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Welcome to personal finance for long-term investors, where we believe Benjamin Franklin's advice that an
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investment in knowledge pays the best interest both in finances [music] and in your life. Every episode teaches you
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personal finance and long-term investing in simple terms. Now, here's your host,
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Jesse Kramer. Welcome to Personal Finance for long-term investors, episode 129. I'm Jesse Kramer. By day, I work at
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a fiduciary wealth management firm helping clients nationwide. You can learn more at bestinterest.blog/ blog
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back/work. The link is in the show notes. By night, I write the best interest blog and I host this podcast.
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[music] I also put out a weekly free email newsletter, all of which help busy professionals and retirees avoid
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mistakes and grow their wealth by simplifying their investing, their taxes, and their retirement planning. By
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the way, what is financial planning? Is it just a a fancy word that people throw
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around for investing? What does a financial planner actually do? What does the financial planning process look like
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in detail? Those are the kind of things we're going to be diving into detail
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today on today's AMA episode. Thanks to great questions from listeners like you.
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Before we get into that topic though, we do have a quick review of the week from
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Nick Reviewer 77. And Nick says, "Top tier finance education podcast. Jesse
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has a knack for making even the most difficult and complex financial topics easier to learn and understand. He
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covers great topics and has on fantastic guests. I especially liked his recent episode with Andy Hill. Well, Nick,
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thank you for the kind words. I'd be happy to send you a super soft t-shirt.
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Just shoot me an email to [email protected]. And by the way, listeners, that episode
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that he referred to with Andy Hill, that was episode 123123. And now, let's get going with the AMA,
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the basics of financial planning. That's kind of what I'm calling this in my
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head, but we'll get into some serious detail. It's not that basic. And we
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start with a great question from Mary. And Mary's question is, are a portfolio
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and a financial plan the same? I mean, it's just a terrific question. A great
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way to start this episode, Mary. I think it's easy to think that a portfolio and
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a financial plan are the same thing. They're certainly not. But the misunderstanding totally makes sense.
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And I think this misunderstanding exists, you know, in in everywhere you look really. And the main reason why or
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at least one of the main reasons why is because the most popular personal finance topics that you see on the
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internet, in books, in print journalism, anywhere, the most common topics are budgeting one and investing two. I mean,
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investing is for sure one of, if not the single biggest topic. I think the term financial planning doesn't often get
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used when someone is just starting out and putting together their budget. You know, that's not really where financial
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planning gets applied, but then suddenly you're introduced to investing and you
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start hearing this phrase financial planning. And I'm happy to, you know, confess that I certainly use the term
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financial planning without always explaining it. So, we don't hear the explanation of what financial planning
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is. We hear it associated with the idea of investing and next thing you know we think that investing and financial
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planning are one and the same kind of 100% overlapped with each other. By the way, I actually conferred with some of
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the the AI large language models, you know, chat, GBT, Gemini, those guys. And I asked them actually to scour the
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internet and rank the most popular personal finance topics. And they came back to me and said, "Number one,
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budgeting and saving. Number two, investing. Three, retirement planning, then debt management and credit, taxes
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and tax planning, emergency funds and financial safety nets, insurance and risk management, financial goal setting
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and planning, estate planning and wealth transfer, and last was banking and financial products like accounts,
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mortgages, and loans. So, are they right, are they wrong? I'm not sure. But the point is that investing is a topic
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that gets talked about a ton. After all, who doesn't enjoy the idea of multiplying their money? Who doesn't
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want to turn $1 today into $10 tomorrow, I suppose, as long as tomorrow as 30 or
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40 years from now? Investing is cool, right? Investing is cool. And investing is certainly necessary. It's very
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important. It's definitely part of financial planning. So, that's a big reason why investing gets so much press.
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And allow me to be a little bit meta here. Investing is where the money is. Literally, the US stock market is at $62
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trillion of value. As I write this, the whole world, the global stock market is about double that, on the order of $125
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trillion in value. That's a lot of money. And if you can tap into that pool of money in some way, wow, do you open
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some doors. Perhaps you're an individual investor like many of you listening.
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Maybe you run a TV channel like CNBC or a service like Bloomberg or you run a brokerage like Fidelity or Vanguard. You
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work as a stock broker on commissions or the list goes on. But when you're tapping into trillions of dollars, even
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in some small way, you might have a vested interest. You do have a vested interest to make this thing investing,
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you know, seem important. A vested interest to get people to care, to pay attention, to participate, to compete,
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to win. And one of the results from this line of thinking is that there are many
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lay people who out there, they think investing is the thing, right? Investing is the thing. That's what I've been led
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to believe. I've been led to believe it by Bloomberg and by CNBC and by the Wall
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Street Journal. All these people are talking about investing like it's the most important thing. And my profession,
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the the professional financial services industry, hasn't exactly done too much
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to avail itself of that reputation. For decades and decades, the financial services industry meant exactly two
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things. It meant people slinging insurance products for commissions. And it meant stock brokers slinging the hot
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stock picks again for commissions. Retirement planning or digging into your cash flow or estate planning, when to
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claim social security, right? That was so far down the priority list for most financial adviserss that it literally
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never came up. Even today, despite everything we know, and I mean everything you and I know about the
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world of investing, the average financial adviser is still leading with either a product like whole life
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insurance or an annuity or they're leading with investment management. You know, we build a better portfolio than
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the other people. The vast vast minority of financial planners and financial adviserss lead with some sort of process
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instead of a product. aka let's actually build a financial plan together before
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we for example make investment decisions for you. Something like about 10% of the
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industry operates under some sort of fee only management structure. The other 90%
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is in some form working off a commission or incentivized to sell a specific product or a product set. And that 9010
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split, it's not a perfect model to separate the good planning focused advisers from the others, but it is a
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decent place to start because if someone is in that 90% incentivized to sell certain products, there's a better
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chance that any sort of financial planning they offer is going to be steered toward that particular product.
