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Financial Freedom With Money Amy

SOLO 7 | Financial Freedom

 

Living single provides both financial risks and opportunities. In this episode, Peter McGraw talks to his financial planner, Amy Gibb. She has worked advising individuals and businesses about steps to financial freedom. Amy discusses how buying a house is over-prescribed and often an optional step for the solo person. She also talks about special financial considerations for singles, why credit card consolidators are often a scam, and why a fee-only financial planner is necessary. At the end of the podcast, Peter then presents a bonus material where he debunks an article that makes a fallacious case for the financial benefits of marriage.

Good people, if you are interested in joining the Solo community, please sign up HERE. I will start by hosting live zoom meetups to talk about solo living, get feedback, and have you folks chat with each other. 

Listen to Episode #7 here:

Financial Freedom With Money Amy

I talked to my financial planner about steps to financial freedom. We discuss how buying a house is over-prescribed and often an optional step for the solo person. We also talk about special financial considerations for singles, why credit card consolidators are often a scam, how you need a fee-only financial planner and at some point, you may need to suck it up and wash dishes by hand. One thing to note, we talked about financial considerations for guys, but please know that those advices are useful for both women and men. If you stick around to the very end, I have some bonus material where I debunk an article that makes the case for the financial benefits of marriage. I hope you enjoy it. Let’s get started.

Our guest is Amy Gibb or as I refer to her, Money Amy. Amy is a Certified Financial Planner. She has worked advising individuals in businesses and I have been working with her for many years. Welcome, Amy.

Thank you.

When you hear me say a remarkable life, what does that mean to you? What does it mean to you to live a remarkable life?

It sounds very exciting to me. I always think of it on a personal level, whether it’s travel or adventure or relationships or things you are interested in. My background is in money. You have to have money to support those things. Remarkable to me means enjoying what you’re doing on a daily basis.

I agree with you. The idea that if you want a remarkable life, it helps to have the money to finance it. I don’t believe that a remarkable life has to be an expensive life. It doesn’t have to be, but it might be. If travel is involved, if entrepreneurship is involved, if the arts are involved, there’s going to be some expenses associated with that stuff. A painter can have a remarkable life, where he has a very modest space and he paints every day and he creates. That can lead to a remarkable life and that can be a low cost. Travel doesn’t have to be expensive, but no matter what, you got to climb on a plane. You have to forego work perhaps. Financing is important. Most of what we’re going to talk about is generally good advice for anyone, single or not, male or female. What happens is when you’re on your own, the stakes in some ways go up. That is you don’t have a cushion. You might not have a hedge or someone else who has income. However, you also have the advantage of you can run lean.

You don’t have to be responsible for other people.

It has advantages and disadvantages. It has challenges and opportunities. Regardless of that, I want to set forth a path. Can you tell me what you think about it? It goes something like this. If you want to achieve financial independence, you truly don’t have to worry about money in the sense that you’ve lowered your risk in your life. You can imagine a world of good retirement. You’re not eating cat food.

You spend how much you like to spend.

It looks something like this. You pay off your credit card debt, number one. You build an emergency fund of a minimum of six months of living. You could not work for six straight months and you could still pay your bills. You then start to invest in some retirement fund like 401(k), IRA, depending on your work situation up to ideally the max limits.

It’s $24,500, I believe.

Is it that high?

That may be over 50 amount. I think it’s $19,000 for under 50 and $24,000 for over 50. It happens to everyone.

You consider buying a house. To me, buying a home or a condo or whatever it is, is not an obvious thing that you do.

It’s not required to have financial independence.

Let’s set the house thing aside for a moment. House or no house, the next thing would be you start to invest post-tax dollars in investments. I want to talk about why the post-tax dollar investment is important. Which one of those do you want to talk about first? The house or the post-tax dollars?

Let’s talk about the house because it’s a cultural thing in America and your parents will harass you about it or your friends or whatever. Let’s talk about buying a house or condo or townhouse, a co-op or an apartment.

First of all, my take on this is that buying a house is overprescribed. There is a much more limited set of circumstances by which you should do it than most people consider it.

It’s an old-fashioned American ideal.

What are the checkboxes that would lead you to, “Yes, I definitely should buy a house,” “No, I should not,” versus, “I could go either way?”

