Navigating the Balance of Spending Versus Saving

Speaker 1 – 00:00
Welcome to EWA’s FinLit podcast. EWA is a fee only RIA based out of Pittsburgh, Pennsylvania. We hope all listeners
of this podcast will beneft as we deep dive into complex fnancial topics that we will make simplifed for you. And
we hope that this really serves as a catalyst so that you can make the best fnancial planning decisions for your
family and also save time.
Speaker 2 – 00:28
Okay. Welcome to another episode of FinLit by Ewa. I’m joined by my colleague Ben Rutenberg. Ben, how you doing
today?
Speaker 3 – 00:34
I’m good, I’m good. How are you?
Speaker 2 – 00:36
Good, Good. Today we’re going to talk about a little topic regarding the art of spending versus saving. So quick
overview, Ben. We see this all the time with our clients, right? There’s, there’s this balance, it’s a delicate balance that
needs to be struck between saving too much and saving too little, AKA spending too much and spending too little,
right? So we see it all the time and this is one of the things that we try to guard against, right? So it’s about the
equilibrium, it’s about the balance.
Speaker 2 – 01:06
And at the end of the day, correct me if I’m wrong, but what we don’t want to happen is people to wake up at 80 years
old and regret something again, that’s either just dying with too much money and not enjoying it while they were,
while they could have, or maybe at some point in retirement, running out of money. So we obviously don’t want that
either. Right. Anything to add?
Speaker 3 – 01:24
No. It’s so true. And we’ll get into the psychology behind it and how this works in practice. But like you said, we want
to avoid someone looking back, saving, saving, saving over accumulating, and then sitting in their 70s and 80s
looking back, saying, I wish I spent more time with my kids. I wish we took that trip. We have all this money, we don’t
know how to spend it. That is a failure on the advisor to not encourage the client to live their life in more balance and
enjoy the time along the way. And on the fip side, if you spend in your 20s, 30s, 40s, 50s, you don’t save anything.
And then you’re getting ready to retire and you’re very stressed, you don’t know if you have enough, and you look
back and say, man, I wish I had saved more.
Speaker 3 – 02:07
I wish I was more disciplined with my fnancial plan. We don’t want that either. So like you said, it’s a balancing act
and there’s a lot of strategies involved in getting that equilibrium. Like you said, making sure that you’re saving
enough to accomplish your goals, but you’re not saving so much that you feel like you’re going to have some regrets
along the way.
Speaker 2 – 02:27
So we primarily work with high income and, or high asset clients. High net worth, do you see, is there a typical, do
you see more of people, folks saving too much or spending too much? Is there a kind of a breakdown?
Speaker 3 – 02:40
Yeah, it’s hard to say. Like percentage wise, I do see a lot of big time savers. Oftentimes if you’re successful, high net
worth, you have the mindset of I’m going to be saving this and this is money that I want either passed down to future
generations. And we say it a lot that like really good savers are just bad spenders. So like when they get to a point
where they’re actually retired or going to be distributing their assets, they almost have a hard time doing it because
it’s a totally different muscle than the muscle that they’ve built for the last 40 years of accumulating their nest egg.
So it’s, it can be a hard mindset shift to turn down and spend it.
Speaker 3 – 03:20
But that becomes the advisor’s job to make sure they’re living their life in balance and spending a, spending in a
reasonable amount. Yep.
Speaker 2 – 03:27
Yep. Okay, let’s go over the psychology behind over saving. So there’s a few kind of tropes, a few things that we see
that are very common within our clients. Right. So the easiest one and the most common one maybe from my
perspective is the scarcity mindset. Right. So it’s the classic maybe you grew up with little money, you didn’t have
much, you go to college, you get a good job, you start making good money and you’re kind of on that saving track for,
like you said, for 40 years. Right. So what’s the hurdle that a lot of people have to overcome in order to, and maybe
fip that switch from saving to spending. Any thoughts?
Speaker 3 – 04:03
Yeah. Well, frst, the frst point is how you grew up with money makes a huge impact as to how you plan with money
the rest of your life. It’s how your parents were, how you grew up with money, how your cousins were, how your
grandparents were. Did you grow up in a family where they saved every last dollar? Did you grow up in a family where
they spent every last dollar? That really. And it’s oftentimes the reverse. If you grew up in a family that spent every
last dollar, you grew up so scarred from it that you’re like, I need to save, save, Save and then vice versa. If you grew
up with a family that, you know, kind of saved every last dollar, didn’t have those experiences, oftentimes those
clients want to turn around and give those experience to their kids and spend.