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And that right there, that's the whole reason why are you a fiduciary? That's
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why it's a good question to ask because at the very least, that's not a perfect
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filter. I've talked about that here before, but it's a solid filter. It's a
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good place to start. But anyway, digressing a little bit back to the program. I get why the world thinks that
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investing is the main course, right? I get why people think that investing is financial planning. But here's a
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definition of financial planning that I love and I think it goes way beyond just
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investing. A very simple definition is that a financial plan aligns your money with your life. A more nuanced
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definition is that a financial plan aligns the many elements of your personal finances and it aligns them
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with your goals and your desires and your dreams. A portfolio alone does not do that, right? An index fund alone
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certainly does not do that. So, think of this. I I like to dive into some questions that a financial plan does
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answer, but that a portfolio does not answer. So, here's the first one. Can I
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actually afford my lifestyle now and in the future? A financial plan will model cash flows and spending and inflation
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and income to answer whether your lifestyle is sustainable over decades. How about uh when can I safely stop
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working or at least when can I start to work less? A good financial plan connects savings rates and future income
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needs and future tax needs and longevity risk to determine some sort of realistic
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retirement timing or realistic glide path timing. how much risk do I need to take instead of just kind of how much
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risk do I need to tolerate. A financial plan should measure the required rate of
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return of a portfolio and shows whether aggressive or conservative investing is mathematically necessary. And the list
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goes on from there. You know, where should each dollar be saved or invested and why? How much can I safely spend
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each year without running out of money? How will taxes impact my wealth over my lifetime? Are my insurance decisions
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right? Insurance, is it protecting my plan or is it actually harming my plan? What happens with my money when I'm
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gone, when I die? And is that aligned with my wishes? In that list of questions, we've aligned the personal
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financial ecosystem of a person and in some way we've thought about their goals, their dreams, their desires, and
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and the timeline to get there. We're thinking about cash flow both today and
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in the future. We're thinking about all sorts of different risks and how to mitigate them. We're thinking about
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work. We're thinking about retirement. We're thinking about death. We're
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finding the balance between some different options to get people from not only A to B, but also maybe to C and to
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D and maybe a little bit to F2 if they want. Now, many of those questions, all those questions can lead to answers that
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then get incorporated into portfolio decisions. Absolutely. This whole example, it's a little bit like saying,
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is a meal the same thing as a diet? And is a diet the same thing as a healthy lifestyle? I bet most of us might
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answer, well, you know, good nutrition is certainly part of a healthy lifestyle and and one healthy meal is this small
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but solid building block into good nutrition, but we should still differentiate between one healthy meal
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and a complete healthy lifestyle. Similarly, I'm going to say that, you know, a lowcost, broadly diversified
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index fund, that's a great building block of just about any good portfolio. And I would also say that investing and
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portfolio management and all the little assorted investing topics like rebalancing and gain harvesting and
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those are all important aspects of financial planning. Absolutely 100%. But a portfolio is not the same as a full
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financial plan. So awesome question, Mary. Here's a quick ad and then we'll
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get back to the show. Every January we make the same promises. Eat better, work out, read more books, and of course
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something about money. You know, this year is the year I finally get my retirement plan organized. Personal
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financial planning is one of the most common resolutions out there. So, if 2026 is a year you want real clarity,
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serious financial planning, a full review of your complex financial picture, or just someone to help you
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make good decisions with confidence, I'm currently accepting new clients. You can
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head to bestinterest.blog/work and fill out the short form. Let's make better finances the resolution that
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actually sticks this year. And let's continue this topic as we pivot to Bob.
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Bob asked, "Jesse, we're pretty far along in our financial plan. At least I
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like to think so, but my two kids are mid 20 years old and at the other end of the spectrum. I'm encouraging them to
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start investing and they are listening. But where else would you recommend they focus their financial energy?" And I
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picked this question out because it allows us to continue talking about financial planning process, but Bob's
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children give us um like a blank slate to work from. So, let's think about building a financial plan from scratch.
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And rather than saying Bob's kids a million times in this answer, I'm just
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going to be talking to you, the listeners. And and quickly before I get into this answer, I'm also going to give
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a shout out to John from Pittsburgh. John wrote in and asked, "Jesse, as an
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engineer, I feel like you probably have a system or a process in your head when you're working on a client's financial
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plan. Do you mind sharing that on an AMA or is that spilling the secret sauce?"
