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Saving Strategies for a Balanced Life | Can You Save TOO Much? - YouTube
Channel: Anna Hilberry
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Knowing how to spend your money is
equally as important as knowing how to
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save your money. There's a slippery slope
between taking a balanced approach and
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developing what's known as a savings
addiction, which is just as bad as a
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spending addiction. I'll go through a
few examples. I was on LinkedIn and
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there was a post very popular. It was a
man in his 40s he was boasting about how
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frugal he was. He had a very high level
of income. He lived in a 500 square
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foot apartment he had one suit. He didn't
have a car. He saved every penny that he
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had. Meanwhile his friends were living
life to the fullest to living paycheck
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to paycheck. These two people are at
the opposite ends, one has a savings
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addiction and maybe his friends have a
spending addiction. It's important to
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live life in a balanced manner giving up
some enjoyment of life now so that you
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can have a decent retirement later on in
life. I found it humorous that he was
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boasting about this during a pandemic.
Life is uncertain. We don't know what the
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future holds. There's no guarantee that
he will even make it to retirement. So
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it's important to live for today but to
do so in a balanced approach this man's
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behavior, his savings addiction wasn't
going to lead him to happiness. I'm going to
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show you where it leads. I have a
real-life example from a client and I've
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seen this before. Let's go through it.
I'm Anna Hilberry. Please like and
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subscribe to my youtube channel.
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I had a client much like the LinkedIn
man and he spent most of his life having
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a savings addiction and in retirement he
continued on with his savings addiction.
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He didn't just all sudden switch the
switch and start enjoying life to its
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fullest. Once behavior patterns are
ingrained it takes a huge amount of
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effort to change your thought process
and to change your behavior and so he
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continued on and he took it to the
extreme he ended up bathing in the river,
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Even in the middle of winter to save on
his electrical bill. Meanwhile he had
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millions of dollars in his investment
account
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sadly my client died never once having
enjoyed the fruits of his labor. He may
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as well have been penniless for all the
good that all of his money did him, but
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on the other end of the spectrum is someone
who has a spending addiction and they
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too risk ending up penniless and so the
two end up in the same place don't they?
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There's a much easier approach, take
a balanced approach. Much like eating too
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little is bad for you and eating too
much is bad for you so too should you
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take a balanced approach in your eating
habits and in your spending and saving
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habits. Whether you're retired or whether
you're in your income earning years and
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you're saving, taking a balanced approach
is more likely to lead to less stress
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and happiness down the road. Clients have
been asking should they reduce their
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withdrawals out of the portfolio because
we're in a recession, prices have dropped,
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the future is uncertain and unknown and
there may be feeling a little bit afraid.
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And the answer is, if you have a properly
structured portfolio probably not, but we
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should talk about it and review your
goals and take a balanced approach.
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Our habit is to pre-fund a client's
withdrawals by about 12 months worth of
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income and so that leaves a cash buffer
between price action in the stock market
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and a client's withdrawals out of the
portfolio. Keeping in mind that we also
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have a portfolio generating interest
income and dividend income. So that
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will also replenish the clients
withdrawals. And so in reality you have
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anywhere between one to two years worth
of cash coming in before you have to
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take any kind of action on the price.
Having that balanced approach, that
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proper diversification, having focused on
quality really does help out in the time
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of recession and difficulty. Having
that conservative nature is to a benefit.
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Our clients income hasn't gone down, in
fact mostly it's gone up or stayed the
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same because we have some cash on hand
prices are down we were able to go in
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and make some fruitful purchases where
the dividend yield is higher and that
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bumped up the income a little bit. But
what about all those fears and talk
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about dividends being cut across the
board. Contrary to popular belief, not all
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companies are going to cut their
dividends. Sure the ones that were highly
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levered and probably should have been
paying out a dividend anyway will cut
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them. Now is a great excuse and a
great time to do so because shareholders
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would be a lot more forgiving now than
probably they would during normal times.
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If you have focused on quality and
you went after those companies that had
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good cash flow, had good high earnings
for their payout ratio, then they should
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be just fine. Now if you have a company
maybe have a couple that cut their
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dividend, if you have proper
diversification proper asset allocation,
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the overall impact to the portfolio will
be small. What will happen is we'll cut
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those from the portfolio will probably
sell them at a loss but because their
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overall percentage of the portfolio was
you know 5% roughly between 5 to 8%
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the loss overall would be small.
We would replace it with another
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dividend income you know paying company,
a company that had better future ahead
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of them and we've carried on. We did see
this in 2008. We had you know one company
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it was
we had a company that it was a big bank
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they cut their dividend. It took a
long time for them recover. We did the
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right thing by selling it and replace it
with something else.
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Clients income wasn't impacted overly
much. Prices you know carried on. They got
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paid a dividend income. Within a year and a
half later they were above water. The key
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is to build your house to withstand a
storm because baby we're in one. I'm Anna
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Hilberry.
I hope this has been helpful for you
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thank you for listening
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you
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