Episode 3 Transcript: Tracking Your Spending For A Successful Retirement

Welcome to The Charleston Entrepreneur Podcast where you go behind the scenes with financial planner and business exit planner Brett Fellows to hear stories of how leading Charleston entrepreneurs navigate the inevitable challenges that arise on the path to financial freedom and get insights from real business owners about how to break through to the next level in their business. And now here’s your host, Brett Fellows.

00:33

Hey, everyone, welcome to The Charleston Entrepreneur Podcast. I am your host Brett Fellows, founder and president of Oak Capital Advisors in Charleston, South Carolina, CERTIFIED FINANCIAL PLANNER™ and Certified Exit Planner™.

So, I have this radical idea that personal finance should be personal. And I know it can be difficult to find good advice that applies to you. I also know it’s not easy to convince you, wherever you are, that I really care about your life and your financial welfare. But believe it or not, I created this podcast for you. I am interested in you.

I have a curiosity about business owners, what makes them unique and special. What do they want to do with their lives? And ultimately, the human element in each of us is what makes up personal finance. We are all just business owners doing the best we can to make the right decisions about our personal lives with the information that we have.

In this podcast, I will give you everything I have to make you successful. I want you to live your most fulfilled life. And I know you can. If you are listening to this, then it’s probably fair to assume you are a business owner who wants something in your financial life to change.

And the good news is improving your finances doesn’t typically require big life altering changes. It’s always the small consistent improvements to our habits that produce the most meaningful results over time. And this goes for our money habits as well.

So with that in mind, today I’m going to focus on a habit you can start to build that may seem insignificant but actually has a huge impact on your retirement success. That habit: tracking your spending. And before we get started, please remember that everything I talk about in this podcast should be considered within the context of your own financial situation.

Now, the first thing I am going to ask you to do before we get into the strategies and tactics of tracking your spending is agree to succeed. The key to your success is agreement. When it comes to the various facets of personal finance, it must be something that you want to do. You agree that the steps need to be taken.

For example, maybe dining out or ordering takeout is a significant part of your life. You do it all of the time. Even though from a personal finance perspective, buying groceries and cooking at home of course would save you a lot of money each month.

Yet my simply telling you to start cooking at home is not likely to yield any results. You need buy-in. You must understand and accept and be motivated to make the change. If you’re not in agreement that this is the best path for you, then you will not take any steps towards cooking at home, right?

So finding ways to incorporate prudent personal financial decision making into everyday life is challenging, but also rewarding. And setting yourself on the path to financial freedom involves agreeing with the practical advice, being open to new ways of thinking and deciding between tradeoffs.

In your choice to listen to this podcast, you are already taking a significant step. And in that first step, you agree that change is something you wish to do. I am convinced that once business owner clients begin to see measurable results, financial stresses recede and give way to hope, optimism, enthusiasm, and even energy.

04:18

I recently read Atomic Habits and in that book was a great story. Author James Clear talked about how since 1908, Great Britain had won just a single gold medal in the Olympic Games. And they had fared even worse at cycling’s biggest race, the Tour de France. In 110 years, no British cyclists had ever won the Tour de France. So in 2003, British cycling hired a man named Dave Brailsford as its new performance director coach.

05:00

What made him different from previous coaches was his relentless commitment to a strategy he referred to as aggregate marginal gains, which simply means the philosophy of searching for a tiny margin of improvement in everything you do. Brailsford began making small adjustments here or there. He redesigned seats. He used biofeedback sensors to monitor how each cyclist responded to a particular workout. He tested various fabrics in a wind tunnel to see which were most aerodynamic.

But those are adjustments you might expect any coach to make. But Brailsford didn’t stop there, he continued to find 1% improvements in overlooked and unexpected areas. They tested different types of massage gels to see which one led to the fastest muscle recovery. He determined the type of pillow and mattress that led to the best night’s sleep for each rider.

As these and hundreds of other small improvements accumulated, the results came faster than anyone could have imagined. Just five years after Brailsford took over, the British Cycling Team dominated the road and track cycling events at the 2000 Olympic Games, which were in Beijing, China. There they won an astounding 60% of the gold medals available.

Four years later, at the Olympic Games in London, the Brits set nine Olympic records and seven world records. That same year Bradley Wiggins became the first British cyclist to win the Tour de France. Over the 10-year span from 2007 to 2017, British cyclists won 178 World Championships, 66 Olympic or Paralympic gold medals, and captured five Tour de France victories in what is widely now considered the most successful run in cycling history.

After reading the story for the very first time, it got me thinking. If small improvements accumulate into such remarkable results, how can a business owner approach this in their personal financial life?

Well, let’s talk about spending. I keep having these experiences with business owners who are 65, 67. And they’ve never really measured their overall finances. More specifically, they’ve never measured how much they consume each month in personal spending.

And when you sit down with any financial advisor, typically they’re going to ask you, “how much do you spend?” because that’s the starting point for your retirement plan. Your spending habits determine how much money you’ll need to maintain your current lifestyle in retirement.

And usually, you have a pretty good idea. You’re not clueless as to what you spend on food, groceries, housing, cars, kids, grandkids, whatever. But it’s usually just a guess.

I recently saw Chase Bank did a study where they found 35% was the variance that people reported on their personal spending. So, what that means is, if someone says they spend $10,000 a month, it’s likely they really spend somewhere between $6,500 or $13,500 each month.

Why does this matter? Because being off on your estimated spending by even $500 a month can affect the amount you need to save for retirement by hundreds of thousands of dollars in either direction.

