Warning Signs: How To Spot Problems In Your Financial Life

Plan With The Tax Man

Just like the lights on your dashboard can indicate if something is wrong with your car (like low tire pressure or leaking oil), there are indicators in your financial life that might point out that you have a problem that needs to be addressed.

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Transcript Of Today's Show:

Speaker 1: Welcome in to Plan with the Tax Man, with Tony Mauro and myself here to talk about warning signs, how to spot some potential problems in our financial life. Certainly not too hard to probably spot in 2022. You're probably thinking because there's a lot been going on this year, but we're going to talk about a few things to pay attention to outside of the clearly obvious ones that are going on. And think about it like your car engine just, or your vehicle, just like lights on your dashboard can indicate if something is wrong. There's other things that you might not realize that are happening that you want to address as well. So it's not always just the most obvious. And that's the chat this week, Tony, what's going on buddy? How are you?

Speaker 2: I am good. Settling into a late fall and it's getting cooler here so it's always, sun starts setting a little sooner and then it's winter.

Speaker 1: Yep. Let the coolness in.

Speaker 2: Yeah, yeah. But weather's been good here and all is good.

Speaker 1: Yeah, it's good. Yeah. I mean it is what it is, right? Some areas don't have all four seasons. Of course you can be like most states, many of the states that I've lived in, it seems like they had summer, winter, and construction.

Speaker 2: Yes.

Speaker 1: That was the only three seasons they had, so. And we'd go from one to the next and that's kind of how it is in North Carolina a little bit. It's hot, hot, hot, hot, cold, back to hot. But let's talk about some of these warning signs, Tony a little bit. And again, think about this from a standpoint of it could be your whole financial life, but also just maybe the retirement side of things too. However you want to take this in your answers, feel free. But when people come in to talk with you or whatever the case is, no matter what their age, let's say if they're even starting early or if they're starting right up to the last minute, whatever the case might be, they often have no idea what it actually costs to fund their lifestyle. I can't tell how many advisors I've talked to that say they go to do, get the preliminary numbers from people. They're starting to help, pull information in and people often way under calculate what they actually spend.

Speaker 2: They do. And I would echo that. That's why I picked this topic was this very one right here, is I would say, I would have to guess, but I mean even on the tax side, I'd say 99% of our clients, our tax clients do not understand how much money they have going out for how much they have coming in. I mean, that's really what it comes down to.

Speaker 1: Yeah. That's massive.

Speaker 2: But in their defense, in people's defense, they don't really teach it in school. I always tell them. And they're not really teaching it in college very much. And so unless you just watched your parents, most of them don't track what their net income is and then every little thing that goes out the door. And that's why at the end of the day there many people say, It feels like I'm working harder than ever, but I just can't get ahead or I can't see.

Speaker 1: And it's interesting, if you think about. In the age that we are in with an app for everything times 50, you'd think that it would be easier. And I don't know if it's the, I'm just don't want another stinking app kind of mindset versus just the manual way of doing things. And you're right our financial education system has been horrible in this country for a very long time. I mean, back when we were in high school, in the 80s, I think we got a one hour class on how to write a check and that was pretty much it.

Speaker 2: That was it?

Speaker 1: That was it. Yeah.

Speaker 2: And I think you're right though. I think there's a lot of apps that make it easy. I think it's not the one more app as well as far as I...

Speaker 1: It can be burnout. Yeah.

Speaker 2: I don't want any more to do, I just want to live. But I think it's so important though, because the apps do make it almost automated now. They can connect to your bank accounts and kind of do everything for you. Even if you're really lazy and don't want to do anything is you can look at a app like Mint or Quicken on the mobile and you can just get a snapshot, even if you don't reconcile your bank statements and do all that, wow, I took in this much and I paid out more. No wonder I don't have anything at the end of the month. And then you can start digging in, well where the hell did it really go?

Speaker 1: Quite exactly. Well I've got another advisor friend like yourself and we were chatting and he's like, well the way I do it is because he's a CPA as well, is he's like, let's just look at your tax returns, right? We're going to look at the tax returns because that's the end all be all at the kind of, here's the data and okay, here's what was left, right? Where is it? If it's not in your savings account, guess what? You spent it.

Speaker 2: You spent it.

