How to Know When to Stop Saving and Start Living

Transitioning from a Saving to a Spending Mindset: Finding Your 'Enough' Number

In this episode of The Retire Early Retire Now podcast, host Hunter Kelly, a certified financial planner, discusses the challenging shift from a saving to a spending mindset. After years of disciplined saving and investing, many high earners and perfectionists struggle to enjoy the wealth they've built without the fear of running out of money. Kelly delves into finding your 'freedom number,' the amount at which your investments can reliably support your desired lifestyle. He introduces strategies like creating a paycheck from your portfolio, test-driving financial freedom through sabbaticals, and spending on purpose to bridge the gap between saving and living. The episode also emphasizes tax-efficient withdrawal plans and maintaining flexibility through optionality. Kelly concludes by identifying signs that indicate readiness for this transition and encourages listeners to reassess their plans not just to save more, but to start living more fully. Listeners are invited to book a consultation to find their own financial freedom number.

00:00 Introduction to the Podcast
00:10 Shifting from Saving to Spending
01:12 Understanding Your Financial Freedom Number
01:48 Mindset Shift: From Accumulation to Enjoyment
04:22 Calculating Your Freedom Number
07:29 Building a Sustainable Withdrawal Plan
14:04 Signs You're Ready for Financial Freedom
17:43 Conclusion and Final Thoughts

Check out the Palm Valley Wealth Management Website
PalmValleywm.com

Check us out on
Instagram
LinkedIn
Facebook
Listen to the Podcast Here!
Apple
Spotify

