March 2025
Here are some key takeaways:
• Not having a spending strategy: It's easy to spend unintentionally when you don't have a plan. Many of us overspend on short-term gratification and end up missing opportunities that could've changed our lives in considerably significant ways. Create a realistic spending strategy that gives purpose to your money and aligns with your long-term goals and values.
• Not using credit wisely: Many of us are afraid of debt because no one told us it can be a huge leverage! Using debt strategically (like taking a mortgage on a rental property) can enhance investment returns compared to buying with cash, thanks to tax deductions.
• Not paying yourself first: Did you know that investing $5,000 annually for 40 years amounts to $1 million, but investing the same amount for 30 years, just 10 years less, compounds to only $500,000? Time is your best friend - prioritize investing now. Instead of saving what's left after spending, spend what's left after saving and investing.
Watch previous episodes here:
Ep. 20 Buying a Second Property: Smart Investment or Risky Move?
Ep. 19 Smart Spending Strategies: Life, Family, Career & Investments
Hello, and thank you for joining us for another episode of Couchside Conversations. I'm Patrice Bening, and I'm joined by my colleague Beau Wirick. And today we're going to talk about some fun things. So we Beau.
I think so yeah. So as as financial advisors, oftentimes clients or friends will approach us and they'll say they'll think that we haven't made financial mistakes because we're in the profession of financial advising. And I think we're here to dispel that myth today. Right.
So, so true. I, I have to say that even when we put this together, I was trying to figure out all the mistakes I made. And I didn't make a lot.
But jokes aside, there's three things that we agreed that are really important, even just from our own personal stories, from the experience that we've had kind of being around the world a little bit. But three, three big things, three big mistakes that we're going to talk about today. Number one is not having a spending strategy. Number two is not using credit wisely. And number three is not paying yourself first.
Yeah. And I think the one good way to think about it is that there's four main ways that people can make financial mistakes in general. One is not making enough money. Two is spending too much money. Three is not investing your money with a good rate of return. And then four is not having enough time for that investment.
And the reason is, is basically the game of wealth creation. Looks like this. It's what you make minus what you spend times. Your rate of return to the exponent of how much time you have. That's that's the game that we're all playing. And so that's why each one of those variables can be a place where we can make mistakes.
So starting on the spending side of things, you shared with me that, you know, you have a little bit of, of a history with, with spending. And so why don't you, why don't you let us in on on old Patrice.
It was. It was the young and very naive Patrice back in the day. I was wise enough to actually probably different than a lot of 20 year olds today, but that was also a product of the times. And it was probably, you know, the beginning of the end for the great financial crisis because I had a little bit more than a heartbeat.
I had a little bit of income, but I was able to get a mortgage early in my 20s. And to me, that checked the box of financial success. I thought, all right, if the bank thinks I can handle a mortgage, they probably don't really care how I handle the rest of my stuff because I must be a very responsible adult.
After all, they lent me all this money, and I should be good. What's interesting is that neither my husband and I ever sat down to even look to see we were making really? Our mortgage payment was taking 50% of our income on a monthly basis. It is a lot. But again, we were young and had like risk is, something that, you know, young folks can really take on or they think they can handle very well.
So I really had no consideration of what even what the potential consequences of that will be in the future. But even taking it further, we loved having fun, we loved experiences, we loved fine dining, and we had our best friends, another couple that we always spent a lot of good, you know, good times with. And I would say that probably for a good 2 to 3 years, we gave zero consideration to our spending strategy or even we have one.
We just look to see, all right, mortgage is paid, utilities are paid. Now we're just going to eat and go out.
And you live in Los Angeles, which is culinary, one of the best places on earth to explore different restaurants and, you know, different cuisines.
It really was. But I really I think thinking back is if you were to ask me, Patrice, what was that one memorable meal that, you know, out of all the weekends I went out and, you know, all the money that got spent, I would say over I would say when I average, when I looked at my credit card or year-end report and I realized that I was spending this is 20 years ago, I think an average of about $1,000 a month on, on dining alone.