Speaker 1: And I have other advisors who say, hey, here's an interesting idea for folks to ponder. Again, you have to know yourself and you have to have the discipline. But what if for one month you put every single thing on one credit card, right? Or one card, right? And then looked at that and said, Okay, this is literally what went out. And then of course you can look at obviously what you brought in based on your income, on your paycheck or whatever. And obviously maybe this is a little, that's more of a setup for people who are still working. And again, got to know yourself for a discipline because don't do that and then not pay off the credit card, because you got to...

Speaker 2: Yeah, that's right.

Speaker 1: But I mean people do, they come up, they find these different ways to do it and some people love Excel and some people want to use spreadsheets. But if you are not diligent about it, and most people aren't, you just really kind of, I think our world is so designed now, Tony, that we're getting nickel and dimed and we just don't even realize it. So when someone says, well here's what it costs me to fund my lifestyle. When they come to see you for the first time, they're telling you the car and they're telling you the mortgage and they're telling you the approximation of the electric bill. Well it's roughly $200 a month and you know what I mean? That kind of thing. But how many times, did you tell how many times Amazon comes a week? We know all that kind of little stuff. Or how many times you stop by the burger joint or the coffee shop or whatever?

Speaker 2: Yeah. And one of the... well, with our financial planning clients, one of the first exercises we do after we go over goals and things is we go over this and we use software. So we kind of do the heavy lifting for them. But yeah, they'll do just that. They name off the big stuff. It's like, okay, well you, that's that. But what about how many times did you go out to eat? How many times did you buy clothes, go golfing? Whatever it is you do. And we got to get all that in there. I mean every single dime needs to be accounted for 'cause it's either spent or saved at the end of the day, for most people it's not saved. So we have to go through that exercise. But we do talk a lot about this and once their eyes are kind of opened, a lot of them will say, well how can I track this without going to a lot of trouble? And so we have to be able to offer them some things there. But you got to start here if you're going to improve your financial life.

Speaker 1: And we're not talking about living on a budget, right Tony?

Speaker 2: No.

Speaker 1: We're not trying to say you have to be restricted, but if you're trying to... again, the topic here is how to spot problems in our financial life, not understanding what your lifestyle's costing you is a huge problem. So if you go in and say, my plan, if we make $5,000 a month in retirement, Tony, we're going to be okay. And if that's not the actual real number, you're actually spending seven grand a month, guess what? You're going to run out.

Speaker 2: You're going to run out. And we can't help you if...

Speaker 1: If you run out.

Speaker 2: If that happens. Right? Yeah.

Speaker 1: We got to fix it before you run out. So a gain, that's a huge one to focus on. Another one is that I wanted to talk about is the arbitrary number. People who focus, and again, you could be doing this while you're working, you could be doing this for whatever reason, but the arbitrary number of an account balance or a net worth, right? Well when we get to 30,000 in savings, then we can this. Or when we get to 500,000 in the 401K, then we can that, right? So kind of applying this arbitrary number and often the one we see Tony really is, well I need to get to a million to retire. Once I get to a million I can retire. And it's a big round sexy number and we get to say we're a millionaire and I get it all that. But what if 700,000 would get it done and you got to leave work three years earlier than you wanted to, right?

Speaker 2: I agree. And I think people do, they focus on this number. I think most of our clients focus on too low of a number and they don't realize how fast that number is going to disappear or be spent.

Speaker 1: That's a great point. But that kind of goes back to the first one, right? Because...

Speaker 2: It does.

Speaker 1: ... you're under calculating that, first [inaudible 00:08:32] so anyway, keep going.

Speaker 2: So that's kind of the thing which it does. It ends up going back to the first point. But when you can sit down with them and ask them that and then say, okay, well let's take your number for example and let's start subtracting out some things. How long is that money going to last? And maybe let's not focus on the number so much as to what type of income or how much income do we need to generate every month, let's say in retirement. And then work backwards into whatever that number needs to be. Because for you it might be 700,000 and you can retire earlier. Maybe for somebody else it might be 2 million. And so it's worth it to not focus on the number, at least in the beginning. I like to focus on the monthly income and then back into that number, because...

Speaker 1: Yeah, absolutely.

Speaker 2: Otherwise, I think again, it could back you into a corner, you get to that number and then if you're at retirement, let's say that might not work depending on your lifestyle.

