PERSONAL FINANCE

12 Simple Rules for Building and Sustaining Your Wealth

July 26, 2017 by Office Admin

When it comes to finance, we live in a world of information overload. One opinion here, another there. You can find about 15 ways to go about doing any one thing. But when it comes to building and sustaining your wealth, it’s important to remember that simple is better.

In fact, that’s how successful people reach the pinnacle – they practice simple daily disciplines obsessively. Jim Rohn said it best, “Success is nothing more than a few simple disciplines, practiced every day.”

For my purposes, and yours, I would amend this to say, “Reaching your full financial potential is nothing more than a few simple disciplines, practiced every day.” That’s how you end up living the life you want.

No Expertise Needed

The simple disciplines we’ll discuss here are just that – simple. They’re not hard to master. No expert knowledge is needed. Perhaps that’s because the best simple disciplines really come down to common sense.

They’re the things that you know you need to do, that you know are good for you. But, they’re the things that are the hardest to do. If it was easy, everyone would be successful. I think that’s an important distinction – finding success is simple, but not easy. You have to be willing to do what others are not.

12 Simple Rules for Building and Sustaining Your Wealth

Reaching your full financial potential is simple, not easy. But, I know that if you practice the simple disciplines we discuss here, it will get easier.

I can say that because I’ve seen it happen first-hand. I’ve been instrumental in instilling these simple disciplines in my clients’ daily lives, in their financial philosophy, and have watched them succeed over and over again. You can too – but it starts with changing something you do daily.

It starts with these 12 simple rules for building and sustaining your wealth:

1. Define your “why” for money. Why do you invest, work, any of it? What is it that money enables you to do? How does your money further and support your most important values? Successful people know the answers to these questions, and you need to know them too. Otherwise, you have nothing to fight for. You can’t live intentionally with your money without this.

2. Conduct your ultimate wants analysis. One of the biggest problems with traditional financial planning is that it relies on a needs analysis, on a scarcity mindset. It limits your financial potential before you even start your journey. But, thinking about what you truly want from life forces you to think with an abundance mindset. That’s how you break through the glass ceiling between what is and what could be.

3. Live within your means. If you’re constantly maxing out your lifestyle, you will never reach your full financial potential. I promise. Living reasonably instead of lavishly can save you from living a deceptively poor lifestyle. Of course, it’s alright to indulge – after all, you’re striving for the life you WANT to live. But, that doesn’t mean undoing all your hard work.

4. Pay yourself first. If you can’t master the simple discipline of saving, everything else in your financial life will have to work harder to pick up the slack. Most of America is experiencing this, since they’re saving virtually nothing. You should be saving 15% – 20% of your income annually, maintaining 3-6 months of liquid expenses. It’s also smart to have 6-12 months of near-liquid cash reserves.

LIFEHACK –Automatic deductions are one of the easiest ways to make sure you pay yourself first, every time.

5. Avoid high-interest, bad debt. Americans currently owe $1 trillion in credit card debt, with balances averaging $9,600. Carrying substantial amounts of high-interest debt like this directly affects your ability to save and invest for your future. And, unless your investments are earning the 15%+ interest you’re probably paying on that debt, investing is an act in futility for you at this point.

6. Create your Investment Policy Statement. This document puts your investment strategies, and your most important values and goals on paper. When the market moves, this is the document that keeps you disciplined – it reminds you why you’re invested a certain way. It reminds you of your “why” for money. If an investment doesn’t align with this criterion, then you shouldn’t invest in it.

7. Protection first. Think of everything you’ve built. Think of everything you’ll build in the future. Now, think if it were to all come crashing down. Ugly, isn’t it? That’s why success isn’t dependent on how much money you have. It’s dependent on how well you protect your life’s work from what can destroy it. If you don’t do this, nothing you’re working toward matters.

8. Assemble your power team. You need to assemble a team of your most trusted advisors to help guide you toward financial independence. They should all know one another, and meet regularly on your behalf. Discussions should be had before changes are made in one area of your financial life, to evaluate the impact on your complete financial position. Ideally, you would have one advisor acting as your personal CFO, coordinating this team and your complete financial life.

9. There’s a difference between risk and volatility. Risk simply means the probability that your investment will lose money. The higher risk, the higher that chance. It has no direct effect on your returns. Volatility is the amount of fluctuation a portfolio can experience. The higher the volatility, the more erratic your compound returns can be. Volatility has a direct effect on your returns – it’s what erodes your wealth. Therefore, your first priority should be to mitigate volatility.

