In this episode, podcast host and author of “Control Your Retirement Destiny” covers Chapter 2 of the 2nd edition of the book titled, “Starting with the Planning Basics.”

If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon.

Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

Chapter 2 – Podcast Script

Hi, this is Dana Anspach, founder and CEO of Sensible Money, a fee-only financial planning firm that specializes in helping people plan for retirement, and author of Control Your Retirement Destiny.

In our previous episode, we discussed highlights from Chapter 1 on the topic of “Why It’s Different Over 50.” In this podcast, I’ll be covering the highlights from Chapter 2 of Control Your Retirement Destiny, titled, “Starting With the Planning Basics.”

Before we get into Chapter 2 content, a brief history on the publishing and reception we’ve gotten with the book. Control Your Retirement Destiny was initially published in 2013, out of my passion for helping people navigate their way through retirement and to combat the popular retirement rules of thumb in the media that are hurting people more than helping them. Naturally, I was nervous when it was released. Will people like it? Will it help them?

I’m honored at response I’ve received and the feedback on the book – it has incredible 5-stars reviews on Amazon. And it is often the reason clients initially seek us out for assistance.

Before we get going, just a reminder that if you like what you hear today, go to Amazon and search for Control Your Retirement Destiny. You won’t be disappointed. And if you are looking for a customized plan that fits your specific retirement needs, visit sensiblemoney.com to see how we can help.

Let’s get started.

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In this Chapter you learn how to use a set of basic schedules to build a financial plan. I’ll be explaining these schedules, but first, a story to illustrate why the basics are so important.

I was lucky enough to grow up with a dad who taught me the value of not only smart financial decisions, but also of health and fitness. In my mind, there’s a lot of correlation between the two.

As a family, we went to the gym together. To this day, when I visit my parents in Des Moines, Iowa, we still all go to the gym together.

This habit of working out has served me well. I don’t have to think about it, it’s just what I do. For me, it’s the same with managing my finances. I’ve made it a habit to track what I spend and to save regularly. I don’t have to think about it, it’s just what I do.

Currently I work out at a gym called LA Fitness. They have a slogan that pops up on their TV screens throughout the gym, and a women’s voice exclaims it aloud. This slogan reminds me of how important this chapter is. She says, “What gets measured, gets improved.”

I hear this woman’s voice echo in my head all the time… “What gets measured, gets improved.”

Whether it be the calories you’re consuming, the number of days a week you work out, or the amount of money you spend, when you measure, things improve.

The first time I really experienced how measuring could impact my finances was about a year out of college. I downloaded Quicken, a program that tracks your spending by vendor and category.

“Holy cow,” was what I thought, as I realized I was spending $400 a month on what I called the “Walmart and Target” category.

Now, that may not seem like much if you are running a household with many family members. But for me, just married, a year out of school, living in a 700 square foot apartment, it was a lot.

I started to pay attention to my behavior. Let’s say I needed something basic, like a bottle of Windex. I’d go to WalMart, and come out with $100 worth of items. Most of the time they were decorative knick-knacks that we certainly didn’t need.

How was I going to fix this spending leak I wondered? I decided to experiment and only visit these stores once a month. Amazingly enough, I still only spent $100 each time I went. By only going once a month, there was instantly about $300 more a month in the budget – and we still always had what we needed.

By measuring, I became aware of what was happening. Then I was able step back and experiment with ways to improve the outcome.

Somehow, like so many things that work well in life, what did I do? … I stopped measuring.

Several years later, after going through a period of low income and no measuring, I found myself $25,000 in credit card debt and with no savings.

I hated opening my credit card statements. It was painful. I would mentally beat myself up.

I was working at a CPA firm at the time, and one day one of the managing partners announced he was retiring – at a very young age. “How did he do that?” I wondered.

He stopped by my office a few days later, and I was able to find out the answer.

He said, “Dana five years ago, I had a negative net worth. I earned an attractive salary, but I realized I wasn’t doing anything with this money but spending it.”

“How did you change things?” I asked.

He said he had this realization that he was in a hole - and he was determined to dig his way out. He started by regularly measuring his net worth. There was that word again “measuring!”

Each month he’d record his debt balances. He quickly paid off his debt. Then, he started looking for investment opportunities. He was lucky enough to catch the real estate market on an upswing and in five years his net worth went from negative to over $10 million.

I get that it’s not realistic to think we can all go from negative to $10 million in five years. But we can all make progress.

His story inspired me to get my butt in gear. I went home that day and tallied up all my debt balances. Each month, as painful as it was, I tracked the balances and payments. At times it seemed the balances only inched down. I didn’t get out of debt quickly, but I never gave up. Today, there is no credit card debt, and in place of tracking debt, I track my net worth.

Tracking your net worth is a simple process of recording total account balances and asset values as of the same date each year, such as at year-end, or at the end of each calendar quarter.

Measuring both your spending and your net worth are the starting points for getting a handle on your entire household financial situation.

When it comes to planning a transition into retirement, measuring is more important than ever. In Chapter 2, of the 2nd Edition of Control Your Retirement Destiny I cover the 5 basic schedules you can use to measure, and you can see examples of each schedule.

These five schedules are a spending plan, a personal balance sheet, an income timeline, an expense timeline, and a deposit/withdrawal timeline.

In Chapter 2, we begin to follow a couple, Wally and Sally. Wally and Sally are in their early 60’s and starting to plan their transition into retirement. Let’s take a look at how Wally and Sally use these 5 basic schedules to see if they can afford to retire.

Note – for the sake of this podcast, I am rounding all numbers so they won’t match exactly what you see in the schedules in the book.

First, they start with a spending plan.

A spending plan is an assessment of where your money goes.

I prefer the term “spending plan” instead of budget, because a budget sounds so restrictive! A spending plan sounds flexible – and actually it is. By laying out a plan you can make sure you are spending money on things that are most important to you.

To build their spending plan, Wally and Sally print an entire year’s worth of checking account statements and credit card statements. They use these to come up with a total of what they spent last year. They categorize everything into both fixed and variable expenses. When all is said and done, their total comes to $62,000, or just over $5,000 a month.

This $62,000 does not include taxes or any items that come directly out of their paychecks. But it does include everything else, from property taxes and insurance to groceries and cell phone bills.

Wally and Sally recently paid off their home, so last year with $5,000 a month, and no house payment, they felt comfortable. They figure if they can spend about that same amount each year in retirement, then they’ll be comfortable.

But they aren’t sure how to figure out if they have enough saved.

Wally and Sally’s next step is to make a personal balance sheet.

A personal balance sheet helps you assess what you have to work with. Once you list all your assets and accounts, you can organize them into categories. This helps you see which accounts are available for the purpose of retirement, and which are not. For example, if you have a savings account where you put money for upcoming travel, that asset is not available for retirement income.

Wally and Sally list all their major assets, and subtract out any debt. When they add everything up they have a net worth of $1.5 Million. Their home, worth $300,000 is included in that total.

They realize they don’t want to sell the house, so they take that asset back off their balance sheet so they can see only the amount of savings and investments that are available to fund their retirement. That ends up being about $1.2 million.

With $1.2 million of savings and investments, do Wally and Sally have enough to spend $62,000 a year in retirement?

In or