Buy a house. I would think you have to have at least a five-year horizon. If you say whatever community you’re living in, whether the job you have or the jobs you can get and you like living in that community, that you’re not as mobile as a lot of young people are these days. You say five years. I could envision living in this community, in this apartment, in this townhouse for five years. People are a lot more mobile than they used to be. That important piece of the puzzle is, “This studio apartment, could I live here for five years? No, it would be too crowded for me. I don’t like my job or I can’t stand living in Chicago for five more years,” or whatever it is. You need to have a five-year vision. Sometimes, that’s difficult at all stages of your life because you don’t know where you’re going to be in five years. It’s time.

SOLO 7 | Financial Freedom
Financial Freedom: Do not jump into buying a house or condo if you’re going to stay less than five years.

 

Why five? Is it because of the cost of buying?

That’s correct. The cost of entrance and exit from the market. The cost of entrance is the cost of getting a loan. It’s going to be the all-in fees, somewhere between $5,000 and $10,000 to get in, the cost of moving, the cost of fixing up, having double rent for a couple of months and all those things. Even though getting in, you don’t pay the commission on the real estate, it’s embedded in the price and then getting out. Getting out, 5% to 10% commission and expenses. Right there, we’re looking at a 15% cost to get in and out. If real estate appreciates in a good economy at 2% to 3% a year, you do the math, 15 divided by 3 is 5 years. The concept in the average economy, some up, some down, it would take you five years to break even on buying a house. There’s no reason to jump into buying a condo, a house, an apartment if you’re going to stay less than five years because the chances of you breaking even are low.

This matters depending on the market. Some places are booming and some places are not. Most places aren’t booming.

Even if they are, for example, in the Boulder real estate market, we’ve been doing well. Do you buy now and are we at the top? We don’t know. I imagine when you bought your house, maybe you went down a little at first. Over time, you’ve seen an upside. I’ve had the same thing when I bought a piece of real estate. We even went down a little bit, but since I’ve owned for a long time, you see the long-term up.

Let’s look at this question from a different perspective. What I imagine people are saying is like, “I get it but renting, I’m throwing my money away.” People always talk about I’m wasting that money. How do you address that counter-argument?

That’s our parents and our grandparents talking, which at some level is correct because they didn’t move as much. Their goal was to move into a house, get a 30-year mortgage and then after 30 years, pay off the house. When you talk about throwing money away, the concept would be when I pay rent, let’s say you pay $2,000 a month in rent, it covers that 30 days you live in the property. Theoretically, when you’re paying on a mortgage payment, you’re investing something. Not only are you paying down principal, but maybe your house would appreciate over time. You think about those two things. Let’s start with a mortgage. In the first ten years of your mortgage, your mortgage payment may be $2,000 a month. Do you know how much of that is the principal? Maybe $75. In the early years of your mortgage, because you’re paying interest on every dollar outstanding for every day, most of your payment is interest.

As you start to pay that down a tiny bit at a time, your principal goes up because of the difference in your payment and the amount of interest goes to principal. The concept of throwing it away, all of your payment is interest for the first ten years. Is that throwing your money away or not? It’s a good question. Everyone’s obsessed with the concept of mortgage interest being deductible. The change in tax law in 2018. How does that affect people as they deduct their mortgage interest? Predominantly it’s because the deduction you get anyway, whether you own a house or not, has gone up. Therefore, if I own a $200,000 mortgage on my house and my interest is $10,000 a year, but I can deduct $12,000 anyway, your mortgage interest is no longer deductible, not because they don’t allow you, but you’re going to choose the higher number.

One of the sad things about the American perspective on homes, first of all, I understand it. People want a piece of land and something they call their own. This is a country that is very independent. You don’t like a landlord, they’re called slum lords, etc. You like being the master of your domain. I see the psychological value of owning a piece of property in that sense. Especially if it can be a diversified part of a retirement portfolio. It’s unfortunate that Americans seek to build wealth by buying and selling homes from each other. There are better ways to create wealth than through the sale of homes. It’s a great idea if you own 150 of them, but when it’s one home, you’re taking on a lot of risks. In the same way that you would not want to own one stock in a portfolio. The idea that you’re going to try to build wealth through the serial ownership of a single home is a mistake. The primary value of a home is you live in it.

That’s what I call a used asset.

What do you mean by that?

If you look at everything you own and everything you owe, certain things such as cars and houses are used assets. You have to live someplace. Even if you don’t own your home, you still have to pay rent. Are we going to count the equity in our home as part of our net worth? We might, but the reality is you have to live someplace.

At some point, you have to move out of your parents’ basement.