Speaker 3 – 04:43
So it’s an interesting kind of dichotomy there of how you grew up with money and how that impacts your decision
making. But the psychology behind overseeing, it’s so true. Having that scarcity mindset, never feeling like you have
enough. So always like comparing yourself to your neighbors or your coworkers or your peers. Obviously there’s a
fear of running out of money in retirement. There’s always a, you know, question about Social Security and, you know,
people’s parents, you know, supporting their parents. And they, you know, they don’t want to be in a position where
they feel like they want to be a burden on their kids. So saving so much that they want to feel like they’re a burden.
That is defnitely a huge factor in people saving. Maybe more than they should.
Speaker 2 – 05:28
Yeah. I mean, these days I think that maybe the childhood aspect is a bit overstated, but it can’t really be understated
on the same way. And I love how you said how some people grow up without much money and you want to
generalize and say that those folks will be heavy savers. But we see it all the time where they’ve worked hard for X
amount of years and they never had money as a kid. So they’re just, they’re blowing it out, you know, during their high
earning year, so to speak, and vice versa. Right. They grew up with a lot of money and for whatever reason, they feel
like they need to save, save. And then they wake up in their 60s, 70s with too much money, more money than they’ll
ever be able to spend. Right.
Speaker 3 – 06:06
We see it all the time.
Speaker 2 – 06:07
Yeah. Either way. Okay, let’s switch to the psychology behind overspending. So this is more of a, this is more of a fun
one. So it’s kind of the opposite of that scarcity mindset. It’s that abundance mindset. But, but sometimes it tips over
into, how do we say, like a problem. Any thoughts on that?
Speaker 3 – 06:26
Yeah, it’s comparing yourself to your coworkers. We kind of mentioned this before. Neighbors, friends. You see your
neighbor with a big house and a big car, you feel like you gotta ft in, have a big house and a big car or a nice car, I
should say. But those are assets that people see. And it’s easy to look at that and say, oh, that guy or that girl is
absolutely fnancially well off. Look at that car, look at that house. Those are the assets you see. The assets you
don’t see are, you know, what’s their relationship with their kids? Like, do they have, you know, are they tax efcient?
Like all the things that they could be doing behind the scenes that you wouldn’t see just from their lifestyle assets.
Speaker 3 – 07:07
That’s really going to tell a better story of their fnancial health as opposed to the house they live in or the car they
drive. Those are just more of the things you see on the outside and ultimately not the stuff that really dictates
someone’s fnancial well being.
Speaker 2 – 07:22
Yep, it’s kind of the classic chasing status emotional crutch, let’s call it. Right. We see it all the time. Would you say
that there’s a, like a most common, I don’t know, asset or thing that clients overspend on, like maybe too big of a
house or multiple cars?
Speaker 3 – 07:40
Like what’s, we see that all the time, I think like a, and we’ll get into like the framework of like a good solid fnancial
plan. But we oftentimes see people just not get house poor. But their housing payment eats up way too much of
their budget. And if they have so many other goals, it’s hard to keep a fnancial plan on track. When someone’s
housing payment is more than, you know, call it 30% of their take home pay and then they’ve got another big chunk
coming out for a car payment, you know, daycare costs, all these things add up and then they turn around and say,
well, there’s no, you know, I want to send my kids to education, but I don’t have any money left over. I want to plan for
retirement outside of my 401k.
Speaker 3 – 08:21
There’s just not a lot of money there. So that’s where we see fnancial plans kind of go awry is when the spending on
those items eats up too much of the budget.
Speaker 2 – 08:30
Yep, yep. So we mentioned at the beginning that, you know, what we strive to, what we strive to obtain, what we
strive to achieve for our clients is balance. Equilibrium. Right. So what are some frameworks for getting into
balance? It’s easy to say to somebody, hey, you’ve been saving for 40 years now, just stop. It’s easy to tell somebody
that grew up with very little money to stop spending and vice versa. Right. So what do we, what are, what’s kind of
the framework that we operate under in order to kind of Help clients achieve that balance.
