S2 #18 Spend vs. invest: power of your financial policies

S2 #18 Spend vs. invest: power of your financial policies

S2 #18 Spend vs. invest: power of your financial policies

Guest:
Guests:

Alyssa Lum

Alyssa Lum is the founder of Luminate Financial Planning, an independent, fee-only financial planning firm based in Herndon, VA. She works with clients to simplify their financial lives, then empowers them to align their financial assets with their values and goals.
Alyssa received an MBA in Finance from Georgetown University and an undergraduate degree in Business Administration from Bloomsburg University. She holds the CFP® certification and passed the Series 65 Uniform Investment Adviser exam. Alyssa worked as an associate financial advisor and wealth planner for an independent broker-dealer before launching her practice in 2017.

ROI is an archaic concept in the business world as much as in our personal lives. Instead, we should be thinking value on investment, which comes in many forms. The concept of value can certainly include quantifiable returns, but it is more about the ones that meet our emotional needs. Suppose you think about your personal investment strategy. In that case, you may desire a sound retirement account, a pre-paid college tuition program for your children, or knowledge that you can afford the best possible care if something happens to your health. Our companies need the same type of needs met, albeit they come from a broader population. For example, we need to have improved confidence in our products or people, accelerated brand recognition, or reputation protection. These benefits can be considered an investment value, which Alyssa Lum, the founder of Luminate Financial Planning, helps explain.

Keywords:
business growth, investment, business planning, business budgeting, digital strategy growth, brand loyalty
Season:
2
Episode number:
18
Duration:
26:02
Date Published:
November 4, 2021

INTRO: [00:00:00] Welcome to the Power of Digital Policy, a show that helps digital marketers, online communications directors, and others throughout the organization balance out risks and opportunities created by using digital channels. Here's your host, Kristina Podnar.

[00:00:18] KRISTINA: Welcome to the Power of Digital Policy, podcast. Our expert today is Alyssa Lum, the founder of Luminate Financial Planning which is an independent financial planning firm based in Herndon, Virginia. I've known Alyssa for a few years now, and I've had the benefit of working with her through my own personal experience, as well as some business questions that I've thrown her way. And today I've asked her to join as she brings insight and expertise from working with individuals and small businesses to the financial space; she can help us understand what lessons from personal finance management we can apply into the business world and our jobs, which I never quite thought about until we recently caught up. And I said, oh wow, there's a lot of crossovers. I am looking forward to hearing everything you have to share with us today. But before we dive in, I do have to do a little disclaimer, which I normally do for this. But I think it extends as well to professionals in the financial space. And that said, Alyssa is speaking to us today in the personal capacity, and she's not offering any financial advice. You'll need to reach out to her directly if you need counsel specific to your financial situation. So, this is just general banter, if you will, around finances that you can apply both to your personal and professional lives, but nothing is intended to be professional directly from her. Does that sound like a reasonable footnote there for us to start out?

[00:01:39] ALYSSA: Yep. That's perfect.

[00:01:40] KRISTINA: All right. One of the things that I've thought about from talking with you a number of times is able to properly manage both personal and professional finances in our business lives. It's an essential life skill, whether you're part of a corporation, where you're leading a team, or you're running a small business, or even if you're an entrepreneur, I've asked you to spend time with us to help us understand how personal and business finances are similar. And a lot of folks are looking to try to understand what they can translate from their personal experience into that business environment. So, are there some similarities we should be aware of from your perspective?

[00:02:20] ALYSSA: Absolutely. And thanks again for having me on today. And I'm just going to reiterate one more time that everything I'm going to talk about today is not meant to be investment advice; yes, there are lots of parallels. And what I would say is sort of the biggest overriding factor with everything is the trade-off that we always face, which is between thinking about our current situation, and then thinking about the future, and it's always a trade-off. And this is true in personal finances. And it's true with your business finances, right? If we spent all our money today and didn't save anything for the future, well, then we've ruined ourselves for the future. On the other hand, there are some people who live like poppers today. So that, thinking everything for them is about the future. And then, of course, we don't know that we're going to make it all the way to the future to retirement, whatever it is. For me, that is the fundamental trade-off just that we're always thinking about is how do you spend your money now versus how do you invest your money for the future and how to balance those two things?

[00:03:24] KRISTINA: Is there a parallel between personal investment and entrepreneurs versus large corporations. I'm wondering whether small startup businesses tend to be more aggressive. And just go for the gold, go for broke almost because they're either going to make it or not versus maybe larger corporations that are a little bit more conservative. Not sure how next year's cosmetic sales are going to go versus this year's, or is there just a general strategy that applies to everybody?