It’s the same with cars. Are we going to make a huge profit on a car? No. It’s a used asset. Houses and cars are used assets. I have seen with hundreds of clients, most people do not want to sell their house and downsize, even if they say that’s what they’re going to do. One in five people carries out that process where of their own volition, they downsize from the home they live in down to something smaller. They are not necessarily using the equity in their houses. Unfortunately, people refinance their houses over and over again, so there isn’t a lot of equity anyway. Think of it as a used asset, a place to live if you’re lucky. We’ve both owned property in Boulder for a while. We are lucky, not necessarily smart. We have growth and appreciation in the value of our homes, but you’ve got to live someplace.

One of the problems too about having equity in a home is it is not liquid.

There’s a cost to get in and out of.

We’ll talk about cars in a moment because that’s even more important for the early steps in the process. To me, you buy a home or not. You say you’re going to be in it for five years. Is there any other major consideration besides mobility?

To buy or not to buy?

Especially if you’re a singleton.

Sometimes we end up buying something bigger than what we would rent. For example, as a single person, as a single male, maybe you would rent a one or two-bedroom condo apartment, but you’re into this house thing and you end up buying a four-bedroom house with a basement. Would you ever rent a house that big? Maybe if you have a lot of friends come in or a big family that visits or you throw a lot of parties and you can afford it, you might. We tend to overbuy when we buy houses.

It worked out but I’m still like, “Why do I have this yard?” I have guests but not that often.

You would consider downsizing sometime in the future that led to where your life led you. A lot of people have a hard time doing that. Males probably would have an easier time of downsizing and switch out of a house than sometimes females or families would.

Given your experience, you’re saying?

What I see as personality types, with how women perceive the house and how men perceive their house, women tend to nest and settle and want consistency a little more than males biologically.

The Holy Grail for financial independence is that your burn rate is low enough that after you put money in your 401(k), IRA, etc., after you’ve paid all your bills, you still have money left over in the bank. You’re like, “What am I going to do with this money?” You have the option to consume more if you want, go on greater adventures or whatnot. If you’re someone like me who value saving and so on, you could start to invest that money in equities. You could start buying mutual funds. You could even imagine buying exactly the same mutual funds that are in your 401(k). The difference is you’ve already paid tax on this money, whereas the money that goes into your 401(k) comes out pre-tax.

You now have a choice. There are a lot of plans where they’ll allow you to invest in Roths in your retirement account. Traditionally, we invest pre-tax in retirement. Therefore, when you take it out, you’re going to pay income tax on that money.

I remember when you were talking about this to me. This is several years ago. I had this a‑ha moment. This huge light bulb went off in my head. When you think about it, the average person is not saving enough. From a public policy standpoint, all of the focus from a business standpoint is how you get Americans to save more money.

Yes and no. Everybody’s trying to get you to spend your money.

That’s true but I’m talking about the people who care about you. The people who care about you are trying to get you to save more money. Nine out of ten Americans are in trouble. The 1 out of 10 who follow the Money Amy/Peter McGraw path and get to the final step, they don’t realize the great advantage they have.

You find yourself smart, lucky and fortunate.

Let’s see if we can articulate why that Holy Grail of buying mutual funds with post-tax dollars is important for retirement. One thing is you have more money in the bucket. More money is better than less money. Let’s imagine a scenario. You have $3 million all in 401(k), a situation where you have $2 million in the 401(k), and $1 million in a brokerage account. That’s the same amount of money. Which person is better off, the $3 million in 401(k) or the $2 million, plus $1 million in the brokerage person?

The one with $2 million in there 401(k) pre-tax, and the one with $1 million of brokerage after tax, that person is wealthier than the person that has $3 million in their retirement because they’ve already paid tax on the million and they continue to pay tax on the earnings as those earnings is generated. Your $400,000, 40% on the after-tax money wealthier because you’ve already paid the tax on that. That’s huge.

It’s hard to understand that. The idea is this. Let’s say you’re going to live on $125,000 a year as a retiree. If you have $3 million in the 401(k), now you pay income tax on $125,000.

Maybe 25% to 30%.

If you’re that other person with $2 million in the 401(k) and $1 million in the brokerage account and you’re still living on $125,000, what you can do is blend the withdrawals where the money, the first $50,000 or $70,000 comes out of the 401(k) and then the balance comes out of the brokerage account. As a result, you pay less tax that year to get the same net amount of money because the 401(k) money is coming out at a lower tax bracket. The brokerage account money comes out as capital gains, which is usually 10%, 15%.