Transcript

0:00

And welcome back to The Retire Early Retire Now podcast. I'm your host, hunter Kelly, certified financial planner and founder of Palm Valley Wealth Management. And today we're gonna talk about. How we change our mindset from a saving to spending mindset. So you spent years and years building, saving, investing, doing all the right things, but at some point the question shifts from how much do I need to when is it okay to actually start enjoying what I've built? For a lot of people I work with high earners, planners, perfectionists. That's one of the hardest transitions to make. We're wired to accumulate, to optimize, to protect, but rarely do we stop and ask, what's the purpose of all of this saving? I've seen families with millions of dollars saved who still live with that background anxiety, that it's never enough. And the truth is you don't need another spreadsheet or a market forecast to find peace. You need clarity on what enough actually means for you. So today we're gonna talk about how to know when you can stop saving and start living. We'll talk through how to find your financial freedom number. How to shift from accumulation to enjoyment and how to give yourself permission to live fully without jeopardizing your long-term security. before we jump in. If you've been enjoying the show, I'd love it if you would take just a second to leave a five star review on your favorite podcasting app. It helps more people find the show and it means a lot as we keep rowing The Retire Early Retire Now podcast. So let's jump in. And I wanna start with mindset today. this is the hardest part I find, making that shift from saving to spending. and so let's start with mindset, because it isn't just about math, it's about permission. If you've been a discipline saver your whole life, that's a habit built on security. It's about control. It's about knowing whatever happens, you'll be okay, but the same habit that helps you build that wealth. Can keep you from enjoying it. There's a book I read a long time ago when I was thinking about starting my firm and it's called What Got You Here Will Not Get You There. And again, it's more about business, but I think it's fit. The title is fitting in this scenario. what got you to build this wealth will not get you to where you want to go. The fulfillment that you want to have, to enjoy the money and the wealth that you spent, or the money and the wealth that you built. and enjoy it with the people that you love doing the things that you love to do, right? And so that's what it's all about. And so I see this all the time, people who've done everything right. They've saved plenty. The mortgage has paid off, college is covered. Yet they still feel like they're one market correction away from losing it all. The problem isn't the money, it's the mindset. We build a scarcity muscle for decades and then suddenly expect ourselves to flip it off when we reach financial independence. That's just not realistic. What I tell clients is this, financial independence isn't about having enough money. It's about believing you have enough money and obviously you have to have enough money, but if you have that amount that you need, you need to believe that you have that amount that you need, right? Math is still gonna math. You're still gonna need to have that money, but if you're there, if you're financially there. Then we need to believe that we're there. Right? We have to have that buy-in, right? And so, and that belief starts with redefining success. Not just, it's not just about a net worth anymore. It's about net fulfillment. So what am I doing on a day-to-day basis that will keep me fulfilled, keep me happy as it's spending more time with my wife, my kids, friends, family, certain hobbies? What is that? So ask yourself, if I stopped working today, could I spend my time doing the things that matter most to me without the constant fear of running out of money? That's the shift we're after, moving from accumulation for safety to spending for purpose. So the math, how do we actually know when we've reached enough? Let's talk about the math behind it. What I call your freedom number or financial freedom number. This is the point where your investments can reliably support your lifestyle. Not just the bare minimum expenses, but what you actually, but the way you actually want to live. So here's how to start trying to figure it out. Start with your after tax lifestyle spending. And the hard part about this is who actually knows the dollar amount they're spending? Yes. Maybe there's some crazy guys out there with spreadsheets that know exactly every transaction they've ever spent, but for the vast majority of people I've met and worked with in my practice, they don't have a clue on a, on a month to month basis, on a week to week basis, what they're actually spending from a dollar standpoint. Now, the longer they work with me. they may have a better idea about how much they need to save, and then eventually that net number is what they're spending, right? And so, one of the easier ways that I find to figure out how much a client is spending or use this tactic to help them figure out how much they're spending is say, I say, okay, well, what's your income? What are you actually actively saving on a monthly basis, whether that's through 4 0 1 Ks or, deductions from your bank account into a specific savings account or brokerage account, net all that out. assume for taxes and then everything else is spent, right? And that's the easiest way to do that. And let's just assume that number is$180,000 per year. For the sake of this example. Next, take that number and divide it by a sustainable withdrawal rate. The old rule of thumb is 4%, but some families wanna be more conservative, so they may use closer to a 3.5% for flexibility. This really doesn't matter in the grand scheme of things. There are some other ways that you can go about doing withdrawal rates, but this gives you a good rule of thumb to see. Am I close? So you take that withdrawal rate, so you take 180, divide it by that withdrawal rate. So in this case, let's just use 3.5 to be more conservative, and that would equal roughly one$5.1 million. That means if you had about$5 million invested, your portfolio on average could sustain. That lifestyle long term. Now that's not a guarantee. Markets fluctuate, but it's a great starting benchmark for what's enough. And like I said, there's other withdrawal strategies that I like to utilize. one's called the guardrail approach, that can actually yield you a little bit higher withdrawal rate. but we want, in our estimates, we wanna be a little bit more conservative so that. one, it makes us feel a bit more confident. And two, the math can have a little bit more room for error before we actually decide to make the switch to retire or change jobs or whatever the plan is in your situation, right? So the next thing you wanna do is stress. Test that number. What if you retire in a bad market? What if inflation spikes for a few years? That's where planning comes in. And so we wanna build a three bucket approach. I talk about this all the time, right? And so the first bucket wants to be our. emergency bucket. And if you're moving into this retirement phase, right, you're gonna want to have more than that three to six months worth of savings and cash or money market. You wanna have somewhere between one or two years, because what if you retire and the market pulls back, right? We want to have enough cash on hand to allow that market to recover. If for whatever reason, we, retire in a. 2008 situation or a 2022 situation, right? if there's, if there's a significant market pullback, we want to have enough cash on hand to let that market recover. The next bucket, we want to have a mid range, bucket, right where we're gonna use this money somewhere between three to five years out. And then that last bucket will be a more long-term bucket. You could consider your long-term care 10 years out plus, right where we can be a little bit more aggressive with the equities or stocks. and we don't necessarily need that money right away. So if there is fluctuation to market, no big deal. Now, once we have those buckets figured out, we want to start. Considering taxes. Right? So finally, once you make sure your withdrawal plan is, is ready to go, we wanna make sure that that withdrawal plan is also tax efficient. So if you put all your money in pre-tax as you're accumulating, those withdrawals can bump you up into higher tax brackets yielding a higher lifetime. tax liability, which is something we don't want, right? We wanna lower that tax lifetime tax liability as much as possible because that is our biggest expense. So if you listen to this podcast fairly regularly, you have probably heard me say that multiple, multiple times. And so having a mix of