[00:03:55] ALYSSA: Yeah, that's a good question. I would say some of that is highly personal, especially when we're talking about small businesses is how, how you perceive risk and what kind of a risk-taker you are. Although almost all small business owners or entrepreneurs are kind of, by their very nature risk-takers, or they probably wouldn't have started a business in the first place. But yeah, I would say probably in general, when you're starting a small business, you swinging for the fences and willing to take more risks than if you're kind of a state corporation that has a set budget and a plan. And you're really just trying to hit next year's goals instead of trying to build something from scratch.

[00:04:33] KRISTINA: What are some of the biggest struggles that you see individuals having in terms of being disciplined and trading off that strategy that you said between spending all of our money today and not having anything for the future or saving some, there's obviously a personal balance there, but what are the struggles that you see people struggling with the most?

[00:04:51] ALYSSA: I would say very much the parallel I can see between those two things is getting caught up in the day-to-day activities. In our personal lives, I think all of us can relate to; you're just trying to get through the day. You're just trying to get to all the activities and pay the bills and do whatever you have to do, to go to bed that night and get up the next day. And it's really hard to take that step back and say, hey, let's look at our feature, let's plan for the future. I would set up plenty of that our retirement plan or investment plan or something like that. It's, for me, absolutely the same thing. In my business, which is, it's so easy to get caught up in the day-to-day just, meeting with clients, running the day-to-day operations of the business and never taking the time to, to work, as they say, to work on the business instead of just working in the business. And so, I think that's a struggle for everyone because again, there's urgent, but not important, but taking a step back to look at that big picture is always not urgent, but really important. For me personally, the only way that I can really make sure that happens is to block out big periods of time to actually focus on the business instead of in the business. And in fact, this, this week for my own business, is something I call project week, which is means I'm not taking; I'm not doing client meetings this week. I'm not doing client work very much. The focus of this week for me is to work on the business, the projects that never get done, or planning for this year and next year.

[00:06:24] KRISTINA: Do you see that most organizations, I guess, small businesses, more so than larger because larger corporations have somebody who's dedicated, usually full-time to finance, to accounting, if not whole teams, but from a small business perspective, do you find that folks really struggle with that and need to hire that aspect out? Or is it just a matter of being really disciplined?

[00:06:48] ALYSSA: Yeah, discipline is probably the biggest thing cause. I think in both instances, again, both in personal and in business, like everybody has a tendency to put their head in the sand and just kind of like, hope it's all going to work out. But and part of that instrument almost by fear of the unknown. And I don't want to look to what's going to happen next year. I just know that today I have to get these five tasks done.

[00:07:10] KRISTINA: I'm thinking about the annual budgeting cycle. A lot of businesses are going through that right now. And it's fascinating because people are just throwing around in some instances, random numbers because they don't have the time to deliberately prioritize the planning aspect, and I think back to your point, it's so hard to do that when you're keeping the lights on and doing your day in and day out, but, pausing for a moment and thinking it through means that you're not going to be scrambling later on, whether you're in your personal life or in a professional capacity, thinking it through budgeting wisely, figuring out, what is your plan and going with that, just not today, but also for the long-term kind of is w was where the tricks of the trader are.

[00:07:52] ALYSSA: Yep, absolutely. I think of it as budgeting. No one likes the word budget rate. Probably not in their personal finances or in their business, but I do think of budgeting as; first, it's awareness of how you are spending your money. And second, it's often a reflection of your values. How you're spending your money does reflect what is most important to you, or at least it should. And sometimes it reflects, in fact, things that aren't important to you. I do think it's important both in your personal life and your business to be taking a look. How am I spending my money? And does that line up with what I want to be doing?

[00:08:30] KRISTINA: You're making me think of a colleague of mine who specializes in a kind of venture capitalism for small to medium businesses. And one of the things we're always talking about is values with the small business or the startup or even a medium-sized business that's looking to get acquired. And it's really about what your values are and what your priorities are. And for a lot of folks, they're taking on extra risk or they're not paying attention. And by doing that, they're really undervaluing themselves. They're not positioning themselves well in the marketplace. And beyond just making your life easier, there's a tangible there at the end of the day from a financial perspective.