It’s lower. You may not have gain, which is good and bad. You may be able to even get it out at less tax because you’ll blend the gains and losses as you manage your portfolio. Another thing to think about too is depending on where you are on the spectrum, and let’s say you are choosing to take Social Security, it has increments of taxation depending on your income. I have seen this over and over again that a couple that has all their money in retirement is taking out $80,000 a year from their retirement, is paying tax on that. All of their Social Security is taxable because they’ve breached the lid. It’s 85% taxable. The couple that has some money in other low tax or no tax income is paying less tax on their Social Security. They’re even better off.

This is not an intuitive thing.

No. They did that on purpose so the people that do taxation policy have a job.

To sum this up, 90% of people never get to this place, but if you can get to this place, you squeeze more dollars out of your saved money than you would otherwise. This does make sense given that the state of the art in terms of investing is lower in costs. That’s why Vanguard, T. Rowe Price and all these companies have these low-cost funds. The idea is where you end up making money is on the money you save. This is a different way to save money. Instead of avoiding the cost of a mutual fund, you’re avoiding some element of tax.

You’re paying tax upfront in a sense. We as humans and Americans especially hate deferred gratification. We are always wanting to spend our money. If I force you to pay an extra $4,000 of tax now so you can save your money after-tax, the next day you’re going to forget about it. I’ve got you, basically. It’s a great way to pay your bill now and you forget about it and it’s a huge benefit in the future. You’re still going to pay that tax now where you could have deferred it in the 401(k).

It’s a neat idea. I’d like for more people to get to that.

It should be a balance. The beautiful thing in the investment world is when you get in your late 40s or early 50s, you should start to balance your tax-deferred and your after-tax money, if you haven’t already. Because when you sit there at 62, 65, 70 and you’re taking money out of your retirement, the biggest whine I hear people say is, “I had to pay so much tax on the money I took out of my IRA.” My mother once said, “We already paid tax on that money.” I’m like, “No, you didn’t. Now you’ve got to pay it now.”

The big risk and the big problem is who knows what’s going to happen to the tax rate in 10, 20, 30, 40 years. If you look historically in the United States, it’s very low right now. It’s been incredibly high at different times.

In the Reagan years, it was incredibly high. We are in a historically low tax bracket.

It doesn’t feel like that to people.

No, it never does. When you’re paying out your money, it never feels like that.

Let’s step back to the beginning of this chain, which is paying off credit cards. When you advise people, you probably spent a lot of time on this topic.

Americans are a little crazy with their credit cards. An average American has something like $30,000, $40,000, $50,000 of credit card debt. It’s crazy. Our whole culture supports that. You buy stuff on Amazon with your credit card. You don’t worry about paying now, pay it over time. We’re a little crazy about that and everyone’s comfortable with it now. In the old days, let’s say during the Depression, in my grandparents’ era, you didn’t borrow because you didn’t know what tomorrow was going to bring. Now we have access to credit.

It’s not even that far back. When I was young, credit cards weren’t used for convenience. Now we use credit cards as a convenient thing. It speeds transactions. I had a credit card in case of an emergency. In case of emergency, break the glass and use this Visa. It was simpler back then because it was simply like if there was still money in the account at the end of the month, I could spend it if there was no money left in the account, you do not go out.

Life gets easier when you get rid of your credit card debt. Click To Tweet

It was imposed discipline in a sense. We didn’t have access.

Now we don’t live in that world. We live in a world where people don’t carry cash. They use credit cards for all their transactions. The pain of paying is decoupled. You don’t get the bill until the end of the month. You don’t look at it. Can you talk through some of the strategies and some of the conversations you have with your clients? Because step one, before you can do any of these other things is to get out of credit card debt. The reason being you should get out of credit card debt before any of these other things is it’s damn costly.

You’re overspending. The basis of it is you’re spending more than you make. The bottom line is when you have credit card debt, I don’t care if you said, “It was that one vacation I did a year or it was to buy a new dishwasher or it was my 25th birthday party.” You’re still spending more than you make.

The issue is if you’re spending more than your income because you have to buy a dishwasher, what it means is you need to wash the dishes by hand. I’m being honest.

I think it’s true. Young Americans and Americans, we would never even think about that. That would not be an option. I dropped my telephone on its little face and it cracked the screen. I called my son who’s a techie guy and I said, “What should I do?” He’s going to JerryRig me a screen and saved me about $125. I should just go to the Apple store and get a new screen for $100. It would make logical sense but at some level, I can’t bring myself to do that. I’m going without a phone for two days. It’s good practice. It’s that concept. You should wash dishes before you buy the dishwasher if you don’t have the money.

