Johnny Spender


Johnny Depp was once my Hollywood hero with movies like Ed Wood, What’s Eating Gilbert Grape, and Edward Scissorhands, to name a few. Then my hero opted to make less interesting movies (in my opinion) and got into both personal and marital trouble. More recently, Johnny has found himself in a financial mess. His former business managers claim that he has a serious spending problem. They allege that Johnny spends more than $2 million per month (yes, you read that right) on yachts, islands, houses, art, jets, etc.[1] And to make matters worse, he has apparently ignored his advisors’ repeated advice to reduce his spending. Argh!

Depp’s situation brought back an old, painful memory of a client who came to tears during a 2008 phone meeting. The recession was emotionally difficult for many investors, especially older ones who were nearing the point at which they would need their nest egg to replace their work income. In this case, the couple was still working, but they treated their portfolio like an ATM machine. Whether it was a big vacation, a sudden large medical expense, or time for holiday shopping, they were spending more than they earned in the years where one typically contributes to their nest egg.

Since I “inherited” these clients from another advisor in the middle of the recession, and hadn’t really earned my stripes as a behavioral counselor, I didn’t beat myself up too much for any role that I may have played in allowing them to overspend. But I never forgot it, and the experience greatly shaped how I advise people today. I’ve observed how unchecked spending habits can lead to a serious case of the blame game (a partner, a financial advisor, Wall Street, investment choices, and more). And I’ve seen clients get divorced because they had such wildly different views about how much gratification they should defer to future years (simply put, money problems).

If you’re still in your working years, there’s almost no reason to make ATM-like trips to your nest egg. I’ve seen clients use the following strategies to avoid the chances of a Depp-like situation occurring.

  • Emergency plan – By creating an emergency plan with your advisor, you will have a designated source to access cash if a surprise expense arises, or if you have an unexpected period between jobs. A “rainy day” fund at your bank generally does the trick. Your advisor can help you figure out the best plan for financial emergency situations based on your job stability and predictability of income.
  • Spending Buckets – Regardless of the phase of life that you’re in, you can easily create multiple bank accounts online if you need a place to move small amounts of money each month for expenses that occur infrequently (travel, charity, home repairs and renovations, etc.). You can view these “spending buckets” like an allowance you’re giving yourself. If you are in the phase of your life where you’re ready for your portfolio to be an income source, I strongly encourage you to use systematic withdrawals only (and never have a checkbook that’s linked to your portfolio).

If you have no choice but to make a spontaneous withdrawal from your nest egg, consider doing what people do when they borrow from their 401(k) accounts. They are forced to pay them back (with interest!). Remember that any money you draw from your nest egg is money you’re taking from your future self.  Be a good sport and pay yourself back. Your future self will thank you for it.

Happy (reasonable) spending,