[00:09:11] ALYSSA: Yeah. I mean, in terms of budgeting and planning, how you want to spend your money. And there is a difference when I think of just kind of personal finances; you're, you're thinking about, in both cases, there's always. There's a never-ending list for most people of how they could be spending their money. And with your personal finances, it's, do we want to take a vacation this year or should we spend it on the house or whatever it is. In most cases, you're making decisions based on, will they improve your life or does that line up with your values or whatever it is when you're looking at those same spending decisions for a business, for most of us, if I invest, if I spend the money on this software or this equipment or this marketing campaign or whatever it is, does that translate to either more time for me too, to build my business or does it translate to more revenue for the business? So, you're sort of evaluating all of those spending decisions in a different way of, of not just what do I want, but more like, will this, what will, how will this move my business forward?

[00:10:15] KRISTINA: It sounds almost like there's a psychology to money. Is that what you're describing?

[00:10:20] ALYSSA: Yeah, there absolutely is. And I feel like, in fact, there's a book that I love called the Psychology of Money, but everybody for money just brings out, I would say, emotions and people, and it brings out, the biggest ones I would say are fear, fear, and greed, right? When the economy is doing well, and when the stock market is going up, everyone suddenly wants to participate and wants to be making more money. And when the economy crashes or the stock market tanks, that's when the fear comes out. And everybody wants to bail out, and no one wants to invest. It's the same with it as a business owner. I imagine you've probably experienced this as well. There is fear, maybe not grieve, but there's certainly fear when you're when you are a business owner, and there's no one else paying the paycheck but yourself. Emotions rule the day, and that's not a bad thing, but it does mean you need discipline and systems and things to kind of override. And stop yourself from making emotional decisions that might not be the best for your future.

[00:11:22] KRISTINA: That sounds like great advice also for any person who is thinking about jumping into the pool with entrepreneurs or small business owners, but what else do you wish that people knew before they kind of pulled that trigger? Is there a way to take on the entrepreneurial route or the small business route in a smarter financial way?

[00:11:43] ALYSSA: The biggest thing probably from the beginning is to have to build yourself up. I'll call it a financial runway. Most people, when they're, if they're starting a new business, you can probably assume that at least for a few months, if not even a few years, cash flow is going to be tight. You're not going to be bringing in the income that you might have from before. So, before you even pull the trigger and step out into it and start a business, you need a cash runway. Whenever it is three months or six months, or 12 months of cash that you can use either to cover your own personal spending or to cover business spending before it really ramps up, that's big, the biggest one probably. But I would say the other big thing to think about for, making a really big difference between working for a corporation and working for yourself or starting your own businesses. Well, I think a lot of what drives people is the idea that you don't have a boss, right? Like you are the boss, and no one tells you what to do, which is amazing and fun and freeing. But up at the same time, that's, it's terrifying. And it's no one telling you what to do. That's true. But also, you're the only one who is going to get it done; there is no one else, at least depending on how small your businesses are. I would think that you would need the discipline to be the kind of person who can say like, Hey, today's a blank slate. No, one's telling me what to do. And yet, I need to do these things to move my business forward. So, so thinking about it from that perspective.

[00:13:09] KRISTINA: Do some of this advice apply to individuals who are looking to maybe jump ship and switch from the corporate world to maybe more of a gig economy, or I was even thinking about this because, before COVID, digital nomadism seemed like a growing trend. I've had several friends who quit their day jobs and decided to follow the digital nomad style. Do you have any tips for those looking to explore such a lifestyle or kind of jump ship once we're out of the pandemic? Are there implications from a financial perspective, or is it like a wow, pretty good idea?

[00:13:40] ALYSSA: Yeah, that's a big question. I would say from a broader perspective that the biggest thing would be to know yourself, are you the kind of person who could, again, kind of like on the same before, if you have no boss, how are you going to fill your time? Are you disciplined enough to put the work in that might not pay off for, for a few months or years or whatever it is? So, so know yourself, are you willing, you get distracted all day long or, especially if you're truly a digital nomad, and living in some beautiful part of the world for six months in a year, can you still get done? What needs to get done? From a financial standpoint, everything that does kind of change when you're, when you're working for a corporation, you're a W2 employee. And you're not worried too much about taxes and things like that, besides just the standard withholding. Whereas if you do kind of venture out on rune, suddenly you, the one responsible for sending in quarterly taxes and yeah. I'm not a tax expert or a CPA, but suddenly you're responsible for those FICA taxes, both for you as yourself but also you as your own employer. So, you're, you're actually playing, paying twice as much in taxes as we did when you were an employee. So similarly, those are kind of big things to think about. Now, on the other side, there's obviously business deductions and things like that, that balance some of that out, but it's, it, it takes from a tax perspective, it takes it from like a, an easy 10, 40 tax return to something that tends to be a little bit more complicated. So you would want to think about that, and almost certainly you would want a CPA kind of helping that.