after tax dollars, Roth dollars and pre-tax dollars will give you plenty of flexibility so that you can pull the right. Amount out of the right bucket at the right time to control your tax bill every year, allowing you to minimize your taxes as much as possible, giving you more money to stay invested and continue to build or sustain your wealth. the bottom line is your freedom number isn't just a static one or a static target. It's a living plan that should reflect your lifestyle, your flexibility, and your peace of mind. So maybe you've hit your number, you've saved, invested, and technically you're there, but you still can't bring yourself to spin. You're having trouble switching that mindset, right. That's incredibly common because saving gives us control and spending feels uncertain. This is one of the things that I tell my retirees that I work with, as they're transitioning into retirement. One of the things I tell them quite often is my biggest challenge to them is going to make sure that they're spending enough money, right? So if you're utilizing that 4% withdrawal rule, kind of the rule of thumb there, you are more likely to double your money by the time that you pass away than, than you are to run outta money, right? And so we wanna make sure. That, especially my clients are, are living and using that money now and not just leaving a pile of money for their kids or, for no one to basically reap the benefits of. Now, if it's something where they want to be able to leave a legacy when they pass away, then we can, we can create that plan. but most people want to enjoy that money now, whether that's enjoying that with their kids or doing their own thing, whatever that may be, right? it, like I said, it's incredibly common that people have trouble, having that mindset switch. So there's some things that we can do, right? So one, we can create a paycheck from our portfolio so we can start drawing money out. Of our investment accounts on a systematic basis. so this is one of the most common things that you can do, so on a monthly basis, quarterly basis, however you want to do it. So we're transitioning that money on the first of every month, let's say. So that's predictable, right? So when you pay yourself in this way, it maintains structure and predictability. It helps spending feel like a plan distribution, not just loss of control. Number two, we wanna test drive our financial freedom. If you're not emotionally ready to step away fully, try a one year experiment. Take some time off or some extended time off scale, back your hours, build a sabbatical plan. Figure out a way to, test drive this financial freedom. Especially if you're one of those, couples or individuals that are planning on early retirement, that can be daunting, right? If you're 45 years old, 50 years old, I mean, you may have a 40 or 50 year retirement, right? you, that can be daunting. So why not? Have a practice here, if you will, take a sabbatical and then have a plan to go back to work afterwards, whatever that may be, right? Number three, spend on purpose. So the goal isn't to spend more, it's to spend better. So use your money on things to create memories, improve your health. Deepen relationships, give energy back to you, right? this is why we're saving the money. This is why we're building wealth. Maybe you're, maybe you like what you do, but you would rather do something else. Or maybe you would rather transition to something that doesn't compensate you as much, but is more fulfilling, but whatever that may be. So that may mean family trips, coaching your kids, sports teams or, whatever they are involved in, even hiring. Help around the house to free up your time, right? So whatever that is, be intentional, be purposeful, about spending so that you can bridge the gap between saving and living. Number four, keep optionality So finally, remember that retirement doesn't mean that you have to end work for a lot of my clients, a lot of times this early retirement means starting a business consulting, pulling back on hours, whatever that means, that will give you more optionality. You'll still have an income coming in, but you have. This, this wealth that you can utilize to supplement, the freedom that you want to build, right? so how do you know if you are already at enough? Here are a few telltale signs. To see you could maintain your lifestyle for 25 plus years without selling your home or downsizing. So if you look at your freedom number and you divide by 25, does that roughly give you your average yearly expenses? Number two, Market drops stress you out emotionally, but not financially, right? you look at your stock app and the market's fluctuating like it is today. I think it's down one, 1.5%. Maybe that gives you a little bit of anxiety, but you know that you're financially okay. Number three, you're working more out of habit. Or identity, then necessity. The money that you're receiving from this job doesn't really mean much. It's just something that you do. You've done it for 20 years, or it's just something that you enjoy. It's your identity. You likely, are at the point where you're starting to receive enough, right, or you've built enough wealth. Number four, you're delaying trips, hobbies, or experiences for some day. This is a big problem, right? I'm almost there. I'll work another year. I'm almost there. I'll work another year and five years goes by, 10 years goes by, and then your health starts to climb, right? I've talked about this example, a couple of times. my grandmother and grandfather, they retired, I dunno, 10, 15 years ago, whatever it was. and they had this, plan of, they, they live in, lower Alabama and they had some property up in Tennessee and their plan was to move up to Tennessee and build a cabin on their property. Right. and they waited so long that they got to the point where their health was not at a place where they could move up to Tennessee and they could build this home and do the things that they wanna do. Right. And so if you're at your number, your financial freedom number, and you have things that are important to you that are more important than the job that you have or whatever that may be. Go do those things, right? Don't delay the trips, don't delay the hobbies, don't delay your family experiences for someday, right? because someday you may be sick, someday, you may not be able to, go do those things. That's kind of a harsh truth, not a something that most people wanna talk about or think about. but I've seen it, right? And the last thing you wanna do, is wait till someday and then someday comes and you can't do that thing, right? And if you've reached that number, go do that thing, right? So number five, the last sign to know that you're ready. You check your accounts more often than you enjoy them. Stop looking at your accounts. if you know that you have enough, if you've gone over the math, if you met with a financial advisor, if you've done the things that you need to do, stop looking at your account and go enjoy your life. Fox News, C-N-N-C-N-B-C, XYZ Stock website, whatever. They're gonna have their daily click bait for you to click on to think the the market is crashing every single day. There's plenty of that. Stop looking at it. Go enjoy your life and you'll be a lot happier. Right? those are the five signs that you'll know that you're ready, right? Doesn't mean you're actually ready, but you'll, you'll know that you're getting there, right? so if any of those resonate, it might be time to revisit your plan. Not to save more, but to start living more. So here's the truth. The hardest part about financial freedom isn't reaching the number. It's believing you deserve to enjoy it. Money isn't just a tool, and money isn't just a tool. And the purpose of building wealth is to live a life that's meaningful, fulfilling, and aligned with the values that you have, not to just chase that next. Not to just chase that next benchmark or that next number, that next million enjoy your life, right? so if you've been working or it, so if you've been wondering whether you're at enough, let's run your financial freedom number together. Book a free consultation@palmvalleywm.com and we'll take a look at your plan taxes, spending investments. Are you ready for retirement? And find that point where you can stop saving outta fear and start living with confidence. I'm Hunter Kelly, certified financial Planner and host of Retire Early Retire Now podcast. Thanks for listening. And remember, the goal isn't to die with the biggest balance sheet is to live the richest life you can while you're here. This podcast is meant for educational purposes only. It's not meant to be financial or investment advice. Do not make decisions solely based on this podcast alone. Please seek professional help in making considerations about your own situation. I.