Smart Couples Finish Rich, Revised and Updated

by David Bach

  (800) 950-4644

  www.northwesternmutual.com

  Mass Mutual

  (800) 966-4093

  www.massmutual.com

  Mutual of Omaha Insurance Company

  (800) 205–8193

  www.mutualofomaha.com

  In addition, make sure you find out what happens to your policy in the event the company is sold or goes out of business. Ideally, you want a guarantee that if your policy were to be transferred without your permission, the original terms on which you bought it would remain in effect.

  You have now completed your security basket. In the process, you have done an amazing amount—far more than 95 percent of the population ever does—to safeguard the rich future together that the two of you deserve. Now it’s time to turn from the security side of life to the fun part—building your dream basket.

  * * *

  *In 2017, it’s $5.45 million per person.

  STEP 7

  BUILD YOUR

  DREAM BASKET

  I’m at the age now where everyone I know is having kids. When we visit our friends, their houses are filled with toys and children “playing.” It’s often hard to figure out exactly what the kids are doing—except that they’re having the time of their life. They’re not worried about bills, work, mortgage payments, or interest rates. They just want to have fun, play all day, and enjoy themselves. Their biggest concern is wanting to know when lunch is going to be. Most of all, they like to dream. For a kid, there’s almost no difference between dreams and reality.

  What makes kids’ lives so special (and makes us so often wish that we were kids again ourselves) is that they dream all the time, and they dream big. Kids don’t need to go to motivational seminars to be told they need to dream about what they want to do with their lives. Ask a bunch of kids what they want to do when they grow up, and they won’t hold back. They’ll tell you the most amazing things. When I was a kid, I told everyone I wanted to be race-car driver. That’s what makes life so much fun for kids: they imagine being and doing anything and everything.

  To my mind, one of the saddest things about getting older is that it becomes so easy to stop dreaming. It becomes so easy to stop “acting like a kid” and start being realistic. It becomes so easy to accept your life the way it is, to feel that what you have now and what you are doing today is as much as you can or should expect from the world.

  Now, I’m not suggesting that you shouldn’t be grateful for what you have and how far you’ve progressed in your life. Quite the contrary—I believe it’s critically important to be grateful for what the world has given you. What I’m suggesting is that deep in your hearts you and your partner have dreams that are going unfulfilled. There are things the two of you want to do and be that you have put in a “closet” somewhere and forgotten about. Or even worse, you haven’t forgotten about these dreams—you’ve just given up on ever attaining them.

  The number-one reason people let their dreams go unfulfilled—the reason they leave them in the closet of life, collecting dust—is money. That’s the truth, plain and simple. People stop dreaming because they don’t have the money it takes to transform their dreams into reality. In this chapter, I’m going to show you and your partner how to change that.

  IT’S TIME TO DREAM AGAIN

  Let’s face it—just about everyone wants to have fun and be rich. The national pastime in this country is not baseball or football—it’s playing the lottery. Millions of people buy lottery tickets every week, regularly spending a dollar or two (or five) in the hope of winning a jackpot. Why? Because, deep down, they believe that if their number comes up, they can be a kid again and start living their dreams.

  Of course, the chances of this happening are so absurdly small that it’s mind-boggling. You literally have a better chance of being hit by lightning than of winning the Powerball sweepstakes or whatever it’s called in your state. But that doesn’t matter. The reason so many of us play the lottery, watch those “millionaire” game shows on TV, or go to work for start-ups that pay in stock options instead of cash is because we all want to be able to dream big.

  Dreaming big is the key to happiness. Dreaming big is energizing. Dreaming big is fun. Can you remember a time in your life when you used to dream big? When you had things you wanted to accomplish and you weren’t afraid to talk about them? Do you remember what it felt like to not have to be so “responsible”? A time when you weren’t consumed with income, career, family and bills, and reality? When you were less boring?

  Be honest. Many adults become boring as they get older. It’s easy to get boring. We get into ruts and we stop “playing.” Well, for the next few minutes, I want you to just “play along.” Don’t be realistic. Don’t act like an adult. Pretend you’re a child again and that you can do anything, be anyone, have fun. What would you do? Who would you become? What would you and your partner do together?

  LEARNING HOW TO GO FOR IT

  In Step Three, I talked about goal-setting. That’s not what this step is about. We’re not concerned here with how to earn more money, lose weight, or get organized. What we’re concerned with here is how to really go for it. What do the two of you want to do that is totally fun, totally crazy, totally outrageous? Do you want to travel around the world? Go wine tasting in Tuscany? Swim with the dolphins in Hawaii? Build your dream home with that dream kitchen? Or maybe it’s a dream “cave” with a 50-inch television, a built-in bar, and a pool table?

  I don’t know what your dream is. But what I do know is that, as a couple, you deserve to dream together—and the time to start dreaming is now!

  UNDERSTANDING WHAT IT TAKES

  One of the greatest things I’ve learned in my life is that almost anything is possible if you just plan for it. As I explained earlier, the key to achieving your goals is to make them specific and measurable. You put them in writing and then you chart your progress toward them. This is as true for dreams as for anything else.