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So, John, great question. It aligns very much with uh Bob's question about his
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kids. So, I'm going to walk through my financial planning process here, helping
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both Bob's kids and John from Pittsburgh and you, the listeners. Now, I'm an
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engineer at heart. I'm a numbers guy, and my brain is naturally wired to dive
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into the numbers first. But I would really encourage you to start a little bit with the soft side. You know, this
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doesn't have to be some sort of deeply personal philosophical meditation, but
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in simple terms, I would ask you to ask yourself, what's the big goal? You know,
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what's the point? Why are you working hard? Why are you saving money? Why are
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you listening to this podcast in the first place? Right now, at the end of the day, there's a there there, as they
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say, there's a real substance. There's meaning or significance behind why
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you're doing this. Now, being honest, the most common answer that I hear from
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you all and and the answer that I receive in my financial planning practice, it usually has to do something
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with a comfortable retirement or some version of a comfortable retirement. The goal is to set oneself up to live, you
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know, decades of of a good retirement. But that's certainly not the only answer. I literally had lunch today with
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a a great couple and right now they're at a point in their life where their biggest one and two goals involve buying
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what they hope to be their forever home and paying off medical school debt. Like
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those are the big two things that they want to get done right now. Number three somewhere in there is retirement
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planning and and they they know it's important and they know that long-term investing is important and they do want
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to get started on that, but that's not their number one goal right now. They're
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a younger couple recently, one of them's recently out of medical school. And
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yeah, so the goal doesn't have to be retirement. And I think it was really good and really important that we
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grounded their conversation with that first before we really even got into too many numbers. Um, and right, so
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retirement isn't the only answer. Maybe you have a goal around helping your kids. Um, maybe you want to gift them
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money while you live or after you die. Maybe you have a big goal of just reducing your financial stress and your
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financial fragility, you know, as soon as you can while you're still in your
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working years. Maybe you have lifestyle goals. You know, maybe that's really the
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thing that drives you. You want to see the world. You want to golf 100 times a year. You want to spend the summers in
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your camper van. Maybe you want one spouse to be able to stay home with the kids while the other spouse works. And
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you need your finances in such a way so that you can kind of back into that end goal. Maybe you want to start a small
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business. Maybe you want to figure out what to do with all the RSUs that your big tech job keeps giving you. I've got
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one client who I think wants to worship at the feet of Ein Rand and pay no taxes
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for the rest of of their life. You want to reach Coast Fi or Barista Fi or Chubby Fi or maybe some combination of
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all three. You know, Chubby Coast to Barista FI, which I imagine is like a a former defensive tackle slinging lattes
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in Santa Barbara. That's chubby coast barista fi. But the point is when you start your financial plan, you want to
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have some idea of what you're working towards. It's like Creed from The Office
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when he asks, >> "If I can't scuba, then what's this all been about? What am I working toward?"
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>> You want to know what it's all about. You want to know what you're working
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toward. That's your first job. And I think it's cool to be a little critical.
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I'm working with a family, for example, who when I first spoke with them, they
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said, "Our goal is to retire with $10 million in investable assets outside of
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their home, $10 million." And yeah, that's certainly a goal. But I was genu
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like it just made me curious the way they kind of um stated their goal. And so I really wanted to know surely some
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thought went into that number. How did you guys arrive at $10 million? Why that number? And the answer was well that's
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puts us in about the top 1% of households. So then I asked another question. Well, okay, yeah, fair enough.
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But like why why exactly do you want to be in the top 1% of households? In my mind, I was wondering is this
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competition? And is that really the family's underlying motivation? But the answer in actuality was, well, we figure
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if we're in the top 1% and we can't retire comfortably, then nobody can retire comfortably. So, if we achieve
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that top 1% net worth level, then we'll be comfortable kind of by definition.
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So, you see what happened there? As we're peeling back the layers of the onion, the real goal wasn't really $10
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million. The real goal was to retire comfortably. And even then, that might not be the true center of the onion for
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them because what exactly does comfortably mean? I'd argue it's kind of a subjective term that every family
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defines a little bit differently. Are they retiring to a particular level of comfort? Are they more concerned about
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running from a certain level of discomfort? Because I'll tell you this, some people say, "Hey, Jesse, we want to
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retire to the lake." But other people say, "I just don't want to have to be a
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part-time cashier at Wegman's out of desperation." Right? The first family,
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they're retiring to a particular lifestyle at the lake. The second family simply wants to avoid what they see as a
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negative outcome. And those are very different mindsets. Those are different goals and both of those people might say
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something like, "I need 10 million to achieve my goal, but the underlying financial mindset and and goal setting
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is pretty different in those two situations. So again, I encourage you to to be your own critic and uh find the
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center of the onion, if you will, or to sit with your spouse or sit with a best friend. Ask them to interrogate your
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thoughts. Why? Why? Why? It makes me think there's the one rule out there to
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ask why five times and you'll discover the real reason for something." I think
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that's worth doing here. Uh, and again going back to the original question, let's say you've asked why enough to
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define why you're doing this. What am I working toward? And next, we need to get
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into the numbers. So, I always start with what I call the big four. Your assets and your debts, your income and
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your spending. Your assets minus your debts, they go on a balance sheet or net worth statement. Your income minus your
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spending. That leads us to net cash flow. And that's the foundation from which everything else flows. From there,
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I'd like to go a little bit deeper into the the current snapshot of what's going
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on. I want to review things like your current account statements from any investing accounts where I look for
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things like investment allocation and security selection. I'd want to look at
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your most recent tax return so I can understand more about the money that moves into and out of your life in a
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typical year. Uh your insurance details so I can understand what risks are occurring in your life. Your estate plan
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so I can understand what happens upon your untimely passing. and also kind of what some of your underlying motivations
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are and and to make sure that what you've told me out loud actually matches what's going on in your estate plan.