10. Time IN the market is what matters. Stock picking, market timing, overconfidence, and more can all wreak havoc on your wealth. You’ll rarely get in or out at just the right time, or consistently pick the winning stock. If you don’t believe me, then maybe you’ll listen to a critical piece of advice from Warren Buffett, “Market forecasters will fill your ear, but never your wallet.”

11. Little changes can yield big results. You don’t necessarily need to make drastic changes to reach your full financial potential. Say you make $100,000 a year and are saving 10% of your salary into a portfolio that earns 7% return annually. Do this for 35 years, and you’ll end up with $1,479,134. But what if you increased your savings rate by just 1%? You’d end up with $1,627,048. That’s $146,914 more just by saving another measly percent.

12. Think like the wealthy when it comes to estate planning. The wealthy have three main goals when it comes to estate planning, 1) Maintain satisfactory streams of income, 2) Protect my wealth from creditors, 3) Avoid the wealth transfer tax forever. Trusts are a great way to accomplish this. And no, trusts and estate plans are not just for the ultra-wealthy. Everyone should have a basic estate plan that, at a minimum, includes a will and durable power of attorney.

Why Does It Matter to You?

Remember, reaching your full financial potential is simple, but not easy. However, if you follow the rules (simple disciplines) discussed here, you’ll find that living the life you want to live can start to go from dream, to an action plan for reality.

Should You Invest or Pay Down Debt?

July 5, 2017 by Office Admin

Have you ever found yourself asking this very question, wondering what to do next, and what the best option is for your financial success? Don’t be embarrassed if you have. I would dare say that you’re in good company, given the fact that Americans collectively owe $1 trillion in credit card debt. In fact, the question of whether to invest or pay down debt is one that I’m asked frequently by clients.

Logic is Always 20/20

Trying to tackle debt while still trying to save and invest can be tricky. But, when you think in terms of pure numbers, pure logic, the answer to this question is actually pretty simple. Ask yourself which number is greater, the return on your investment or the interest you’re paying on your debt. If you’re paying more interest than you’re earning, paying off your debt is the smarter choice.

Here’s one way I explain this to people when they ask me whether they should invest or pay down debt:

If you eliminate debt that you’re paying 15% interest on, that’s a guaranteed 15% return in your pocket. If you invest, you may have the possibility of earning 10%. So, what’s better for you to capture right now – a guaranteed 15% return, or a possible 10% return?

Numbers and logic make this a no-brainer. But it’s not always that simple, because money is emotional.

The possibility of earning big will usually tug at your heartstrings harder than paying off your debt. Plus, saving into your investment account gives you a sense of future security and accomplishment. Paying bills is stressful and not what you “want” to do with your money.

Good Debt vs. Bad Debt

To be able to truly answer the question of whether you should invest or pay down debt, you have to understand all of its components.

That includes categorizing your debt into good debt and bad debt, and understanding how they affect you. This is the first step in creating a debt strategy that works for you.

Here’s a basic guide to help you discern what portion of your debt is good and what portion is bad:

Bad Debt (credit cards, car loans, unsecured loans, etc.):

It has high interest rates.
It’s not tax deductible.
It’s not attached to appreciating assets.

Good Debt (mortgage):

It has low interest rates.
It’s tax deductible.
It’s attached to appreciating assets.

Good debt is an interesting topic. It’s worth pointing out that most private equity and real estate firms build their empires by leveraging almost everything they have. People do this in a similar way. Why wouldn’t they, given that the market and other appreciating assets are out-earning the current interest rates?

For instance, the ticker SPY for the S&P 500 has returned 7% for the last 20 years. In comparison, our all-equity ETF portfolio has an average back-tested return of a little more than 9%. That means in 20 years, $10,0000 becomes $58,474.

Your 4-Step Action Plan

Given all the factors we’ve discussed here, there’s probably one thing you’re thinking right about now – Great, but where do I start?

You should start with the following four-step action plan. We use this with our clients, and strive to approach their financial life in the following way:

1. Build core liquidity. You should have a minimum of 3-6 months in liquid cash. It would even be wise to have 6-12 months of near-liquid assets on hand as well.

