Fuzzy Lenses

Written by John D. Buerger, CFP®.


John Buerger

What if your eye doctor gave you a pair of glasses with completely the wrong prescription?

Think how that would affect your life. You'd be constantly running into things. When driving (if that was even possible), you'd make terrible decisions by responding to the movement of fuzzy shadows. It would be extremely challenging.

Yet, just about every middle-income family is viewing (and operating) their financial lives through lenses that are totally wrong.


While the problem is significant - the prescription is off by a long shot - it boils down to two relatively simple issues: (1) Most people are using a a poor financial strategy because (2) they have accepted a Belief System about money that is wrong.

"Hope" is not a viable financial strategy ...  but it is the only strategy being offered to the middle class. The most common phrase I hear from people (at least those who are not clients) is, "Things just aren't working out they way I hoped they would." Well, Duh! Hoping for something won't make it any more likely to happen.

Hope as a strategy creates unrealistic expectations which can only lead to dissappointment and a reduced quality of life. The next time someone tries to sell you "Hope" as a strategy, you should run away from that person as fast as you can. They are not thinking of your best interests.

The second issue is an even bigger reason why average people are falling further and further behind with their personal finances.



There is a belief system that being "middle class" or "average" means "barely getting by" no matter what. It comes with a general focus on what you don't have rather than what you DO already possess, especially when it comes to your finances.

It's natural and easy to adopt this belief system. We read in the paper almost daily about how the rich get richer and the poor get poorer. Headlines tout that the middle class is under seige. True, the politicians aren't helping and the super-wealthy have rigged the system to their own advantage (because they have the money and power to do so), but there is plenty of opportunity for regular folks like you and me to build wealth.

Each person DOES have complete control over how they manage and spend the money slipping through their fingers every day ... and that IS significant.


The average family income in America is $50,000 per year. Multiply that times 40 years of work (age 25 to age 65) and that amounts to $2 million - not exactly chump change. If you could manage even 1% of that money better, you're looking at an extra $20k ... and my work with clients with the Cash Flow Hydrant™ suggests that capturing 10% of that lifetime income is really quite easy. That's 200-large that is leaking out of your wallet to pay for stuff that doesn't matter to you at all.

Add in the power of compounding interest and that 10% ($200,000) can easily become something greater than a million dollars. Who wouldn't want an extra mil to play with when they retire?


The main challenge with getting past this blockade is accepting that the belief system ("Nothing I can do makes any difference." "The game is stacked against me." "The middle class are doomed." "Hope is my only strategy.") is not serving you well at all. It means the lenses through which you are currently viewing your choices is screwed up.

It's time to try new lenses.

Getting past the blockade means accepting a new Belief System, one that focuses on the things over which you DO have control and accepts that if you pay attention - what my wife likes to call "being conscious" - and are intentional and strategic with your money, you will improve your quality of life and your family's financial future.


The average middle-class family is fighting against a two-pronged faulty belief system: (1) "Hope" is the only strategy available for average people (2) The tables are stacked against the average person from ever improving their financial situation.

This belief system is like looking at the world through glasses that completely have the wrong prescription and the results are terrible.

If I could get you to change one thing it is to get rid of this belief system. There ARE strategies out there that everyday people can use. You don't have to be rich to get access to them (another belief system that is wrong) and these strategies will deliver better results, greater wealth and a better quality of life than you are able to enjoy right now living paycheck to paycheck (or off credit cards).


We can help you prioritize your goals and scope your focus.
Learn more. Schedule a Free, no-obligation 20-minute consult today!

Call 805-476-0333 or use the "Book Appointment Now" tab on the bottom right of your screen.

Your Numbers - Wealth Potential

Written by John D. Buerger, CFP®.


John Buerger

(this is the fourth in a series of four posts)

We wrap our discussion of VIP$ - Very Important Personal Finance - Numbers this week.

These are NOT the numbers you likely have rattling around in your head. Those numbers (annual salary, size of your investment accounts, total net worth) are promoted by the personal finance industry as important gauges for THEIR success, but they are relatively useless for your ability to make great financial decisions.

Our VIP$ Numbers are specifically designed to battle your brain's wiring and human tendency to make important decisions based on bad (usually emotionally charged) information. There are ony four numbers to remember so this is a SIMPLE framework and the numbers don't change rapidly so you only need to revisit them every few months.