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You'd be surprised how many times someone says, "Yeah, you know, it's all
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going to the kids." And it's like, well, your will still says it's going to your
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wife, so you might want to address that. Anyway, once I feel like I have a good grasp of the current snapshot of
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someone's life, I then want to understand how that snapshot will change over time. And I know that your crystal
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ball is as foggy as mine. But in terms of your life, you do know more about that than I do. So, you know, you know
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the conversations you've had with your spouse. You know about that recurring
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anxiety dream that wakes you up too often. You know about what all your friends are doing, how they're all doing
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the cool thing, and you've been thinking about doing the cool thing, too. So,
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some interesting typical examples might be, you know, you know that your career is going to change in some big way,
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likely affecting your income. You know, your family will change, affecting how you spend money, how you save. affecting
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your insurance needs, affecting your estate plan. That's really a big one. You know, you're going to receive an
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inheritance someday, maybe soon, and that'll inject a bunch of assets you never really considered before. You
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know, you'll get married or maybe unfortunately, you know, you'll get divorced. You know that you're getting
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sick, that you are sick, and that that maybe will get worse. It's chronic over
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time. You'll hit a certain age and be forced to slow down either because that's just the way the rules are
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written. You know, maybe at a law firm, you have to retire by 60 at your particular law firm. Okay, that's
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interesting. Or you're a contractor. You're a physical laborer in some way
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and you know you can't really work until you're 75. Here's a pretty common one
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that affects retirees or even some pre-retirees with grown kids is that people in your life will move and you
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know that you'll want to follow them. It's pretty common to hear of empty
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nesters who say, "Yeah, well, three of my four kids ended up in Sacramento, so
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we're moving to Sacramento." The point is that your life is dynamic and the
00:19:01
numbers in your financial plan will certainly be dynamic, too. you know that about better than anyone else. Even if
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you aren't precisely sure, that's okay. Any color that you can provide in terms
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of how your current state might change over time, that's really good to know.
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And then we start to look at things like, you know, if you're saving enough to hit your goals on time, if you've
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invested in a manner appropriate for the timelines to your goals. We look at your
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tax situation from now until, you know, the end of time, the end of your life, and determine if you're set up in a way
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to minimize your lifetime tax bill as best we can or if we need to make some changes there. We make sure you're
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properly insured against the various risks in your life. We make sure that your estate plan matches up with what
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your wishes actually are. And with all those kind of numbers on the table, the current snapshot and at least a little
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understanding of how that snapshot might change over time, the next step really is to fill in the gaps. And you know,
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what are some of those gaps? Well, how do you get from your current state to the point where you achieve your goals?
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How much do you need to save? How should you appropriately invest those savings?
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And why? What are the major risks that you're currently exposed to that either
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you're not aware of at all or that you are aware of but simply haven't addressed sufficiently? Where are the
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leaks? Right? Frivolous spending, insufficient tax planning, poor kind of subpar investment choices. In short, we
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want to identify a whole slew of edits and changes and recommendations to what you're currently doing. And then you
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need to implement those changes. Some of those changes can be implemented immediately. Some take time. Some might
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take an introduction to another professional to help you out. Some might take, you know, months if not years of
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conversations internally, right, with your spouse, with your family, things like that. Everyone's list on in in
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terms of the changes and how to implement those changes. Everyone's list is going to look unique to them. It's
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actually kind of fun, pretty cool. And you might go through the process, and this is just like an example of some
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things that honestly it's probably from like the last month of work alone that
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you could go through the process and see that, oh, you need to start saving an additional $500 a month, which really
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means you need to start spending $500 a month less, and you need to determine where that $500 a month is going to come
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from. You just realize that, man, your your spouse could open and start contributing to a Roth IRA right away,
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and there's no reason for him not to have one. You need to start putting $200
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a month into a syncing fund like a high yield savings account to pay for your annual camping trip. You need more term
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life coverage. You know, at least a million dollar policy over the next 15 years. And you should probably speak to
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a independent life insurance broker or go, you know, shop around yourself for that coverage. Uh you find out that your
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estate documents are outdated because now you have multiple children and multiple grandchildren and you need to
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review those with an attorney. you find out your investment allocation is way too conservative and you need to make
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immediate changes to all your qualified accounts, but you probably won't take
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any action in your taxable account until the fourth quarter of this year. And then you're going to look at your tax
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projection at that time and you'll kind of rebalance accordingly. Then you need
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to ask your spouse's parents about their inheritance planning. They've been vague
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before and clarity there would be really helpful to you because it's kind of a
00:22:04
touchy subject. Like those are all the kind of uh action items or implementation items that can fall out
00:22:10
of the financial planning process and you put a plan together to implement those changes. Changes to your
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portfolio, changes to your documents, changes to your spending habits, to your saving habits, on and on and on. That's
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what deep dive financial planning looks like. It is more than build a portfolio.