Just that, I mean, we had even gone to concerts. We just we literally we just went out to restaurants every single weekend and spent vast amount of money.
So $1,000 a month, 20 years ago, I don't know what inflation has been, but somewhere around 2000, maybe $2,500 a month today. I mean, it's a good amount of money.
Right? But even going back to what you said earlier, if I had that, you know, $1,000 as discretionary income, what's the opportunity cost of that money now, had I invested that thousand dollars, you know, every month, you know, let's say a nice maybe 7% rate of return and let that ride for the next 45 years. And I know we'll going to talk a little bit about some numbers.
I'm going to I'm going to give you give you a little quiz later. But just kind of things I that's one thing that I, I really have regrets over not being I don't have regrets about enjoying my time, but I could have been a lot more thoughtful as far as really figuring out what where that money could be, bucket it and what categories.
I like what you just said there, because I think the mistake is not being intentional with where we spend our money. Like, I don't think any of us, as financial advisors would tell people, don't go and have fun or don't enjoy your your money. As Morton Wealth Advisors, our theme is get the most life out of your wealth.
But to not do it intentionally can be a big mistake to look back and be like, where did all my money go? I went to two restaurants. Is that really what I wanted? You've shared with me that there's a few different categories of like unintentional spending that people can can fall into. Can you elaborate on that a little bit?
So I think back to my prior example, I think I was a product of lifestyle spending before, and I think lifestyle creep is something that we all experience nowadays as we make more income, as we even try to keep up with our friends. I think I was sharing a study with you that Schwab did a while back in 2019, that 35% of all Americans overspend to impress their friends.
So I would call that lifestyle spending. Absolutely. If you want to try to have as nice of a car as they are, you want to go on the same nice vacations as they do. You want to go to the same nice restaurants as they do. So, that's the old adage of you spend money that you don't have on things that you don't need to impress people, that you don't even like. It's like we all fall into that trap to some degree or another.
So lifestyle spending, impulsive spending, you know, I mean, I never buy things that come on my Instagram feed. Never.
Oh, never. Why would you that. That would be. Yeah. Unintentional. Yeah.
There's some protein powders, very suspicious ones in my cabinet right now that we won't talk about. There's the convenience spending, which we never do. I mean, Amazon definitely did not change that for us. It's incredible to me the things that I've bought that I definitely may have, not necessarily needed, but they were so easy to just click a button by now in my on my doorstep tomorrow.
Well, convenience. I mean, technology has made things so much more convenient to buy when there's less friction between me and the purchase, there's going to be more money spent on that purchase, and that one swipe to have it delivered to your door. I mean, in times where you are like busy and, and lazy, which are the two times that we find ourselves eating out and buying on Amazon, it's the convenience that we're really looking for.
And last but not least, emotional spending. And I think a lot of that even it comes to, you know, when we're euphoric, I mean, after a glass of wine, I am I'm actually more likely to sign up for marathons, which cost money, by the way. So it's liquid courage for a reason. Where. But then I realized that even that cost money, but not I mean, you know, just kind of if you think about the times where even more stressed or we're in the stressed or we're very happy, we will spend money, not really not being rational about our purchases.
And that's really what it comes down to.
I do that all the time, like I was out with some friends and you know, we were having a good time having some drinks. And then, the bill comes and, for whatever reason, I was just like, hey, to the waiter. Hey, come over here and slip in my credit card to buy everyone's meal. And I don't know why I did that except in the moment.
It just felt like the right thing to do. I don't know if it was ego or if it was altruism, but it was just like, oh yeah, I just I really want to cover this bill. I didn't think about it. It was an impulsive decision, and it was just like that fun, emotional time. So I completely get that.
Next time, just invite me, please.
So let's kind of pivot to you a little bit. Okay. I feel like I've been under the microscope a little bit. So number two, big mistake that I, you know, say we make is has to do with debt. Can you tell me a little bit more about that.
Yeah. So I'm like one of those guys who hates debt. Right. And I always encourage people, you know, avoid debt, avoid debt, avoid debt. But the biggest mistake that I've made is actually not taking on enough debt. Funny enough, in in our former lives, you were a banker. I was an actor, which basically meant our paths never crossed.
