Why I Think This Painful Wealth Management Exercise is Also One of the Most Beneficial You Can Do

In our Money Marathon series, I’m using some running stories and analogies to teach investors how to get more potential mileage out of their money. We’ve covered six strategies so far:

Strategy #1: Know your why.

Strategy #2: Why you need a contingency plan.

Strategy #3: What to do when your plan hits the fan.

Strategy #4: Should you bet your financial future on Artificial Intelligence?

Strategy #5: Have a backup plan for your plan.

Strategy #6:  Three questions you can ask yourself can help you get more out of your physical fitness and your financial fitness.

In today’s money marathon post, we will show you how you could potentially get a lot more mileage out of your money by using a painful, potentially the most painful, wealth management exercise that’s out there.

First, I’m going to start with a little running story. Last Saturday, I engaged in one of the most painful types of running exercises that I do – the lactate threshold run. My coach typically has me run one to two lactate threshold runs each week. And this run was especially painful because it was cold, and my pace was fast.

It was 25 degrees when I started; my fingers and toes were numb, and I just wasn’t ready for the cold. That all changed very quickly because, in a lactate threshold run or an upper heart rate run, my heart rate is supposed to be 90 percent of my maximum heart rate, which is very painful to sustain.

I was running three and a half miles, so I had this heart rate monitor on, and my watch was basically yelling at me if my heart rate went too low. It’s difficult to sustain because it’s painful! Why is it painful? Well, my body’s producing lactic acid at a higher rate than I can clear. What happens is your legs can start to hurt, your lungs can start to burn, your legs can feel heavy, and you want to slow down.

At this point, you might be wondering why in the world I, or millions of runners, do those lactate thresholds or those upper heart rate runs when they are so painful.

Well, I’ll give you three reasons.

#1: It can make you more efficient. As a runner, it can help your body get used to clearing that lactate so you can run farther faster in the future.

#2: When you track your data, you can see progress, and that can feel good, so it can reduce worry. So we have efficiency, and we have progress.

#3: It can give runners, and it gives me and my coach more clarity and confidence with race day pace decisions. So, under normal conditions, if we know what that threshold is, we can be much more confident in those race day paces and how fast we run under normal conditions.

What in the world does this have to do with money? A whole lot today. For me, the most painful financial or wealth management exercise I have gone through personally in the past (and that I see my clients go through), I believe is the most beneficial exercise, and it can yield the same three benefits.

So, going back to those reasons to do this exercise.

#1: It can make us more efficient with our money.

#2: It can help us track our progress, which can lower stress levels or worry about how we’re doing.

#3: When it comes to planning for retirement, your financial future, or a major purchase, this exercise can help you make those decisions with more clarity and confidence.

So, if I had a drum roll, I’d be doing that now. The exercise is the 90-day cash flow analysis.

Essentially, look back at your last 90 days of spending, and you figure out where in the world did your money go. For me, it’s painful. I mean, I think I prefer doing a lactate threshold run, maybe double the length that I did last weekend, if that was possible, instead of doing the 90-day cash flow analysis!

Why is the cash flow analysis painful, and why is it helpful? How could it potentially help you be more efficient, track your progress, and have more clarity and confidence with your decisions? Well, let’s walk through that.

It’s painful for me because I get to look back at my spending for the last 90 days and see a couple of categories where my money and cash flow left the household, sometimes where I didn’t want it to go. Maybe some extra money went out to Amazon. I might have a few extra boxes that show up on the front porch now and then!

When that money is spent, it’s money that I don’t have for the more important things. Maybe it’s a family vacation, maybe it’s giving to a certain charity, or maybe it’s investing. Looking back at where my money went can be a little bit painful.

Another reason it can be painful is that sometimes our subscription costs increase without us knowing. Inflation rises without us knowing. Gas prices could be up. I know food and groceries are way up over the last few years. Property taxes are up. Interest rates are up for those who have variable-rate loans, so it’s painful to see where our money is going.

Okay, that’s the challenging part of looking back; it can be pretty humbling. Let’s talk about how it’s more efficient, at least for me. I’ll give you some real-life examples of how it can help track progress and, for me, make more confident decisions. I believe it could help you as well.

How has the 90-day cash flow analysis made me more efficient (initially and then on an ongoing basis)?

I see things that I wouldn’t have seen. The first time I went through that exercise (it was years ago), I found a charge for $97, and it looked like something I had signed up for, but it wasn’t. I called the credit card company, and it turns out it was fraud. And it had happened four years in a row, so the credit card company actually gave me my money back. The money I got back totaled around $400!

Just recently, doing my analysis, I saw a gym membership charge for a gym I absolutely love. I won’t name it because it hurt to cancel my membership. I wish I could have kept it. It was $150 bucks a month, so it’s super expensive, but I loved it, and I just wasn’t using it because I have been running a lot more than I have been in the gym. Canceling that membership saved me $150 per month, which is $1,800 per year, which really adds up over time.

In fact, I ran a calculator and asked, well, what could that money grow to if I put it in an investment account that earned a hypothetical 10 percentI believe the number was about $296,000 after 30 years. Just $150 a month could potentially grow to almost $300,000 in 30 years. That’s crazy! Of course, we can’t predict the market, and you could also lose your investment.

Could that make me more efficient? Could it make our family more efficient? It sure could.

Probably the most humbling way it makes me more efficient is by building awareness of my spending. The 90-day cash flow analysis helps me see where I made an impulse buy or two. Maybe it’s Amazon or Costco or a running store or an outdoor store.

I recently asked Marsha, my amazing wife, if she thought I would save at least $3,600 a year if we adjusted my spending budget for hobbies, health, and fitness. She just kind of smiled at me. She’s like, well, yeah, we could. So there we have it, $3,600 a year for me. Maybe I’m more impulsive than you, but that is $3,600 that we could repurpose towards other things, like the big family vacation we want to take (I’m not going to say where just in case my kids watch this!)

As a financial planner, I would really like to save a little bit more, and there are reasons why I’d want to cut expenses back, get on that analysis, and have a better spending plan. Between the two of the examples I gave — the gym membership and just impulse spending – if I would invest all that money, the $3,600 a year for the impulse spending, the $1,800 a year for the gym membership, if we assume a 10% growth rate, it could be close to $900,000 in 30 years. Again, that’s a hypothetical example, and the market can go up or down.

That’s reason #1: to be more efficient with my money.

#2: It helps us track our progress.

When we look back at spending, it helps us see whether we are spending according to plan. And when we have that information, that helps us with reason #3.

Reason #3 is making decisions with more clarity and confidence for retirement projections, tax projections, and projections in the financial plan.

If we know what we have been spending, it’s easier to forecast what we might need to spend, and that impacts our income tax projections.

So, as a recap, for me, and maybe for you, one of the most painful exercises could be that 90-day cash flow analysis.

If you want to get healthier, you want to get faster, you want to get stronger, you probably need to exercise.

If you want to feel more secure in your future or free to enjoy the wealth you’ve created, especially if you’re worried that you’re inefficient, you can’t track your progress right now, or you don’t have a good way to do that. If you don’t feel like you can make decisions with clarity and confidence, this 90-day cash flow analysis could be for you.

If you are an existing client and haven’t done this in a while or you’ve just refused to do it, now is a great time of year to do it because we almost have 90 days between now and when our annual review season starts, which is February 1st.

So, if you need help and you’re an existing client, give us a call. We’ll get you started. If you’re not a client and want to create a plan to help secure your future, tap the button below, and we’d love to hear from you.