00:22:26
It is more than start buying index funds. But back to Bob's question about his mid20s children. I narrowed it down
00:22:33
to four big things that I would recommend young adults earlier in their career focus on. Like eventually you can
00:22:40
get to estate planning early on. I would one get in the habit of measuring your spending. Know how much money leaves
00:22:48
your life every month. It does not mean that you have to budget. It just means that you're aware of how much money is
00:22:53
coming in which everyone is usually aware of because they know what their salary is. But you have to become aware
00:22:58
of how much money is going out of your life on a monthly basis. That's the first one. The second one I would say is
00:23:04
think about those goals. Again, the exercise can take the form of some deep intertwined philosophical process. Why
00:23:11
am I here? What is this all about? Is it about scuba? >> If I can't scuba, then what's this all
00:23:16
been about? What am I working toward? >> But it can also be really simple. It can
00:23:20
sound something like, I'm 25 years old and I'd love to spend a few hundred a
00:23:24
month on fun things, but also I would like to save twice as much as I spend on fun things for the long run. I'm not
00:23:31
even sure why I need to save that much yet, but I just want to start saving because it feels like a good thing to
00:23:36
do. I think that's fine. I think that's a fine goal, a fine thing for a 25-year-old person to say. So, the
00:23:42
second thing was to think about some of those goals. The third thing is yes, start investing now. Even in small
00:23:47
amounts, even if only in a couple accounts, likely an employer retirement account like a 401k and perhaps a second
00:23:54
one like a Roth IRA or a taxable account. And even if it is just one simple index fund, the the reason why
00:24:00
we're investing here isn't because it's in alignment with some kind of grand
00:24:04
master financial plan. It's simply to get some skin in the game and start learning about the process of investing.
00:24:10
I think that's important. And I also think it's important just to start,
00:24:13
right? get some sort of compounding working early. You can figure out some of the finer details later on. That is
00:24:19
totally okay. And the fourth one, we'll have a little pop quiz here. The pop
00:24:23
quiz is what asset do all young people have huge amounts of? And if you're thinking time, you're on the right
00:24:30
track. I would call it human capital. The economic value of a worker's skills
00:24:34
and knowledge and experience and health and and other personal attributes that contribute to some sort of productivity.
00:24:40
Well, time is a really big part of that. And young people have lots of time ahead
00:24:44
of them. So I would consider learning more or focusing on increasing your income over time. It's not a requirement
00:24:51
and it's not easy, right? In fact, it's pretty rare that it's easy. For example,
00:24:56
my parents were both public school teachers. Their teaching salary was set by the state. They had very few dials to
00:25:02
turn to increase their income. You know, they could coach at school. They could run the chess club, something like that
00:25:06
for a little extra income. But looking at them as an example, kind of continuing the example, my dad started a
00:25:12
a small software company in the late 90s and early 2000s, basically in his spare
00:25:17
time. Not that he had that much of it, but the software was test review software for the New York states, they
00:25:23
they call them the regent exams, kind of the state school science exams, biology,
00:25:27
chemistry, physics, earth science. So, he kept on teaching full-time, but he found this small little way on the side
00:25:32
to earn some extra income. So whatever your career and your interests allow, I think as a young person, you can
00:25:39
consider how you could improve or increase the remaining human capital in their career, it's not necessary. And I
00:25:46
I don't think everything has to be about earning more money, making more money,
00:25:49
money, money, money, money, money. That's not it. But if someone in their mid20s is interested in improving or
00:25:55
optimizing their finances in some way or they just want to see what options are out there for them, if you think about
00:26:00
the compounding effect of a 10 or 20 or 50% raise or a 100% raise or higher and you think about that compounding for the
00:26:08
next 30 or 40 years, it's pretty impressive. So Bob, great question. Thanks for writing in and thanks to John
00:26:14
from Pittsburgh for asking about the financial planning system or process. Here's a quick ad and then we'll get
00:26:20
back to the show. Serious question. Why do podcasters constantly ask for ratings
00:26:26
and reviews? Yes, they do help highlight our shows to new listeners. They help strangers find us on Apple Podcast and
00:26:32
Spotify. It's totally true and a good reason to ask for ratings and reviews.
