Metaphors between real travel and your journey to financial independence.
I travel a lot, including cross-country road trips. Coincidentally, I am writing this while at Walt Disney World. I built this luxury into my financial planning. We can draw parallels and valuable lessons from physical travel to be used in our symbolic road trip to financial independence. The road trip that I will tell you about here is generally a story of what not to do. Valuable lessons, nonetheless. Further into this blog I have better examples of what should be done on your path to FI.
On a western bound trek I headed out with no definite plans. I had some general guidelines; I had to be at the Cincinnati airport to pick up a friend who was taking the trip with me, handle a project in Omaha and be in Scottsdale, AZ in two weeks. Otherwise, no real plans.
The details of your plan
While in Cincinnati I wanted to visit University of Cincinnati’s School of Medicine Museum. My great-grandfather had attended the Botanico-Medical College which later became part of UC’s med school. While on campus we got caught up in home football game traffic. Rather than get irritated by the traffic, we parked the car and went to the game.
We had no plans. We could do anything that we wanted within the broad guideline of being in Scottsdale in two weeks. Yes, we stood a better chance of doing things that we may have enjoyed more if we had planned. Neither of us had any connection to UC other than it absorbing my great-grandfather’s med school. What did we miss? I don’t know because we had no plan.
I’ve worked with clients who, when we met, had a similar approach to their financial planning assuming if they made a little progress in the right direction, eventually they would be OK in retirement. As long as I kept heading west I was making progress. At some point though, I knew that I needed to be on I-17 South. I knew that I-40 West intersected somewhere in northern Arizona.
Unexpected opportunities can be a distraction
We drove the 100+ miles to Indianapolis after the game. The next morning I read that the Colts were going to retire Peyton Manning’s jersey at that day’s game. Off to the stadium we went. At the sports bar after the game someone at an adjacent table said that the Bears were hosting the Vikings for Monday Night Football. Off to Chicago.
Could we have found something that we would have enjoyed more than the stop off at Purdue University’s Engineering Library? Probably. But, we had no plan. I like engineering, so it wasn’t a waste. It is just as easy to get distracted by something not in your financial plan as it was for me at the engineering library. We see something that we want and we buy it as a reward for hard work or for being a good person. We have to ask ourselves before any purchase ‘How does this fit my plan for financial independence?’ If it doesn’t fit, there is no way to rationalize it. Always remember every dollar that you spend on something not a necessity is a dollar that now cannot earn dividends and interest for you.
Keep an eye on financial professionals
Back on the road, my travel buddy hits the blinker to exit the interstate. In a shocked exclamation I ask “What are doing?! Don’t exit!” He replied “Google GPS says we’re supposed to exit here.” “No! Do not exit!” “But Google says…” I interrupted as he veered onto the exit ramp “Don’t!”
Gary, Indiana had been, in recent years, the murder capital of America. Things weren’t much better as we rolled up to the first stop light surrounded by liquor, cigarette and pre-paid cell phone stores. All other stores were boarded up and abandoned. The two guys fighting on the street corner were emblematic of the rough neighborhood. A couple of rough guys trying to get their point across to the other, albeit a brutal approach. Taking this Google GPS recommended exit took us through Whiting, IL. As the gun shots rang out at 5:00 to my position about a city block away, I casually said “You know, you should run this red light.” On our way, again, to Chicago.
What we learn from my experience in Gary, IN is that we must take the word of the experts with caution. Google holds itself out to be as proficient at GPS as financial professionals do in their advice to you. More often than not, both are correct in what they tell us. With caution, you should understand that financial professionals’ moral duty is to first provide for their families and that their contractual duty is to their employer. Even those with a fiduciary duty to clients still must make a living for themselves. You can delegate the authority to manage your assets, but you cannot delegate the responsibility. No one cares about your family as much as you do. I am not saying that you should try to learn as much as the financial professional, but learn enough to know when they are leading you in the right or wrong direction. That’s why you subscribed to this blog.
We made it to the Bears/Vikings game. I was a Minnesota Vikings fan in my teen years, but had to cheer for the home team. I was a happy fan at the end of the evening.
I think $35 is too much for a typical Ivy League or Princeton haircut. But, remember, I had no plan. The last time I was in that old fashioned, 1940s themed barber shop in the Hotel in downtown Chicago, I paid $20. It seemed like rapid inflation in just the couple years since my last Windy City visit. In planning our personal finances we must ensure that we account for inflation. Demand-pull inflation is defined as “too many dollars chasing too few goods.” In a future blog I’ll cover inflation and what you need to know in greater detail. Here just understand that prices go up because the next person in line is willing to pay it. Items like food, you’ll have to pay the increased costs. Include it in your plan. Click here to play around with an inflation calculator to get a better understanding.
Plan for the unexpected with an emergency fund
I like Chicago and enjoyed my couple of days there except for one singular event. I had moved to Scottsdale in part to enjoy the lack of rain. I do not like rain. Getting caught on a downtown city street in a torrential downpour without an umbrella was the single blemish of this visit. What should I have expected? I was operating without a plan for the unexpected. By luck I was within a couple blocks of a drug store which sold umbrellas. This is where I put in a plug for an emergency fund. You need an emergency fund as the second step in your financial plan. A budget being the first step. Me not even checking the weather report and being soaked is no comparison for your refrigerator or car needing to be replaced or repaired. But, the concept is generally the same. Have an emergency fund the same way I should have had an umbrella if I would have only checked the weather. With Chicago in the rearview mirror and wipers clearing the windshield we headed west to Omaha.
