This is the second part in a series of five posts that will last through this week. This series will teach you the fundamentals of financial planning, through a fake conversation, I, as a financial planner, have with my client, (and childhood hero) Rocky Balboa.
The goal of each post, is for you to learn a different aspect of financial planning. Each part of the series, will take you through a different stage of Rocky’s life. Luckily, there were five Rocky movies made (I blanked Tommy Gunn from my memory), so each stage will correspond with each movie.
Background: Rocky is now 31 years old. A little less than a year ago, he was the first boxer ever to go the distance with world heavyweight champion, Apollo Creed. Rocky has gotten married, to Adrian. Adrian is pregnant with their first child. Rocky has come to me because he wants to buy a house. His finances are a bit better through a few endorsement deals, but he still lacks a lot of experience with money.
Tip: When reading the Rocky portion, make sure to speak in your best Italian Stallion accent.
RJ: Good morning Rocky. I’m glad we got that credit card debt paid off we talked about last time. What can I help you with today?
Rocky: Well, you see, I, I want to get one of those nice houses.
RJ: OK. What type of house are you looking at?
Rocky: Well. Something nice for my wife Adrian, you know?. I got a child on the way and I don’t want to raise it in no apartment.
RJ: Have you thought about a price range?
Rocky: I don’t know. You see, I finally got some money by doing some endorsement deals after the fight.
RJ: I saw you on TV. How much money do you saved for your house.
Rocky: They paid me $50,000 for the fight with Apollo. Plus, I got like $50,000 more for doin some of those endorsements.
RJ: That’s great, Rocky. To think just a year ago, you were in debt. Now look how far you have come. One final question, how much money are you making every month?
Rocky: Well, you see, it depends. I ain’t made nothing in a month. No commercials or nothin. With my injuries, Adrian won’t let me fight no more. I tried picking up a job at the meat-packing plant, but that ain’t for me. You know? I’m a fighter.
RJ: Rocky. I’m not always against purchasing a home, but in your case, I don’t think it’s a good idea.
RJ: You don’t have a constant stream of income coming in every month. Like you said, you have not made a dollar in the last month. Due to injuries, you can’t fight anymore. Endorsement deals are drying up. Your first real job, you ended up quitting in less than a week.
Rocky: Wow. You know, I never looked at it like that.
RJ: Second, you have little experience with money. Yes, you have hired me to help you, but we still have a lot of learning to do. This is the first time in your life where you have any sort of savings and you’re not in debt. I think it’s better to take a step back for a few months and see where you want life to take you.
Rocky: Yea. You know, who knows what life is going to be like with a kid?
RJ: From my point of view, you want as much flexibility as you can get in you situation. Using up your savings to buy a house, doesn’t offer you that flexibility. I’m happy for you that you finally have some income, but there’s nothing wrong with letting that cash sit in a back for a few months, before things settle down.
RJ: Lets do this. Lets sit down again six months after your baby is born. At the time, we will reevaluate where your career has taken you. More importantly, look at what life is like with a kid. I know that it’s a cultural norm to want buy a house as soon as you have a kid, but I think you’re better off waiting. Do you agree?
Rocky: Yea…I just don’t want Adrian to be pregnant in no dump, you know?
RJ: I agree. Go out and get yourself a nice apartment. You have earned it. Set a budget you feel comfortable with and don’t go over it.
Rocky: Yea…I’m just thinking out loud here, but this is making sense. I need to get a good job before buying a house for me and Adrian.
RJ: It sounds like you got it. I will see you in six months.
Rocky: OK. Thanks RJ.
Photo by: BarnyardBBS