August 2024
Here are some key takeaways from their conversation:
- Access to too much information does not necessarily lead to true knowledge or confidence, highlighting the importance of one’s mindset towards money.
- People often swing between scarcity and abundance mindsets. Wealth advisors can help clients move towards an abundance mindset to make confident financial decisions and make meaningful memories, instead of merely accumulating wealth.
- Creating a financial plan can help provide clarity on spending, income sources, and the rate of return needed for success.
- Educating oneself, creating a spending plan that allows enjoyment and security for both the present and future, understanding cash flow, and establishing an emergency fund are all crucial elements of financial confidence.
- Having a financial advisor or someone trustworthy to discuss these matters with can give one peace of mind and enhance their decision-making process.
Watch previous episodes:
Ep. 97 The Stock Market Selloff: Morton's Perspective
Ep. 96 How Much Do I Need to Retire?
Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski, joined by Wealth Advisor Priscilla Brehm. Priscilla, thank you for joining me.
My pleasure.
We were talking a lot about, you know, having the right mindset coupled with the right strategy equals a better investor, meaning a more informed investor, somebody that's going to feel more confident with the decisions that they're making and stick to a plan that's going to help them become, you know, more successful long term, right. So today we're going to talk more about becoming a more confident investor or having more financial confidence.
And during our conversation, it became very apparent to us that the people that are really confident with the life decisions, the money decisions that they make or having financial confidence, it's around them having knowledge. Education. And we live in a fascinating world today where the access to information is abundant. Like, we all have too much.
Yeah, almost too much. Right? Far different than earlier in your career where information was harder to find. Yeah. So now we're in a stage where a lot of people have access to information, but that's not necessarily turning into knowledge, which might not be translating into confidence.
Right.
So the gaps, that's one component. The other component is we have to understand also our mindset around money. A lot of our clients and even ourselves, we kind of swing on this pendulum between having an abundance mindset towards money, right, or having a scarcity mindset towards money and being sort of aware of where you might fit on that pendulum.
Because a lot of people that have a scarcity mindset towards money, they've been able to save really, really well, but they don't have the confidence to then go and make some of those larger financial decisions, take a family vacation, what have you. And so let's start there. Let's talk a little bit about the effects. That mindset around money and this pendulum that we're on, could affect the decisions that we make.
Well, your mindset when it comes to money and when it comes to building financial success or financial confidence, your mindset a lot of times is a result of your prior life experiences. If for example, you know, if you have parents who were raised in the depression, they are automatically going to default to a mindset of scarcity, and it'll be very difficult for them to enjoy whatever assets they've accumulated.
Because making that pendulum shift from scarcity to abundance is just contrary to, you know, what they experienced, especially as children, right? And so one of the things I think that we do as advisors and that we can do as friends or children of people in that situation, is to help give them permission to make that pendulum swing over, to having a mindset of abundance and, and then making deposits in their memory banks instead of worrying all the time about the deposits in their bank account.
So the memories and the legacy that you can build from those memories are equally important to the money.
Yeah. I often find, you know, working with, you know, clients that are in their 40s all the way to their 80s as they look back on their lives and their financial success. They talk more about the experiences and the memories that they've made as opposed to the legacy that they're necessarily leaving behind.
I came across an interesting study by the Harvard Business Review, a number of years ago that talked a little bit about why time seems to move, faster as you get older. And it has to do with the, fewer number of unique memories that you make as you get older. So you look back at your life, and as a child, you're making all of these brand new, unique memories, right, that are just right there stuck in your brain.
And you felt like time moved so slow. But as you get older, you don't have more new things that you've done for the first time. So then time seems to move so much faster.
And the feeling of rapid passing of time accelerates as you get older. I can say that from experience, because it seems like every day gets shorter, every week gets shorter. I can't believe how quickly this year has passed. I said this exact same thing last year. And, you know, you do get a sense as you get older of how important it is to build your legacy to to build those family memories, to take advantage of the things that life gives you, you know.
Right. and talking about that pendulum shift, going from that mindset of, oh, I don't have enough or I'll feel guilty if I spend this right now to I have enough and I want to do this with my family. I'm giving myself permission.
Yeah. I mean, part of it's a societal problem in the sense that, you know, here in the United States, sometimes more is better. Yeah. But then sometimes people that look at it and go, well, more isn't necessarily better because money is a tool that I can use to create the life experience of the memories that I have.
