Ep # 55: Planning Focuses When Growing Wealth

Benjamin Haas | Oct 26, 2021

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Benjamin Haas 00:03

Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now! Buenos Dias, Adam.

Adam Werner 00:20

Sure. No, I do know what that means. I was playing into that.

Benjamin Haas 00:39

Guten tag? Is that better?

Adam Werner 00:41

Yeah, good day to you.

Benjamin Haas 00:45

It's Robin Hood Men in Tights. Tink, Dante.

Adam Werner 00:48

I don't know. It's on my list. I know we've talked about it before. I love Mel Brooks. I need to watch it but I have not.

Benjamin Haas 00:57

Alright, well, what I'm saying to you is good day, sir. I'm looking forward to our conversation so let's jump right into it.

Adam Werner 01:08

Should we explain what this title is going to mean?

Benjamin Haas 01:12

DINKS and OINKS?

Adam Werner 01:13

Because the acronyms dinks versus oinks and people are going to be like, what the heck are these two guys talking about? What could they possibly be meaning by this? So I'll start DINK, as the acronym, is a well-known phrase or at least can be. It stands for dual income, no kids. So for couples that are both out, working and don't have children, they are considered DINKS in the financial world. And you then coined, we think, the phrase or the acronym OINK: one income, numerous kids.

Benjamin Haas 01:54

Yeah, I am a proud OINK.

Adam Werner 01:59

I was myself. Now my wife has a job. So now we're DINKS but not with the no kid part.

Benjamin Haas 02:08

Dual income, numerous kids. So let's get into why we think this is actually a worthwhile experience for people to listen to even though it is more targeted.

Adam Werner 02:19

Yeah, now that we're two minutes into it.

Benjamin Haas 02:23

The key that we wanted to talk about today was the need for planning in this type of age bracket that we sometimes, I don't want to say we ignore. But so much of our podcasts, so much of our content, so much of our business is built around major life transitions when there is I think a growing attention from the younger generation from accumulators on what planning can be and the conversation that you and I had. Last part of my answer here is, man, there's so much more sensitivity that goes into these OINKS and needing to plan and maybe they're not seeking us out as much because they don't feel a sense of abundance of income. They don't feel an ability to really think about big time goals when they've made a life decision here maybe to have one income so that there's someone in the home with the kids, especially post COVID world here.

Adam Werner 03:17

Yeah, and I mean, I'll build on that. This industry, right. The financial advice industry is still catered to the retiree landscape. Those with assets to manage, the investing side of things where these younger millennials, Gen, whatever we call them, asset accumulators but essentially pre retirees but that pre retiree runaway can be quite long. But it's essentially there are now more and more ways that they can pay a professional for ongoing planning advice, where in the past that kind of really wasn't an option. So we've certainly gone down that road. It's not a huge segment of our business yet but we do have the ability to essentially charge for ongoing financial planning services on a monthly, quarterly basis rather than that one-time project-based fee.

Benjamin Haas 04:17

Yeah, and that's why we want to focus then on these asset accumulators by saying, hey, if you think you need advice, if what we're going to talk about today resonates with you, then let's start the conversation on how that can happen in a way that doesn't present added stress to you to be able to pay for a professional. Because if we can move right into then what does this relationship look like, it's to recognize that when you have one income on a family that's being supported, there's really a smaller margin for error in a lot of the financial planning topics that we would go through and it's why subscription-based planning needs to be a thing that we can be the accountability partner for you. We can be the people that if you feel like you don't have the time to handle these things that you've passed that responsibility on to a knowledgeable resource that can not only give you the advice, but help you implement things.

Adam Werner 05:10

So I mean, we've said multiple times before that if someone is doing the hard work of living within their means, being good savers, having a good income, even if it's just one to support the family, that usually is the primary focus for that family or that individual, we can at least then help step in and try to efficiently allocate some of those resources. If they're doing all of those things right, sometimes it's just a matter of shifting money from one pocket to another to just take advantage of a little benefit to make those dollars stretch a little bit further.

Benjamin Haas 05:52

So then let's get into some nuts and bolts here. Let's talk about what that relationship would look like and how it's very different for a DINK vs. an OINK and maybe let's just start with the basics. I know it's not rocket science here but really, when we're talking about income, it comes down to cash flow management and having some sort of cash cushion or cash reserve as we call it.