You need to go to a different type of vacation.

What you say is that vacation’s very important. That’s a huge motivator for those of us that like those things, so save in advance. Use that, “I don’t want to go camping in the desert in the summer” motivation. I do want to go to The Bahamas for a week and it’s going to cost me $2,000. Save in advance. Use that as a motivator.

Also, use it as a motivator to get a better job.

Work overtime, work another job, get cheaper rent or don’t buy clothes.

In the behavioral sciences, there’s this thing called temporal discounting. We have a tendency to discount the future more than we ought to. Some of that is because of our inability to delay gratification and some of that has to do with the future seems rather distant. Most of us have to live in the future we build for ourselves. Financing a remarkable life at the moment has implications for living a remarkable life in the future. A credit card debt is a symptom that you are spending too much. If you’re going to fix that problem, you have to spend less.

You have to buy less than you would buy otherwise if you hadn’t spent in advance.

You have to spend even less.

I always say, have a conversation with your future self. Here you are, you’ve got $5,000, 10,000 of credit card debt because you overspent. Talk to yourself who’s two years older that had to live on a lot less money because your younger self overspent. Have some respect for your older self or what you’re going to have to pay to get out of it. Get rid of credit card debt, pay it down, set a plan and suffer a little to get it done. As soon as you get that done, it’s like a window opening. You’re now ready for the next step and life gets easier. It’s amazing how fast life gets easier once you get one of those steps done.

I talked to young guys a lot who they know that there’s a problem. They know that they can’t be carrying $20,000. It’s not even young guys. I talked to guys in their 40s. I feel like they’re attacking it in the wrong way. I agree with you. You have to be tougher. You have to tighten your belt. You’d be surprised how you can eke out an extra few thousand dollars through making good decisions, eating out less, etc. People will look for easy fixes. One easy fix is I’m going to a consolidator and I’m going to get my credit card debt consolidated.

There’s a number of those plans. I had a client and met with him and his wife was like, “I saw on TV. These people can get rid of my credit card debt. It’s going to be great.” Someone called me to work with me, “I understand if I declare bankruptcy, that’s the way to go.” I’m like, “I’m sorry I can’t help you. Goodbye.” I would say three-quarters of those things are schemes and don’t even start. There are some of those credit counseling that will work with you on that and that are potentials. It’s harder to declare bankruptcy now because you’re stupid. There’s the whole bankruptcy because you have a huge medical issue or you live in Detroit and your house is worth nothing or whatever.

For most people, you can’t declare bankruptcy and those consolidation things are pieces of crap. You’ve got to deal with it yourself. I always say write down on a piece of paper the total amount of owed, your payment every month, and your interest rate and what you spent the money on. A little bit of self-knowledge of what was that $5,000. You attack it by paying the minimum payments on the lowest interest rate credit cards and then all the extra, more than the minimum payment on the highest interest rate credit card until you get rid of that. You work your way down the food chain. The only exception to that is let’s say you have a credit card debt of $1,000 and the interest rate is 12%. If you have $1,000 and you can get rid of that debt with one swing, get rid of as many hunks as you can, as fast as you can.

In general, you always are paying off the thing with the highest interest rate.

Minimums on the lower interest rate and then all your extra money that you’re going to be paying down debt with on the highest interest rate credit card.

Suppose someone wants to get some help with this, like they want to find a Money Amy. I feel very fortunate. I don’t even remember exactly how I met you. It must have been a referral. To me, you’re the ideal financial advisor. Beyond your expertise, one is you have very sound, reasonable, easy to follow. I remember this from the very first time we met. We talked about my problems, we talked about what I owed, what I didn’t owe, what my income was, what my goals were, where I was along this path, etc. You took copious notes and then at the end of the session, you wrote out a to-do list for me.

That first session was a long to-do list. It was ten items and you’re handing it to me and you basically were like, “Call me when this is done.” I had very clear actionable items based upon our conversation. The other beautiful thing about that meeting, and by the way, Amy and I had a meeting before this. You’ll send me an invoice, your hourly rate times the number of hours that we spoke, which is different than a lot of financial advisors who will take 1% of your assets to do this.

Which isn’t bad.

