Zuckerberg's Smart 1 Percent Move

He's making the most of his money, even though he doesn't need to.

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Mark Zuckerberg has a net worth of around $15.7 billion, even after the post-IPO drop in the share price of Facebook. Yet with all his wealth and purchasing power, he recently refinanced a $5.9 million mortgage on his Palo Alto, Calif. home with a 30-year adjustable rate loan at 1.05 percent. When I learned of the refinancing of his home and the low interest rate he received, I immediately thought to myself, “Smart move,” and it’s not because he’s one of the world’s richest people. Although he doesn’t need to hold a mortgage, he chose to have one because it made great financial sense for him. The carrying costs for his mortgage are close to 1 percent and he knows he can invest those funds elsewhere for a better return. The probability of anyone accumulating wealth like Mr. Zuckerberg’s is slim at best, but we should all be thinking of making “smart moves” with our investments and how we manage our survival and lifestyle expenses.

While I'm sure Zuckerberg has a very comfortable lifestyle, every day he still needs food, clothing, shelter, and healthcare. These are fundamental needs shared by everyone, and they are non-negotiable―even for the world’s richest.

[For Investors, an Uncertain Second Half.]

Throughout our lives, we live in two interrelated financial modes: survival and lifestyle. As financial planners, when we talk about the survival mode, we don't mean living in the wilderness and hunting for food every day. Survival mode refers to mandatory expenses that must be met without exception, regardless of market conditions. Typically, these expenses include your grocery bill, mortgage, taxes, utilities, health insurance, and clothing. And with inflation, these expenses will increase over time.

In your working life, your salary pays for survival expenses – and when there is a surplus it funds the next financial segment, your lifestyle expenses. Lifestyle expenses are enjoyable, fun, and most importantly negotiable. They include extras such as dining out, purchasing a new car every couple of years, vacations and travel, entertainment, a second home, and designer clothes. Keep in mind that survival and lifestyle expenses are relative, and can mean different things to people depending on their income and cash flow.

During your working years, managing the appropriate balance between survival expenses and lifestyle expenses requires some experience and commitment to staying on plan or budget. However, once the steady salary stops and retirement begins it becomes crucial to establish a secure cash flow to cover your survival expenses—one that is independent of market activity. The volatility of the markets only adds to the apprehension retirees feel when they do not have a secure cash flow to cover their survival expenses - they can become highly anxious and predisposed to panic selling as they see their nest eggs drop in value.

[Alternative Reality: Should You Buy Unconventional Funds?]

What can you do to ensure that your survival expenses are covered? Set aside the assets you need to meet survival expenses in a low-risk account that offers a secure cash flow, and create a second fund for lifestyle expenses that can be invested with a growth and income strategy. Remember, your lifestyle expenses are negotiable. They can be put on hold or minimized in a falling market to allow your investments to recover over time. Knowing that all your survival expenses are covered is the key to getting through the apprehension associated with market volatility and a comfortable retirement.

Dean J. Catino, CFP®, CPRC, is a managing director and cofounder of Monument Wealth Management in Alexandria, VA., a full-service investment and wealth management firm. Monument Wealth Management is backed by LPL Financial, an independent broker-dealer. Securities and financial planning offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Follow Dean and Monument Wealth Management on their blog Off The Wall and on Twitter at @MonumentWealth and @DeanJCatino. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for individuals. To determine which investment is appropriate, please consult your financial advisor prior to investing.