Adam Werner 06:18

Yeah, so for a DINK, no kids, two incomes, we would say cash reserve is probably three to six months of their expenses. So your monthly expenses and being that target, multiply by three, multiply it by six, somewhere in between there is probably an okay spot. When you talk about an OINK or if you have one income now not just supporting two people but potentially three or more, if you have multiple kids, that cushion we would want to be a little bit bigger. It all comes down to being a little bit more conservative building in bigger buffers. So we would say anywhere from 6 to 12 months of that expense need in a safe cash position.

Benjamin Haas 07:09

Yeah, again, it comes back to me, thinking about smaller margin of error and risk management. Think about COVID world. What if you can't go to work for a little while and it's one income. You need to be able to rely on that cash reserve. I think about people that maybe have flexible income, maybe it's a commission-based job, something like that. You are going to want to build in bigger buffers, if that's the case because cash flow may not be as regular as somebody that's getting the same paycheck every two weeks. You work for a small business, you don't have disability insurance, maybe you've got rental properties, there's another added reason to have a bigger cash cushion but I think the takeaway is, knowing your monthly expenses is important. That's the basis for a lot of our advice on how much to have set aside but definitely, if you're an OINK and not a DINK, we're going to suggest, I'm just going to keep...

Adam Werner 08:03

I'm going to laugh every single time.

Benjamin Haas 08:05

We're going to want to err on the side of caution in a situation like that.

Adam Werner 08:11

Yeah. So the other side of that and you touched on it a little bit with that income variability, taking advantage of any employer provided benefits. If unless you are self-employed and then you control what those benefits could be or can't be. But yeah, we just did a podcast on this recently to have the open enrollment period and just making sure that whatever benefits are provided, you're taking advantage of the ones that fit your situation. So whether it's the Disability Insurance, Group Life Insurance, the voluntary coverage that you can get usually much cheaper than individual coverage. An HSA, a health savings account. If you know you're going to have health care expenses even if you're using it as money in money out. You're at least getting a little bit of a tax break, right? You're putting in money tax deferred, you're not paying taxes on it. So again, nickels start to add up to dimes, add up to quarters, and so on.

Benjamin Haas 09:13

Well, and I'll stay in my theme of risk management. If you're dual income, maybe you can choose a higher deductible plan or a less of a premium because you've got some flexibility to cover those deductibles in a one-off situation where you needed to. If it's one income, maybe you can't take that added risk on. Maybe the cash cushion that you have isn't as big so you choose to take a lower deductible plan but know that you're going to pay a little bit more for it. But if something happens, it now doesn't Domino into the rest of your financial plan for your family.

Adam Werner 09:43

That's a great point.

Benjamin Haas 09:46

How about savings rates? Again, I think it's pretty fair to say if you have dual income, no kids, maybe there's what you should be expected to put aside for your future. Maybe more than somebody that really might be stretched a little thinner on one income.

Adam Werner 10:04

Yes, and I'm not exactly sure where you're going with that but I'll take it from what just popped into my head and that is with like competing savings goals. It may not necessarily just be, hey, I want to save for retirement or I want to save for this trip, save for this purchase, whatever that may be. Usually, if you have kids, then college savings often factors into that and that's where we've seen the biggest push and pull when it comes to what am I saving for myself and my future? And what am I saving for my kids in their future? Knowing that college expenses are not inexpensive but by the same token, neither is retirement. And now I'll shut up because it looks like you want to say something.

Benjamin Haas 10:53

No, I think I really wasn't leading you down any specific path. It's just, I think when it comes to savings, it's even more sensitive for an OINK to really think about the cash flow and try to squeeze what they can out of that and maybe that is going back to your point on employer benefits, always get the free money out of a retirement plan. Even if it's harder to save, it's proven that time is the biggest factor here to being able to grow your wealth so getting something set aside out of your income, don't miss that opportunity with time.