And so one of my favorite things about working with clients is helping them build confidence. Yeah. So that way the decisions that they're making, they feel comfortable doing it, but also in the sense of helping them create more of those lasting memories and experiences that they weren't sure that they could do. When we're working with people that have way too much of an abundance mindset, oftentimes we're trying to talk them back from taking on some, you know, risky investment that could ruin their financial future.
But it feels very empowering to work with people around that scarcity mindset and getting them to feel confident, to spend that money, use that money as a tool.
Oh, yeah. It's incredibly rewarding to do that. you know, talking about people who have maybe the over-abundance mindset. I think one of the big challenges that I see often is that they tend to overspend on their residents. And that's when you get into that conversation about, okay, here, this is the financial side of that choice. And then here is the emotional or the legacy building side of that choice.
And are you sure that building those memories is going to be enough to offset the stress of over-buying? Yeah. you know, especially for a principal residence or maybe overbuying in terms of buying a vacation.
Or sometimes like over-leveraging yourself to help you know, your kids and set them up for success.
Yeah. You can borrow money to help pay for college. You can't borrow money necessarily to pay for your retirement. Right? But people go through this fascinating journey where they're sacrificing their time in their energy, to save for the future. And, you know, we don't always know how long we're going to live. And it's a scary thing walking away from a paycheck to be confident, saying, hey, I have I saved enough for this money to last the rest of my life? And what if something comes up and I want to be able to do that, or I have to spend money? Have I saved enough? And so it's a fascinating journey around mindset with clients.
I think that that's one of the most difficult challenges for someone who is going from being an income producer to being an income consumer. No, you know, they're building their assets or they're living on their assets. And, you know, it's interesting because while someone is working, you know, maybe they have a tendency to be on that pendulum side of, I have I have abundance, right.
But then all of a sudden the salary checks stops and swinging over to the side, ooh, do I have enough? Can I spend. And that's where having a financial plan and, you know, a good advisor really can help that journey.
Yeah. Being able to have somebody that you can talk to about money and make decisions. But yeah, you know, one of the reasons why I love being here at Morton and I came over here six and a half years ago is because we have more tools in our tool chest to replace that income, because I believe in what you just said, that most people make financial decisions based off the income they have coming in, not the asset size that they have.
Yeah. And so they might have a large amount of assets but not much income. And they're scared to do anything because, you know, you get frozen when you, when you don't have that paycheck or that consistent income coming in.
Yeah. It can be a big, big, big transition.
So when it comes to confidence, we kind of looked at it in a in a few different, a few different components, both the first to really lead to that, you know, sleep better at night. So one of them is being more educated or empowered or informed around money. How would somebody best go about doing that?
Well, there is an abundance of opportunities for information, but is it is the information really that helpful? Right. You've got books, blogs, social media, social media influencers. you know, where do you go for information that you really trust? Yeah. And I think that, that that's an incredibly difficult thing.
Yeah. And it's somewhat becomes sort of, what's the right phrase for it? when you got too much information and you're hamstrung from being able to make, make a decision, right?
Analysis paralysis. That's what I was looking for. And so that led you to your second point. Like, first, we need to help people become educated, informed, and knowledgeable because that's going to build confidence. Yeah, but then having a mentor, a partner or an advisor as a sounding board to kind of walk through decisions that you have to make.
Right, someone that you can trust and, you know, I think the way that you find that is you talk to other people who seem to be in a good place, who who have the financial confidence that you're looking for. Find out how they got there. Yeah. And it's entirely possible that they will have been working with someone who helped them on their journey towards financial confidence.
So that's a good starting place, I think.
Yeah, I love that that you pointed that specific fact out. Like do they have somebody that has actually helped them get to a point where they have that financial confidence? Because most of the time people are looking for an advisor, and it's not always clear that they're working with the right person.
And so asking that advisor or that potential advisor, give me some examples of how you've helped people like me can be a great question to help identify if you're working with the right partner.
It's a great, great question. Yeah.
And so if you're able to find that education and find that sounding board, which is very difficult to do in our society because money is a taboo topic, you don't talk about it in families at times. We don't talk about it amongst friends. We just visually see and judge people on success based off of their house, their car, the vacations.