[00:15:21] KRISTINA: I'm going to ask you to speculate heavily here. I know this is not your area of expertise, but I would be curious to hear your personal opinion, which is digital nomadism and teleworking is so appealing in some senses to organizations because they feel like, hey, I can move folks off of my payroll. I don't necessarily have to stoke their 401k. Is that really a good move financially for businesses? I'm asking you to speculate here heavily, but I'm just curious, is that a good move for businesses or is it worth continuing to invest in W2's and having the 401k and all of the other benefits that go along with employees,

[00:16:05] ALYSSA: I would guess at some level that when you have like, we'll call it true employees, like W2 employees, you're paying benefits for all of that, I'm assuming there is a little bit more loyalty there. You are building employees who are part of a company and maybe even part of a, a bigger vision that you have. And whereas if, if you've got contractors and employees kind of who are not quite as part of your corporation, then my guess would be that there's a lot less loyalty. Obviously, they're going to go to whoever's paying more or have the best whatever it is. So, I don't know how businesses are going to make that decision. I think it is going to absolutely be fascinating as we're probably all seeing a lot of businesses or employees are starting to come back into the office. That's a little bit different from the W2 versus the 1099 question, but we're all going to see, like, does it, are employees willing to come back into the office again, like five days a week or three days a week or whatever it is? I think it's going to be a giant fascinating experiment in the world of and work and how all that goes in the coming year.

[00:17:14] KRISTINA: I have talked to several folks who have mentioned that their spouse has quit their job, or maybe they even have left the workforce because they were like, hey, I'm not willing to commute five days a week, like one day or maybe two days is okay, but I'm not going back to the crazy, three hours round trip commute to the office. I think it'll be interesting, like you said, to see how that. The business world or will it really cause more of a disruption in the personal area because people are banking on organizations caving a little bit more than they're ready to cave.

[00:17:44] ALYSSA: I really don't know how it's going, but I think we really are going to see a real-time experimented because I think some companies have gone a hundred percent virtual, even some big corporations and other companies I think are trying to get everybody back four or five days a week or three days. I can see it going either way. I don't know which way it's going to work out better, or maybe there'll always be those options.

[00:18:07] KRISTINA: You brought up the subject, and I just think it is fascinating to see how that's going to roll, but it's also making me think about the next generation. Because I've heard people say like, oh, younger generations aren't as concerned about some of the traditional things, they do want more of the flexibility; they don't want necessarily the time in the car. They want the liberty of telecommuting. And they also seem to not have as much of a desire to clearly distinguish between their personal and professional lives; whether they do or they don't, they'll still need to deal with finances. Both from a business and a personal perspective. What advice do you have for instilling financial literacy into this next generation? Are there things that we should be teaching them differently, either on the business side or personal side, or is it the same lessons that previous generations have had to learn?

[00:18:57] ALYSSA: My first side of that it should not be on Tik Tok. There are lots of people giving lots of crazy investment advice on Tik Tok, and I think it's mostly aimed at that younger generation; I saw some guy who, like he and his wife, were up on Tik Tok, with some video basically saying here's our strategy. We buy a stock that is going up, and we sell stocks when they're going down. So that is not the answer for sure. It's cliche, but everybody says that we all learned algebra two and maybe even calculus in high school, but very few people learned anything about personal finance in high school. And that probably would have been more helpful to those people. While there have been a lot of studies that show even, even if you do teach people financial literacy, there's a difference between knowing what to do with it. Financial planning it's similar to personal fitness, which, as we all know, is what to do to be physically fit. We all know to eat healthy food, do exercise and all that. But it doesn't mean that we're doing it, even though we know the right thing to do. And that's the same with personal finances; most people do know, spend less than you make investments for the future, but it's a lot harder to do. So even literacy training or personal finance training doesn't always get you there. What I always tell people is, like, you sort of has to take that personal. You must take yourself out of it. It just automate things so that you don't have so that you're not able to make decisions that derail your own plans. To automate investments and things like that. Just anything you can do to kind of take, to get out of your own way, I think is helpful. And in one-word thing, just along those lines is that. When you work for a corporation, most of them offer a 401k or something like that. You sign up, you'd probably pick like that, the target-date mutual fund or whatever it is. And you're all said if you're in the gig economy or working for yourself, whatever that looks like, that's outside of a corporation, suddenly you, the one making these decisions, you have to actually take steps to plan for your own future and your retirement. And maybe that means setting up a SEP IRA or a Solo 401k or something like that. But it's, it's not quite as easy as just filling out the form on the first day of your new job and opting into the plan. You do have to seek that out. You do have to set up that plan for yourself. You do have to choose the investments in that. Unfortunately, that is, that's a lot harder than just signing up for the company plan.