08:16

That’s why tracking your spending is so important. It reduces the risk you’ll run out of money in retirement. It also gives you a sense of control over your finances and can ease the overwhelm of saving for retirement because you can look at hard numbers and calculate how much money you’ll actually need to retire.

One of the first questions about tracking spending I hear a lot and that I get from business owners is, how should I track it? Another question is, how long should that period of time be that you track? How long until you know you have a decent trend in spending? Is it a month, a year, a couple of years?

And for me, I wouldn’t want to retire without having tracked it for at least four years. Typically, from my experience things like major vacations and major spending doesn’t always happen every calendar year. It’s usually every other calendar year.

The point being you could go for six-to-nine-month period tracking your spending and have that really not be a reflection of your lifestyle. The tracking needs to be long enough in time so you can average in the large infrequent purchases or vacations or lifestyle expenses that only occur say every few years.

Another great question is, what do you track? And what do you not track for personal spending? And this can be confusing for us business owners, especially because a lot of our personal expenses are paid for or through our business.

So the first step we have all of our business owner clients take is to really get diligent about not commingling business and personal expenses. And I know it may not be all that motivating because you feel like there’s a tax benefit from spending as much as you can through your business, but in reality, it’s convoluting your actual financial future.

10:00

And what we’ve found is that the business owners who are serious about retiring, they do it. They actually find it motivating once we put them on an app, or designate an account simply to track their personal spending.

Back to what do you track? Well, let’s start with what you don’t need to track. You do not need to track things that won’t be occurring in the future. Now, where this gets tricky, are things like deposits that you’re putting into IRAs, or contributions to kids’ college or any savings transfers that are going out of your account. And some people have things like charitable contributions that vary quite a bit based on how much money they earned.

When you retire, you’re most likely not going to be putting away money like this, or paying extra on your mortgage or saving for college. So we don’t need to track those. There are also fixed expenses that you don’t need to track, like insurance premiums, car payments, or rent or mortgages, as those are all well documented already.

And on this topic, a lot of people will say, well, my mortgage will eventually disappear. So I won’t have that expense. Now, a lot of people may inherently disagree with this. But I can tell you from my experience, people don’t reduce their housing costs dramatically when the mortgage or the car payments stop. And so you want to make sure that at that point, you keep your housing costs kind of similar, and assume that they’re going to be there still to some degree.

So the expenses you do want to track are those that are truly discretionary. Things like entertainment, eating out, travel, personal care, gifts, all dues and subscriptions. So just think discretionary, track the expenses where you’re making a choice to buy or pay for something, makes sense.

The reality is, over my 15 years’ experience tracking this, your average spend per year over the last three to six years is probably what you’re going to spend in retirement. It may decline as you age, yes, especially if you’re still raising children, which is an expensive part of life. And that’s why for our clients who do still have dependent children, we actually track them in their own category.

Whatever you spend, it’s all relative. You spend a percentage of your income generally. And the more you make, the more you tend to spend. The takeaway here is that you need to track it. Because as I mentioned earlier, misestimating your spending can significantly impact your ability to retire comfortably.

And if you’re hearing this and thinking, that’s totally me, I have no hope and it’s over, just turn that dial. You’re not alone, this is a problem for everyone, and you can do it. So let’s talk about how you can do it.

First, find an app, budgeting software, make a spreadsheet, whatever works for you. There are a lot of resources out there that make it easy for people to track their spending. When you start tracking personal spending, it’s also normal and easy to have an emotional tendency to discount certain things. Like, “This month, I was right on track for what I thought, except for that I had to go to Costco and get new tires. And while I was there, they had that TV on sale, which I had to buy for my daughter’s dorm room. But that was an anomaly.”

If you write off too many expenses as anomalies, you end up coming up with a very unrealistic picture of your spending over time. So we have to find a way to hold ourselves accountable. Not to make ourselves feel bad, like we’re failing if we overspend one month, but simply so we can better prepare for the future.

This is really where the value of working with a financial advisor comes into play. Someone who knows you and your financial situation well enough to call you on it when you’re maybe not telling or being totally honest with yourself. Someone who can say, are you sure that’s the right thing? But of course, if you don’t want to work with an advisor, you can be accountable to someone in your family, like your spouse or even to a friend.

Okay, so let’s recap the key takeaways from this episode.

First, you need to track your spending. You’ll have no idea when you can retire or how much you’ll need to save unless you have a really clear specific number on what you’re going to actually withdraw in retirement.

Second, as a business owner, it’s essential that you separate your business spending from your personal spending to get a really accurate picture of what you’ll be likely be spending in retirement.

Third, you need to find a way to hold yourself accountable for tracking your spending, whether that’s working with a financial advisor or finding a family member or friend who’s willing to keep you honest.

And finally, if you have never tracked your spending before, doing so is not likely to come naturally. So, don’t beat yourself up in the beginning if you forget to do it or if you don’t do it perfectly.

15:00

Like the story of the British cyclists, even very small changes to our habits over time accumulate to produce big results. You know, we talk about losing 50 pounds or building a successful business or winning the Tour de France as if they are events. But the truth is that the most significant things in life aren’t standalone events, but rather the sum of all the moments when we choose to do things just a little bit better. Focus on making incremental improvements to your tracking habit each day and your future self will thank you, I promise.

Well, I think that covers it. Thanks for tuning in today, everybody. And if you have more questions, visit our website click the free retirement assessment button to start your retirement planning journey now. Take care. Have a great week.

This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial or other professional services.

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