Here’s a quick story of a new client, Kaleigh, who joined Know My Plan earlier this year.
As with all of these client examples, we’ve modified some of the details to respect the anonymity of our great clients, however we like to share these stories with you because the feedback regarding their relatability has been incredible. Hopefully this one’s no different.
Kaleigh’s 41, a single mom to a 6-year-old (Sean), and working for a fortune 500 company with a secure corporate position.
Kaleigh lives within her means, but also recognizes that her $152,000 salary doesn’t go as far as she’d like (living in a large metro area).
Upon calling us, she was contributing 10% to her 401k, 3% to her ESSP, and had built a decent emergency cash fund ($13,000).
One of her initial concerns was that as much as she’d like to, she just doesn’t have the extra money to invest in her and her son’s future: “I feel like there’s no extra.”
Another piece of the puzzle was that Kaleigh recently lost her mom and was left an inheritance.
Now based on experience and many conversations with clients, inheritances historically have a way of disappearing very quickly. Meaning their spent on the “wished I hads.”
To her tremendous credit, however, Kaleigh saw this as an opportunity to improve the future for both her and Sean.
During one of our early meetings, I opened my whiteboard and we began sketching and discussing the impact of how she chose to utilize these funds.
She decided that she wanted to put away $200,000 of the inheritance to invest for her future in a low-cost diversified portfolio of well-established enduring companies. Mentally, she wanted to pretend this money didn’t exist for 20 years.
I gave him some perspective and I’ll also share that with you all: A quick time value of money calculation concluded that the $200,000 investment, assuming an 8% growth rate for 20 years could blossom into approximately $932,000! Kaleigh lit up.
We played that out a little further. What would it look like when she tapped into that lump sum after 20 years? Let’s say she needed to take a 4% annual withdrawal to help fund her retirement (approx.. $37,000)? Our next calculation showed that if she withdrew 4% out of that account annually beginning 20 years from now and allowed the principal to continue to remain invested at it’s assumed 8% for the next 30 years, there’d be $3 million that she could leave as a legacy for Sean!
It was an eye opening and emotional realization. Think about it, Kaleigh’s mom’s legacy to her, if invested properly, could help fund Kaleigh’s retirement AND blossom into a multiple 7-fugure number that could be left to her son, Sean.
Now, will these projections be precise? Of course not. Things are going to happen, the world will continue to turn and the figures may wind up being higher or lower.
However, the goal is to understand the concept—The power of compounding for decades and make decisions built upon a plan.
This was a cool experience and a great reminder that generational wealth is possible for everyone with a plan.
If you or someone you’re close to is a high-achieving professional that could use help aligning their finances and establishing a financial plan, please reach out to us, we’re accepting new clients and eager to help.
Cheers, Nic
