Why We Don’t Do Financial Planning – Episode 152

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have our co-host and bestselling financial author, Kim Butler with us today. And today we’re going to be talking about why specifically we don’t do financial planning. You keep hearing this term more and more, certified financial planner, financial plan this, financial plan that, and we very intentionally have removed that from our vocabulary. And I guess you would even say that we are anti-financial plan.

[00:55] So I want, you know, that’s not go out, spend all your money and, you know, buy lottery tickets at the end. I want Kim to give us her perspective on that. Well, it’s a fun concept to completely cut out in my mind. And I love cutting it out because it just resonates with people so well. And yet on occasion, people will ask the question, well, why not? And more importantly, what do we do instead? So that’s what I wanted to share with everybody. But of course, in order to understand what we do instead, you have to first understand why we don’t do the financial planning part. And it really is, was born of me doing financial plans for many, many years, literally Probably five or six hundred of them and realizing how absolutely ridiculous they were.

[01:54] I would sit down with a couple or a person and ask questions that needed to be answered numerically, things like what age do you want to retire? And when do you want to stop working? And what would happen with your family if you had died yesterday? Things that nobody can really put numbers on, I mean, nobody really knows the answer to those things. And yet they would try to put numbers on them and I would plug them into the computer and the computer would spit out this quote plan. Well, even in today’s business world, the people that do a lot of business work are saying that even a business plan should be no longer than three to five years. And yet we’re still trying to plan our lives financially in these 30 and 40 year increments

[02:46] and it just doesn’t make any sense. I mean, it truly is laughable when you think about it. You’re going to assume some date of retirement, you’re going to assume a particular income, you’re going to assume interest rates, you’re going to assume inflation rates, you’re going to assume tax rates, and you’re going to put all these assumptions into a computer program that’s going to then spit out information based on those assumptions. So it might be mathematically correct, but it has absolutely nothing to do with your real life. Now, Todd, I know you’ve had some experience with financial planning too. Why don’t you do them? Well, I think of back to the brilliant people that we studied like the Henry

[03:30] Ford’s and the Dale Carnegie’s and the things like that. And you know, Henry Ford was able to take a building and know that this machine had an expected lifetime. In other words, it could manufacture X number of parts. And if he wanted to put in a second shift, then the lifespan of the machine would be reduced accordingly. It needed to be properly serviced. And then at some point it needed to be replaced. And I think this whole idea was taken from the industrial age and then transferred over to our financial and physical lives. And quite frankly, it just doesn’t make the transition. That’s right. And it is, I think, in a way almost worse than doing nothing. Because now, for some people, financial planning may have a different definition.

[04:25] But according to our definition, it lets you believe that this document that says if this, then that, is accurate and it’s a very false sense of peace of mind. And to me, that’s a worse thing to give somebody than not having any knowledge at all. So I want to make sure we’ve really cut this to the core. Do you think there are questions that people might be asking more about why we don’t do this before we talk about what we should do instead? I think the biggest illustration that we could give right now would be to talk about term insurance. If you took out a 20-year term policy, there is a two-year exclusion in the first two years of the policy that says if you commit suicide, the insurance company does

[05:17] not have to pay. If you really, really believe, and you’re that committed in planning, then 19 years and 364 days, you’ve got to be willing to take care of business to effectively use your 20-year term. Yes, and isn’t that a crazy notion? And that’s really a great example. I mean, that’s how ridiculous it is for us to think about, first of all, trying to answer the questions, and then second of all, believing in the math that the information puts forth. And again, I want to say the math is accurate, but only as far as those assumptions are accurate. And we also know that a lot of the assumptions are based on averages, and averages do not equal actual dollars. In other words, you can apply a mathematical average to something, but

[06:10] because of the way money is affected when losses occur and when gains occur, and the timing of those losses and gains, especially as it relates to the up and down nature of the stock market, you don’t have a actual dollar figure that is anywhere near reflective of the average that the math would tell you that you should have. And so you’ve just got a whole bunch of problems, and it’s why I put my foot down, and I say no financial planning. Now, if somebody wants us to have a discussion around some retirement income projections because they’re 55 and they are thinking about working another 15 or 20 years and they kind of need to see some approximations, you can do that. But on the front end, when people are in their 30s and 40s, trying to

[07:05] make any guesses around that long-term period of time called, quote, retirement, is truly laughable. It just doesn’t work at all. Principles are so much more effective than planning. I can remember when I was a kid, one of my favorite games, and maybe yours was too, was Monopoly. And my sister had the way that if she got too far behind on her bills, she would just smack all the pieces off the board and that would be the end of the game and we’d have to start again. And I think when you’re dealing with principles, you can face with wherever you are today and keep applying those principles, not that, wow, it didn’t work out the way I thought it would, so I’ll just smack the pieces off the board and it’s over.

