5 Preventable Financial Errors

I have assembled 5 common theses hindering financial success. These were gathered from my own experiences, financial coaching sessions, and just speaking with coworkers.

These are in no particular order because they hinder each of us differently.

• Failure to Plan

• Rapid Lifestyle Inflation

• Low Savings Rate

• Poor Insurance Choices

• Poor Debt Management

Failure to Plan

Every request for financial coaching meets a request from me. I’m looking for a budget and a financial framework (asset and liability list).

The budget is straightforward. I want to evaluate dollars in and dollars out. It’s impossible to provide recommendations without knowing these two variables.

Income is used to calculate housing allotment, vehicle allotment, savings rate, insurance coverage, and more. It’s important to perform your own calculations for how much house or vehicle is appropriate. Never trust a lender’s calculation.

A lender doesn’t care if the payment holds you back from saving for your future. They are salespeople paid on commissions.

Expenses tell the story of where dollars go. Almost everyone I work with was surprised by one or more areas of their spending. Usually dining out.

I don’t care much about the specific allocation of dollars, but rather the big picture. Meet your investing goals FIRST. Meet your debt burden SECOND. Live off the rest. As a high income earner, don’t overcomplicate budgeting.

Financial framework is a list of assets and liabilities. Mrs. TFC and I have an Excel sheet with all of the financial accounts. Every month, we update the balance of each account. Then I examine how each account changed.

I expect our business checking account to grow each month due to services rendered. I expect our personal checking account to grow due to monthly salary payments. Retirement accounts are pretty heavy in equities. They fluctuate with the markets.

Over the past month or so, our accounts were down over $100,000. I checked the market performance and sure enough, this percentage decrease matched market returns. It’s the price of broad-market investing. Feels bad man.

Financial success doesn’t happen by accident. Without budgeting, monitoring accounts, and tracking investments, success is unlikely. Spend 30 minutes per month making this happen and you will feel in touch with your personal finances.

Lifestyle Inflation

I expect lifestyle inflation. That is perfectly acceptable and well deserved. The caveat…live to your net worth. Please inflate your lifestyle in proportion to your net worth and enjoy the fruits of your labor.

New grad CRNAs likely have a negative net worth. That’s student standard of living. The average family of 4 in the United States lives on $80,000, the average new grad CRNA should be able to live on less.

I preach the moneymoon. It’s the best way to get ahead financially. I want you to have everything your heart desires that can be purchased, but in time. It’s tough to combat peer pressure and the social expectations that accompany a CRNA income.

Deflating cost of living is painfully difficult. Arguably embarrassing. So inflate slowly.

I’ll say it again because it keeps so many high earners broke…As your net worth increases and financial goals are met, increase your standard of living. Live this mantra early and consistently to find yourself as a 40-year-old multimillionaire on track to retire in 10 years.

The Financial Cocktail provides a unique perspective because it’s written by a 30-year-old self-made millionaire. I’m not an armchair expert or a 60-year-old writing about what worked “back in my day.” Nah, I’m in the trenches neck deep in fun right next to you.

Depreciating assets are an area of lifestyle inflation to watch. The middle-class trap. A vehicle upgrade could be a $5,000 used car or a $120,000 new suburban. Same goes for campers, boats, ATVs, snowmobiles, and anything else fun that goes down in value.

Start your upgrade with a $20,000 vehicle, then a $50,000. Don’t spend your entire $75,000 sign-on bonus on that $120,000 SUV. Those are dollars that could be used to pay down debt, fill retirement accounts, or invest.

I want you to have the plane, train, and automobile you always wanted. But…fund your future first.

**Long TFC Story Approaching**

The TFC family took a conservative approach to lifestyle inflation that was nicely complimented by a substantial income.

During my first year as a CRNA, the dual income, no kids (DINK) TFC family lived comfortably on $72,000 while earning mid six-figures. A 1,400 sq. ft. house. A few short vacations over the year. We built a financial base quickly and began our lifestyle inflation.

Fast forward three years and we are paying for a babysitter…for a week…at an all-inclusive resort in Mexico. The TFC family didn’t hesitate on this decision. Truely happened without a second thought.

It’s truly surreal to agree to attend a destination wedding costing us $6,500. Then bring a babysitter for another $3,500 so we can be attentive for the wedding. All to ensure Little Miss TFC can join us and we can spend time together as a family.

If you had asked me about paying $3,500 for someone to watch Little Miss TFC for a few hours per day while on vacation in another country, I would have said, “What a ridiculous idea! Absolutely absurd!”

Now I understand the value of spending on areas that are important. This is easier to do after achieving cost FIRE. Knowing that a bit more spending won’t change our retirement trajectory. Knowing that The Financial Cocktail System is in place.

This is also the guy who drives a 2010 GMC and won’t buy ground beef for $5 per lb. The guy who buys clothes from local thrift shops and wouldn’t think about buying lunch from the cafeteria. Inflation is starting in areas I value, not in all categories.

Low Savings Rate

My recent entry Savings Rate and Time to Financial Independence speaks to the importance of a high savings rate for CRNAs.

The high opportunity cost of becoming a CRNA means investing is delayed until one’s mid-30s. This leaves a 30-year investment timeline prior to the standard retirement age. Someone beginning their investing journey at age 18 with $300 per month does well because the investment timeline is almost 5 decades. This $300 per month kid investor has $1.7M at age 65.

To achieve the same $1.7M at age 65, a 35-year-old would need to invest $1,200 per month. 4x the dollar amount.

Delay investing until age 45 and you would need $3,000 per month to achieve the same $1.7M. 10x.