2. Eliminate bad debt. Again, that would be any substantial amount of short-term debt that may have high interest rates.

3. Save 15% of your salary. With $1 trillion in credit card debt weighing on Americans, it’s no wonder that the average savings rate has plummeted to just under 6%. But if you can’t save, everything else has to work harder to pick up the slack. A healthy savings rate of at least 15% is critical to reaching your full financial potential.

4. Invest. Investing is critical to your success, but should only be done when you’re in the right position to do so.

5. BONUS! Have an ideal mortgage to income ratio. Your mortgage payment should be no more than 15% of your gross income. Otherwise, you may wind up house-poor down the road.

This action plan takes a “priority and combination” approach to your financial life. Put simply, this approach focuses on securing your liquid safety net first, paying off bad debt, and finally investing. Once you have your core liquidity built up, you can then use your 15% savings to accelerate your debt pay off. I recommend this approach because it allows you to pay off your debt, and eventually invest, while still being able to adapt to life’s changes.

In other words, you’re not completely sacrificing one important element (i.e. savings) just to take care of another (i.e. paying off debt).

Why Does It Matter to You?

Numbers make the answer to whether you should invest or pay down debt pretty simple – if you’re paying out more than you’re earning, investing may be an act in futility for you right now. But as we’ve shown here, that’s not all this question asks you to consider.
This question is about more than just numbers – it’s about prioritizing your financial life in a way that makes your money work for you. A way that makes your money work as efficiently as possible. That means having six months of liquid cash built up, paying off any substantial bad debt, and then investing. There’s no one-size-fits-all timeline for the action plan we’ve outlined here, either. However, it’s important to remember that the longer you delay investing and compounding your savings, the less time your money has to grow. That can mean a diminished lifestyle in retirement.

When you look at the big picture, debt directly affects your ability to save, invest, and ultimately live the life you want. Start tackling it now, and you can find yourself much better off in the future.

The Ultimate 13-Point Financial Checklist for Your 40s

June 28, 2017 by Office Admin

Rarely do you have time to think about and plan for the future, when your daily life consumes all your time. But when you hit your 40s, your finance-sense can radically change. This is a key life stage for making sure you’re on track.

In your 20s and 30s, retirement was a million years away. You were just wrapping your brain around settling down. Your biggest goal was buying a home. Having kids started to transform from a casual conversation to a serious thought.

But now, in your 40s, retirement is on the horizon – you can see it coming into focus more and more every day. You’ve been paying that mortgage for at least 10 years. Your oldest will be a teenager soon, if they aren’t already. You’re probably making more income than ever before. Saving for college and retirement are now some of your biggest goals.

Untangle Your Complexity: The Ultimate 13-Point Financial Checklist for Your 40s

Over the last 20 years, all the elements of your financial life have been building up. That complexity requires attention, careful consideration, organization, and smart decisions to untangle it.

Chances are it’s been a while since you really thought about the strategies you put in place several years ago. Your 40s are a critical time to take that folder off the shelf, brush the dust off, and evaluate it. What does your current financial position look like? Are you accomplishing your goals, or on track to do so? What do you need to do moving forward?

Use the following as a roadmap to identify and prioritize the financial goals you should seek to accomplish in your 40s:

1. Eliminate short-term debt. Carrying debt directly affects your ability to invest and save your money. If you still have substantial short-term debt in your 40s, one of your top priorities should be getting rid of it.

2. Evaluate your retirement savings. Again, retirement is palpable at this stage in your life. You need to make sure that you’re on track. This is the perfect time to think about whether you need to adjust your contributions.

3. Start saving for college (if you haven’t already). The best time to start saving for your children’s college education is when they’re barely walking. That way you have lots of time to let your money grow. But if you had other priorities that were more pressing, that’s alright. Now’s the time to determine if you want to start saving. You shouldn’t do this at the expense of your retirement, however.

4. Decide when you want to retire and what retirement looks like for you. Some people say they’ll never really retire – does that sound like you? Do you see yourself working part-time, doing consulting work, or still having a hand in your business? Others envision traveling, volunteering, and leisure. This is important to make yourself aware of. In retirement, your money needs to work for you in a way that allows you to do those things – to live the life you want at every stage of life.

5. Maintain your lifestyle. In your 40s, you’re probably making more money than you ever have. As a result, it can be tempting to upgrade your lifestyle, simply because you can. But, overspending just to increase your lifestyle is something that you should avoid. Sure, you can indulge here and there, but if you’re maxing out your lifestyle and overspending in your 40s, you can find yourself in a world of financial hurt in your 50s and 60s. A better use for that excess money would be to put it toward your important financial goals.