The first number is your Daily After Tax Income (DATI) - the amount of money you have slipping through your fingers every day. Rather than thinking in terms of annual income (which is a big number), daily spending decisions are better when compared to daily income. Your brain is more likely to see each decision as important and significant.

The NumberThe DCE - Daily Control Expense number is even smaller. Even if your income is good, you only have control over 15-25% of that daily income. The rest is already committed to Past Obligations.

Last week we introduced the Future Bucket Rate - the percentage of your after tax income that is going towards future expenses - whether those be retirement, saving for college or just saving for your vacation later this year. If you always have expenses that are greater than or equal to your income, you will never build wealth.

The more money going into the Future Bucket, the more wealth you are creating.


The last of the four numbers is also (like the Future Bucket) more related to your future than your current state. Half of our VIP$ Numbers are based on the future because it keeps the whole process centered on positives. The biggest challenge for all cash flow management systems is the tendency to be focused on limitations, sacrifice, pain and self-discipline - all concepts that lead to poor financial decisions.

Your Wealth Potential is just like it sounds - the amount of wealth you have the ability to store up over your lifetime given your current income and expenses as a starting point.

This number can be pretty large. How much larger it is compared to your current Net Worth is more a function of time than anything, but even if you are going to retire in just 5-7 years, your WP can be a huge positive driver towards better financial decisions and the resulting Quality of Life improvements.


We do make a few, sometimes optimistic assumptions in calculating this number ...

--- We assume that your income will grow at a rate that is 1% faster than inflation. Over the past several decades, that rate of improvement is actually faster (as we have enjoyed accelerated productivity in the U.S.) but since the Great Recession, we have fallen short of this number. By most standards, 1% productivity improvement is considered a conservative assumption.

--- The other major (and optimistic) assumption is that you will successfully improve your FBR (Future Bucket Rate) by 3% per year until your FBR is 25%. We do adjust for the fact that some of your Future Bucket will get spent for things like vacations, college educations, etc. (our experience is that 3% of additional savings each year is quite possible - the historical average with clients is closer to 4%).

--- We assume that you will be able to collect Social Security at 60% of your inflation adjusted guaranteed rate starting at age 70 (a pretty harsh assumption but likely with the issues facing the Social Security system).

--- We assume that your investments will return inflation plus 4% and for the purposes of this number we assume that inflation will remain at the long term historical average of 2%.


Take an average, middle income family making $50,000 a year and saving nothing after taxes. They are each 35 years old. They have no assets to speak of - just living paycheck to paycheck and they want to retire at age 65 (in 30 years).

For this family, their DATI is $116.44. The Daily Control Expenses are just $29.11 (Weekly Control Expenses are $203.77) and their starting FBR is 0%. This family may think that they have very little to no Wealth Potential and if they keep living paycheck to paycheck that will certainly be the case ... but by working on their FBR they end up with a Wealth Potential of $2.1 million dollars (which they hit on the day they die at age 100).

Start with nothing and end up with $2.1 million, all by making better choices with all the money slipping through your fingers every day.


The reason we keep the Wealth Potential in the mix of numbers is that it helps to set a postive but realistic context to all the challenges presented by the current state of affairs. Living paycheck to paycheck may seem like something that will never end, and those first few years of savings will seem insignificant (less than $10,000 saved after 4 years) compared to everything else.

But even small incremental improvements over time will result in significant wealth being accumulated over the long haul and THAT is the point of financial planning, our Wealth Coaching process and working through change to make different and better financial decisions every day.


We can help you prioritize your goals and scope your focus.
Learn more. Schedule a Free, no-obligation 20-minute consult today!

Call 805-476-0333 or use the "Book Appointment Now" tab on the bottom right of your screen.

Your Numbers - Future Bucket

Written by John D. Buerger, CFP®.


John Buerger

(this is the third in a series of four posts)

This series of posts discusses the few but important personal finance "numbers" we believe every person should have memorized, but these are NOT the numbers you have been taught are important.

Our experience with clients shows that most "important numbers" do nothing to improve your financial decision-making and often actually make things worse. So forget what you've been told and focus on these numbers instead.


Contrary to popular belief, building wealth is NOT about your investments. It IS ALL about getting control of the money slipping through your fingers every day. The two primary variables of cash flow control are income and expenses.