Speaker 1: Yeah. And I love that you mentioned the underfunding because that is what happens. I also think that what happens was when folks come in, they've finally gotten the nerve up to come see a financial professional like yourself maybe for the first time, they're nervous about it. And I think sometimes we have this thing as humans where we want to be told we did a good job or we want to put on a face, if you will, that we've got our stuff together even though we're turning to someone to help us. And so you may go in under kind of guessing that number. Well, it's only going to take us, technically we can get by with $3,500 a month, right? And so that'll be like, yeah, we need 3,500 to make the plan go. And to your point, you're way under guessing. And then maybe that arbitrary number is, well we could do it on a half million when really it's actually the 750 or the one million or the two million, whatever it might be. So that's a great point. I'm really glad you brought that up in there as well. People often tend to do that. And I think it's just, again, it could be any number of human emotions that kind of causes to do it. And speaking of emotions, this third one here, Tony is kind of an interesting one. I think this is a nice take for people to ponder when it comes to spotting problems in your financial life. It's the conception or the mental image that you've built in your head that you've had forever about what your parents did or did not do. For me, I know my dad never talked about saving for retirement. It was never brought up. He wasn't retired long before he passed away, but it just seemed like, well he didn't do anything and it just kind of worked out, right? And so a lot of people I think do that same thing. They go, well, my parents, especially if you're like, again, you and I we're right around the 50 age, so we're kind of teenagers of the 80s. I think our parents that we saw just before us there, it's kind of like they just didn't do a whole lot and yet they somehow were retired. So I guess I'll be fine too. You know what I mean? Does that make sense?

Speaker 2: Yeah. Makes sense. And I think that's a fallacy if you...

Speaker 1: Oh for sure.

Speaker 2: Let that go too long, because my parents were the same way. My mom didn't work and my dad did and he didn't even ever, ever that I remember talked about, thought about or saved until he was in his 40s. And he kind of got lucky and got into a government job and then started putting a lot of money away. And then of course he got IPARs and some things like that. Otherwise, I don't know where he would've ended up. Now he's pretty well off, but yeah, they did not do that. And I don't think we, and even people younger than me, my own son should have those images. They really need to think about things because one, we're living a lot longer now. The younger people going to live even longer more than likely. Healthcare is really high. And you got to kind of take a peek at again what your lifestyle's like. Because I know my lifestyle, my dad really didn't even quit working until he was 78, but I think he kind of let retirement pass him by a little bit and it's like, boy, I don't know if I want to go that route. And I think a lot of people are the exact opposite. It's like, boy, sometimes I still hear people say, I want to retire at 57. It's like, wow, how are you going to do that because... That you may not have what you think. Back in the day when people retired younger, they weren't living as long. They had pensions, they had all kinds of things that we don't have now. And so a lot of thought needs to go into this. But yeah, I definitely wouldn't base that image on what our parents had for sure.

Speaker 1: Yeah. And the world has definitely changed so much Tony in the last just 30 years. You and I can definitely att... anybody can attest to that, right? And just watching what's happened from the 80s up till now, I guess that's 40 years. I'm showing my age myself. But things are... they're pretty tough and they're pretty interesting on how they look and on some ways it's supposed to be better. But I mean, thinking about what you just said a second ago, your mom didn't work and your dad kind of late start if you will. But somehow you guys were fine. And that's pretty hard to do nowadays. I mean if you don't have two families working or two people working in the family, especially in those, when you're in your 30s, I think it's tough to get by. And of course inflation right now is making that really tough.

Speaker 2: Really tough, you don't see as many, I mean generally women not working like they used to back when I was a kid and it's a two, and my wife and I have always been a two person income.

Speaker 1: Mine too. Yeah.

Speaker 2: It was always, at first it was a necessity and now it's like, well I'm glad we still have that. Now you have more income and getting to a point where you can do more of what you want.

Speaker 1: Right? Yeah. It's all about having that right mindset for sure. All right, so let's see if we could do a one or two more here before we wrap up. This one's easy to do. If you're stressing out on the regular because of the current world events and you're worried about how it's going to affect you. And granted, you're human, we're all dealing with that right this minute, but you've got to moderate that somehow. Otherwise, you are going to send yourself crazy with the... I mean the market has been super volatile obviously in 22. The bond markets down, inflation rates are up. Excuse me, interest rates are up, inflation is... so we are in a heck of a pickle right now. So you got to figure out a way to moderate this.

Speaker 2: You do. Well, if you're prone to getting worked up then you're probably about ready to blow a gasket with all these.

Speaker 1: For sure. It's not good for your ticker, right?