I think it’s terrible. Why is it that if someone has $500,000 of assets, they pay less money for the advice than someone who has $5 million in assets? That’s crazy to me. Also, it creates a conflict of interest. If your financial advisor is taking 1% of your portfolio to advise you, they might not want you to sell part of your portfolio to pay off your mortgage because you’re taking money out of their pocket, even if that’s a good decision for you. A fee-based financial advisor/planner is typically almost always a better value and also a source of more objective advice. Where does one find someone like you? One is you’re looking for someone who is fee-based.

Fee-only advising is I think the best place to go. There aren’t a lot of people that do fee-only.

People are dumbasses and spend 1%.

In managing people’s money, you can make more money doing that. Usually, the people that need the help the most tend to have an inability to pay a fee or won’t. I see people that spend $200 a month on cable and $200 on their cell phones, but if you want to charge them $100 for an hour, they think that’s too expensive. It is what it is.

For every dollar I spend on you, you save me or make me five times that.

That’s because you take action.

I love a good to-do list.

I know but not everybody’s like that. Call the Financial Planning Association and see if they have a list of fee-only planners. True credit counseling either through your county or your state as a nonprofit entity. You can talk to those people. Reading, there are a lot of great books. I don’t have any titles for you, but I had a friend of mine who’s a banker. She had three or four financial planning books on her bedside table. I’m like, “Give me the names.” I can always learn something. There are always strategies in there for clients that haven’t occurred to me. There are a lot of great books out there. Push aside books that say if you meditate every day, you’re going to become wealthy. Meditate every day for other reasons, but it’s not going to make you wealthy.

Any strategies and it has to ring true with you. I can tell you to go on a vegan diet, but if all you want to do is have a hamburger, that’s not going to help you. Find a strategy that works for you, but do make a commitment to make some changes. I always tell my business clients who are very independent entrepreneurs that want to do everything their own way, “I’m going to give you a list of ten things to do and if you don’t do any of them, then fire me immediately because you just wasted your money. All I expect you are to do three of the ten. Choose three.” That’s all you need to do. If you go through those books or you know about strategies, pay off the highest interest rate credit card.

If you pay off a different credit card, that’s something. Make progress. Once you get out of the credit card debt, then commit never to do it again and always pay off your balances in full. One strategy that works for me is I look at my credit card statement online. People get all their stuff online now and I make payments in the middle of the month or in advance. I look at my credit card statements sometimes and go, “Who’s been running around with my credit card? How can it be $1,800 and I didn’t do anything this month?” I’ll pay $900 off in the middle of the month. I got a little money in my account. Let’s quickly get it out of there before I spend it on something else. That’s a good strategy. Let’s say you have $20,000 of credit card debt. Paying $200 off a week rather than $600 a month. You make progress and it keeps it top of mind. You’re like, “I wish I didn’t have to pay this extra $200. I’m not going to go out to eat tonight.” It helps you. It’s a motivator.

What we’ve been talking about are knowledge and information. The challenge is the information is readily available, so people don’t seek it out. Even when they do seek it out, deep down they know that having credit card debt is bad, it’s the pain of making the changes and creating the new habits. It’s incredibly difficult, especially because you have to make compromises. As someone who lived incredibly frugally for the majority of his life and now is getting to enjoy the benefits of that, I can certainly say that it’s worth it. It’s so much sweeter to be able to enjoy it now, having had to tighten my belt.

I get to buy what I want at a restaurant rather than to ask what’s special and share it with my neighbor.

It’s no longer devastating that I’ve showed up five minutes after the happy hour has ended. One of the reasons why I like a fee-based financial planner is also the accountability. If you meet with someone, you make a plan and then you’re going to talk to them at some later point and see how you do it. I think there are alternative ways to do that. Having someone else who is in your situation is like having a workout buddy. Having a credit card buddy or whatever it is can be good if that person has the wherewithal to be able to follow through.

Make sure you have a similar personality and similar goals, but it would be huge to have somebody. You know what’s interesting is people will talk about sex and drugs and all these things and they won’t talk about money. It’s very private, personal, and intimate. People are embarrassed or excited or scared. You have to figure out how you are and find someone that is supportive that you feel safe to do that. It is common about how you feel about your money.

I have a friend who I keep saying like, “You’ve got to talk to Money Amy.”

They don’t even know my last name when they call me, so I know where they’re coming from.

You know where your referrals are coming from. What’s interesting is he does a lot of self-improvement. He spends a lot of money on self-improvement and a lot of time and energy on self-improvement. I’m like, “You’re not going to spend $300 to get this sorted. This is so important to your life. You’re in your 40s. You’re going to be in your 60s like that.” It’s embarrassing and it’s difficult. You have to admit that you have failed.

