NW Democrat-Gazette

Too much money, or too little, a plan is answer for both

SARAH CATHERINE GUTIERREZ

A question from a reader we will call “George” last week went something like this: What do you do when you have too much money? In cash. It was a question he faced personally but had not considered it until seeing that he was not alone according to this Wall Street Journal story last week.

People have more cash on hand than they have had in a long time. Let’s take a bow, folks. Or let’s poke at the situation to find a problem somewhere.

Believe it or not, too much cash is a problem. Sure, it’s not as big a problem as people who don’t have enough cash saved in an emergency fund, but it’s still a problem. When we have too much cash in a savings account beyond an emergency fund and other near- term spending goals, then our money is not working for us.

But if in George’s case, an emergency fund is fully shored up and the retirement is fully funded, then we face the biggest opportunity cost of that cash. Spending. “Alexa, place Amazon order for back patio.” Hold that patio, George. Too much cash or lack of cash are both problems, but they have the same solution. It’s so simple. It’s so fun. But we don’t do it. It’s called goal setting, but in a comprehensive manner.

We have to know where we are going with our saving. Here’s what can happen when we don’t goal set.

“I am going to open a savings account and save money into it.”

A lot of money goes into it. And stays there. And more keeps getting added.

Or, a lot of money goes into it. And then leaves it.

Or, little money goes into it. And it leaves really fast.

My reader indicated that he doesn’t do this. His goal was to get six months of spending into an emergency fund. The issue was that he reached the goal but kept saving into that same account.

He reached his goal! Congratulations! (Always celebrate financial successes.)

He has multiple choices

from here. Let’s assume that he is already at an optimal savings rate for retirement by age 65. He could increase his retirement and set himself up for early retirement. Remember the FIRE movement? I would definitely be #teamFIRE.

If he throws water on the FIRE idea, then he could next move to saving ahead for future expenses. One idea is to set up a 529 plan for his kids’ college educations. Or set up a savings account for vacations. Or he could set up a home repair reserve and deposit 1% of the value of his home into a home repair reserve every year. He could save ahead for his next car (gasp). I know, I know, where’s the fun in saving ahead for these things when you could miss out on all the fun of getting surprised by them.

If those savings goals are all implemented and working, then I am running out of options. I guess all that’s left to do is spend it. If that’s hard for our reader to figure out how to do, here are some ideas I have picked up over the years from spending experts.

Start by subscribing to as many business’s emails as you can find. My kryptonite is Target and Pottery Barn, but George’s might be different. These companies must have behavioral psychologists who draft those emails. For a pretty low effort attempt to spend, subscriptions are quick and surefire ways to part with large unallocated sums of money.

Another great way to spend your money is to talk about it with friends.

Say something like, “I’m thinking about putting an addition onto my house for my chess set.” Oh, just wait for the responses!

One will probably say, “I have been thinking that you should do something like that. Imagine, every time you want to play chess you have to go through all that trouble to clear space on your dining room table.”

Another will have a classic convincing argument, which happens to be one of my favorites: “You work so hard, you deserve to have a chess room addition.”

Twenty- four hours later I guarantee an architect will be pacing off that new room, nodding in agreement that he doesn’t know how you have managed to survive to this point without a dedicated room for playing chess.

Crisis averted.

I feel like that went a little too far afield.

But, really, mindless spending is not the answer. The answer is a financial plan. I find that many people are capable of setting singular financial goals.

That’s great, but wouldn’t it be better if we were goal setting in the context of the bigger picture of what we want for our lives? I try to see people’s views of financial planning and what prevents them from doing it. Maybe financial planning catches flack because it seems like it’s only for people obsessed with money.

What’s crazy about that notion is that the actual goal of financial planning should be the opposite.

My Aptus partner mentioned something the other day that got me thinking a lot about our relationship with money. He said, “Our goal is not just to create a financial plan. It’s to automate the decisions for the plan. That way we can get to a place where we can think as little about our money as possible.”

I agree with this. Folks, I know I think about money all the time. I love the philosophical underpinnings of it and the psychological trade-offs of time and money that all of us make in one way or another. But if you think for a second that I am doling out pennies and stressing about my own money and future, you are so wrong. My husband and I have a plan and check in on it only occasionally through the year. We determine if we are on track for our retirement goals. We adjust our savings into our seven savings accounts based on our anticipated needs over the next year. We scrub our bills and expenses to make sure they are necessary and incremental to our needs, comfort and happiness.

Then that’s it. We have financial goals. We have a plan to meet those financial goals. We automate our contributions toward them. When things change, like our reader who met his emergency fund goal, or we get an unanticipated bill or a windfall, we tweak the plan.

I see people with the opposite problem of our reader. People without a plan. People drowning in credit card debt. People bombarded with temptations to spend. That’s got to be tough and money is probably a constant topic of conversation. How to find more of it, what happened to the rest of it, and where will it come from in the future?

A financial plan is the antidote. It’s a simple way to set goals and then automate and coordinate them all so that our money can help us in our future to stop working on our own terms, to cushion us if bad times befall us, to save for our next vacation, or to buy that next house or car.

Whether you are a saver like George or a spender, I have the same advice. Make the plan. Automate it. Adjust with new information. Repeat.

Thanks for the question, George. Keep up the great work.

Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book “But First, Save 10: The One Simple Money Move That Will Change Your Life,” published by Et Alia Press. Contact her at [email protected].

Business & Farm

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2021-12-07T08:00:00.0000000Z

2021-12-07T08:00:00.0000000Z

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