6. Do an insurance audit. One of the most common problems I see with clients is that they’re overspending on insurance. Pull out your policies and evaluate them. Could you raise your deductibles and effectively lower your premiums? What about bundling? Are there any areas where you’re over-insured? By doing an insurance audit, you can potentially find lost money, recapture it, and then put it back to work for you.

7. Do a fee/cost audit. Costs matter – a lot. They directly impact your bottom line. That’s why you have to know how much you’re paying in fees to your advisor. You also need to know how much your portfolio is costing you. Often, this isn’t on your quarterly statement. You may need to get your advisor to run an analysis for you. You also need to know how much you’re paying in taxes. Yes, taxes are costs! What you’re paying in taxes detracts from your returns. Are your investments tax managed?

8. Do a beneficiary audit. By now, your financial life may be so complex that you have dozens of accounts between your savings, checking, and investments. When was the last time you modified your beneficiaries? If you can’t remember, do it now. This is something that you should do every year. Here’s why – your beneficiary information actually trumps what’s in your will, something most people don’t know. That’s why it’s important that they are accurate.

9. Implement an estate plan (or review your current one). Another common issue I see with many of my clients is that they don’t have an estate plan. Everyone needs an estate plan, whether your estate is worth $500,000 or $10 million. These plans aren’t just for the rich – they’re to ensure your wealth is protected, and distributed according to your terms and conditions. At the very basic level, you should have a will and durable power of attorney. If you already have an estate plan, this is the perfect time to review it and make any necessary updates.

10. Maintain your core liquidity. Even in your 40s, you should still be saving 15% – 20% of your income. Your emergency fund should be brimming with 3-6 months of expenses sitting in cash. You should also be keeping 6-12 months of expenses in near-liquid investment accounts.

11. Create an Investment Policy Statement. This document is key in helping you understand the answers to three critical questions surrounding your investments – 1) Where is my money?, 2) What is my money doing?, 3) Why is my money where it is and doing what it’s doing? Your IPS puts your most important values and goals, and your investment strategies, on paper. This is the document you pull out when the markets move and you’re tempted to make a rash decision – it helps keep you disciplined.

12. Review your life insurance policy. If you have a term life insurance policy, you need to know when it expires. Depending when you bought the policy and your age now, it may be close to expiration, or you may still have a decade of coverage left. The point is, once it expires, you can’t extend it or get it back – unless you want to pay substantially higher premiums. As your coverage gets closer to its expiration date, you may want to consider converting your term policy to a whole life insurance policy. In retirement, this can help you produce a greater income, while still leaving a legacy for your loved ones.

13. Re-evaluate your priorities and goals. Your life has changed a lot since you got your first job, and shared a house with three of your best friends from college. What is important to you now? What are your top goals you must accomplish? Write these down. Compare them to your current financial strategies, and see if it’s time to make a change.

7 Principles That Will Protect Your Finances From “Life”

June 21, 2017 by Office Admin

There are only two things that we can know with absolute certainty in the world of finance – your current financial position, and that your life will change. That’s it. Anyone who tries to tell you any different is lying. Despite your best efforts, you can’t predict, or even “plan,” for an unknown future. All you can do is take what you know, and use it to your advantage.

The Problem With Planning

Traditional planning is based on the premise that your life, your future, is linear. It then uses stagnant inputs and assumptions about tomorrow, to try and formulate a bullet-proof plan for success.

Here’s the bad news – your life isn’t linear. It’s not stagnant. If you plotted your life up until this point on a graph, it more than likely won’t yield a beautifully straight line. That’s because stuff happens, and when it does, it can cause your life to swing one way or the other. Your life is always in motion – it evolves through time. It’s dynamic, and therefore can’t be addressed by a static plan.

A static plan has little wiggle room when your life “chart” experiences fluctuations. But, your life will swing, I can promise you that. It won’t always be linear.

That’s precisely why traditional planning is flawed.

Life Events That Can Change Your Financial Situation

Here’s a quick-list of those big milestones that can cause your life to fluctuate:

1. Marriage.

2. Having a child.

3. Changing jobs.

4. Job loss.

5. Divorce.

6. Death of a spouse.

These events have different implications – some of them positive, some of them negative. Unfortunately, the negative ones can hit you out of nowhere. It’s usually not until this happens that you realize just how vulnerable your life’s work was. At this point, there’s typically little you can do about it other than stomach the blows.