[07:50] Well, I love the way you worded it in terms of principles over planning because that’s a perfect transition for what we do instead. And that is to look at these seven principles of prosperity and to look at the importance of savings and know that that’s what we can focus on right now. And savings is under the principle of cash flow because that’s what you’re doing. You’re taking some of your cash flow in and you’re putting it into a savings. And I’m talking now about the verb of savings, the act of savings, not necessarily where it goes, but just doing it. And when, as a young couple, young family, young person, and, you know, of course, young could be 40 or 50 or 60 years old, it really, I guess,

[08:36] at the starting point for when you get serious about handling your finances, that is when you want to start your savings program. And again, savings is a verb. In other words, take 10% of your income, take 15% of your income, take 20% of your income if you can, and put it away into savings. So now I want to talk about the noun, which means liquid dollars. This does not mean 401k plans. This does not mean prepaying mortgage. This means actual usable, available, controllable dollars that you are in control of, that are liquid dollars that you can use for whatever you want, that you can even potentially borrow again. So that’s my clue acronym CLUE, control liquidity use and equity, meaning it acts like equity, meaning you can borrow against it.

[09:32] Those are the first things that you should do. And then Todd, you brought up term insurance. That’s probably the second thing that you should do, is have a look at all of the various insurances. Term insurance is totally fine to begin with. You’re going to want, of course, car and home insurance if you own a home or maybe renter’s insurance. And in time, you’ll want a liability umbrella coverage. That’s another type of insurance policy that protects against liability. And then you’ll also be wanting to look at disability insurance, which ensures your ability to work, your ability to earn an income every single day for your family. Those are the things that you should do at the beginning, not a financial plan.

[10:16] Now, as Kim in the past, you’ve been very generous with our listeners by giving them some resources that they can turn to. Absolutely. And we have a book that directly addresses this issue. It’s called Financial Planning Has Failed. And it gives a history of the industry of financial planning. It’s actually very interesting to look through it. And it gives some very concrete suggestions as to where you can put your savings and what you should be taking a look at in the insurances arena so that you are fully protected. And of course, it talks about the seven principles of prosperity. Super. And again, if you have any questions, we’d be glad to field those. But that is hello at partners4prosperity.com.

[11:03] Would love your feedback. Maybe you have a different opinion. Maybe you have a question. Maybe you have a scenario that you’d just like to anonymously have us discuss. Would love to hear it. And we forgot to tell the location of the book Financial Planning Has Failed. That’s at partners4prosperity.com slash ebook. There’s an audio version as well as the printed version may have a little bit of some pictures and a few graphs. But you can get the bulk of it from the audio version. Again, that’s partners4prosperity.com slash ebook. And before we wrap up today, I’d like to also just talk about the fact of, you know, what age group can you start to learn these principles? To me, this blows my mind.

[11:49] But you know, we think of financial planning as maybe your 30s, 40s, or 50s. But when you’re talking about financial principles, what age are we talking about? Well, it really is maybe five or six years old that it should begin. I just talked with a couple today about Robert Kiyosaki’s game called Cash Flow for Kids. And they had kindergartners. And absolutely, that’s totally appropriate. And it is based off good economic principles. So it is absolutely something that we should be learning about, if not at that age, for sure in high school and college and, of course, early adulthood. Because that transition between college and early adult is where your real savings ability starts to become consistent for most people anyway.

[12:38] And so, of course, that’s when you want to start it. A lot easier then than later. Super. Couldn’t think of a better set of words to kind of wrap up on. Thanks again to all of our podcast listers. Special thanks to Kim Butler. This is the Prosperity Podcast. I’m the No BS Money Guy and we’ll see y’all again real soon.