Because if I walked into a bank to try to get a loan for a mortgage, you, as the banker would have said, sorry, kid, go get a real job. And then we could talk about giving you a loan for 30 years. And so that was one of the issues that as an actor, I was never really able to get a loan on a mortgage.
And in all honesty, I think that even if I had been eligible to get a loan for a mortgage, I still wouldn't have done it because I was so scared about when my next paycheck was coming. As an actor, I just never knew. I never had that security. And so I, I tucked all my money away in the bank just for a rainy day.
And I never invested in it, and I never got a mortgage. And that was actually the biggest financial mistake that I've ever made. I wasted all of those years of investments. And like I said at the beginning, how much you make, how much you spend getting a return on your investment is the third biggest mistake that you can make.
If you're not investing your money, you're you're wasting that that purchasing power that you can earn through investment. And so, and so that's, that's my biggest regret. And even to this day, I'm still a renter. I haven't bought a house. And now interest rates and house prices are so high that it doesn't make sense to buy a house.
And so I really, really regret that. I know I'm not the only person out there in that situation, but as a financial advisor, people think, oh, you probably were really savvy with your money. And it's like, no, no, not always.
So on the other side of the coin, I think, and to be very honest, as proud as I am that I bought my house when I did, they were opportunities for me to have taken that to the next level. And I because I did not have a spending strategy. My husband and I did not even talk about even just kind of what the future was going to look like.
And I've always been in the back of my mind, I've always wanted to buy a rental property, and I could have pulled equity from my house and put money down and kind of try to do that and maybe even probably bought it for cash. Because if I bought something in Big Bear for 200,000 long time ago or somewhere up in the mountains, but I would say we never did that.
And I think even that part of it even thinking and as we, I think we talked to clients quite a bit here, but understanding really if you pay something, if I buy a property for cash and I rent it out, and I think that would be probably in a lot of people's minds ideal. Right? You have no debt.
You've got this, you know, income, source of income that's just coming to you. That is pretty sweet. Versus taking our debt. Now you're paying interest to the bank. Then you know you've got the rental. So I don't know, like what do you have any thoughts on like what's the what's the better way to do. Think about that.
Yeah I think that debt we call debt leverage for a reason. What it means is that you're able to with leverage, you're able to lift more weight than you. Otherwise would be able to without the lever. And so with debt, it does that same thing mathematically. And so if you're thinking about, oh, I see a rental property that I want to pay cash for versus taking on debt to buy that same rental property, here's a good comparison.
So let's call it $1 million property for for easy math. And you can rent it out for $50,000 a year after you've after all the expenses, the property tax, the, the maintenance and, and HOA or whatever you have for that. So $50,000 a year is your income as the investor. Well, so that's a 5% rate of return, but you get taxed on that income.
So depending on what tax bracket you're in, maybe it's a, you know, a 4% rate of return. And then you get appreciation on the on the property. So if the property goes up in value by 5% every year and you're making 4% on the income after tax, that's a 9% rate of return every year. That's pretty good. I mean, there's nothing to shy away on that.
But let's compare that to if you used debt on it, let's say that you put down 30% on the property, you invested $300,000 and you borrowed the other 700,000. And these interest rates, you're probably going to be paying an interest on that debt that's around that $50,000 a year that you're making in income. So all that income that you're making, you're paying the bank interest on that debt, it's all going away.
But the advantage to that is that it's a tax write off. All that income that you're making, you're not getting taxed on because you're writing off the interest expense that you're paying to the bank. At the same time, the property is still going up in value by 5% each year, $50,000. But since you only invested 300,000, that $50,000 appreciation is like a 16 to 17% rate of return that you're getting on your investment.
And so instead of getting that 9% rate of return, you're getting more like a 1,617% that leverage helped your investment returns go up faster. Also, you're not paying taxes on that appreciation until you sell the property. And even then you can 1031 exchange it. And that in a tax efficient way. So leverage can really help when you're investing in properties.
