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From Scarcity to Abundance: Two Types of Planning

From Scarcity to Abundance: Two Types of Planning

By Michael Lynch CFP®

For most of our lives, people practice the financial planning of scarcity. The fundamental questions we ask: Will we have enough? How much do we need? How can I best accumulate what I need?

We apply these questions to life’s journey. Do we have enough to purchase a house and how best to accumulate the down payment? If children arrive on our scene, how much will college costs and how to best accumulate it dominate when our thoughts turn to finances.

Our course, there is the focal point of financial independence: How much must we accumulate for work to be optional?  From here, we calculate the required savings the be containers and investments to grow the money.   

Our risk management focuses on protecting future accumulation. Life insurance replaces income that would have been earned if you pass at a tragically early age. Disability replaces income that you would earn but for your condition that makes working impossible.

Since income taxes are an expense that reduces what we can save and invest, we do our best to kick this down the road with tax-favored—often tax deferred—accounts.

Will We Have Enough?

The key is we engage head on with the fundamental reality of the universe: resources are scarce, and success will only arrive if we allocate our treasure prudently.  At this point in our lives—which for most of us is most of our lives—money is scarce, and accumulations typically requires saying no to some of life’s luxuries so we can enjoy life necessities on time. The house, early in life, college for our children and, of course, generous income streams from our money piles once retired. 

I know this planning well and I enjoy it.  I started working professionally at age 32 and assisting people creating their infrastructure of success for young motivated clients was my specialty.  It still is today.

You Have Enough, Now What?

The planning of plentitude is type two planning.  Except for the few of you who win the lottery or catch a big inheritance, you earn entry into this club with years of diligent work, building both human and financial capital.  Your marketable skills may build to earn more income than you ever imagined, allowing you to set aside more than we ever thought possible. Yet, in my experience, this is not necessary. People who earn a modest income and consistently set aside 10 percent of it will wake up one day with a revelation: I have more money than I will ever spend in my lifetime. 

Thus, the set of questions type two planners ask: How best to use and protect the money we created? After I’m gone, where is it going? The focus on investments may turn to income generation. The excess not needed to for this task remains growth for the future. Insurance and protection needs shift from replacing income to protecting the wealth from nursing home, lawsuits and sometimes even rapacious family members.

Some of questions are quite big: Now that you know you have enough, what’s next?

Either You Fly First Class, Or Your Children Will

As I age, and my clients do along with me, I find that it’s hard, sometimes impossible for people to shift from type one to type two planning.  The very disciplines hardened to habits—spending wisely, saving regularly, deferring gratification—that produced fantastic financial success work to prevent people from enjoying wealth materially. (I say materially, because the psychological effect of knowing one is secure is a real and probably the primary benefit) It’s not so much a denial that our lives will end, but rather an inability to completely understand—and totally accept—that at some point, even if it’s a mere day prior to our passing, that we have enough resources, we’re never going to run out, and money is no longer a scarce resource in our lives. 

At this point, we certainly can’t have it all. But we can purchase what we want and hopefully, be at peace that we pulled our weight in this world. We may even transition the accumulation effort and the important role it played in our lives to creating structures—gifting and legacy programs—ensure our efforts produce blessings well into the future.  None of us gets out of here alive and since we aren’t Pharos, we won’t be taking it with us. 

 

Michael Lynch CFP® is a financial planner at Barnum Financial Group in Shelton, CT.  His book “Keep It Simple, Make it Big: Money Management for Meaningful Life,” offers simple strategies for financial success.  His writings can be found at www.michaelwlynch.com

 

Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Barnum Financial Group.  6 Corporate Drive, Shelton, CT 06484, Tel: (203) 513-6000. CRN202304-281431