Peter Dunn

Absolutely. I haven’t launched in quite some time so today is as good day as any.

Peter Dunn

I think there is metric which we’ll get to, but I think back to my early 20’s of how I viewed financial success, I did it two ways. Both are pretty gross.

1. I wanted to make more money than my father made during his career.

A lot of people do those sorts of things. But Luis, I’ll tell you. It’s pretty disgusting to trivialize my father’s entire career down to my goal with to make more than him.

Peter Dunn

No. It’s gross. Believe me. It’s terrible.

Peter Dunn

Then, I get to this weird place where I was doing okay in my career, and said, “I want to make as much money as I can to be able to afford whatever I want.” That’s a standard definition of financial goals.

But then, I figured out, “That’s a wild goose chase.” That’s a lifestyle creep. You’ll never please yourself. You’ll make more, spend more, make more, and spend more. And so, I abandoned that definition of financial goals.

So here’s where I’m at currently to achieve my financial goals. I want to have as few financial obligations as possible. That doesn’t mean I’m cheap. It doesn’t mean I don’t buy stuff. It means I’m not going to commit my future income, to what will become my past.

If I have debt, then all of a sudden, I’ve got this lifestyle and these obligations I don’t want to deal.

Peter Dunn

That’s where I start this conversation on financial goals.

Peter Dunn

I think it goes to the idea if I were to approach you two on the street and say, “Hey. How’s your financial life going? What are your financial goals and how are you going to achieve them?”

First off, that’s a weird way to start a conversation with two people in the street.

Peter Dunn

It is. I don’t care if it’s good or bad. I do care, but like, I’m not interested. Here’s what I’m interested.

How do you determine whether you’re going to say it’s good or bad? What do you measure your financial life and financial goals on? I find most people do it on four things.

Peter Dunn

They’ll say, “Oh, it’s good,” but based on their mood or their current financial stress level.

Do you guys have a pet? If you have a pet, you have to go to the vet. You go to the vet, and the vet is touching your dog. You don’t know any parts of your dog. And they’re like, “Hey. This part is broken.” You’re like, “I guess you’re right. I don’t know.” And then, you get a bill for $480 in the lobby.

Then, you go home, and you see your friend. Your friend said, “How’s your financial life going?” And what do you think?

Peter Dunn

Exactly.

Peter Dunn

So, that’s the first way we are so fickle. Even if your financial life’s going great and you’ve attained some financial goals, if you get a little stressed, an unexpected bill, you would say it’s not doing well.

Let’s look on the flipped side. It’s that month in which you get three paychecks instead of two, or you get a tax refund check, and you’re like, “It’s great.” Is it great? Or you just have a little bit more money? That’s the first way that people measure.

The second way is the classic, debt.

“I owe $50,000 in student loans, so my financial life is terrible.” But is it terrible? Or, is it just the 50,000 bucks have been an investment you made in yourself? I don’t like that either for an answer.

And then, you get into income. I used to work with professional athletes a lot. That’s what I did as a financial advisor years ago.

Peter Dunn

I think you guys both know that.

Peter Dunn

Yeah, exactly, that’s professional. Professionals get a bad rap. Some cliché say they do wrong things with their money. But, to some degree, that reputation has been earned by at least, the work I have done within that space.

Peter Dunn

And the fourth way, people say, “How are you doing financially?” How they answered is based on assets; how much money they have in the bank.

Here’s what I would think about that.

Let’s say it’s a Tuesday, and you just found out your favorite old uncle died. He died. You’re going to miss him. You’re his only heir. He leaves you 25,000 bucks. I see you tomorrow, and you’ve gotten over the sadness. You mourned very quickly, maybe too quickly.

Peter Dunn

Then, I say, “How you’re doing?” And you say, “You know what? My financial life is not bad.”

The only thing you did is you breathe longer than that guy. You didn’t do anything to achieve your financial goals. You just had an asset. You had 25,000 bucks.

Peter Dunn

I think all of those ways to measure how you’re doing financially and set your financial goals are wrong ways.

Income, assets, debts, and mood are all terrible ways to measure your financial life because they all have their faults.

Peter Dunn

I’m going to begin to respond to this with quizzing you based on an email I received from one of my USA Today column readers. I have a column in USA Today. I get a lot of emails, and one of my readers sent me this question. You’re going to have to answer this. I’m off the hook here. It’s on you.

Peter Dunn

She and her husband are 55 years old. Their household income is $400,000/year, and they’d earned for the last decade. She wants to retire early. She has $1.7 million dollars set aside.

How is she doing?

Peter Dunn

Right.

