Making a Plan
Roger was well into the business section of the paper when Larry arrived at Peet’s Coffee on the corner of Broadway and Washington. Portland, Oregon, might not be the coffee capital of the world, but it sure was trying. Roger had picked Peet’s for their meeting, figuring it would be easy to find. Unlike Starbucks, which could be found on every other corner, this was the only Peet’s in the area.
Larry was rumpled but obviously dressed for work in khakis and collared shirt. Roger wore his usual uniform of jeans, non-logo tee, and well-worn running shoes retired from active workout duty. Larry was relieved to see that Roger wore low-cut ankle socks rather than the knee-highs which just shouted “Geezer alert!”
“Good to see you,” said Roger as they shook hands. “What’ll you have?”
“Double tall no foam latte ought to do it,” replied Larry, who needed to jump-start his day.
Roger headed off to the counter while Larry checked out the sports page. He knew most of the scores already as he subscribed to the sports cable package, but it never hurt to see what the print media had to say. Roger returned with their orders a few minutes later and each took a tentative sip as they looked at each other expectantly.
“So, here we are,” opened Roger.
“Um, yeah,” was all Larry could respond with. After all, it was early yet and most of his latte was still in the cup.
“My brother asked me to talk to you about money. What do you want to know?”
This was starting out poorly already as far as Larry was concerned. If he knew what to ask, he would have asked it of someone long ago, right?
“I don’t know,” started Larry hesitantly. “Long-term I’d like to be rich. Who doesn’t? Short-term it would be nice just to get my bills under control.”
“Rich is nice,” agreed Roger, letting the conversation hang uncomfortably.
Although Larry said he wanted to be rich, it was really just a pipe dream. At this stage in his life, financial considerations were limited to what gadget to buy next and which credit card to use. He had never quantified things in terms of a dollar amount or the effort required to obtain it. Rich was a distant dream universe where he could buy whatever he wanted without consequences.
Roger picked up the conversation again. “When did you want to achieve financial freedom, Larry?”
“Right now would be fine.”
“Seriously, did you have a particular age in mind?”
“I hadn’t really thought about it much. I mean, I’ve dreamed about being loaded. But it was just a dream, you know?”
“Well, given your age and education, there’s no reason you can’t be rich someday. But you’d need a plan. Otherwise you’ll just be average––financially, I mean.”
“Isn’t that what a financial advisor can do for me––create a plan?” Larry asked.
“There are many financial professionals who can help you––stockbrokers, financial planners, accountants, tax experts, and more. But a plan is about you, about your life. Who knows you best? Who cares the most about you? Those professionals provide services for a fee, that’s all.”
“You mean those folks can’t really help me?”
“I’m just being realistic,” countered Roger. “A financial professional is human. His first and biggest interest is himself, so that’s where he’ll invest the most concern and energy. In other words, his own plan comes first. Anything left over is divided among all his clients. So how much concern and truly personalized advice does any one client really get? Not much.”
“So what am I supposed to do?” asked Larry. “I don’t have any financial training.”
“Don’t underestimate what you’re capable of learning. Your plan has less to do with specific financial moves and more to do with committing to take responsibility for your financial future. It’s the difference between dreaming and doing.”
“So all I need to do is decide to be rich, and I will?”
“Not quite. To have so much money that you can’t spend it all in your lifetime requires luck, extraordinary talents, or both. But you can achieve financial comfort if you’re committed to doing so.”
“You make it sound easy.”
“Oh, it isn’t easy. It requires diligence and tough choices, which is why so few people achieve financial independence. But it isn’t complicated. The average Joe can become pretty wealthy with planning and perseverance.”
Conversation lapsed while Larry dreamed of high-priced purchases and a matching lifestyle. First on the list would be a Mercedes 450 SL sports car. Lots of guys claimed it was a ladies car, but then what better way to attract them? Next would be a top-floor condo in an exclusive building with views in all directions. Lastly, there would be the ski trips to British Columbia, snorkeling trips to Hawaii, and always with a beautiful woman at his side, naturally.
Roger interrupted his reverie as though reading his mind. “No plan, no good life.”
Deep down, Larry knew this was true. In an unusual show of initiative, he asked, “How do I make a plan?”
“Your plan is a very personal thing and you’re the only one who can put it together. People forget this, which is why they often don’t follow plans someone else put together for them, even at great expense. The good news is that your plan will reveal itself once you know enough financial basics and start being honest with yourself.”
“What basics do I need to know?”
“Simple stuff, really. Mostly it’s a way of looking at things and understanding their importance. For example, have you ever done a lifetime earnings calculation?”
