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The Twin Engine Plan

On a recent flight back from the West Coast, I couldn’t help but take a break from the talking heads on CNBC and enjoy the Biscoff cookies (that are remarkably good with coffee) and stare out of the window. The blue sky, passing Earth below and the single jet engine dangling off the starboard wing. It got me thinking of the engine, powering this multi- ton aircraft across the country… helped out (of course) by the identical engine on the other side. Together, the two engines work to keep our trip efficient and safe. But, if left with just one, our trip would suddenly become a treacherous struggle.

The wheels in my mind began to turn and think about these engines as portfolios. Essentially, the engines behind an individual’s goals/financial plan. For most of us, we save, invest and try to achieve the largest nest egg we can. Similar to putting one huge engine on that jet to get us across the country. The more thrust, the better, right?

But, let’s think a bit differently. What if we think about having two moderate engines, both serving their own purpose, allowing us to throttle up or down depending on the conditions and creating a more consistent flight path? One engine securing our fixed living expenses (getting from point A to B), the other providing for the variable costs of life (turbulence).

We build investment portfolios for our ultimate goals. Maybe it is to simply have enough to retire and sit in your recliner to watch reruns of ‘Friends.’ Maybe it is to buy a tiny home in Arizona and spend your golden years traveling. Or maybe it is to quit corporate America at 50, have your fixed expenses covered and do what you love. Regardless of options A, B or C, the stress of having one bucket of assets to fund life’s later adventures can create its own stress, especially in recessionary times.

Maybe it is time to change our thinking. Especially for those of us who correlate “more is better” to time, not just a bigger nest egg. Maybe it is time to ask the question, “what is it going to cost me to pay my taxes, heat/cool my house, cover utilities and eat?” Quite simply, to cover my fixed expenses no matter what the economy brings. Having this part covered, for some, could feel like that scene from Shawshank Redemption when *spoiler alert* Andy Dufresne finally crawls his way out of Shawshank prison.

Let’s put some math around it… let’s say we build a basic budget (assuming your home is paid for), then let Engine 1 do the work for you:

Annual Taxes: $6,000

Annual Insurance $2,000

Food: $4,800

Utilities: $3,600

Total Annual Need: $16,400

Granted, everyone’s expenses may be different, more or less. And depending on where and how you live, these above expenses could be way off. But, you get the point. The focus here is that I would need to produce $16,400 per year to live in my house, eat, pay my insurance, keep the lights on, keep drinks cold and have internet to keep reading

If $16,400 is my “Andy Dufresne” bogey, what do I need to get there? For a good example, let use the dependable iShare Select Dividend ETF (DVY). Packed with over 100 quality dividend paying stocks, it is certainly engine worthy. At the time of this writing, DVY is yielding 2.9%. Dividend bliss. If $16,400 is my income goal and I need that to come from dividends, I need to fill that thing with about $500,000 of fuel (taking a bit of long term growth into consideration).

Some may say this is “mental accounting” and well, it probably is. But if you are looking for a realistic savings goal with financial freedom at the end of the rainbow, is it bad? There is only one real secret to financial freedom and successful retirement. Saving. But for most of us, our DNA isn’t programmed to save with no goal in mind. However, a target with real positive consequences can be one heck of a motivator. It keeps us dreamers dreaming.

You may be asking “what about the other engine in this genius plan?” Well, that engine takes on the purpose of all those excess expenses. Nicer cars, more golf, better travel. The list is endless and personal. Let market performance dictate the excess.

All in, the “Twin Engine Plan” creates a foundation to cover the needs in life. Giving us the freedom to explore what life is about without chasing a number and no structured meaning. It can lead to a mindset change and a savings motivator. Plus, when there are sour times in the economy and more golf isn’t in the budget, you can sit in your home, drink wine from Costco and know that nobody can touch you.


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