Peter Dunn

Yeah.

Here’s the issue. She got no debt, but she made $4 million in the last 120 months. $4 million in the past ten years, and she’s got 1.7 to show.

To me, it means she’s addicted to her lifestyle. But she can’t just say, “I’m going to retire and cut my spending by 80%.” No, you won’t. You’re lying.

Peter Dunn

That’s where people get delusional with financial independence. We all know people used to talk about retirement and now, we’ve started calling that financial independence. I don’t even like that. I like income independence where you don’t need your work income.

It can be passive income. It can be the revenue generated from your investment. It can be a pension. I don’t care what it is, but that lady needs to work on getting her financial goals because her lifestyle is crazy.

Peter Dunn

That is why the best way to identify if you’ve reached your financial goals is using Power Percentage.

Here’s the good news. I have nothing to sell anyone right now, so I’m just going to tell you how it works.

So what we do is take your gross monthly income. That’s before taxes, before benefits, and all those sorts of things. Let’s say you make $60,000 a year. It’s five grand. Write that number off to the side. This could be mathematics. I hope everyone paid attention in middle school.

Then, in another column, you’re going to write the following things. The amount of money you contribute to a retirement count on a monthly base, the sum of money that your employer contributes to a retirement account for you on monthly bases.

You can include any money you put into savings that won’t be immediately spent on a vacation or holidays, or something like that and any amount of your mortgage that goes to pay down principle in that month.

So I have a rental property, and I have our regular home. Each of those properties has an amount of principle that’s repaid every month. I want to write down those principles amount on this list.

Any debt you pay off on a monthly basis or pay towards on a monthly basis that is not transportation and is not a credit card that you used in that month. You can include student loans and medical bills. You write those things down. If you add all those things down and you divide by your gross monthly income, the percentage tells you how efficient you are with your income.

Peter Dunn

Here’s the scale because the scale matters.

If you’re below 10%, if less

Let’s say $5,000/month gross monthly income. Less than $500 a month is either paying off a debt or accumulating as an asset. That’s below 10%.

If you’re below 10%, you’re in big trouble. I don’t care how much money you have, how much money you make, how little debt you have, you’re in big trouble.

Between 11% and 20%, okay. 21% to 34% is good, and 35% and above is perfect.

One of the financial goals is to make your power percentage go up by at least 1% a year.

I like to be at 60% by the time I retire because that means I’m 60% efficient with my income, which means I’m income independent.

Peter Dunn

Your Money Life Series is my favorite because it’s broken down into decades. So if you’re in your 20’s, read Your Money Life: Your 20’s. If you’re in your 40’s, read Your Money Life: Your 40’s. And so, you’ve got one essentially for every decade.

Peter Dunn

There’s so much you can do. You can increase the amount you pay towards your mortgage, retirement deposit, or savings deposit. Pay down your student loans. Pay off your medical bills. Even invest in rental property. Do anything that either builds assets or pays down debt. This is a factor of net worth.

What you won’t do is buying stuff.

Buying stuff will not increase your power percentage but just about everything else will.

Peter Dunn

I agree. Sometimes, I look in my closet, or as I’m doing laundry, I’m like “Why the hell do I need all these shirts?” I have a washing machine. Why do I need this shirt? And it gets crazy. It’s like at what point do we stop accumulating stuff, and instead, to your point, collecting experiences that make you grow as a person.

Materialism is attractive. I’ve had an issue in relationship with overtime, but at this stage in my life, I just don’t need anything. I like good wine, don’t get me wrong but I’d rather just travel the world and have experiences. That for me are financial goals.

Peter Dunn

Exactly. That’s the key.

Peter Dunn

This is a little career advice or a little unsolicited career advice which is always bad career advice by the way.

Peter Dunn

If you have the pleasure of doing something you love for a living, you owe it to yourself to measure success a little bit differently.

Yes, money and financial stability are great. But so often, people won’t do what they love for a living because they’re not willing to accept the money that comes with that. To me, that’s silly because you’re on the wrong metric.

If we’re trying to live a fulfilling life and serve a community and do these sorts of things but you’re hung up on money, you will suffer throughout the rest of your career. It’s because you’re going to be unhappy, and you’re thinking that money is what’s going to make you happy.

If you’ve earned the right to do what you love for a living, then by all means, use that metric of satisfaction in your career as a way to measure your success.

If you don’t, you’ll be perpetually unhappy. You’ll think your career is great except that you don’t make much money, but you’re just looking at it wrong.

There’s my unsolicited career/money advice to end the show.

Peter Dunn

It’s my pleasure. It’s a great time. Thanks for having me.