by Ted Halpern
Love many, trust few, and always paddle your own canoe: This distinctly American proverb of self-reliance was first popularized in the 1850s, and it’s still a good way to be. Be kind, but not naïve, and take responsibility for yourself. Unfortunately for their wealth, not many people take all aspects of this to heart.
I have a friend whom I’ve known for many years, and for the majority of those years I knew he made a sizeable income—in the neighborhood of $800,000 a year. I didn’t manage his money, but I always assumed he was financially secure. While he did live in a big house and belonged to a country club or two, I didn’t see anything that seemed like it was eating away at his wealth, like owning a fleet of yachts or sending five kids to boarding school in Switzerland.
I did notice small things, though, which should have been a warning sign.
Saving Power, Not Spending Power
My wife and I were at a party my friend was throwing at his home. Really fun, great food, and at the end of the night, there were a few half-full bottles of wine left over. The man’s wife took one look at the open bottles, declared that she didn’t want any of the old wine, and opened a new bottle for the one glass of wine that she wanted.
I thought it was a bit wasteful. These were decent wines; no Two Buck Chuck here. But I didn’t give it a second thought until I found out through the grapevine that he was getting a divorce. His wife wasn’t expected to get much of a settlement. How could that be?
He had a kayak-sized amount of money in after-tax savings relative to his mega-yacht-size income. Rather than taking advantage of that huge saving power, this couple saw it as spending power—even as it added great stress to their lives.
“Paddling your own canoe” could mean a lot of things to you—learning to do home repairs, trailblazing your own career path, or literally paddling a canoe on a lake. Whatever floats your boat, as they say! But in my world, “paddle your own canoe” means taking responsibility for yourself—and your future self-sufficiency.
One important way to do this is with after-tax saving in addition to tax-deferred retirement saving (accounts like 401(k)s or 403(b)s offered by your workplace). If you’re not doing after-tax saving, you’re missing a major opportunity to grow your wealth and take care of your future financial security. Simply put – there is no substitute for liquidity. Cash is king! A combination of tax-deferred and after-tax saving is a powerful wealth-building engine.
But What if I Have Enough for Myself Already?
Even if you have enough for your own retirement needs, having after-tax money gives you freedom to make choices. Take my other friend Ralph for example. He worked as a union manager for his entire career, and he shared with me that if he retired now, he would get 75% of his annual pay as a pension for the rest of his life. If he waited a few more years, he would get 80%. He didn’t make anywhere close to the kind of income my other friend did, but he was perfectly comfortable.
Even so, he worried about how he would pay for his daughter’s college fund if he decided to retire before getting that 80% lifetime pension. You see, he needed money! While he had a fantastic future pension, he did not have the liquid funds to pay.
It’s very rare these days to have that kind of guaranteed income for life. And granted, the cost of college is astronomical—and increasing at a rate over 5% in some years. But Ralph’s story shows that even if you have guaranteed retirement money, taking the initiative to save even a modest amount after-tax can make a meaningful difference. Cash liquidity reduces stress, permits you to use the tax code to maximum efficiency and creates your own personal time machine to the future you desire. Time is precious and saving wisely can reduce the time you spend stressing, and increase the time you spend living the way you want.
All of this is a long way of saying that “Paddle your own canoe” means looking to the horizon, setting excuses aside and propelling yourself to your destination. No one else will do it for you. So grab the oars!
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