Burn rate (noun) - The rate at which an entity spends money in excess of income.
Ex. “We’ll have to cut our burn rate if we want to retire in ten years.”
The very first thing you do before even thinking about putting together a retirement plan is write down your monthly expenses, that’s monthly, not annual. Why, because, generally, that’s how we get paid and how we pay our bills. Once you get a handle on your income, outflow, then you look at debt and the reduction thereof. (Paying 22% interest on a big credit card balance is losing money, and not losing money is like making money).
Cash flow under control? Check. Debt under control? Check. Emergency fund? Check. Basic life insurance and health insurance coverage for you and your loved ones? Check. Now, we can look at financial and insurance products to plan for your future. Now we have a template that outlines a set of needs and a timeline to follow.
I can’t tell you how often I hear people on the radio, T.V. or online go on and on about whether this financial or insurance product is good or bad. For the most part, financial products have a specific purpose (or purposes). Think of them as tools in a tool box. You wouldn’t say, “I don’t like hammers.” You just wouldn’t use a hammer when you need a wrench.
The biggest problem with our profession, in my opinion, is that we don’t really do things in the same way as virtually all other products or services offered in the U.S. Let me give you an example. Say you have a leaky pipe and you call a plumber. What would you think if the plumber showed up and said, “Don’t say a word, I’ll figure it out. By the way, I only use wrenches and glue. I’ll never use any of those other tools…and I don’t like plumber’s tape…just so you know.” You would ask yourself, “Who’s this guy?”
That’s because most professions identify the needs and provide an estimate for the service. It might not be a good estimate, and it might not be good service, but at least the need is identified, and there’s a service and a process to fill that need.
On the other hand, many people that work in the financial industry spout off about solutions with literally no concept of the problem. There’s and old saying, ‘When you are a hammer, all the world looks like a nail.’