I will caveat that with the fact that if the property goes down in value, the opposite happens. It's way better in a in a choppy real estate market to not have debt on the property, but in an appreciation market, which is usually the case, debt is really powerful. To help accentuate your rate of return.
Where were you 15 years ago?
Where was I 15 years ago? Not doing the right thing, I'll tell you that.
Okay, so kind of moving on to our last point and, it's is something that I think we're both passionate about, but the last really big mistake that I know I have big regrets about is not paying myself first.
That's right. And so you were saying, okay, you have 50% of your income going towards your, your mortgage, which. Awesome. Good job getting that mortgage as a young person, I wish I had. But then you were kind of taking the rest of your income and spending it away. And so what would it have looked like if you had been more intentional in paying yourself first instead?
So there's this guy out there. He's you know, I think pretty famous... Warren Buffett. I'm not sure if you've heard of him or not.
So he's got this great quote that I wish I had known. And probably even if I had known this before, I don't think I would have understood what it meant. But he says do not save what's left after spending. Spend what's left after saving.
That's so good.
I did the first right. I saved what was left after spending, which was nothing. Right? Right. I mean, or even if I don't even put any thought into it. And the other big mistake when I think about it now is that, yeah, as young people, when even when I worked in the financial services industry, but like, I don't know, I don't have the excuse of being a creative or let's say, I can say I did not know better.
I thought I knew better, I did not know. Probably I knew 1% of what I know now, but I could have asked people, I still didn't. I think what's really, you know, that I think back, I did not resist the temptation of pulling back on my 41K contributions. So I literally just I was like, I don't have to spend and my for my retirement, I don't have to worry about my 45, 50, 60 year old self.
That person is so far away from me. So in hindsight, yeah, I saved a little bit. But not creating the automated, you know, adding to my account. And again, doesn't have to be your 401 K if you don't have one, but you can do a Roth IRA, you can even just put money in a regular brokerage account. But setting it up from your bank account, from your savings account automatically set and forget.
And I kind of ran some numbers. So I want to I want to play this little game with you okay.
Sounds like a fun one. So it's going to make me feel terrible about myself. Like this whole conversation.
It's just kind of to give perspective. But so looking at a 25, a 35 and a 40 year old. So if you were to invest $5,000 so the 25 year old's got 40 years until they get to 65. So 40 years a timeline, let's assume a 7% after-tax rate of return. And we're investing $5,000 a year.
Okay. What do you think about $5,000. Just 5000 a year every year for 40 years. But the 25-year-old starts at that point. What do you think that amount comes to?
I have like, I should know this, but it's like exponential math, so I have no idea. $5,000 a year, 40 years, I'm going to say $1 million to just perfect.
That's exactly. Yeah. It's like 998.
Is it? Seriously?
Yes it is. So it's $1 million. Okay.
I did not know that. I did not know that.
The 35-year-old, let's say, you know, my 25 year old self did not really know to do $5,000 a year. So I'm skipping to being 35. Same thing I have now 30 years to invest. What do you think that amount goes down to?
My brain would say, well, naturally it would just be 25% less. I'll go with $750,000, even though I know that's wrong.
It's half a million.
It's half a million. So investing 40 years is a million. Investing for 30 years is half of that.
Lose 50% of that compounded growth?
Basically.
That's insane because it's like I'm doing the math. So $5,000 a year for 40 years is, is what, $200,000? And then it grows to a million. So it's only the money that you're putting in is only 20% of the entire growth. So that 40 years multiplies your investment by five. But just cutting that down from 40 to 30 cuts the investment in half at the end of the day.
And it gets insane. And it gets even more bad news because when if you start at 40 and you have only 25 years, it goes down to basically 350,000, which is a third, a.
Third of it. Holy smokes. So that's actually pretty easy math to remember. I'm going to use this. So 40 years is 100%, 30 years is 50%. And 25 years is 3,035% or a third.