And that's not always telling the full story. But if you can become more educated and knowledgeable, have a right mentor, partner or advisor to talk to you, then you're likely to sleep better at night, which is what most of us are looking for.
I know that, you know, being 44 years old and making financial decisions throughout my life, there have been times where I've sat there and took me on. How did this decision affects my future? Was that the right one? Could I have done something different? And I kind of think back to the importance of having a financial plan, which is something you're very passionate about.
Very, very passionate. When you have a plan, you know where you are on your journey. you know where your income is coming from. You know where your income is going to, you know, what are your expenses look like? Do they match? Are you on track saving for a more secure financial future? having a plan? Just helps you keep score and know where you are on your journey.
It also helps you determine the amount of risk that you need to take on for the growth rate you need in order to be successful, right? I mean, there's a big disconnect from time to time on the rate of return somebody actually needs in order for their life to work out the way that they like and the rate of return that they want to have.
Exactly.
Right. And the financial plan is a is a big component because not only does it give you clarity in terms of what is the life that I want to live costs. So what's my spending plan? We don't like to use the word budgets around here. what's the income that I have coming in and what rate of return do I need to earn to become successful?
Sometimes just going through that exercise with clients, helps build financial confidence. And sometimes there's there's more that needs to be done, right. you came up with a great list of five things, that you believe will help somewhat along this journey to become more financially confident. Share with me what those five things are.
Well, the first one is, do you get education? Yeah. you know, find books written by objective authorities. Experts. There are lots of experts, or self-proclaimed experts. But, is is the advice in the book that you're reading really objective? And so, I think education, it starts there. Finance and investing is a language. And it's kind of helpful to speak the language in order to figure out how to make decisions when it comes to finances.
So investing. So education is first. I think another thing is to understand where your money is coming from and where it's going to. And if you want to use the word budget, okay. I like to call it a cash flow pattern or cash flow strategy. That's a little more socially acceptable, right?
Budgets are always tough, especially with, you know, partners and spouses. Because oftentimes when you when you think of the word budget, it means, what do I have to get away? What do I have to get rid of or cut from an expense standpoint. But it that's not the purpose of it. When it comes to a cash flow plan, it's really what's the lifestyle that I want to live that's going to bring me joy and happiness?
Yeah. But still have the outcomes that I would like to have at the end. And then so what's the spending plan that, that I need to to have in order for that to come true.
Right. Yeah. a cash flow plan is not about limiting yourself. It's about making empowered choices.
And if you go in with that mindset, it will be a much less painful process.
I love that. I told the client recently, who has a little bit of a scarcity mindset towards money. It's more involved in that because, you know, they've been working for 40 plus years, they've got a great job, they love what they do. And I'm sure part of their identity is tied to, you know, the role that they play within that organization.
And that's hard to walk away from. but I told them recently, I said, listen, you have all of the resources in the world to take those trips to fly first class, to really enjoy it. Yeah. And by the way, if you don't fly first class, your kids will. And so you're just making a choice on who's going to be able to enjoy your resource.
Let's think about that. That's really an easy choice. And you think about it. Now, you know, in that context.
For me it is you know, I love my girls, but I want to enjoy the little bit. So for you about the first two is getting educated. The second one is creating a budget or a spending plan. and then the third one has to do around that. That money mindset. Yes. Being able to identify, you know, you're in your subconscious where you fall in that pendulum from abundance all the way out to scarcity to what's the best way that you think people can identify where they fall in that?
Well, I think that's that again, comes from reflecting on your life experiences and how they've influenced you. I have a client story that's actually kind of a good example of this. This is someone I've known for 25 years, and, she, her her parents were depression era. She inherited at their death, piece of property, a commercial piece of property.
And when she inherited it, it had deferred maintenance and tenant issues. And there was a sort of a difficult partner with the property, all sorts of problems. But she felt like she had enough because she had the building. And long story short. The partner forced a sale of the building. And so instead of now having this piece of property, that was a legacy from her parents, she now has a large pile of cash.
So what she has now is she has no deferred maintenance. She has no tenant problems. She has 100% predictable income, and yet she feels less secure than she did when she had the building.
So she's gone from non liquid to liquid. She's gone from unpredictable and insecure to secure and predictable. But she feels less secure, less financially confident. And so I have her talking to a therapist.