All the clickbait articles stating a 10% or 15% savings rate is adequate are not for you. They are for average people. Average people don’t have massive student loans. Average people don’t have grad school debt. And still, average people are broke.

This is the fire under the buttocks you wanted. Or the affirmation that your current hustle is worth the discomfort.

The Financial Cocktail recommends saving 25-50% of net income beyond debt payments. With a net income of $12,000, look to save/invest a minimum of $3,000. This is above and beyond a $2,000 student debt payment. Savings could go towards extra debt payments or investment accounts.

With this system, effort is front loaded. There may not be a lot left for living expenses. As debts are eliminated, these payments turn to cashflow, thus allowing for more enjoyable allocations, such as planes, trains, and automobiles.

I was going to write about adequate insurance. This would include short-term disability, long-term disability, life, and umbrella coverage. After seeing so many questions about whole life insurance on the FB page, I deviated a bit. Poor insurance choices now refers to having the following…

Whole Life Insurance

Aka traditional, permanent, universal, indexed universal, variable universal. They all mean the same thing – scam. There are nuances to the aforementioned list of permanent life insurances, but they are all an expensive way to acquire life insurance.

Whole life is an investment product comprised of fees, a death benefit, and cash value.

Think of the cash value as a savings account. Pay extra to increase the cash value. This cash account typically goes into some kind of fixed income investment looking at 3% annual growth, which is tax free. One can withdraw or take a loan from the “cash value” of the policy.

Despite premiums being fixed, a greater portion of the premium is allocated towards the death benefit as you age. You don’t get a higher payout despite more of the premium going towards the death benefit; the insurance company just keeps more of your premium.

What about whole life insurance is bad?

• High Premiums

• High Fees

• Low Annual Return

Premiums are about 20x the cost of term insurance. I hold a $6M term policy costing $400 per month. That would cost me $8,000+ per month to have the same death benefit. $100,000 annually for life adequate life insurance…LOL.

During the first 2-5 years of a policy, fees prevent the cash value from accruing. And when the cash value begins to accrue, the investment return is poor. It’s typically invested in annuities and bonds, which underperform inflation. And you pay high fees to see this poor return.

But you can use the cash value to pay for the cost of living or make a big purchase. True. There are ways to do this but remember – ONE there are fees associated with everything. TWO, there are fees to access funds. It’s your money that YOU put in there. Why fees? THREE, dropping the policy won’t get you the entire cash value, but rather the surrender value (cash value minus fees).

The insurance company keeps the cash value upon death. They count the cash value towards the death benefit.

$1M death benefit + $500,000 cash value = $1M payout upon death

They say, “Thanks for investing with us. We will give you the death benefit, but we actually keep your investment account that you have paid into for decades to offset our losses.”

Whole life is rarely a viable option. Buy term and invest the difference. For a detailed piece on insurance, check out Be Responsible, Be Insured.

Poor Debt Management

Debt carries a psychological and mathematical component. Personal debt is heavy. If you are debt averse, the psychological desire to become debt free trumps all mathematical arguments for holding debt.

The mathematical argument for debt is interesting. Firstly, you can’t out invest high interest debt. Don’t arbitrage debt above a 5-6% interest range. It isn’t worth holding. Mortgage debt may be an exception, but that’s another story.

IRS debt is top priority. Don’t hold credit card debt, personal loans, or student loans. Even interest deferred loans may be worth paying off.

There is a financial prioritization ladder recommending meeting the employer 401(k) match before debt payments due to the instant 50-100% return, plus tax advantages. Next on the list is high interest debt. These days, that’s almost all non-mortgage debt.

So…yeah, big retirement contributions and investments are delayed until the debt situation is cleaned up. Debt and stability have an inverse relationship. Less debt brings a more stable financial picture.

I’ll say it again, don’t get crazy with investing before the student loans at 7-8% are paid off. It’s uneasy to be in your mid-30s and your 401(k) balance hasn’t changed since you were an ICU nurse. If you adhere to the aggressive ways of The Financial Cocktail, your student loans will be gone within two years and the real investing starts.

The financial framework tracks all assets and liabilities. Showing decreasing liabilities and static assets still leads to an increased net worth month-over-month. Without updating the financial framework, it’s easy to be discouraged.

No one I have spoken to regrets paying off their student loans, even if it meant delaying investing.

BONUS: Lacking Financial Literacy

Learn enough to be dangerous. I began studying personal finance and investing topics a few years back and took notes along the way. Then a desire to pass this information to others led me to start The Financial Cocktail. No need for us all to make the same mistakes. I have already taken the hit.

Then when the weekly blog posts weren’t enough, I created a comprehensive course. Yep, a 7-hour comprehensive course discussing personal finance, investing, and retirement topics. A start-to-finish personal finance tour guide. It’s not perfect, but the cost is far less than what you pay for guidance elsewhere.

I think about all the financial advisor fees that could be saved. The average CRNA could save thousands of dollars per year with a little self-study instead of paying a financial advisor $5,000+ per year to do what I recommend in my course.

If you are looking for resources, I have a must-read list that has books on every topic. Most libraries have these books. Again, they contain enough pearls to make you dangerous. Enough to minimize your mistakes to four and five figure mistakes.

Acquire financial literacy early in life to minimize regrets. I look back on some of my financial decisions and though, “if I only knew then what I know now.” Sad, but true. Please do yourself a favor and possess (at a minimum) a basic level of financial literacy. Then pass it along.

Tell your coworkers, friends, parents, and children. Financial security is not a zero-sum game. Thanks for reading!