00:26:36
But I have something more important, at least more important to me. I want to know if you like this stuff. I want to
00:26:43
know if you like my podcast episodes, my monologues, my guests, the information I
00:26:47
share with you and the stories I tell. I want to improve and make your listening
00:26:51
more enjoyable in the process. So yeah, I would love to read your reviews. And sure, if you throw a rating in there,
00:26:57
too, that's great. If you like what I'm doing, please share it with me. It's
00:27:01
such a great feeling to read your feedback. I'd love to read your review or see a rating on Apple Podcast or
00:27:07
Spotify. Thank you. And the last question today is from Bernard from Ireland. Always love it when we get
00:27:13
international questions. My brother lives in Ireland. Actually, Bernard, he's in Cork. So, if you ever find
00:27:18
yourself in Cork and you see a chatty guy in a bar who looks and sounds like me, it might be my brother. But Bernard
00:27:23
is a uh financial planner from Ireland. And he said, "Jesse, one challenge I
00:27:27
face is helping clients to take the time to plan for retirement. The busier, the
00:27:32
wealthier, the harder it is to get them to sit down and put proper plans in place. any guidance on the subject would
00:27:38
be appreciated. So, thanks for the question, Bernard. I love again it goes back to the engineer in me. I love when
00:27:44
I can create a concrete objective answer to a question and this one I think is the opposite. What follows are some of
00:27:50
my subjective observations when I dig into the way that people tend to work in psychology and behavioral finance and
00:27:56
some of that. Some of those answers seem to um not maybe be repetitive or they seem to rhyme over time. And so what I'm
00:28:04
about to describe is just some of that that I've picked up over time. And I think whether you're a financial
00:28:08
planner, which I think somewhere maybe 15 20% of my audience are are financial professionals, or you perhaps find
00:28:14
yourself in a position where you're providing financial guidance to a friend
00:28:17
or a family member in your life, which I do know that the other 80% of you listening, many of you, you know, smart,
00:28:23
capable DIYers who listen, I know that you guys do often play that role for other people in your life. I hope that
00:28:29
my subjective experiences that I'll share with you now and the thoughts from
00:28:33
other really smart advisers out there like a a Michael Kitsis or a Carl Richards or many other industry voices
00:28:39
can help you out. So my first thought is that well yeah people are busy. It's
00:28:43
true for many people time is one of if not their their number one scarce resource. So asking them to sit down and
00:28:51
plan might be like asking them to create time that doesn't really exist. I found
00:28:55
it does help to acknowledge that reality pretty explicitly. Not really a to give
00:29:00
them an excuse, but as context. Planning has to feel efficient. It has to feel focused. It has to feel worth the
00:29:06
interruption or else it simply won't happen. There's this great YouTube video
00:29:10
of a Goldman Sachs banker or attorney. I I know he was he has a law degree and he's speaking at a law school. So that's
00:29:17
why I think he might be an attorney as well as a Goldman Sachs investment banker. One thing he talks about is uh
00:29:23
as an adviser is your meetings ought to have an agenda. They ought to be with a you know a set agenda with a bunch of
00:29:29
tasks that clearly you're going to get done. It's not just you know hey come in
00:29:33
for an hour and let's just shoot the breeze. It's you're you're there to be
00:29:36
efficient. You're there to be focused. You're there to get stuff done to to use
00:29:40
everyone's time wisely. I think about myself and you know over the past month
00:29:44
I felt like I haven't had any time to exercise. I've had to have this deliberate, intentional effort just to
00:29:50
move my butt a few times a week. People often feel like they don't have time to
00:29:54
maintain relationships or friendships. They don't have enough time to get adequate sleep. They don't have enough
00:29:58
time to sit down and write the great American novel or whatever that big project is they have on their mind. So,
00:30:04
I think the point is it's really common and and really human to simply not have
00:30:08
enough time or, you know, in quotes, not have enough time. So, one big takeaway from my time working as a financial
00:30:14
planner is that 99% of the time they genuinely don't have the time and it's
00:30:18
it's nothing that you have done, Bernard, right? And also 99% of the time, they appreciate you gently nudging
00:30:24
or badgering them into action. And for what it's worth, if it's helpful, I have
00:30:28
this little rule, it's probably the math nerd in me, this little rule for when
00:30:31
I'm badgering people to get responses back to me, especially if I don't know
00:30:35
them very well yet and I'm not sure how they tend to operate. So, here's an
00:30:38
example of of my rule in practice. I have a good conversation with someone. Usually within 24 hours the next day,
00:30:44
I'm sending them an email to to follow up with them with some action items. Okay. And then they don't respond to me.
00:30:49
So, usually I wait about a week. I send a follow-up, a reminder email. Let's say
00:30:53
they don't respond to that one. And now the rule is kind of kicking in. So, I
00:30:56
waited 1 week after the first bit of radio silence. I give them two weeks. Now, let's say they still have no radio
00:31:02
silence. No. I send them an email, no call, nothing. I double the waiting time again to four weeks. I double the
00:31:08
waiting time again to 8 weeks. So now it's been a full three or four months since they've actually gotten back to
00:31:15
me. I'm not badgering them every day. I'm not even badgering every week. Every
00:31:19
time they don't get back to me, I expand the time until I badger them again. And
00:31:24
then at that point, if they still aren't getting back to me, the person enters a
00:31:27
a once per quarter contact pattern. Personally, I think if if someone's reaching out to you once every 3 months
00:31:33
and and especially if you hired them to help you, that's not bad. It's not like
00:31:37
you're really bothering the person. But I will say if that person's a client, if
00:31:41
they've been really gung-ho about working with me, and then they go silent for a whole quarter, they don't answer
00:31:47
three or four or five calls or emails, usually I'm going to go out and make some sort of special effort to have a
00:31:53
kind of a hey, what's going on? What's happening kind of conversation. Mainly
00:31:57
cuz I don't want their expectations to be disappointed by the fact that we're
00:32:01
not really making any progress and not really communicating at all. If they're
00:32:05
okay with that and if that's how they want to operate, well, at least now I know that. But still, I think the bigger
00:32:10
point here is that people are busy. Second, you can lead a horse to water, but you can't make them drink. No matter
00:32:16
how competent or caring we are, we can't want retirement planning more than the
00:32:21
other person wants retirement planning, the client or the person we're helping.