  The fact is, some dreams don’t even require money; they just take some planning. But most do take money, and with that in mind, we’re going to learn how to create a dream basket that will enable the two of you to pay for your dreams.

  Here’s how I want you to start. Assuming that you and your partner are not literally reading this book at the same time, I want whichever one of you is reading it now to write up your own list of dreams first. Use the Dream Worksheet on the next page to list your top five dreams. Then get your partner to do the same thing.

  Once you’ve each finished your individual lists, get together and make a “we dream” list. The “we dream” list is what you should focus on. Nothing will solidify a marriage or a partnership faster than having a “dream plan” that you work on together, as a team. To make sure this really happens, I suggest that the two of you set aside a specific amount of time to do this. Literally make an appointment with yourselves this week to spend at least half an hour writing out your top five dreams, first individually, then as a couple.

  This is important. You can’t just walk up to your partner at the end of the day, while you’re getting dinner ready or putting the kids to sleep, and say, “What dreams do you have? Let’s write them down.” Your dreams are too important to treat so casually. Take them seriously. Make an appointment on your calendar to do this…and do it this week!

  DREAM WORKSHEET

  Designing and Implementing the Fun Factor!

  The difference between this Dream Worksheet and the Purpose-Focused Financial Plan is that the Dream Worksheet is meant for you to focus on the “fun” stuff in life. In this exercise, write down the top five things that you want to do with your life that sound like “fun”—things you might not consider realistic but you would really like to do.

  To do this, simply follow the six steps below and fill in the worksheet on the following page.

  List your top five dreams. Remember…have fun with this. Be “kid-like,” not adult-minded.

  Make these dreams as specific and
measurable as possible.

  What action can you take in the next 48 hours to get the ball rolling? Remember…“I don’t know” is not an answer.

  Who are you going to share your dream with? No matter how crazy it may sound now, the sooner you share it with someone you love and respect the sooner that dream is going to feel real.

  What value will this dream help you realize?

  What will the dream cost? Even if you don’t know the exact cost, make sure you write down an estimate.

  DON’T FALL INTO THE “I DON’T HAVE A DREAM” TRAP

  I am constantly amazed at the way some people try to avoid improving their lives. For instance, I’ve actually had people (dozens of them over the years) ask me, “What if I don’t have a dream?”

  I’m sorry, but the only way you don’t have a dream is if you’re dead. Dead people don’t dream. The rest of us have dreams. It’s just that in many cases we’ve let our “dream muscle” atrophy because we haven’t used it in so long.

  If this is what’s happened to you, build up your dream muscle the same way you’d work on any other muscle that’s gotten out of shape. That is, don’t start by trying to lift the heaviest weight in the gym. Start with a relatively small dream…like planning a romantic weekend getaway for the two of you—somewhere that’s within driving distance and not too expensive. It doesn’t have to be anything mind-blowing. The point here is simply that you and your partner are going to write down on a piece of paper a dream that the two of you want to make real, and then you are going to fund it. That’s all there is to this dream-basket process.

  By the way, even if you’re not completely convinced you know what your dream is, start funding it anyway. The reason: sooner or later, you will know what it is, and when you do, you’ll be glad you’ve already gotten a head start on putting aside the money you’ll need to make it real.

  FILLING YOUR DREAM BASKET…THE IMPORTANCE OF “SYSTEMATIC INVESTING”

  Now that you’ve put your dreams in writing, you have answered what I call the “why invest?” question. Many people don’t bother to change their spending habits or start saving simply because their future doesn’t seem compelling enough to motivate them. But nothing creates leverage and motivation like a dream.

  So now you know what your dreams are. Hopefully, the prospect of making them real has the two of you excited. The question now is, how are you going to pay for them? The answer is simple. You need to create a systematic investment plan devoted solely to funding your dreams.

  I call this process filling your dream basket. Here’s all there is to it. Just as you secured your future by deciding to pay yourself first a fixed percentage of your income for your retirement basket, now you’re going to fund your dreams by committing to pay yourself an additional fixed percentage of your income that will go into your dream basket.

  The key to making this work is to fund your dream basket on a regular basis. This is what is known in the investment industry as “systematic investing.” With a systematic investment plan, you commit to putting a certain dollar amount into a specific investment on a monthly or weekly—or sometimes even daily—basis. These days, as a result of advances in technology, many mutual funds will allow you to make systematic investments of as little as $5 a month. I know it’s hard to believe, but it’s true. Micro-investing along with automatic investing is changing the game of saving for millions of people, which is great news.

  Once you’ve set up a systematic investment plan, the brokerage firm or mutual-fund company will automatically deduct a predetermined amount of money from your checking or savings account on a predetermined date. The automatic aspect of the plan is what makes it work. Don’t kid yourself into believing that you’re going to be disciplined enough to sit down every two weeks and manually write a check and then mail it in. I’ve been helping people manage their money for years now, and I can tell you firsthand that even the most disciplined investors rarely stick to a systematic investment plan that isn’t done automatically.

