we all learned the valuable lesson of building with the strong, reliable brick to make sure our wellbeing is safe. When you’re building your financial house, your knowledge & the knowledge at your disposal is the material you’re going to build your house with.
Blair is a successful doctor. She’s highly paid for what she does, not only from the hospital she works at, but also from the many speaking engagements given to multiple universities around the country. She’s single, with no kids and spends most of her free time (the little she has) out with friends. She has dreams of retiring one day up in the mountains to be near the outdoors and hiking. She saves some money here and there in a bank’s money market account, but she typically buys whatever she wants, whenever she wants because in her eyes she has disposable income from her jobs. When retirement creeps up on her she takes a look at her “retirement” fund at 60 (5 years before she wants to retire). She realizes that the savings plan she created for retirement 30 years ago has barely done anything for her, and most of money has gone to frivolous whims such as cars, houses, multiple vacations throughout the years. Now with retirement 5 years away, her dream house of retirement has crumbled. Her limited knowledge created her house of dreams from straw.
Gary is a technology guru. He works at IBM in research & development making a good living. At home, he has a wife and 2 kids in elementary school. He enjoys travelling the country to other offices to show off what he has developed. He wants to fund his children’s education and wants to retire comfortably with his wife in 30 years. He talks to his bank about how to fund his children’s education first since that’s the first goal that will pop up. The bank sets up a college fund from their line of services and does not discuss Gary’s retirement goal, because he never mentioned it. When his both his girls graduate from college finally (they decided to get their masters) he goes back to take a look at his retirement that is coming up in 10 years. Even with his pension plan from work and the emergency fund he has been saving his entire life, the bank tell him he’s going to have to work until he is 70 to retire at the level he wants to with his wife. He had some resources available and used how he saw fit, he created his house of dreams from wood. Steadier than straw, but can’t stand up to too much pressure.
Carrie is an executive assistant. She works at a prestigious law firm and is typically called on to train the new assistants as well as the junior associates because she’s that good and has been there for so long. Her family has taught her to budget her entire life and she lives well below her “means” compared to other families her size. She has a husband that is a teacher and 2 kids that are in middle school. She has a savings account and separate accounts set aside for her kids college and their own retirement fund. When she first started dating her husband (20 years ago it seems now) they had some rough times, but always seemed to manage to get themselves out. Before they walked down the aisle, a friend of theirs thought it would be a good idea to just go to a financial advisor to help them get a plan in place so they would stop cycling through tough times. She appreciated the thought, and went to be polite (she is from the south), to see if it would help at all. After a year working with the financial advisor, her and her husband (now) could see small habits changing for the better and wealth being created. When the time came to buy a house, they made sure to consult their financial advisor, not only on what they can “afford” but what was in their best interest based off the other goals they talked about. A few years ago, their beloved car “Rick” died and even though they wanted to fix it because it was like family, their financial advisor showed the impact of repairing compared to buying a different car. Luckily, the way they were saving, they were set up to pay for a quality used car and not effect their financial goal of college for the boys and retirement for themselves. Carrie & her husband had created their house of dreams from bricks, and are ready for their financial goals to come to fruition.
Food for Thought
Blair is very bright and focused, going through that much school to become a doctor, you have to be. Just because she’s good at medicine, doesn’t mean she’s good with money. She focuses most of her time on her job and social life. All work and no play can beat you down. She would most definitely benefit to have someone to call and ask how to efficiently save her money and fund her dreams. She is a very bright individual, she’s just ignorant on what’s available at her disposal to help fund her dreams.
Gary knew he needed help and he went where he knew they dealt with money and was comfortable with them. The one thing he didn’t realize is that banks can be more or less self service. You tell them what you want and they deliver what is available on their menu. They may try to “up size” you by getting you to put in more money than you can afford, but they’re limited to whatever services they offer at the bank. Gary would benefit from having someone look at the grand picture, not just a very small piece of the giant puzzle as well as look at all available options out there, not limiting him to 1 bank.
Carrie was wary at first because it was something she was not use to. Being slightly nudged helped her get into the right mindset though and really helped her and her husband achieve all the goals they wanted. Of course their financial plan changed throughout the years to adjust for their life such as their 2 boys, but a good financial plan is flexible. The best part is they have a great relationship with the planner and can call for advice on anything money related.
In Conclusion
Whether you’re a doctor or an executive assistant, your money should be working hard for you so you can build your own house of dreams. Having the knowledge or access to the knowledge is key to making your house of dreams strong. It’s your decision to take the time to obtain the knowledge yourself, or find someone that has the knowledge to give you, but whatever you do – get the knowledge! Don’t build your house of dreams from straw, build it from bricks.
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