By Jim Blythe
What is the vast majority of seniors’ biggest concern? After talking to thousands of people and reading countless articles, without a doubt, is it money. The majority of retirees are living at or below the poverty level on meager Social Security income. In 2008 we watched the financial world fall apart, again, and leave many without their savings. There are studies that have been published by the Society of Certified Senior Advisers that point out that 85% of the people turning 65 every day aren’t prepared. Just to give you an idea there are about 10,000 people turning 65 each day. That’s 8,500 a day that are headed for trouble and to put that into perspective that is 3,102,500 people a year. Sure, many have pensions and retirement accounts, that accounts for 15%; the rest typically don’t.
I like to ask the question, “why?” because I think if I know why I can identify the problem and solve it.
I am called into many homes to talk about financial matters. I’m a specialist in reverse mortgage lending. As a result, I see firsthand the results – and I ask the questions to help them come up with solutions. While this sounds overly simple, the biggest problem I see is lack of planning.
People have lived their lives day to day without regard for the future. When the future hits them in the face it’s a harsh situation. First of all very few people live on a budget and have a plan. Most of the people I have met with that were born before 1935 remember the great depression and the results of that economic devastation. My grandparents and parents lived in a strict budget and very conservatively. Those values have really stood the test of time and families who live with smart money management are generally in better shape. But they still have problems, and those fears and problems really stem from a childhood of fear and doubt about money.
Let’s start with a simple discussion of budgeting. I work with people all the time and get them to do a budget as we discuss their financial options. Everyone knows what a budget is … the question is can you live on one? Do you set standards and keep them?
I sat in a bank’s conference room a few years ago and a widow came to me seeking help by getting a reverse mortgage. I started asking her questions about her income and expenses. Obviously she was broke and wanted to pull funds out of her home. The reason she was broke became so simple, and yet so painful. Finally, in a near rage, she exploded at me and told me her husband had wanted her to live on a budget and she had no intention of doing so. My answer was simple, you will go broke and eventually lose your home and everything you have. She got the message because she was already experiencing that. I asked the banker to pull up her bank accounts. What a shock to us all. ATM charges at the casino. Debit card charges every day at local restaurants. Charges for clothes and other shopping trips were everywhere. She had gone through all of her husband’s funds that he had left her and piled up a lot of credit card debt. When we laid it all out and how she was spending way more than the $1,850 she received from Social Security, it became clear. In three years, she had spent over $250,000.00 and had nothing to show for it, except more debt. She had lived like so many I see, not just one day at a time, but burning up those days and spending like there is no tomorrow.
What did we do? She began to see she had many problems and needed counseling. She was lonely and spending money made her feel good. Now that addiction was killing her. We started working with a credit counselor and started working a budget and prioritizing her expenses. She then did something very smart. She reinvented herself and went to her church and went to work in the nursery day care center taking care of children. She didn’t make much, but it all helped. She negotiated through the credit counselor with the credit card companies and reduced her debt load. She was really happy working with the children and way too busy to go shopping. And the kids loved her. She got herself back on track, and we did use a reverse mortgage to provide a line of credit to be able to pay her taxes and insurance, and have reserves for emergencies. She lived within her income and began to start saving a little money. Is this typical? Unfortunately, no. I wish it were.
What is the key to helping the lady? It was putting down on paper her expenses and income. In black and white right before her eyes, it told the story. Show me your bank statement and I will show you the patterns of your life. So start with a simple budget. What is your income and what are your expenses? Look at your bank statements for the last year, twelve full months, and tell me what you sent and where. What are your priorities.
Let me tell you another great story. Mrs. B in Oklahoma City was sent to me by a banker friend. Her husband had been self-employed and was a carpenter. He had built them a nice home. Also, Mrs. B made the best lemon drop cookies I have ever had, I mean the best. Her husband had left no life insurance and her social security was only $675 per month. There was a mortgage on her home and guess what, the payment was $675 per month. She was surviving on the welfare of friends and family and was terribly struggling. She had managed for about three years by scrimping and saving and taking care of children babysitting.
We set out to build her a plan to be successful.
First of all, we did do a reverse mortgage which paid off the mortgage and ended her monthly payment expense. She was left with about $4,000 in cash proceeds from the loan. What she did next was really great. She had already enrolled in a local junior college and was learning medical billing. She used the funds to buy a computer and the things she needed and pay off the school. She started doing medical billing a few months later and was making more that her husband had ever made. She still made the best lemon drop cookies and gave them away at church, and I suspect, at the doctor’s offices she worked with. When I talked to her a few months earlier she was happy and saving money. She loved having money in the bank. What a great feeling.
How do you do a budget? You need to be honest with yourself and not only put down your income but all your expenses. Once you see what you have spent then you can began to see what you need to spend and there is a huge difference. Learn to live on a budget.
The budget is the first tool in your financial tool kit you need to use. It is key to understanding your past, present and future.
Let me tell you another story, and I don’t have any way to verify it. I was told the graduating class of a major ivy league college was asked to participate in a study. They were asked to write a business plan for the next five years, complete with goals, plans and budgets. In five years at their first reunion they were asked present the results. An amazing thing happened. 3% of the class did the project, 97% did not. Can you guess the results? The 3% had amassed more wealth and success and had less debt than the 97% put together. Little wonder that a lot of planning and budgeting can make a difference.
Planning and budgeting are the keys to success. Do you want to be successful? Life has a way of throwing us curves and it’s ups and downs. Funny but the people who I have experienced as happy and successful had a plan and they stuck to it. Persistence and dedication go a long way to turning dreams into realities. Do you want your Golden years to be Golden, or are you headed for a tarnished future? If you knew the living rooms I have set in listening to family stories of financial distress you would cry. Sometimes I want to.
What is the answer? Simple and effective planning is the answer. Writing down a budget and sticking to it. Focus on what you have and can do. Be enthusiastic, be involved and be active. Not only have a budgetary plan but have a physical plan, exercise and eat properly. Don’t let the aches and pains of old age get you down – be active, dance and participate in life. The more you do the better off you are . These are real simple solutions. The gardener at a local church mows and trims every week and rakes the leaves in the fall and winter. He is 96. My Father is 94 and reads everything he can get his hands on and plays golf once a week. Ready to get up off the couch? Write a simple, effective plan for budgeting and for having an active life, then do it.
Jim Blythe is a Certified Senior Advisor, Dallas area native and third generation Navy Veteran. He served three tours in Viet Nam on aircraft carriers from 1967 to the end of 1970. Currently Jim serves on the board of Heroes House, a non-profit providing housing for homeless and low-income veterans. Discover Jim’s radio show, get his book Planning to Change and more at JBlythe.net.
Better yet, give him a call at 214-502-4600 or you can email him at JBlythe@AAG.com.