My name is Peter Nicholas Dunn. You know me as Pete the Planner. I’m about to open the books so you can look inside my financial life a lil bit.
First, it’s important you know that I practice what I preach. I ask you to max-out your retirement plan. I max-out my retirement plan. I ask you to stay out of consumer debt. I stay out of consumer debt. Like you, I have very big and real concerns about the cost of college for my kids and saving enough for retirement.
I do think my financial life has some additional complexity, and I’m willing to share some of those complexities with you.
I pay myself a salary. I’ve done so for nearly 13 years. I do this despite the variable nature of my company’s revenue. I opt for a relatively conservative salary so that my lifestyle isn’t directly linked to my company’s success. As the sole owner of my corporation, I’m able keep the profits at the end of the year. Sounds pretty easy, right? Um, nope.
It’s complicated. My organization is succesful for one reason – the people I employee. They are a great group of hardworking and dedicated people. My goal as their employer is to compensate them fairly, motivate them with incentives, and reward them with a level of profit-sharing at year end. I feel I do a reasonably good job with this. On top of that, I match 401k deposits and award regular pay increases. I’m not looking for praise here. I’m just stating the facts.
Also, as a growing business, we always have major projects which require a fair amount of working capital. Every time we take on a capital project, profitability is temporarily affected until the project itself turns a profit. Every time I hire a new team member, profitability changes. To distill this down to the most basic level, every time I fund a project or hire a valuable team member, I take a pay cut. Again, I’m not looking for sympathy. Every business owner on the planet does this.
When the business succeeds and generates profits, I must decide on how much to reinvest in the business, share with my co-workers, and keep for myself. It’s not exactly a fun exercise.
My strategy to deal with all of this pressure is pretty simple. I max-out my 401k, save/invest about 10% of my primary take-home pay, and then save/invest nearly 90% of my share of the profits. Don’t read that as I get 90% of the profits. Read that as I save 90% of whatever I get. My challenge is to make sure that not only is my current lifestyle not dependent on profits, but neither is my financial future.
I live two very separate financial lives. I live the life I preach, at home. And I live a completely different life managing my company’s finances. I’ve had a business coach/consultant for the last eight years who helps me make financial decisions for my business. If you thought evaluating a stock market investment decision was hard, try evaluating a $50,000 spend which, in the short-term, results in a $50,000 pay decrease.
On top of that, I’m not immune to financial stress. It can kick me in the teeth with the best of em. Recently, I’ve been crazy stressed about money. Don’t let this scare you. “Oh great, I’m reading a money blog written by a financial disaster.” That’s not the case at all. I’m doing fine. But that doesn’t mean I’m not subject to life’s body blows.
You’ve probably been there. Your financial life is sailing along pleasantly, and then out of nowhere, cash-flow gets tight and expenses start coming out of the woodwork. Yeah, that happens to me too. The strangest part of this phenomenon is that it isn’t always a sign that we’re doing things wrong. We may have just caught a string of bad luck, or maybe we just went on a family vacation which we tried to cash-flow as opposed to taking money out of savings or financing it.
In my experience, the best solution to financial stress is a meeting with my wife.
In fact, Mrs. Planner and I sat down last Saturday night and put pen to paper. We set out to find the exact source of the stress, its severity, and possible remedies.
Are we going backwards? Nope.
Has the crunch caused us to save less for the future? No, sir.
Financial stress can be both paralyzing and misleading. If I’m being honest with you, despite the evidence pointing to the contrary, I felt like my financial life was crashing upon itself. It wasn’t. It isn’t. It won’t.
I like to think of moments like this as my own mini-recession. There is pain in a recession, but a recession is usually followed by great introspection and action. The fact of the matter is that we had two months of shortages (periods in which we spent more money than we earned).
I can say with 100 percent certainty that every period of financial stress I have ever encountered has been greatly improved by an in-depth and calm discussion with my wife.
I’ll continue to peel back the onion for you over the next several months. If you’re a business owner, you feel me. If you’re not, you still probably feel me, but not as much. And yes, I just wanted to give everyone a visual of me getting felt.
Peace. I’m out.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.