00:32:24
Our role isn't to to drag people across the finish line, right? We have to make
00:32:28
the path visible. We have to make it accessible. Hopefully, we have to make it compelling. And that's always a hard
00:32:32
part is to try to make it compelling. And I've really, yeah, I've struggled
00:32:36
with it at times, but slowly I'm learning that I think sometimes success is just planting a seed that grows later
00:32:42
on. It's certainly not always forcing a decision today. One takeaway for me and
00:32:46
and one little lesson I've learned over time is that I think I can now start to
00:32:50
notice the pattern when a client is really interested in getting stuff done. When they really feel that thirst,
00:32:55
continuing maybe the horse metaphor, that thirst to get something done. And sure enough, they get right on it.
00:33:00
They're right on all the action items and getting back to me and and the process of going back and forth and
00:33:05
getting them answers is really efficient. And that feels great, right? To get a lot of work done and answer
00:33:10
someone's burning questions and to get it done promptly. But over time, I've
00:33:14
noticed that some people just don't have that kind of short-term burning desire
00:33:17
for answers. And I just genuinely think it's hard to to make them drink. And so
00:33:22
we just need to level set our expectations and realize it's not always going to work out as quickly or with as
00:33:28
much efficiency or desire as maybe you want it to. The third thing I think is yeah retirement and money are definitely
00:33:34
these emotionally loaded topics. And that's important for a lot of people. Retirement planning triggers fear,
00:33:40
uncertainty, guilt, fear of not having enough, uncertainty about the future, guilt about who knows any number of
00:33:47
things, right? past inaction, guilt about even being able to retire. Especially, you know, maybe some people
00:33:52
are out there retiring at 48 or 52 or 57 and their peers, their siblings, their parents, they didn't get to retire until
00:34:01
70. And people feel guilty about that at times. The point is that people can often avoid intimidating conversations,
00:34:08
uncomfortable, emotional conversations even when they know they're important,
00:34:12
right? Avoidance isn't laziness, right? It's just um it's very human self-p
00:34:16
protection. It's simple basic human psychology. It's the same reason why
00:34:21
some people use drugs and alcohol as a as a numbing avoidance. Some people use distraction like video games. Uh some
00:34:27
people are workaholics. Some people dissociate obsessively worry. Humans have lots of different ways and some of
00:34:34
them are totally subconscious ways to avoid these hard intimidating topics. and financial planning, retirement
00:34:40
planning, and money are for many people one of those hard topics. The fourth thing, Bernard, I think is that some
00:34:47
clients just truly genuinely don't get it. They don't get it. They don't
00:34:51
intuitively understand the the power, the leverage, the benefit of good planning. They don't understand the cost
00:34:57
of delaying. They don't understand the peace of mind that they could get from
00:35:02
clarity if only they had clarity. So, basically, there's an education gap here. It's not a character flaw. And and
00:35:08
so part of our job is to translate these often abstract future benefits that we talk about into concrete present-day
00:35:16
value that they can actually feel. It is cheesy and and it feels cheesy to say something like, "Well, what if I could
00:35:22
save you $10,000 on your taxes this year?" Feels cheesy to say. Or, "You
00:35:27
know, this decision is probably going to lead you to $100,000 between now and retirement. Would that interest you?"