That is great. I mean, it's so funny that you bring up that story. I was talking with somebody actually just yesterday who's almost the opposite. Yeah, they've done a really good job, recently and got lucky with a business and been able to save a large amount of money. Yeah. They've taken that money and they poured it into some real estate projects and so on paper.
On paper, they have a lot of assets or they're worth a lot of money, but they don't feel financially secure because it's not a pile of cash that they can rely on. Right. And they're just hoping that they could sell one of these properties at a particular price in order for them to feel financially secure somewhere down the road.
And a lot can happen when it comes to having to sell a piece of real estate. because again, something is only worth what other people are willing to pay for it. Not what Zillow says on a screen. Yes.
Yeah. Yeah, exactly. but this, you know, there's, this kind of reflection on our life experiences, formulating where we are on the the abundance to scarcity pendulum that I think brings out the next point on our list, which is it's so important to talk about money. and you want to talk about money in a safe place where you can be, maybe uninformed or vulnerable, but where the people in the conversation with you, their sole goal is to help build your confidence and empower you in making financial choices.
So talking about money in the right circumstance and with the right people, that's definitely on the to do list.
That's my favorite one. I mean, partially because as I talked earlier, our society doesn't do a great job of educating people around money early enough. It's also something that we're very insecure about and somewhat taboo. But being able to find somebody that you can talk openly with about money, about decisions, about the goals that you have. I mean, if you're doing that alone, you're already in this journey towards building financial confidence.
I've spoken with a lot of spouses and partners, and they might not always agree on money. And it might be a stressful situation, but I point to the fact that, hey, we're still in a room talking about money, which means we are much farther along in this journey than than other people that they may know.
Exactly. Exactly.
And the last one, which is a very key component and not to be missed, is build an emergency fund. So I like to say save the best for last. Where have you seen an emergency fund play a crucial role in somebody's success towards confidence?
Well, for example, let's say you're a business owner and, you own a restaurant and Covid hits. If you have an emergency fund, you can get through an emergency like that and come out the other end. Maybe not stronger, but you will survive and then you can get back on your journey to thriving. Right. Right. So that's one example.
Another example is if there is, a medical situation, maybe there's an interruption your income because you're not able to work. So if you have, you know, the right kinds of insurance, disability insurance and so on. But if you have an emergency fund so that you don't have to tap into those long term investments that you have, like things, you know, like the stock market, it will help you on your journey back to health physically and financially as well.
So I think having an appropriate emergency fund is just, a huge step towards financial security and financial confidence. And I think further, you know, the emergency fund that's right for me is different from what might be right for you. If, for example, you have, you let's say you're an entertainer. well, your income is a little less predictable than the hours is.
Right. and so you want to adjust the emergency fund according to your life circumstances?
Yeah. I've seen the emergency fund play a very crucial role, especially in the wealth building, stage of people's life. Not not just in the in the retirement phase, but also the wealth building. Because oftentimes you see people with good incomes, good jobs, they are good savers, and they throw everything into riskier investments or investments that are designed to grow stocks, real estate, some of them crypto what, what have you.
But because they didn't have an emergency fund, if all of a sudden they woke up one day and their income went down because of, you know, the cycle in the economy, or they lost a job and then they all of a sudden they had to sell one of those investments, whether it be stocks or real estate, at a low price, because they didn't have that emergency fund, to weather that storm.
They look back on their life and go, man, what could have been if I only I had something that could bridge the gap for six, 12, 18 months.
Yeah, yeah. Priscilla, thank you so much. I mean, this journey towards financial confidence is a very difficult one. And money, brings out a lot of emotions because it's a number that helps us believe that we're secure or we can do the things that we would like to. I love the list that you had that you brought forward.
So educating ourselves, creating a budget, being able to be conscious about the money mindset that we have between scarcity and abundance. having someone that we can talk to about money like an advisor and then making sure that we have an appropriate emergency fund to weather any storm. Thank you so much.
Disclosure: The information presented herein is for educational purposesonly and is not intended to constitute financial advice. The views and opinionsexpressed by the speakers are as of the date of the recording and are subjectto change. It should not be assumed that Morton will make financialrecommendations in the future that are consistent with the views expressedherein. Past performance is no guarantee of future results. You are encouragedto seek tax and/or financial advice from your financial advisor and/or taxprofessional to thoroughly review all information before implementing anytransactions and/or strategies concerning your finances