On the other hand, you want to be able to take advantage of opportunities when they present themselves. These include things that can advance your life or make it more complete, like a new and better job, getting married, having children, or starting your own business.

To do both, to mitigate the financial heartache from the negative swings and capitalize on the good from the positive swings, you have to be optimally positioned to effectively react to your life as it evolves.

7 Principles That Will Protect Your Finances From “Life”

So, how do you do that? How do ensure that you can handle “life” when it happens to you? You adhere to these seven principles:

1. Practice financial positioning. This is the overarching principle to apply to your financial life. The others are gravy on top – but still extremely important. If planning is broken, you need something else. Financial positioning focuses on optimizing your current financial position. It manages your changing information as your life evolves, stress testing your current strategies against it. You can then keep yourself positioned to effectively react and adapt to life’s curve balls – whether positive or negative. The result? An increased ability to live the life you want.

2. Be engaged. You should regularly review your financial strategies, and be instrumental in implementing them. Make sure you understand what is being done on your behalf, and that you know what you have and where it is.

3. Align your financial strategies/behaviors with your most important values. Values should play the same role in your financial life that they play in your daily life – they should guide your decisions making. This keeps what is most important to you at the heart of your financial strategy.

4. Define your “why” behind money. What’s your reason for working, investing, doing everything you do? What does money mean to you? What does it enable you to do? Until you define this, you have nothing to fight for. Your “why” will guide your decision making, and help you live intentionally with your money.

5. Protect your life’s work. Your life’s work means nothing if it’s not protected from everything that can destroy it. You must protect yourself for your full economic value – this includes material assets like your home, and your most important asset, you.

6. Save at least 15% of your income. If you can’t save your money, everything else in your financial life will have to work harder to pick up the slack. Maintaining core liquidity is key to reaching your full financial potential.

7. Create an investment policy statement. This document puts your investment philosophy and strategy on paper. Essentially, it helps you understand where your money is, what it’s doing, and why it’s where it is and doing what it’s doing. Every time markets rattle you, pull out your IPS and remind yourself why it’s important to stay disciplined. If an investment doesn’t meet the criteria stipulated here, you shouldn’t invest in it.

Why Does it Matter to You?

Being able to effectively prepare for and respond to “life” is of the utmost importance.

Your success isn’t dependent on how much money you have. You can have all the money in the world, but it doesn’t mean anything if it can be wiped out should your life change. Rather, your success is dependent on your ability to effectively react to life as it happens around you – on whether your strategies can adapt to your current financial position as it continues to evolve.

Which brings us back to financial positioning – the principle that encompasses all the others. This method takes a comprehensive view of your financial life, from your assets and liabilities, to your protection and cash flow. Once you have that real-time picture of your current financial position, you optimize it based on new information, as your life evolves. This is the approach we take with our clients.

Life is messy and unpredictable. You can’t plan for a future you know nothing about. Therefore, you need a dynamic method for reaching your full financial potential that uses these facts to your advantage.

15 Common Sense Money Principles That Will Change Your Life

May 24, 2017 by Office Admin

The game of reaching your full financial potential is 70% behavior. Successful people practice good habits, every day, for their entire life. They’re willing to do what others are not. Successful people also live intentionally with their money – meaning they use their money to live life on their terms and conditions.

That’s really what the secret “formula” boils down to. How you behave, and the choices that you make every day. Those choices are what determine your success.

You see, how to find financial success isn’t some huge secret or algorithm that takes expert-level knowledge to crack. If you were to ask a wealthy person how they got there, you would probably be shocked at how simple their answers are. You’d probably leave the conversation thinking, “Heck, even I can do that.”

And you absolutely can. That’s because much of what successful people do when it comes to money is simply abide by common sense principles – many of which I’m about to share with you here.

Here are 15 common sense money principles that will change your life:

1. Spend less than you make. The is probably the most important common sense principle you can apply to your financial life. If you are constantly overspending and maxing out your lifestyle, you’ll never reach your full financial potential.

2. If you can’t pay for it in cash, you can’t afford it. This mantra is the best way to avoid drowning yourself in credit card debt. Waiting to make large purchases until you have the money will always pay off more than spending money you don’t have.

3.Forget about the Jones’s. Living up to society’s definition of “rich” can be costly. Wealthy people know what their definition of financial success is – and that’s the only one that matters. They would gladly defy societal standards, rather than living a deceptively poor lifestyle just to keep up appearances in the eyes of their peers.