[00:21:32] KRISTINA: Well, that might be harder than the company plan. Are you seeing companies stepping away from traditional financial plans, retirement plans, savings plans for their employees? I was talking to a colleague the other day who mentioned retirement from a former corporation. And it was interesting. It was like, oh yeah, I have a pension plan. And I almost had a heart attack. I was like, what's a pension plan. Is there a general trend that you see organizations heading in or does it just vary?

[00:22:00] ALYSSA: The bigger trend is that 50 years ago, more corporations did offer pension plans; there's plenty of pros and cons to that. But what it did mean for the, at least for the employee, is you didn't have to take any of the risks spot for your retirement if you worked for that company for 20 or 30 years, then they will pay you some portion of your salary as long as you live. And so you don't have to make any of those investment decisions. You don't have to worry about, Not spending all your money early. So the shift for sure, over the last 50 years, has been to shift that risk onto the employee by way of something like a 401k plan. So, the company isn't saying; we're going to pay you for the rest of your life. The company is saying here's a retirement plan. Then you can invest in, in we'll match, maybe 3% or something like that. But for the most part, they've shifted that burden onto employees. There's been an enormous shift from the employer, taking all the risk to now the employee takes on most of that risk, and it's not for this podcast, but there's, there's pros and cons to both of those things for both employees and employers.

[00:23:05] KRISTINA: Out of curiosity, do you know of any companies that still offer a pension plan? Just so everybody can go in and click on their job applications?

[00:23:13] ALYSSA: Well, the federal government for sure. I don't think I can name any private companies, but I definitely, I do still see it more often for me, it'll be clients who came to me, who come to me, and they had a pension from a job that they held maybe 10 or 15 years ago. And they, they had ten years with that company. And so, they have a small pension. But it's, I don't think, I can't think of any company that a new, that if you signed up today, you would get to join their pigeon besides governments still do, and teachers. So, you know, things that are backed in that way, that is the biggest benefit for most of them is that you do get some kind of pension, although they've all of his pensions have been watered down in, are quite as robust as to be.

[00:23:59] KRISTINA: Food for thought, right? Don't go out and apply right away because it might not be as grand as you think it is, or at least consider your options.

[00:24:06] ALYSSA: And it's far more limiting to get any benefits out of a pension plan; you usually have to work for 10 or 20 or even 30 years. So that means that takes away all the sort of the digital nomad lifestyle type things like you're signing up for a, maybe a whole career with one company versus maybe moving around throughout your career.

[00:24:25] KRISTINA: That's worth consideration. Considering the way that we like to work today and some of the other work-life balances, I think that folks have come to appreciate as a result of the pandemic.

[00:24:37] ALYSSA: I think for sure. I can't imagine as many of, especially the younger generation, those in their twenties, like wanting to sign up and say, well, yeah, I'll work for this. I could see myself working for this corporation for the next 30 years like that. I can't imagine it, but who knows.

[00:24:52] KRISTINA: Exactly, time to see how the social experiment is working out. Alyssa, thank you so much for helping us see financial health through the lens of an individual or even a household and how it can apply in our work environment. And also, just giving some food for thought around these corporate jobs and not necessarily going out in venturing out on your own. I think what I heard from you today is it's always a balance between what I like to say is risk and opportunity in the digital policy space. And it sounds like that's very true for the financial space as well. It's all a matter of risk and opportunity and where you want to place your bets today versus where you think you'll be in the future.

[00:25:28] ALYSSA: Absolutely, well said.

[00:25:30] KRISTINA: Thanks so much for taking the time. It was great talking to you.

[00:25:34] OUTRO: Thank you for joining the Power of Digital Policy; to sign up for our newsletter, get access to policy checklists, detailed information on policies, and other helpful resources, head over to the power of digital policy.com. If you get a moment, please leave a review on iTunes to help your digital colleagues find out about the podcast.

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