You look back to your family of origin. All your money, emotions and personality come from your family of origin. Without judging your siblings, your parents or your grandparents, see how your family dealt with money. It’s interesting, in my family we have three kids and each of us is totally different with money. It’s very common. Look how you lived in your family of origin, how you related to money. Most of the things we do now are related to that.

I want to finish up by talking about someone who’s single and who may remain single for a long period of time, maybe forever. The world in general is set up for married people. There’s an expectation that at some point you’re going to get married and even probably have children. That affects things like mobility, like we were talking about. A need for a home and buying a home and so on. In your experience or in your opinion, do you think that there are any special considerations? As we open this up, we talked about the opportunities and threats of financially being single. What comes to mind? What advice do you have? What issues do you think might be unique to someone who’s solo?

There are as many advantages as disadvantages. Traditionally, the concept of being in a partnership or a marriage or some long-term relationship with another person or people. We think of the advantages truly of that being insurance policy. We pay in and we take care of other people. We pay for them, they pay for us if we have a problem. Think about it theoretically lowering your risk. Traditionally, being in partnership, family, children, aunts and uncles, whatever theoretically lowers your risk that something’s going to happen. If you can’t work, you need help, someone’s going to take care of you. It is true to a point and is a traditional way of looking at it.

That’s if all goes well.

I see families all the time where there’s an aging parent and I’m in that situation myself. The kids are like, “Good luck, mom. Call me if you want to give me a birthday present.” Even when you have a theoretic safety net, whether it’s a spouse or children, you still have to take care of yourself. Let’s be clear, for anybody that’s reading that’s in a relationship, 50% of marriages end in divorce, 70% of second marriages end in divorce. Your kids don’t want to take care of you anyway. You have to take care of yourself whether you’re in a relationship or not. The other side of it is there’s the whole male-female thing. It’s $0.81 to $1 that theoretically, women make than men. For single men, theoretically, you have a financial advantage because you get to keep your dollar and you get to control how it’s spent. You’re not spending your money on others that may or may not be working that may be paid less and/or dependent children and that thing. At some level, traditionally, men have some financial advantages. They tend to make more. They don’t have people they have to pay for. Why not take that advantage?

What you described is you’re a guy. You have a good income. You don’t have as many expenditures because you’re not having to be a breadwinner supporting a family. What happens with guys a lot of times is they don’t properly appreciate that. They make two errors. One is they spend the extra money frivolously. You’ve got extra money, you buy a bigger TV, you buy a boat, whatever versus having a plan for that money and what that might allow you to do in terms of going on adventures, retiring early, working part-time, quitting a job you hate.

Whether it’s good or bad, sometimes relationships, partners, spouses impose some of that on people that would otherwise want to buy the boat. “My old ball and chain wouldn’t let me buy a boat. Can you believe it?” They tend to become a parent influence or an adult influence or discipline. I take your point well. For a single man, you’ve got to parent yourself. You have then look at yourself and say, “What levels of discipline make sense for me as I get older? I’m an adult person. I can’t be a teenage boy forever. How can I impose some of those things on myself that is good for me?”

You’ve earned the money, you’ve earned the right to spend it. To me, the issue is what are you spending it on? Are you spending on things that you’re going to be consuming more stuff or is it that you’re going to do things that are going to help you be a better creator that is going to enrich your life?

There’s a certain amount of maturity and money maturity. Some people never get it and some people get it late in life. What you’re speaking to is a level of money maturity. As a single man, you still have fun and do things you want and spend money on things you value, but have a certain level of deferred gratification and money maturity without having had a partner or spouse tell you what to do.

I’ll give an example of a pretty trivial amount of money that I spend that enriches my life. I am a member of two museums. This sounds a peculiar thing to do. What you usually think is like, “I’m going to go to the museum and I’m going to pay the admission fee and do that,” versus you spend some sum of money every year to be a member of the museum. What you get as a result of that is you get free admission, so you can come and go whenever you want. You get a discount perhaps on special exhibits. You get access to special exhibits. You get an email or a direct mail letting you know what’s going on. You get free guest passes. What ends up happening is you’re going to the museum more often. You end up going on to the museum on a date. It’s on your radar and so on. When I’m down in Denver and I’ve got a meeting at 10:00 and a meeting at 3:00, I’ll have lunch and then I’ll go to the museum for an hour and walk around and get a bit of inspiration. I ended up spending more money than I would normally have to go to the museum. I also go to the museum way more than I would otherwise. Is that a luxury purchase?