4. Protect yourself. Stuff happens. And when it does, your financial foundation can quickly crumble if the proper defenses aren’t in place. You should seek to protect every aspect of your life’s work – from material assets like your home to your most important asset, you.

5. Pay your credit bills in full every month. If you want the second fool-proof way to avoid going into credit card debt, don’t charge more on them than you can afford to pay off every month.

6. Money doesn’t buy happiness. Having money doesn’t mean anything. It’s how you use your money that creates your emotional response. There’s plenty of research to prove you derive the highest degree of happiness when you spend your money on experiences, not things.

7. Slow and steady wins the race. No one becomes financially successful overnight. It’s a long road of practicing good habits and staying disciplined. If you keep searching for the instant button, or speculating and gambling with your money, you’ll never reach your full financial potential.

8. Get comfortable with being uncomfortable. Investing is one of the most unnatural things you’ll do in your life. But you have to be okay with that – you have to be okay with the fact that markets rise and fall. Staying disciplined according to your Investment Policy Statement is the best way to find investing success.

9. Time is your most valuable resource. Stop thinking that you have time to catch up. Not only does your money need time to grow, but it needs time to bounce back from drawdowns. The longer your money is invested, the better your chances of financial success. Investing early and investing smart are crucial.

10. Out of sight, out of mind. If you’re like me, it’s easy to find a home for the money you see sitting in your checking account. One of the best ways to curb unnecessary spending and boost savings is to set up automatic deposits from every paycheck to go straight to your savings or investments.

11. Costs matter – a lot. Costs from taxes, expense ratios, and advisor fees add up. They directly impact your bottom line. Over the long-term, they can eat a large portion of your wealth. Be sure you know how much your investments are costing you, practice tax management, and work with an advisor who is transparent on the fees you pay directly to them.

12. Money is like a kid. It’s incapable of managing itself – think of how your kids would’ve turned out had you let them make their own decisions, without any guidance or discipline from you. Money is the same way. You have to apply structure and discipline to how its managed, and you have to tend to it on a regular basis.

13. Your most important values must align with your financial actions. If your financial actions aren’t furthering your most important values, you’re probably not going to accomplish the goals you set for yourself. Values should play the same role in your financial life as they play in your daily life – they should guide your financial actions and priorities.

14. Be debt free. Or at least bad-debt (i.e. credit card, other high interest debt) free. Carrying substantial amounts of high-interest debt directly affects your ability to save and invest for your future. It makes everything else in your financial life have to work that much harder to pick up the slack.

15. Live the life you want. Wealthy people know their “why” behind money – you need to know yours too. Why do you work, why do you invest, why do you do any of it? Your answers will be specific to you, but it ultimately comes down to being able to live the life you want. That’s the real goal – to have your money work for you, so that you can reach your full financial potential. But you have to start with “why.” Otherwise, you don’t have anything to fight for. You can’t live intentionally with your money, because there’s nothing guiding your behavior.

10 Critical Things to do With Your Money in Your 20s

May 8, 2017 by Office Admin

If you’d told me four years ago I’d be working as a marketing director for a wealth management firm, I would’ve laughed. In my dreams, I was in a big advertising agency in New York, LA, or Chicago. But, life has a funny way of working out – for the better, I believe. Not only do I truly love my job, but it gave me an advantage most people my age don’t have – knowing the critical things to do with your money in your 20s.

A Generation Lost?

As an almost-27-year-old, I can confidently say I’m learning the right way to build the foundation for a successful financial future. But unfortunately, many in our generation aren’t. And while we’ve been dubbed the generation who thinks they “know it all,” there’s a lot we don’t know. Especially when it comes to money.

And it’s not because we aren’t smart. It’s because there’s a lot of bad advice out there. Thanks, in large part, to a media over-saturated with talking financial heads, and an internet where you can drown yourself in financial information overload. Perhaps that why a lot of people our age struggle to find their footing when it comes to money. We don’t know where to find the right answers, let alone what the right answers even are, so financial matters fall to the bottom of the priority list. Or we put them off altogether, because we’re under the misleading impression that there’s always plenty of time to catch up.

Pile on top of that skyrocketing student debt, crippling credit card debt, absorbing all the other costs associated with “adulting,” the early stages of your financial life going from simple to complex, and you have the perfect financial storm. A storm that can cause you to easily fall into the traps, and start your financial journey on the completely wrong foot.