Speaker 3 – 09:00
Yeah, it’s number one, building a fnancial plan. I’m not just saying that as a fnancial advisor, sitting here with
another fnancial advisor, but it’s. It’s the honest truth. Sometimes we’ll sit down with a client and ask about their
retirement or their fnancial independence. They say, well, I want to get to. I want to get to 5 million, I want to get to
10 million. And then I just follow up and ask, why? And sometimes I’ll just get a blank stare. It’s like, well, I don’t
know. I thought that’s how much I needed to sustain a, you know, sustain my lifestyle, to do X, Y and Z. And, you
know, there’s not really a reasonable explanation for the number that some people just have in their head.
Speaker 3 – 09:34
So getting a fnancial plan and setting goals, but at the same time of setting goals, setting realistic goals and making
sure that they’re prioritized. So sometimes we’ll sit down with a client and say, well, I want to retire at 50. I want to
send my three kids all to Ivy League schools. I want to get a second house. I want to help my parents. It’s like, okay,
let’s prioritize these and let’s make sure that we are building a plan around what’s most important. So I think that’s
where plans can go, right, too, is when you don’t have a. A goal prior to kind of a. Like a goal prioritization. Almost
like you want to do all these things, but none is taking ownership over the other. So sometimes we’ll ask clients, hey,
what would you rather do kind of door A or door B?
Speaker 3 – 10:20
Would you rather work till 65 and send all three of your kids to whatever school they want to go to, or would you want
to work until 60 or 58 and be able to cover half of their education? Which door would you walk into? And that’ll just
help them in the back of their head say, okay, I am actually prioritizing education, or I am actually prioritizing fnancial
independence. And if you can get that buy initially, it’s much easier to create a fnancial plan than if you’re trying to
fgure out that buy in after you start one. So that’s really important. And then the most. The more things you can
automate in your fnancial plan, the better. So we talk about, you know, dividing your savings and spending, right?
Speaker 3 – 11:06
So like reverse budgeting, we have multiple resources on that, but automating your monthly savings alongside some
of your other spending and then giving yourself permission to spend from a variable standpoint is really important.
So again, this is all part of that reverse budgeting technique that we’ve talked about, but basically putting all of your
monthly savings and important bills into one bank account and then your discretionary spending into another,
knowing in the back of your head, hey, we are going to be able to spend down our discretionary account down to
zero because all of our savings are on track from our fxed account. So that’s just one of the ways that we can help
get a client back in equilibrium, is sorting out, getting a plan together and then automating it as much as possible.
Speaker 2 – 11:53
So let’s say we have a client that is on board with spending in alignment with their goals and their values. Right. So
what are some things that we tell them? Because even though they’re kind of mentally ready, it’s really tough to start
spending the money that you’ve saved over the last 40 years. So any tips or tricks for clients? So for example, like a
classic one is helping them go through a mind exercise of understanding what it’s like to actually spend on things
like experience rather than having all their money stashed away into various assets. Any thoughts on that?
Speaker 3 – 12:23
Yeah, I think that’s so true. And investing in experiences and not just assets, that gives people a lot of purpose and it
makes people happy. So if we’re working with a client that is approaching retirement, maybe it’s travel with family
and grandkids and maybe it’s, you know, moving closer to them to spend more time with them. Oftentimes their time
is, becomes more and more valuable as they get older. So from a spending standpoint, it’s not necessarily, we have
super high net worth clients that are going out, you know, buying a, buying brand new X, Y and Zs in their 60s and
70s. It becomes more about the experiences and who they’re with. And so that can help kind of break the dam a little
bit on spending because oftentimes we’ll sit down with a client, they have everything they need.
Speaker 3 – 13:14
There’s not a new thing that they, that they want. Really what they want is their time and the full freedom to do
whatever they want. So that, that can help accelerate those conversations is making sure that they’re spending time
on experiences and things that they care about and not like the new fad or the new thing.
Speaker 2 – 13:34
Yeah, and it’s all well and good to have more qualitative conversations, but there’s, you know, we’re fnancial advisors,
we love the numbers. So what are the tools that we use to help clients to see, to kind of picture both from a numbers
and also like a graphical standpoint, what their retirement could look like if they were to do ABC instead of xyz.