  I’ve never been more excited about the concept of funding a dream basket than I am now because it has never been easier. Not only are most mutual funds now available to practically all investors through systematic investing, but the Internet has made the process of investing with small amounts of money unbelievably convenient. As you’ll see, the great thing about funding a dream basket in this way is that as your investments increase in value, your dream will start to feel more real and more possible, and you’ll find yourself becoming more excited and more motivated than ever.

  HOW MUCH IS ENOUGH?

  The amount that you contribute to your dream basket is totally up to you. I suggest that you start by kicking in at least 3 percent of your after-tax income. That is, before you pay bills, sweep at least 3 percent of your take-home pay into your dream basket. Why 3 percent? Because most people—even those whom I call “dream challenged” (the ones who are going to fight this whole concept because they are afraid to dream)—will have a hard time arguing that they can’t save an additional 3 percent of their income.

  If you do this automatically before you pay the bills, you’ll be amazed how quickly it becomes part of your routine—and how quickly the money starts to add up. If your partner happens to be a particularly dream-challenged individual, start by putting just 1 percent of your income into your dream basket, but make it a goal to increase the amount by another 1 percent within six months. Do this every six months, and at the end of two years you will be saving 4 percent of your income for your dreams—and you’ll barely notice it!

  HOW EXACTLY SHOULD I INVEST MY DREAM-BASKET MONEY?

  There are literally thousands of ways to invest. You can buy individual stocks and bonds. You can buy certificates of deposit. You can purchase commodities or preferred stocks. You can buy convertible bonds. You can acquire gold or silver, or art or stamps. You can buy shares in unit trusts. The list goes on and on.

  Because there are so many investment choices, people often don’t know what to do. As a result, they do nothing. When it comes to funding your dream basket, I don’t want you to be so overwhelmed that you find yourself unable—or unwilling—to take immediate action. Nor do I want you to be held back by the amount of money you may be required to put up. So with these factors in mind, I’m going to suggest that you fund your dream basket by investing in mutual funds or exchange-traded mutual funds, which I will cover in greater detail in a few pages.

  WHAT EXACTLY IS A MUTUAL FUND?

  One of the more interesting and scary discoveries I’ve made over the years is that there are a lot of people who invest in mutual funds without even knowing what they are. You wouldn’t believe some of the answers I’ve gotten when I have asked people at my classes and seminars what they think a mutual fund is. People say things like “It’s a big stock,” “It’s a safe investment,” “It’s a special stock,” “It’s a bank product used to help people buy stocks,” “It’s a holding tank where you put stocks,” and on and on.

  Well, for the record, here’s the real definition of what a mutual fund is, according to Charles Schwab. In Charles Schwab’s Guide to Financial Independence, he defines a mutual fund as an investment company that pools the money of many investors and buys various securities (such as stocks or bonds). Investors who own shares of the mutual fund thus automatically achieve the benefit of a diversified portfolio without having to buy individual investments themselves.

  WHY INVESTING IN MUTUAL FUNDS MAKES SENSE

  In my opinion, there are six key reasons why you should invest your dream-basket money in mutual funds.

  They are easy to invest in. As I said before, many mutual funds today allow you to start a systematic investment program with as little as $50 a month (sometimes less). You can set this up, often at no cost, through a financial advisor or with the mutual-fund company directly.

  They offer instant diversification. Even though you may be putting in as little as $50 a month, you immediately enjoy a stake in a portfoli
o that could include hundreds of stocks and bonds.

  They offer professional money management. The people who run mutual funds are full-time professionals who bring incredible expertise and experience to the job. This includes professional research and trading execution.

  They are cost-efficient. According to the Morningstar rating service, the average internal mutual-fund management fee is about .57 percent of the assets managed. This is down significantly since this book was originally written. In fact, it has never been less expensive to own a mutual fund than today. You would probably wind up paying a lot more than this if you tried on your own to build and manage a portfolio of individual stocks and bonds.

  They are liquid and easy to monitor. Most mutual funds are priced daily, and they are posted in the newspaper right next to the stock tables and can be tracked online instantly. Thus, you can easily find out how your investment is doing—every day, if you want to. And most mutual funds allow you to pull your money out with less than five days’ notice.

  They are boring. Because they are so diversified, mutual funds don’t fluctuate in price as much as individual stocks or bonds. Many people consider this lack of volatility boring. As far as I’m concerned, in the investment world, boring is good.

  Now that you understand why mutual funds are a good investment, it’s time to consider which type makes the most sense for you. According to Statista.com, there are approximately 9,500 mutual funds to choose from (not including exchange-traded mutual funds). To make things simple, I’m going to suggest exactly what type of mutual-fund investment I personally would use to fund my dream basket. The only real variable is the time horizon—that is, how long you think it will take the two of you to accumulate all the money you’ll need to fund your particular dream.