Every Dollar Has a Purpose and Timeline
For centuries, lighthouses were used as navigational beacons. Ancient mariners were guided by fires built on hill tops. These primitive visual guides eventually became elevated on platforms for better visibility at sea. Eventually the modern lighthouse as we know it today was developed by placing the light source high in a tower to increase the distance at which it could be seen.
Lighthouses served two main purposes:
- Serve as a navigational guide for passing ships.
- Warn of dangerous coastlines hiding devastating hazards like shallow reefs, shoals and rocks that could penetrate a hull and sink the vessel.
Eventually, the need for lighthouses was replaced as technology became more advanced. GPS, for example, is used today to map underwater hazards, and guide ships into and out of harbors safely. However, without a guide or beacon to orient oneself, it would be much easier to get lost at sea, or end up wrecked on the rocks.
Our Purpose and Timeline Philosophy
At TWFG our guiding beacon is our Purpose and Timeline philosophy (P&T for short). It’s our lighthouse. P&T orients us when then storm rages, and the dark of night settles in. Anytime the world begins to seem fuzzy or out of control we look to this viewpoint for guidance and clarity. When we focus on the P&T things seem to become clear, and action may be taken with great confidence even when the rest of the world seems to be in panic mode.
P&T is applied during our PT5 Step Retirement Planning process. This is the initial process where we draft written plans designed to guide folks to and though retirement. The plans are structured in such a way so that folks can maintain their desired lifestyle while adjusting for the rising cost of goods and services as well as the corrosive impact of taxes.
P&T also keeps us on track throughout each year. Anytime a potential adjustment to a plan needs to be made, P&T is guiding our decision-making process. It gives us a center point to focus on during the maintenance and review step of our PT5 Step planning process. Before annual review visits with folks we refer to the P&T philosophy before recommending any changes be made.
Our P&T method also guides our asset allocation decisions. It helps us to determine where assets should be allocated based on the intended purpose of the dollar, and the timeline for which it is intended to be used.
What is Purpose and Timeline?
We believe every dollar has a future purpose and every dollar has a timeline in which it will be called upon to serve its purpose. In our opinion, determining the purpose and the timeline of each dollar is the first step that should be taken before making any asset allocation decisions. Once we have a clear understanding of what a dollar will be used for, and how soon it will be needed, that’s when we can tell it where to go to work.
Determining the Purpose and Timeline
NEEDS:
Folks have specific “NEEDS” to cover in order to live throughout their retirement. Their NEEDS include basic living expense like clothing, shelter, food, water, energy, transportation, communication technology, healthcare, and other necessities for minimum modern standard of life in America.
We consider these expenses to be the basic needs for someone planning for their post working years, and while everyone’s circumstances are different these basic necessities seem to be universal across demographics. NEEDS don’t necessarily make life exciting or fulfilling, but they are requirements to maintain a minimum standard of an American way of life.
WANTS:
In addition to NEEDS, most folks have a list of “WANTS.” Wants are things they find enjoyable. Stuff they want to do, and experiences they want to have. Wants may add excitement or fulfillment to life. However, if economic or market conditions eroded their investment portfolio they could be forgone in the short term in order to ensure that necessary resources to cover basic living expenditures will be there. WANTS are not required to exist, but without them retired life may not be nearly as fun!
Non-Negotiable WANTS (NNWs):
Some wants on the other hand are non-negotiable. “Non-negotiable WANTS” (NNWs) are things that we want to be able to do no matter what, and you’d be very disappointed in your lifestyle if it did not include the non-negotiable wants. They transcend WANTS to a status of NEED beyond basic living expenses.
Non-negotiable wants are different for everyone. For example, for me, an NNW would be skiing. If you told me I couldn’t ski because of a market downturn and I’d have to wait until the market recovers, I’d be pretty upset. Therefore, in our P&T Philosophy those non-negotiable wants must be treated as a NEEDS at all costs.
For some folks it might be travel to see grandkids in another state, or a golf course or club membership. If the market had a downturn, and their investments lost value and we told them they couldn’t do these things or they’ll run out of money, they wouldn’t be happy. So, we have to treat any non-negotiable wants like a need.
LEGACY:
Lastly, we may have leftover money that could be left as a legacy, providing for future of the family descendants, or for charitable giving. There’s no immediate or long-term purpose for these dollars. They are designated as leave behind resources, and everyone’s situation looks very different. For some folks there’s a strong desire to leave a legacy, but for others not so much. Either way, market or economic conditions that may affect these dollars have little to no impact on the owner’s ability to maintain a desired lifestyle throughout retirement.
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