Distractions will cost you
The head waiter at Latin Kings in Des Moines seemed a bit surprised when I ask for the owner by name. **Wait, what? I thought you were going to Omaha.** Yes, I am, but I have no plan. By the time I got to Latin Kings I was starved. Earlier during the trip I was too close to Des Moines to stop for lunch knowing that I had an impromptu diversion for dinner. But, unexpected travel delays put me there well past any normal dinner time. I suffered the consequences of chasing a distraction. I recovered because my distraction was minimal. Nevertheless, imagine the consequences of distractions on your path to FI. Not good. A distraction may cost you a few hundred dollars a month in retirement income and you may not have the time to recover from the distraction.
The owner returned to the restaurant and seemed a bit cautious as he introduced himself. When I told him that Antonio at Carmine’s in Chicago told me to stop by for the best Italian food in Iowa, Robert was delighted and gave us the royal treatment the rest of the evening. The gas and hotel money spent on the diversion to Des Moines could be earning dividends for me right now. It could be working for me seven days a week, 24 hours even while I sleep. But, I had no plan.
Get organized to reduce unnecessary expenses
I need to speed up the story because we need to get to the real point, your plan. Omaha was about clearing a storage unit of my friend’s furniture and family belongings, much of which should have been thrown out years ago. There are two lessons here; 1) he could have been investing the money that he had been paying on the storage unit had he acted sooner and 2) you can earn rent money by being a part owner in a storage unit facility. I’ll write a future blog about how that is done.
Lincoln, NE suffered a cold and dreary day at Memorial Stadium, actually and figuratively as Ohio State easily disposed of the Cornhuskers. Mile High Stadium in Denver had much better weather as the Broncos retired Manning’s jersey just a week after Indy had done the same. Again, the cost of tickets, hotel and meals could, right now, be earning dividends. I got distracted. On our walk through neighborhoods, we were invited to tailgate parties in residents’ front yards. Great people and all the food and beer that we wanted. At the stadium there was another tailgate sponsored by a company with which my friend was considering conducting business. Their tailgate was news to him because he had no plan either.
Getting distracted from your plan is human nature. Control it.
We met a U.S. Marine (Ret) at the rest stop at the border of Colorado and New Mexico. He had retired from the Corps the same month that my buddy arrived at Parris Island, emblematic that the chain is never broken. The burger at the Railroad Yard District in Santa Fe was one of the best that I’ve had. I stopped for a picture beside a flatbed Ford on a street corner in Winslow Arizona. Younger readers won’t get this. There are many other events that there just isn’t room for here like a monument to Norwegian immigrants somewhere on a rural two lane road in Iowa (I discovered it by accident), wading into the Mississippi River, and visits to libraries and museums. We found the I-17 exit off of I-40 using Apple GPS rather than Google and arrived in Scottsdale at sunset.
Getting distracted from our paths is human nature. The consequences of the distractions on my road trip are minimal. Most Americans do plan their vacations better than I on this cross-country trip and put more work into it than they do their own finances. But, why? I can assume that it is because our personal finances seem monumental, there are many unknowns and most resources have historically been companies trying to sell us financial products that generate a handsome revenue stream for them. (Click here for how financial companies make money) What may seem monumental is really best solved in small bits, a lifetime of consistent self education.
Here are a few tips to keep you on track and away from distractions:
- Develop a Mission Statement just like any company or other entity. What really matters to you? What are your values? What type lifestyle do you want?
- Stop spending. You know what I mean. Cut out anything that is not included on the first levels of Maslow’s Hierarchy; food, shelter, safety, transportation to and from work. You can add things back in after you get your plan squared away.
- Create your budget using a cash flow statement just like how a business manages itself. Be disciplined. Decide what you want to trade now for FI later. Don’t be too rigid, have flexibility, don’t sacrifice everything now for later. Otherwise, you risk losing interest in your budget and you’ll stop doing it spelling doom for FI.
- Establish an emergency fund. This should be three to six months living expenses. It should be placed in a type account that does not experience volatility. Something like a savings or checking account, money market account or whatever works for you as long as you’re not relying on credit cards, payday loans or borrowing money from any other source.
- If your employer provides a matching 401(k) plan contribute up to the match. It’s free money. No investment return or debt reduction plan can top that. If you are self-employed, skip to the next step. But, start a tax deferred savings plan as soon as you pay down debt.
- Pay down debt. Start with revolving debt. Stop spending. You can’t pay it down if you’re still charging. Now, if you have an attractive rewards card that’s a different story. Get the rewards for your basic needs purchases then pay the charge ASAP. Most credit cards have a phone app with an ability for you to make a payment by simply sliding your finger. No excuses.
- Now, start investing with a diversified portfolio like a mutual fund or ETF. Add a level of asset allocation to your portfolio both in your personal account and 401(k)
- Read more about setting goals and planning how much to invest here.
I’ve covered enough to get you started. I will teach you what you need to know over time. Click the links in this blog, review the archives and subscribe above so you can benefit. Thanks for reading this. It means a lot to me that I can help you. Share this with others. They will appreciate it.