So not to say that if you want to get so if you're 40 years old and you want to get to that million now instead of putting $5,000 a year, you know, you may have to put $10,000 a year. So it's I mean, there's ways to accelerate, but you're now in a position that I think even when I was in my 20s, I don't think I realized how expensive my 40s were going to be.
No kidding.
And we don't really think about that. It's like, you know, 20s is our figuring out years. 30 is like when you've arrived and you're like, I'm an adult, I need to do this. I need to figure out life. But then nobody warns you about the 40s and even, you know, your 50s, because our lives do become increasingly more complex between, you know, bigger expenses between, like, you know, if you start families, college, you know, everything else that comes with it.
And I definitely did not set myself up, you know, for that.
So neither did I. I mean, I could have known now, I could have when I was a young actor, like 13 years old, I could have been contributing to a Roth IRA. And at the time, I think it was like $2,000 a year. And now looking back, okay, 13 to age 63 is like 50 years of compounding growth.
And I don't even want to know what that math is of how much money I could have been paying myself. But it's just this idea that you have to have this bill in your in your mind. You pay yourself, you pay your investment accounts just like you pay your mortgage or your rent or your utilities. It's just a necessity that you have to pay.
It's hard when you're in your 20s to think of $5,000 a year is like $400 a month. That's actually a lot of money for people in their 20s to forgo. Other other like once in order to pay yourself first. It's kind of hard to do. So. Grace for us for not doing it when we were younger, but do as we say, not as we've done as the theme of this video.
So well, thank you, Patrice. Thanks for opening up. I honestly think it's good for us. Like who are financial advisors to let people know that they're not alone when they've made mistakes in the past. That might not be like the best thing to do. I think we should end this. Like we always end these conversations with a little this or that.
Sounds like a good idea. Let's do it. All right.
All right, I'll go first. Do you use credit cards to pay for something, or do you save up before buying it?
I use credit cards for points.
Oh, okay. But do you pay it off at the end of the month?
Sometimes.
Okay. All right.
Respectable bow. Take a huge loan to buy your dream house or settle for a modest home.
I think I'm on Team modest home because I just can't. I can't when you said, like, 50% of your paycheck going to your mortgage, it's just like, it that, like, hurts me. And so I think I'd have to do smaller home, less expensive. I don't want to get tied up with a big mortgage. All right? Have a high paying, stressful job or a low paying, fulfilling job.
All day, every day fulfilling job?
Really?
Yeah.
Even if it doesn't pay a lot.
I think sometimes it's more important about the environment, the people. Because all the money in the world cannot compensate for the misery you would endure otherwise.
Okay.
Put all your money in one investment or diversify and sacrifice for lower returns.
I think it depends on the investment. I think if you want to build wealth quickly and build a lot of wealth, you really do have to concentrate on one investment. Like if you're a business owner, for example, you're putting a lot of your investments in that one business and you have a lot of confidence in it. If you don't put all of your money in Nvidia or Apple or Amazon or one of these big tech companies over the last 15 years, you would have just had skyrocketing returns.
Diversification is more for protecting your wealth. Concentration is more for growing your wealth at a higher rate. So I am on team concentration in the right situation, but it is a lot riskier. So yeah, I think, you know, take a swing. Patrice, thank you so much for having that conversation with me. Honestly, it's it's really important for us as financial advisors to kind of open up, get under the hood and show people they're not alone in the mistakes they made.
We are in that same boat, and I think a lot of the times we become financial advisors because we want to help people not make the same mistakes that we've made in the past. So I'm really glad that we had this conversation. And thank you guys for joining us for another episode of Couch Side Conversations. If you have any questions for your Morton Wealth Advisor, leave them in the comments.
We'd love to engage you with any sort of advice that you need, mistakes that you think that you've made, or mistakes that you want to avoid. We'd love to help you with your financial planning. As always, thanks a lot.
Information presented herein is for discussion and illustrative purposes only and is not intended to constitute financial advice or investment advice. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. It should not be assumed that Morton will make recommendations in the future that are consistent with the views expressed herein. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your finance professional, accountant, or tax professional before implementing any transactions and/or strategies concerning your finances
