According to popular opinion (opens in new tab), sound financial planning advice consists of two main steps: save for emergencies and save for retirement. After 30 years in the financial services business, I have found this to be misleading. It’s a phenomenon I call “the Missing Middle.”
Just think about how life tends to happen for many people: You get a job and an apartment. You find someone you want to spend the rest of your life with and get married. You start a family. You buy a house. Then…
You need furniture.
You take out loans for cars.
You buy the new iPhone, replace the water heater and cut the check for tuition.
You pay the minimum on your student loans and hold a small balance on a credit card.
While having this idea in the back of your mind that you must have six months of income in a savings account and you should contribute the maximum to your 401(k).
Before you know it, you have thousands of dollars in savings AND thousands of dollars in debt. And, according to traditional financial advice, you’re right on track.
The Traditional Financial Planning Model
From my experience, the internet, your parents and financial planners alike have all drilled this two-part financial planning model into our heads. In fact, the assumption that saving money in a bank and then focusing on retirement is the way to financial security and independence is so deeply