The Basics of Personal Finance are Not Hard It Doesn’t Matter if you Make $46,000 or $460,000

The Basics of Personal Finance are Not Hard It Doesn’t Matter if you Make $46,000 or $460,000

Every single day at work, I discuss multimillion dollar estates.  Every day I get to work with balance sheets with numbers I can only dream about…hell with numbers anyone can dream about.  Just today, I saw a balance sheet with approximately $21,000,000, and it was only $21,000,000 because he didn’t want it written down that he owns another $9,000,000 of art work.  But something interesting happened while “war-rooming” a new case and it brought me back to reality.

While breaking down the client the assets were relatively normal (not like the case above), he had 2 children (6 and 2), but then when I asked about the income of the client…$460,000/yr.  So this guy, is making nearly half a million dollars a year and isn’t accumulating assets at the level most would at that income.

I asked the planner (remember I am a Director there without clients) if there was any indication as to what was going on behind the scenes of this family?  Well my alarm wasn’t the only one going off, and since we were eventually going to do retirement planning, the Planner had actually went into that line questioning with the client.

Without going into the details, he had two main issues that every personal finance blogger and writer discusses.

The Client’s Family Was Spending Just about Everything that Was Coming in

With very little prodding the client basically started listing his expenses:

  • Two Homes
  • Two Property Tax Bills (which are high where I/he live)
  • Parochial School
  • Pre-K
  • Couple Cars
  • Kids day to Day expenses
  • A Wife

Woah Woah, A wife? An expense…second problem.  I don’t know about you, but mine is my greatest asset.

There was No Communication Between the Spouses

The Client said that his Wife had no idea what was going on with money, expenses, etc…

She Just Spends

On this blog, I rarely venture into these basic tenets of personal finance, because I find them self evident and to be honest…boring to read about.  I often skip over the 30 or so blogs I follow daily, if their headline reads “Spend Less than you Earn” or “Talk to your Spouse.”  But the other day I was reminded, whether you are making $46,000 or $460,000 if you want to become asset wealthy, you need to spend less than you earn and have communication with your spouse.

Should I discuss these basic premises more? Do people need to be reminded the basic laws of personal finance?

11 Responses to The Basics of Personal Finance are Not Hard It Doesn’t Matter if you Make $46,000 or $460,000

  1. That’s too funny you listed the wife as an expense – at his income level you should have him socking away $46k before his spouse even knows its missing. That would be the biggest favor you could do the guy. Do you have any experience with setting up estates and trust funds? Would that be a good idea for this guy to do for his kids?

    • I did’t list the wife as an expense…he did! Much worse lol

      I am not sure exactly where the case is going to go just yet…He is a W2 employee, so he can’t do a SEP IRA. He is a high executive so we may be able to get a defined benefit/contribution plan/profit sharing/etc. but we aren’t there just yet.

      “Do you have any experience with setting up estates and trust funds? Would that be a good idea for this guy to do for his kids?”

      While I draft Wills and Trusts outside of my duties as Director of Financial Planner here, because of ethical concerns I can’t draft for clients of the firm I work for (New York basically says there is too much confusion as loyalty is concerned). That being said we will work with an attorney to have a Will drafted and gifting plan put in place. The Will is likely to include a QTIP trust:

      http://www.myjourneytomillions.com/articles/how-can-a-qtip-help-your-estate-plan/

      And Trusts for the children.

  2. It’s been said a few times and a few studies, high income professionals do not equal high net worth. It put it simply, many just piss it away.

    @Evan: It would be great if you could write a few blog posts on your observations you’ve had working with high net worth clients. What got them there and with you think is different with them than say the average joe.

  3. I’ve had a few friends that should have been destine to join the hign net worth club, but because of a spendthrift spouse, today have a much lower net worth than I do. Both are also now divorced.

    Picking the right spouse is hard. Both had what many would consider “hot” wives. Both wives were outgoing and fun to be around, albeit a bit bossy. Unfortunately, both started living large, too large.

    I’m not saying to live like a freegan your whole life… But build up some assets first, then expand your lifestyle.

    • It is hard when you watch a buddy make that kind of decision you KNOW is wrong.

      I have a really good friend right now walking into a train wreck of a marriage. All I could do is be supportive when they cut off the engagement the first time. Now its back on.

      • That’s ironic! 2 weeks before I found out that my buddy he got engaged to his ex wife, he told me he broke it off with her. It must be a common trend…

        And all I could do is watch screaming in my head “Noooooo”… The funny thing is everybody saw it except him. He had one friend try to tell him what type of girl his ex wife was, but my buddy defriended him instead…

  4. Haha, that’s hilarious that he listed his wife as an expense.

    It’s true that couples need to talk to each other about money but for some people, it’s just too uncomfortable of a topic to talk about. Nonetheless, it has to be done!

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