The NumberThat is all well and good, but how those numbers are framed is equally important. Comparing a one time expense (we use the example of a $20 lunch) with an annual income number (which is the one financial number people commonly know) makes the expense seem insignificant. That is why the income number we suggest using is your DATI - Daily After Tax Income. It's a much smaller number and more meaningful when analyzing daily expenses.

The Expense Number we use is also different, because it gets rid of all the expenses you have (for most folks 75-85% of the money going out) over which you have little to no immediate control. These "past obligations" must be met (whether or not you feel like it) or else the consequences will be fairly severe pretty quickly.

That leads us to the WCE - Weekly Control Expense number as the second of the four numbers to keep top of mind (and some people have boiled that down to an even smaller DCE - Daily Control Expense number).


Within this framework, there are only three places after-tax income can go: (1) Past Obligations (2) Current Control Expenses or (3) Your Future ... that is money that will be spent, but not right away.

If you envision your Cash Flow Income as a hose, it is feeding water (after tax income) into these three "buckets."

The more money going into the Future Bucket, the more wealth you are creating. If you always have expenses that are greater than or equal to your income, you will never build wealth. That might be OK for today but at some point in the future you will need that accumulated wealth: to pay for college for your kids and/or to someday retire and enjoy the same quality of life (or preferably better) than you had when you were working.


As we suggested earlier, most American families - especially those in the middle class - have a tendency to strap themselves with pretty serious Past Obligation type expenses (including mortgage/rent, car payments, utilities, fuel for the car and credit card payments). It is not uncommon for 75-85% of after tax income to go to past obligations leaving only 15-25% of after tax income to cover control expenses and feeding the Future Bucket.

The FBR - Future Bucket Rate is whatever is normally left over (expressed in percent form) from after tax income after you have paid the Past Obligations and spent whatever you normally spend on food, clothing and entertainment (Control Expenses).

When we start working with clients on this, their FBR is anywhere from negative (eating into savings to live) to around 10%. It is amazing how consistent that number generally is for people. The FBR for any particular family doesn't change much from month to month or even year to year.


When we start talking about saving money is when most people start to get discouraged ... especially those who have an FBR that is negative or very small. Increasing your savings rate can seem like an impossible task because there always seem to be expenses that "come up." I understand that, but can also share a number of experiences that clients have had once they embrace this new framework and these special numbers. 

Your FBR is neither "bad" nor "good." It's just a number. What DOES matter is that your FBR starts moving in the right direction.

While I said that the FBR doesn't change a whole lot from month to month or even year to year, a little bit of effort on a daily basis (only a couple of minutes a day) can improve your FBR number by 3-5% per year - all without taking away from your quality of life.


Let's say you wanted to get into shape. If you went to the gym and on the first day you did 100 push-ups, 100 situps and lifted weights for an hour, the following day, your muscles wouldn't look a whole lot better but you would be in a world of pain.

What if instead you did 5 pushups, 5 situps and 5 reps with light weights the first day ... then the next day you did 6 of each ... and so on each day, adding slightly to the workout. By the time you reached the day when you were doing 100 of each, your muscles would already be looking MUCH better and your body wouldn't be in much (if any) pain.

We do the same thing with wealth health - looking for small, incremental gains in cash flow control. If your FBR was 0% the first year, by year 5 it could be as high as 15% or even 20%. When added up over time, these incremental increases in savings rates can mean a year's worth of income in savings in 8 years, 3 times income in 14 years, 5 times income in 19 years and 10 times income in 25 years (NOTE: we start with 0% FBR and add 3% to that rate each year until we max out at a 25% FRB rate. Assumes 2% inflation and 7% real investment returns).

A 35-year old making average income ($50,000 per year today) can have $1 million saved up by the time they are 60 without heavy lifting and without doing anything to diminish the quality of their life. In fact, being strategic and intentional with your money almost always improves your quality of life as there is less financial stress, fewer worries and it feels good to get control over your money.

So we have one more number to keep in mind ... we'll cover that next time.


We can help you prioritize your goals and scope your focus.
Learn more. Schedule a Free, no-obligation 20-minute consult today!

Call 805-476-0333 or use the "Book Appointment Now" tab on the bottom right of your screen.

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