Speaker 3 – 13:53
Yeah, so there’s the analytical side and then there’s like the personal side. So analytically we build out through our
Emoney software, giving them kind of full, I don’t know, full peace of mind, so to speak, on when they can retire, what
they can spend if they follow X, Y and Z recommendations. And I think people like seeing that we’re able toggle on
different spending assumptions, different retirement ages. So it really gives them a good picture of where they stand
today and where they can be 10, 15, 20 years down the road. So that’s kind of the analytical side and the personal
side is more. Sometimes we’ll go through what’s called a values exercise with our clients, helping them prioritize
between 5 and 10 of the most important values that they have in their life.
Speaker 3 – 14:39
And what that means is we can help coordinate their fnancial plan based on the values that they fnd most
important. And that can be really relevant for someone that’s in the distribution phase. Making sure that if they
prioritize, you know, their time or their family, but their fnancial plan is, you know, they don’t live anywhere close to
their family, they have no travel plan to, they have no vacations planned, that would set off a red fag for me that, you
know, they are, their fnancial plan is not supporting what’s most important to them.
Speaker 3 – 15:11
And so if we can bring it back to their values and what’s most important and help design a plan that carries those
out, that can be really impactful and really rewarding and help keep a plan in balance so that someone doesn’t end
up passing away with a boatload of money and not feeling like they either enjoyed it enough or they prepped their
next of kin for how to deal with money. That’s a whole separate conversation of, you know, gifting and, you know,
estate planning. But the, you know, seeing your kids and grandkids use the money while you’re living, that can be very
valuable for high net worth clients that are retired.
Speaker 2 – 15:55
Any recent poignant examples of situation where went through the exercise and clients had that kind of light bulb
moment where they said, oh, I can actually spend on these things, you know, these things that I value when X days or
months ago, I didn’t think that was possible.
Speaker 3 – 16:09
100% yeah, it does happen. It’s, you know, the values, especially for someone in the accumulating phase, it’s
important, but you know, really in the distribution phase, it can help prioritize goals and help get a fnancial plan
tracking with what’s, with what’s most important to you. It really does, it really is a power box.
Speaker 2 – 16:34
Yeah. And I think, you know, it ends where we started is that we want clients to have no regrets at or near the end of
their life. Right. Again, it’s, you don’t want somebody on their deathbed with more money than they’ll ever need and
they’re just going to give it to charities or their kids, which is not necessarily a bad thing. Maybe that’s not what they
wanted necessarily. Maybe they sacrifced, you know, vacations or experiences with their kids or their grandkids
while they were alive and all of a sudden they’re, you know, they’re passing with signifcant assets they could have
used to kind of make those memories. Yeah, right.
Speaker 3 – 17:05
I, I, I take and it’s the job of the advisor to make sure that plan is being followed. Just, I mean, it would be easy for the
advisor to keep the account as big as possible, not have them spend anything, because that is revenue for the frm. I
mean, let’s just be honest. If the account’s bigger, that’s more revenue for the frm. So it’s on the advisor to, if they
have, if the client has stressed that enjoying their fnancial independence is the most important thing to them and
they’re not spending to the level that they could be, it’s on the advisor to challenge the client to spend more, to travel
more, to do X, Y and Z that they’ve discussed as most important. That is doing your job as much as getting someone
to that point where they can be doing that.
Speaker 3 – 18:00
Because if you don’t, you really didn’t do your job to help the client. You managed the money, that’s great. But did they
enjoy it to the extent that they could have or that they worked for the last 40 years for? Who’s to say? So yeah, it’s the
job of the advisor to make sure that someone gets to that point. I think that’s kind of table stakes. But once they are
at that point, it’s then the advisor’s job to make sure that they’re enjoying it.
Speaker 2 – 18:26
Yeah, I mean, it’s almost like that term fnancial advisor doesn’t really do it justice. It’s a bunch of jobs kind of like
morphed into one.
Speaker 3 – 18:34
Financial therapist.
Speaker 2 – 18:35
Yeah, therapist, Lifestyle designer. Therapist is a good one. Advisor, whatever you want to call it. It’s really just about
kind of crafting the ideal lifestyle of your client and helping them get there, which is it at the end of the day.
Speaker 1 – 18:49
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