00:35:33
What I'm telling you would allow you to retire four years earlier than you might
00:35:37
think. Is that something you care about? To me, those statements, they sound clickbay, right? They sound a little bit
00:35:43
like a used car salesman. Like, really? Are you're going to put you're going to
00:35:46
keep your family in that car instead of buying this this new safer model that I'm about to sell you? Like, it that
00:35:52
feels very salesy to me. But one of my guiding principles is to let the numbers be my guide. And if the numbers say
00:36:00
wonderful things, well then I'm not afraid to say that wonderful thing. And if someone genuinely doesn't get it,
00:36:05
I'll do my best to close that education gap. I'll ask them, well, what about
00:36:09
this $100,000 decision doesn't appeal to them? And it can be hard sometimes to
00:36:13
not come across in that used car kind of way. But again, the math is the math. And that's something I'll explain to
00:36:19
people, too, is I'll say, "Listen, this is this is math. And I'm not using this
00:36:23
in in a used car way cuz in this case, you know, quote unquote getting it, understanding it, that's absolutely in
00:36:30
in the client's best interest or in your friend's best interest or in your
00:36:33
family's best interest. So doing what you can to bridge that gap to getting it
00:36:37
is extremely helpful for everyone involved. The the next thing I think, Bernard, the fifth thing is that any
00:36:43
sort of urgency in these situations is going to be invisible when life is going well. When the going is good, a lot of
00:36:48
important topics can seem pretty abstract and pretty distant. nothing feels if if nothing feels broken I
00:36:54
should say then there's really going to be no sort of forcing function to get
00:36:57
people to act the way around this or at least one way around this is to remind people that financial planning isn't
00:37:02
about fixing an obviously broken problem in other words so you shouldn't be waiting for some sort of obviously
00:37:08
broken problem to start financial planning instead financial planning is about protecting optionality building in
00:37:15
flexibility uh building in future freedom for yourself and and that can be a little bit of a reframing of the
00:37:21
conversation And I think this one's pretty human, too. You know, the squeaky wheel does
00:37:25
get the grease. And if it ain't broke, don't fix it. These are these common
00:37:28
idioms and in ways that we live our life. And if the person you're talking to doesn't hear a squeak and they don't
00:37:33
see anything as broken, they probably won't fix it. So again, it can be challenging because you don't want to
00:37:39
twist anyone's arm. You don't want to lead with fear. It's broken and you're
00:37:42
screwed and I'm the only one who can help you out. You don't want to do that.
00:37:45
I think it's okay to gently say, "I know what I'm doing here. Uh, I see a few
00:37:49
things going on. A lot of things are going really, really well. I also see a few things that I think you ought to
00:37:54
improve on, and here's what they are. And the last one that came to mind, Bernard, the last of my little notes
00:37:58
that I took down is that progress isn't always perfection. It's not always what
00:38:02
you want it to be, but it is still progress. And so, I try, and it's not always easy, but I tried to not view
00:38:07
kind of this ongoing client engagement as some sort of all or nothing event. I think a short conversation is better
00:38:13
than no conversation. I think a a first draft plan is better than no plan. And I
00:38:18
think even a small a small win, clarity on some goals, getting someone to start saving a little bit more, getting
00:38:24
someone to understand some trade-offs going on in their life, that will build momentum over time. And I have a few
00:38:30
clients who I work with who they tend to be 3, four, 6 months of radio silence and then a twoe flurry of communication
00:38:38
where I spend 10 hours dedicated only to them over over a oneweek period of time
00:38:43
and then uh and then six more months of radio silence. and it it seems to just be that way over and over and over
00:38:48
again. I've learned over time that's just their MO. And and I'm glad we make
00:38:52
progress during those really brief flurries. And when asked, I usually tell people that the first 6 months we work
00:38:57
together will tend to have a higher concentration of communication as we get this baseline plan put together. And
00:39:03
then as time goes on, maybe we only have two big sitdowns a year. But some folks
00:39:08
I work with due to their preferred communication schedule which is a little more spread out. We're still kind of
00:39:14
talking through those initial details and we're two years into our working relationship but still there's progress
00:39:20
and that again is the important thing. Those situations to me they aren't perfect but they are progressing. And at
00:39:25
the end of the day, I want to measure success less by how many clients kind of fully engage immediately, and more by
00:39:32
whether I'm consistently creating clarity, lowering friction, keeping the door open for future action and and
00:39:38
helping people the way that they want to be helped. I still want to be able to put my head on the pillow at night and
00:39:43
feel good about what I do and feel like I'm really helping people. But again,
00:39:47
you can lead a horse to water. You can't make them drink. And if there's slow but
00:39:50
steady progress, that's better than no progress at all. So, thank you for the
00:39:54
question, Bernard. It was a really cool question and I think we have a great group of people listening here who
00:39:58
choose to spread you know smart financial ideas into their small corners of the world and I hope today's
00:40:03
conversation helped you all out and that's all I have today everybody. So thank you as always for submitting your
00:40:08
questions. Please keep them coming to jesse at bestinterest.blog. While you're
00:40:12
emailing me make sure to sign up for uh the free weekly newsletter over at the homepage at bestinterest.blog. We'll
00:40:17
talk to you next time on personal finance for long-term investors. And have fun scubaing. Did one of you tell
00:40:23
Stanley that I have asthma? Cuz I don't. If it gets out, they won't let me scuba.
00:40:28
If I can't scuba, then what's this all been about? What am I working toward?
00:40:33
>> Thanks for tuning in to this episode of Personal Finance for Long-Term Investors. If you have a question for
00:40:39
Jesse to answer on a future episode, send him an [music] email over at his blog, The Best Interest. His email
00:40:45
address is [email protected]. Again, that's jessevestinterest.blog.
00:40:51
blog. Did you enjoy the show? Subscribe, rate, and review the podcast wherever you listen. This helps others find the
00:40:58
show and invest in knowledge [music] themselves, and we really appreciate it. We'll catch you on the next episode of
00:41:04
Personal Finance for Long-Term Investors. Personal Finance for Long-Term Investors is a personal
00:41:09
podcast meant for education and entertainment. It should not be taken as financial advice and it's not
00:41:15
prescriptive of your financial situation.