“A lifetime earnings calculation,” said Roger slowly. “That’s where you calculate how much money you’re going to earn in your lifetime.”
“Nope, never did one of those.”
“We’ll do a simplistic one for you so you see how it works. Let’s say your salary was $25,000 per year and you were going to work 40 years, from age 25 to 65. Assuming you never got a raise, how much money would you make in your lifetime?”
“One million dollars,” said Larry after some quick mental math.
“As you gain experience, you can expect a few raises during your career. With even modest increases, two million dollars will pass through your hands in your lifetime.”
“Wow, that’s serious money!”
“And if you’re exceptionally talented and a little bit lucky, your lifetime earnings might be significantly more.”
Larry tried to comprehend the magnitude of two-million-plus dollars, but it was hard to do. Numbers that big just didn’t have any basis in reality. At least not his reality.
“Now let’s say you saved 10% of your salary each year,” continued Roger. “Even if it never earned a cent of interest, how much would you have at age 65?”
“Well,” said Larry, “10% of two million is $200,000. But there’s no way I could save 10% of my salary each year. I’m just barely paying the bills as it is.”
“Yes, that’s how a financial loser thinks.”
Larry couldn’t believe Roger had just insulted him. “What?”
“That was a bit harsh, I guess,” responded Roger. “But financial losers always have a reason why they can’t save money or bring their financial lives under control.”
“And I’m a financial loser because I don’t save 10% of my salary each year?” asked Larry heatedly. “I’ve got student loans to pay off and lots of other bills besides. You don’t know a thing about my finances.”
“Easy there,” cautioned Roger. “You’re right that I don’t know much about your finances, but I’m pretty sure you could be setting aside 10% every year.”
“You’ve been out of school how many years?”
“Has your salary increased by 10% since you started at your company?”
“Better than that, even,” answered Larry.
“And when you first started working, were you paying your student loans, eating well, and living comfortably?”
“Oh yeah. It was great to be earning some real money.”
“Couldn’t you have saved those raises instead of spending them?”
“Sure, but where’s the fun in that? I earned those raises. I deserve to spend them.”
“You need to look at it differently. You’ve put in four years of hard work and not only do you have nothing saved, I suspect you’ve got more debt than you started with and aren’t any happier. What’s wrong with this picture?”
Larry was reluctant to admit it, but Roger was right. Life just wasn’t as much fun now as it had been when he first got out of school. Back then, everything was new––new job, new city, new friends. Sure, he lived in a nicer apartment now, had a better car, and could afford more toys, thanks to the increased limits on his credit cards. But the fun was gone. His time was spent at work, watching TV, or spending. And Roger had guessed correctly about the debt. After college, Larry’s only debt had been the student loan. Now he was saddled with a hefty car loan and he’d only been paying the minimums on his credit cards for months.
The lack of a comeback told Roger he had hit the mark. He held out an olive branch of sorts. “You don’t need to save every raise for the rest of your life, you know. Just commit to saving the next set of raises until your salary has risen another 10%. You do this by spending the same as you do now and placing any rise in income into a savings account. This establishes a savings rate. After you hit the 10% mark, you can start spending raises again, provided you maintain the savings rate. A one-time deferment of pleasure sets you up for a lifetime of savings. What could be easier than that?”
“Sounds reasonable,” said Larry, “but I’ve got such a long list of stuff I want. And then there’s the bills…”
“Aren’t you capable of more than lusting after the next shining bauble? Who’s in control of your life?”
“Well, I am, I guess. It’s just that…”
“…it’s so hard to do the right thing?” finished Roger for him.
“That’s how most people feel. In fact, they feel bad about themselves because they know it’s their decision to spend instead of save. But they feel helpless to change. As a result, they end up in a continual cycle of spending followed by self-recrimination.”
“Ugh, who wants to do that for 40 years?”
“Good question, but so many do.”
“So how do I break the cycle?” asked Larry.
“That’s where your plan comes in. You need a plan that’s more attractive to you than the quick rush provided by the next purchase. With a plan, your actions start to have meaning and you have a chance, just barely a chance, to control your financial destiny.”
“I understand what you’re saying, but I still don’t know how to make my plan. I don’t even know where to begin.”
“That’s completely normal for someone your age starting out in life. Remember when I said earlier that your plan will reveal itself once you have some rudimentary financial knowledge and start being honest with yourself?”
“You have to have faith that that’s really how it works. Don’t worry about the plan for now. Educate yourself. The plan will follow.”
“How do I do that?”
“How indeed?” replied Roger, a smile on his face. “Maybe that’s a good topic for next time.”