You've Made a Ton of Smart Financial Choices, Now What? (EP.270)

0:28We all need to make smart decisions with our money. Spend less than you earn. Avoid expensive debt. Build a cash reserve. Protect your family. Save consistently. Use tax-advantaged accounts. Invest in a diversified, low-cost portfolio. And as your finances grow, the assignments become more specific. There's investing beyond retirement accounts, managing taxes, reducing concentrated risk, and keeping your insurance and estate plan current. Those choices aren't always easy to carry out, but the direction is usually clear. Save consistently, diversify, and stay invested through difficult markets.

1:09But if you follow that curriculum long enough, something strange happens. It seemingly runs out. It's not like the curriculum is wrong, it just becomes insufficient. You're no longer choosing between an obviously smart decision and an obviously foolish one. You may actually be choosing among several reasonable uses of money, whether that's investing more, making work optional, helping family, giving, or spending more while your health and time allow for it. Early in your financial life, your job is to make smart individual choices. Later, your job is to make sure those choices work together and decide what all that discipline is supposed to make possible.

1:54And at that point, personal finance stops being primarily a knowledge problem and becomes a judgment problem. In episode 254, I answered a narrower question than we're going to tackle today. And that question was, where should additional savings go after your retirement accounts are fully funded? But today's question is broader. That question is, how do you decide what comes next when there's no universally correct move? There are three questions I think that we need to be asking ourselves when you reach this point. The first is what have your smart choices actually funded? Because it's easy to confuse doing a lot of good financial things with having a financial plan.

2:38You may know your net worth, account balances, asset allocation, and annual savings, but those numbers describe what you've accumulated. They don't tell you when work could become optional, or how much after-tax spending your portfolio can support, or which goals are already adequately funded. That doesn't mean you need one perfect number that represents enough. The future's honestly just too uncertain for that kind of precision, but you do need some idea of the outcome you're trying to create. You may want work to become optional by 60, or maintain your lifestyle throughout retirement, or maybe help family without weakening your own security or protect a surviving spouse.

3:20Until you know what you're trying to make possible, you can't tell whether the next financial move is helping. More saving can easily remain the default simply because saving has always been the right answer. So that's the first question. What have your smart choices actually funded? The second question is where do your financial choices fail to work together? Because once you know what you want your money to accomplish, you have to figure out whether the pieces actually support that goal. Now, in my work, I see three versions of this disconnect again and again. The first appears when accounts were built one at a time, but retirement income needs to come from all of them.

4:01So I see all sorts of couples come to Plain Corp in their early 60s. They'll have money spread across traditional retirement accounts, Roth accounts, and taxable accounts that are holding investments with large gains. and each account is often very well-funded and sensibly invested, but retirement does not happen one account at a time. Which accounts are going to provide your spending can affect taxes that you pay now, your taxes later, and what remains available for family or charity. And until those decisions are coordinated, well-funded accounts do not automatically add up to a retirement income plan.

4:39The second disconnect appears when a decision to avoid taxes creates a larger investment risk. Where I typically see this will be a large stock position. Maybe it's one position, maybe it's a few, but they really only remain in place because selling them would generate a significant capital gains tax bill. And look, that concern is understandable, but the choice is not always between holding every share and selling everything tomorrow. Depending on the circumstances, there may be ways to reduce the position gradually. offset some of the gains, or use a strategy that improves diversification without realizing the entire gain at once.

5:18The real question is whether avoiding the tax today justifies the investment risk of keeping so much of your financial future tied to one company or just a handful of companies. Now, the third disconnect appears when an estate plan no longer matches the financial plan or the family. I can't tell you how often I see documents and beneficiary designations that maybe made sense when they are created, but no longer reflect someone's assets or their family or really what they want the money to accomplish. And a plan that looks efficient on paper may be too complicated for a surviving spouse to understand or manage.

5:57Now, none of these decisions were necessarily foolish when they were made, but the problem is that when you look at these different things, the retirement income, the taxes, the investment risk, the estate planning, they don't operate independently. A decision in one area can change the others. And at this stage, the next move may not be adding another investment or planning strategy. It may be identifying the disconnect that matters most, correcting it, and making the overall plan easier to manage. That next level of financial planning is coordination, not complexity. Now, we've hit two questions.

6:37The first, again, just to remind you, like, what have your smart choices actually funded? The second being, where do your financial choices fail to work together? The third question is, what should your money make possible now? Once your important goals are progressing and the biggest risks have been addressed, you may have several reasonable choices. You can create more security for the future. You can preserve more flexibility between now and then, or you can use more of the money today. Creating more future security could mean continuing to invest or building a larger margin for a long life, higher healthcare costs, or difficult markets.

7:16Choosing greater security is perfectly reasonable. Preserving flexibility could mean keeping more of your wealth accessible, making work less financially necessary, or retaining the ability to help family if the needs arise. Using more of the money today could mean investing in your health, Creating more time with family, helping children or grandchildren when the money would make the greatest difference, giving while you can see the impact, or pursuing an experience while you still have the health and time to enjoy it. The point is not that financially successful people should save less. It's that saving more is now one reasonable choice among several, and certainly not the automatic answer.

7:58After decades of treating a rising account balance as evidence of progress, watching that balance fall can feel like failure even when the plan says the spending is safe. That discomfort, I know it is real, but it is not proof that spending is wrong. Judgment doesn't mean abandoning sound financial principles either. I think it really means using them to understand the trade-offs and then letting your priorities decide. No rule can choose among several financially sound options for you. It's that financial discipline that gave you options, but if you never consider using them, accumulating more money quietly becomes the goal.

8:39So if you've made a ton of smart financial choices and finding yourself wondering what comes next, ask yourself three questions. What have my current financial choices actually funded? Where do those choices fail to work together? And what do I want my money to make possible from here? You don't need a long new to-do list. Identify the one decision that would make the plan work better or move you closer to the life you want. Early in your financial life, rules help protect you from bad choices. Later, judgment helps you choose among the good ones. That decision may be to keep saving, reduce a risk, make work less necessary, or use more of what you've built.

9:24The important thing is that the answer comes from a coherent plan, not an endless desire to complete one more financial assignment. As always, thanks for listening. And until next time to Long-Term Investing. Thanks for listening to the Long-Term Investor podcast. To access free financial resources and submit questions to be answered on the show, visit thelongterminvestor.com. Peter Lazaroff is an employee of PlanCorp and BrightPlan. All opinions expressed by Peter and any podcast guests are solely their own opinions and do not reflect the opinions of PlanCorp or BrightPlan. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

10:10Clients of PlanCorp and BrightPlan may maintain positions in the securities discussed in this podcast.