Speaker 2: Yeah. It's not good for your ticker and there's so much coming at us and we've talked about it before with the news. It is easy to get worked up and really have some anxiety about in the short term what's happening and you lose your focus on if you're saving for retirement and you're ways away focusing on the long term. And if you're in retirement and you are properly diversified and invested well yeah, your portfolio might fluctuate some, but the income's not going to change and nothing's going to happen there. But at the end of the day, you just kind of see all this negativity in the news and that's mostly what it is, unfortunately is, yeah, it's hard to keep on your plan and keep positive.

Speaker 1: It really is. Yeah. Well I think that's... so somebody's said, well you kind of said it because somebody listening might go, well great, yeah, it's hard to do. So what do we do? And you mentioned it, the plan is one thing. If you don't have, well I guess we should flip that question. What are you doing? If it's nothing except for watching this stuff and getting weirded out and getting upset, then you're not helping your own situation. Have you talked with someone, have you put together a strategy? Right?

Speaker 2: Yes. Yeah. Because that's really what it comes down to is if you don't have a plan, well then you need, obviously probably need to get one if you have one and we've been talking to our clients and there has been some minor changes we've made but it isn't like we're saying, well the market's been down, let's just go all to cash or...

Speaker 1: Right, wholesale changes.

Speaker 2: Yeah wholesale changes. 'Cause when somebody asks me that, I said, okay, if what you're telling me that's what you want to do is you want to go all to cash. I said, then who's going to make the decision of when to go back in the market? Is it going to be you then the next news that you see? Or because I've stopped trying to do that because I told you before, we don't market time. I mean, who's that? What's going to trigger that? And then they don't know what to say as far as that goes. So I think most prudent investors, you want to stay invested at all times, when times are tough, especially saving for retirement. I always tell my clients, I say, really you should be investing more, that this is the best time. Generally the crowd's running for the exits when bad things happen short term. And if you're investing regularly then it's a moot point. It's easy for me to sit back and say, don't pay attention to the news. But in reality that's hard to do. You do get sucked up in it a little bit.

Speaker 1: Oh for sure. Yeah. And that's saying to not, and that's why I said moderate it, right?

Speaker 2: Yeah you got to moderate it.

Speaker 1: Because if you're freaking out at every single thing that goes on right now, there's a lot and you're really going to make yourself sick. So you got to have a strategy to deal with that. And I think to your point right there, it's like if you're still working, 'cause my wife, she's like, hey, obviously my 401's taken a beating. What should... should I cut back on my, how much is being taken out each paycheck and going in? I'm like, no, because your dollar cost averaging, right?

Speaker 2: ... cost averaging.

Speaker 1: If you're still working, just keep doing what you're doing, because you're right now you've still got some of that time on your side and you're buying while the market's down, it's so funny, Tony, the market is the only place no one wants to buy on sale.

Speaker 2: They don't want to buy on sale, they want to buy high and sell low.

Speaker 1: And that's completely opposite.

Speaker 2: You got to pay attention to the news. But also, you definitely don't want to rush into things. And I sometimes if people push me too far, I say, well, you're still working. Our style of life is so good. And I say, if you're that upset about it, well let's take a philosophical view. Let's go down to the hospital and visit the sick kids that are dying and the homeless. I mean, there's always somebody that's way, way, way worse off and...

Speaker 1: Oh, for sure.

Speaker 2: So you got to step back and say, count your blessings and kind of go from there. Put it in perspective a little bit.

Speaker 1: Absolutely. Yeah. We all suffer from first world problems, right?

Speaker 2: Yeah. That's what it is.

Speaker 1: And everybody, hey, your problems are understandable. They're stressful to you, not trying to make short of that, but there's always going to be something a little bit worse. And this is something, yes, we can't control the stock market, we can't control the taxes of the inflation, but we can control how we're we react to it and if we're taking any action within those parameters to do something. And so if that's the case, these are some ways to spot some problems in your financial life. Certainly those two big ones right there at the top though are certainly big ones. Do you understand how much it's going to cost to fund your lifestyle now and later? And are you focusing too much on or too little on what that number might be? So get yourself a conversation with someone like Tony. Have a chat. Make sure you're doing something for yourself and your retirement. You can always reach out to him if you've got questions. If you're not working with him already, stop by the website yourplanningpros.com, that's yourplanningpros.com, subscribe to the podcast Plan with the Tax Man on whatever app you like to use, like Apple, Google, Spotify, so on and so forth. Tony, thanks for hanging out and chatting my friend. We'll talk soon.

Speaker 2: All right, sounds good. It was a good conversation.

Speaker 1: Absolutely. I always appreciate your time here on Plan with the Tax Man with Tony Mauro from Tax Doctor Inc.

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