Adam Werner 11:26

Yeah, so and that reminds me of another thing that we talked about. We had a client recently going through this that is OINK but did have the goal to be debt free sooner than later and were accelerating their mortgage payments and part of the conversation was that the best allocation of their resources. So again, this is situational but to your point on time and the time value of money and compounding investment returns. Whether that's saving for the kids' college education or it is putting money in a retirement account. Sometimes it makes sense to shift money from one goal to another, depending on those different factors, right time, being one of them, it's great to want to pay off your mortgage early, it's great to want to save in that overall interest. But at the same token, the tradeoff being you're not necessarily putting money into an investment that can continue to grow and compound over a long, long period of time.

Benjamin Haas 12:29

Yeah, I would hope one of the very valuable things we can bring to a relationship like this, whether it's the DINKS or the OINKS, but probably again, more importantly for the OINKS, is helping people with their goal prioritization. When you talk about trying to be efficient with their dollars and a smaller margin of err, it's really important for us to be able to coach people through, okay, we understand that this is a goal but what if we think about this in this way? How does that feel? And then give some education around how these things don't need to compete but how you can find greater efficiency and maybe work through different timelines. Let's prioritize this goal for a little while because this is what you get out of it, to then let's shift our focus to this goal. These are experiences that we've not only probably had in our own financial lives, but again, yeah, let us bring our experience with all our other clients to helping you prioritize things.

Adam Werner 13:21

Yes. Very well said.

Benjamin Haas 13:26

I mean, the other checkboxes here, it's things maybe again, you don't think about in a younger age, it's insurance and estate planning.

Adam Werner 13:33

Yeah, I think the one for me is clearly the estate planning side of things, just getting your basic estate plan documented and we've talked about this, maybe too much in other podcasts. It's making sure you have a will, making sure you have a power of attorney, making sure you have a living will or the health care directive. And in this, in the spirit of this conversation, right, even more imperative for the OINKS where if that main income earner does pass away or is incapacitated, that can have many negative Domino effects, if you don't have your wishes or just things documented, so that someone can at least take over and take the ball and run with it financially.

Benjamin Haas 14:23

Yeah, make sure there's protections there on the insurance side even more so the disability coverage. Someone can't go to work, if it's group benefits with life, it's getting your own life insurance. I'll take it one step further and I don't know if I brought this up before but there are times in my life when I'm going to jump on a plane or you know, I'm going to go on a hike with my brother and I get this panic of, it may be a fair assumption that other OINKS like me operate in the same way where, I pay a lot of the bills. Something as simple as my wife being able to pick up everything that's done. Account access, know who gets paid what, over what period of time, these are things that should come out of a documented process. Some sort of I love you letter, whatever it is to make sure that if something happens, the right people are in the know with what needs to change or how to progress.

Adam Werner 15:21

Yeah. So I'm glad you said that because that's not something I think that we have shared on other podcasts maybe around that topic. That seems like such a basic thing that like make sure that who the surviving spouse can continue to pay bills without having to track down and call a whole bunch of different utility companies. Car Loans, mortgage, whatever that may be. So even so far as just documenting your estate is great. Even going that extra step of just documenting the actual process for anybody who would have to pick up that ball and run with it is that's so huge. So yes, good call.

Benjamin Haas 16:06

Yeah, and I'll put that as universal advice, not just DINKS and OINKS. But yes, again, I would hope the value of some sort of comprehensive process, some subscription-based process where we're promising you set agendas and if that agenda is really just to say, are we sure that we checked this box? Great. We can move on with I hope some added, can I say peace of mind there? Some added security, some added comfort, to know that you have taken care of the basic things that need to be taken care of.

Adam Werner 16:40

Yes. Yes, agreed.

Benjamin Haas 16:43

Anything you want to add on DINKS and OINKS or any other, are there any other acronyms here that I use?

Adam Werner 16:51

My wheels were turning and I got nothing.

Benjamin Haas 16:53

Yeah, let's not make it worse than it already is. If you're accumulating assets for the future, if you think a planner like us could be helpful in checking all those boxes, especially if there's some sensitivities, reach out. Let's figure out if we're a good fit and we don't want the expense of advice to be a hurdle to getting done what you need to get done and having a partner in the process.

Adam Werner 17:15

Yep, agreed.

Benjamin Haas 17:20

This OINKS is out.

Adam Werner 17:22

Bye, OINK!

Benjamin Haas 17:31

Hey everyone, Adam and I really appreciate you all. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant, and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!

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Ep # 55: Planning Focuses When Growing Wealth