Yeah, $40 to go to the museum versus $250 to be a member.

What ends up happening is if you take care of business, you do the steps we talked about, pay off credit cards, have an emergency fund, retirement, house, may or may not, post-tax dollars, may or may not. At least when you get to the, “I’m fully funding my retirement account,” and you still have money left over at the end of the month. If you don’t, it’s worth thinking like, “Am I getting a remarkable life return on my investment?”

Don’t spend your money where other people tell you to spend it.

I’m getting out of a very serious illness, which is thankfully a rare thing for me. I am at the point where I’m like, “I will throw down when it comes to good health.” I remember I calculated one summer in college, I ate 300 peanut butter and jelly sandwiches because I didn’t have much money for much more than that. Peanut butter and jelly sandwich had enough calories for me were tasty and I could make it in a dorm room. For me to eat peanut butter and jelly sandwiches at this stage in my life right now would be the most absurd thing that I can do. I’m over it. I’m going to have salad and chicken for lunch and it costs probably ten times the amount of the peanut butter and jelly sandwich, but the return on that is worth it. I will spend money on my health and fitness.

I think it’s funny where Pete’s idea of luxury is a salad and a chicken. That tells you where he came from.

It was hard to buy a salad for a lot of years.

It’s a lot of money for a little bit of green.

Reflecting on this conversation, any other advice you might have for the readers?

It’s like you talked about, how do you choose to spend your money? We’re working on getting our credit cards paid off. We’re working on our emergency fund. We’re working on saving and retirement and you are going to spend some money on discretionary items and luxuries.

If you take care of business as you should, you should enjoy your life. You work hard for this.

I always tell people to make a list of everything they like to spend money on and put it in order. I said, “Nobody else gets to tell you what order you put things in.” Maybe you like nice shoes or you have to go and sit in the front row at some sporting event or whatever it is or fresh flowers. You put them in order and maybe there are 80 things on the list. Let’s say you’re trying to do all these other goals. We can only spend money on the first five. Make sure it’s the most important things and only you get to choose. Nobody gets all 80. I’ve had clients that spend $400,000 a year and they don’t have a private jet. They’re spending $400,000 a year and they still didn’t get everything on their list. Know that it’s not you’re being put upon, so you don’t get everything on your list. Make sure you don’t spend money on number 70 and you don’t have any money left to spend money on number six. Pick and choose. It makes the things you do get to have that you allow yourself to have more valuable.

It’s that much sweeter. Amy, I knew this was going to be fun. Thanks so much.

I’m back with some bonus material. I came across this article on TheStreet.com and the title of it is 7 Financial Advantages of Marriage. Here are some of those financial advantages as listed in this article. One, Social Security benefits. You can share those with your spouse. With various tax benefits, you get a tax break. Estate planning, retirement assets, gathering advantages, joint financial accounts, a better chance of landing a good mortgage and an advantage in credit scores. That’s seven. There are a couple of annoying things about this article. The first one is as Bella DePaulo and I discussed in the episode, The Science of Single Living, this is one of those instances where married people have an advantage simply for being married. The benefits bestowed by the government create some differential benefits. The other thing that’s annoying about this is the way this article is positioned as the advantages of getting married.

One of those things pushing people towards marriage and yet not telling the whole story. The first thing is this is the advantage of getting married and staying married. The article ignores the role that divorce has in destroying wealth. With 40% of marriages ending in divorce, the expected value of these financial advantages in many ways goes away. It is incredibly costly to get divorced. The other thing that it ignores is the cost of children. This is tough to estimate, but it seems about 90% of married couples have at least one child. The estimates of the cost of raising a child to vary. Let’s say that the number for a middle-class couple is about $250,000 per child to raise them to age eighteen. This doesn’t even ignore college costs.

When you start looking at the financial advantages of getting married, they start to go away when you look at the complete picture. Are you able to stay married or do you destroy all that advantage with your divorce? If you’re getting married and having children, that advantage completely evaporates because kids are damn costly. Being solo and pursuing financial freedom has its own set of advantages. Thanks so much. I’m looking forward to the next episode. I’ll give you a teaser here. It’s titled Dating Friends and Sleeping with Strangers, a Valentine’s Day edition. I think you’ll like it. Cheers.

Resources mentioned:

About Amy Gibb

SOLO 7 | Financial FreedomAmy Gibb is a certified Financial Planner.

She has worked advising individuals and businesses. I have been working with her for more than fifteen years.

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