Saving for a Legacy

When exploring the origination of a problem in finance, typically the issue lies in variance from fundamentals. Fundamentals matter. They always have and always will. Success, believe it or not, is rooted in fundamentals. Finance, believe it or not, is rooted in fundamentals. Financial success…yep, you got it. If we all agree fundamentals matter, why must we stray from them so frequently? Is it lack of willpower, intellect, or laziness? The answer to this question depends on who’s on the receiving end, but the intent of this piece isn’t to answer the “why.” The intent of this piece is to deliver a shock to the system – hopefully a shock that sparks motivation to do better. Enter stage right: SAVING.

Saving comes in many forms and is done for several reasons. Retirement is probably the most popular reason people save. Other popular reasons for saving: desire to buy a house, car, boat, vacation home, engagement ring, hot tub, baby fund, education fund…the unexpected. Perhaps less common, saving for your legacy. How does someone save for their legacy? Keep reading.

Much of our business is built on financial metrics and ratios. When broken into its simplest form, saving isn’t difficult, especially for younger people. Please note, I didn’t write saving doesn’t require sacrifice. Herein lies the first variance from fundamentals I referenced earlier. Fundamentals require sacrifice. Our government hasn’t grasped this concept for years. The second an administration comes along and does something about it – everyone loses their marbles. Red, blue, purple, or green, please focus on the long-term implications of not changing. Our national debt is $36 trillion. Our service (interest payment) on that debt is over $1 trillion per year. Something MUST change.

Let’s put this in an easier to understand example. Someone who is 25 years old should (based on benchmarking) be saving between 10-13% of their gross pay for retirement. What does this translate to from a dollars and cents standpoint?

To make the math simple, someone earning $100,000 at age 25 should be putting a minimum of $10,000-$13,000 away for retirement annually. 40 years later, the 25-year-old who put $13,000 away annually would have a capital balance of $1,570,397 if the funds earned 5% over those years. Sparing granular details, the $1,570,397 would last the – now 65-year-old – until his or her age 95 if, factoring inflation, the funds earned a real rate of return of 3.24% during retirement. This also assumes an 80% wage replacement ratio, meaning the annual withdrawal from the portfolio in retirement equals $80,000. That isn’t too shabby. What if the 25-year-old had someone in his/her corner – a financially savvy individual with a long-term gameplan – who instructed them to make some additional sacrifices. What if that 25-year-old became comfortable saving 25% of their gross income for retirement? Well, that $1.5 million turns into slightly more than $3 million (assuming aforementioned rates of return).

Rather than a spend frivolously mindset, adopt a saving first mindset. Create a budget. Better than creating a budget – stick to a budget. We are privileged to work with many families that have done a wonderful job saving. They have lived below their means, saved additional dollars versus spending them, and sacrificed relatively small amounts throughout their accumulation years – now these families get to reap the rewards of those sacrifices. So, what does saving like this leave behind? It increases the likelihood dollars are left behind, sure – that isn’t a legacy. It leaves behind a story of humility. It sets an example of how to properly live life (financially speaking). It leaves an example of sacrifice and what it means to stick to the fundamentals. Surplus, in this business, is a far better word than deficit. By living a selfless life, rewards are magnified. Rewards for you and those around you.

God-fearing, humble, selfless, sacrifice, fundamentally sound, secure, and yes…wealthy. Those are some of the words/traits associated with our families and the legacies they are building or maintaining.

You should want to be associated, take my word for it.

Be well,

Spell Carr