142. “We have a $2.3M net worth—but we cut coupons”
Feb 6, 2024
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A couple of lawyers, Brian and Rachel, argue about money and retirement. They discuss their separate financial approaches and the impact of past money problems on their marriage. The conversation explores their anxieties about living on one income and shares frugal advice from the speaker's parents. They also reflect on their experience with a non-transparent financial advisor, the importance of taking control of investments, and concerns about financial support for their daughters. The chapter concludes with the idea of selling a card collection for supplemental income.
Understanding investment fees and making informed decisions is crucial for financial success.
Investing in backloaded funds can lead to low returns due to survivorship bias.
Setting boundaries and time limits for financial support within families is important for promoting financial independence.
Deep dives
Financial Communication and Differences
Brian and Rachel, a married couple, have been experiencing disagreements and misunderstandings about money. Rachel is worried about their finances since Brian has mentioned his plans to retire early. They have separate finances and don't know each other's income or expenses. The couple has different perspectives on why they keep their money separate. Rachel's parents taught her to save and work hard for money, which resulted in her feeling anxious and cautious. Brian, on the other hand, wants to protect Rachel from financial worries due to her past struggles.
The Impact of Financial Advisor and Investments
Rachel shares her experience with a financial advisor who didn't disclose all the fees involved. She invested with him for 12 years, not realizing the financial impact. Rachel emphasizes the importance of understanding fees and making informed investment decisions. Brian mentions their current investments and assets totaling over $2.3 million but expresses concern about the amount generating income. Rachel worries about sustaining their current lifestyle after Brian's retirement. They have different feelings about their financial security despite having significant assets.
Fixed Expenses and Mortgage Optimization
The couple has higher fixed costs, including gifts for family and child-related expenses. Brian pays $1,220 per month for his daughter's expenses. They both cut coupons and prioritize cost-saving measures. However, Rachel's worries about their income sustainability increase as they approach Brian's retirement. Their mortgage interest rate is low, and Brian wants to optimize the mortgage to reduce expenses and invest more.
High fees and low returns in backloaded funds
The speaker in the podcast discusses their experience investing in backloaded funds, which require a certain investment period to avoid fees when selling. They realized that the returns on their investments were incredibly low, despite the positive statements they received. Upon closer examination, they discovered that their money was being turned over frequently, with new funds being added and underperforming funds being shut down. This practice, known as survivorship bias, leaves investors unaware that the funds they see are only the higher performing ones. The speaker eventually moved their money to a Vanguard fund and saw significant growth.
Generational patterns and financial support
In a conversation with Brian and Rachel, the podcast delves into the issue of financial support within families. Brian, who grew up with financial assistance from his parents, continues to financially support his adult daughters. However, as his daughter's circumstances change, Brian feels the need to reevaluate the amount of support he provides. The podcast emphasizes the importance of setting boundaries and time limits for financial support, ensuring fairness and promoting financial independence. Brian and Rachel discuss finding a balance and exploring other avenues to reduce fixed costs and increase investments.
Brian is 56 and Rachel is 51 and they’re both lawyers. She’s lost thousands on a financial advisor and he can’t stop paying his daughter’s rent. Brian wants to retire soon, but the thought of losing his income has Rachel in a panic about whether they would be able to maintain their lifestyle.
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