10 Critical Things to do With Your Money in Your 20s

When you hit your mid-20s, you start asking, “What do I do?” Do I save money, or pay off debt? When should I start investing? What kind of account should I invest in? How much money should I be saving? If I don’t start saving now, I can always catch up later, right? How do I organize and prioritize my goals? Heck, someone just tell me the first step to even take!

I did, and luckily, the right answers were just a short walk down the hall. And I want to share some of those answers with you, in the hopes they’ll help you on your way to building a solid financial foundation.

Here are 10 critical things to do with your money in your 20s:

1. Save your money. I can’t stress this enough – save your money people! Pay yourself first, every month, and you’ll be much further ahead than most. If you fail to save your money, everything else in your financial life has to work that much harder to pick up the slack. An ideal savings rate to aim for is 10% – 15%. And that’s not an outrageous number that can’t be reached – I know, because I’ve done it. I’ve saved as low as 10% to upwards of 19% of my income annually over the last few years.

2. Limit your credit card spending. There’s a good rule of thumb I’ve been told by the adivsors in our office – if you can’t pay for it in cash, you probably can’t afford it. We live in a right now society. But, waiting to buy something until you have the cash to afford it will always pay off more than impulsively spending money you don’t have. And if you do have credit cards, pay them off in full every month. I’ve limited myself to one credit card, and mentally set a monthly limit for myself that I don’t exceed. Anal? Maybe. But I have no credit card debt.

3. Don’t lock up your money. One of the biggest mistakes I see people our age make is dumping all their money into their 401k. You’re locking that money up, at a time in your life when you’re going to need as much liquid money as possible. When I first wanted to start investing, my advisor I work with in our company wouldn’t let me. That’s because you have to build up your liquid savings first. Then you should start investing. And in my case, I’m not investing in a qualified account – instead, my money is in a non-qualified account similar to the allocation of a 401k or IRA. So, if I need it, I can get it. 401ks aren’t bad – in fact, they’re an important tool for retirement. But you need to make sure you fill your buckets in the right order. Otherwise, you can get into trouble down the road and be tempted to take out loans on your 401k.

4. Protect yourself. This is probably the last thing on anyone’s mind when you’re in your 20s. It was definitely the last thing on my mind. But, this is the most ideal time in your life to protect yourself. Chances are, you’re never going to be as healthy as you are right now. And you never know what’s going to happen if you wait. For example, I put it off, and then was diagnosed with ulcerative colitis in 2014. As a result, I got a lower rating on my life insurance policy, which means increased premiums. But the point is I’ve protected myself, and when I have a family one day, they’ll be taken care of should something happen to me. You can easily lock in your insurability when you’re young with an inexpensive term life insurance policy.

5. Fill up your short-term bucket. In the world of finance, your money is generally divided between three buckets – short-term, intermediate, and long-term. Your short-term bucket is your cold hard, liquid cash that sits in your savings account at the bank. Fill up this bucket first, before any other bucket. You should always have 3-6 months of liquid cash reserves to get you through the hiccups when life happens – like when I had to pay $600 to put all new tires on my car this past spring. Or had to spend $1,500 on new furniture when I moved. And the great thing is since I have savings, I can pay for things like this without using my credit card.

6. Eliminate bad debt. Bad debt is high interest, short-term debt – like credit card debt. If you have it, make paying it off a top priority. Carrying debt directly affects your ability to save and invest. And paying out interest rates of 15% and higher is crazy! Think if the money you invested made 15% – we’d all be a lot happier. You also shouldn’t be investing when you have high amounts of short-term debt. Chances are, the interest you’re making isn’t more than the interest you’re paying out. Note – if your short-term bucket is full, you shouldn’t have to rack up credit card debt.

7. Prioritize your financial goals. Nothing with money happens overnight. You have to understand it’s a journey, and it always will be. Write down your top financial goals at this moment in time. Then determine which bucket they belong in – short-term, intermediate, or long-term. Once you do this, then you can start formulating an action plan to achieve that goal, and start deploying your money appropriately. It’s helpful to talk through your goals with someone who’s already achieved them, like your parents.

8. Start investing. The earlier you can start investing, the better. The longer you wait, the less time your money has to grow. But remember, do it the right way. Eliminate short-term debt, build up your liquid savings, and then start exploring the idea of investing. You may want to think twice about putting your money in a qualified account right now. Keeping it in a non-qualified account gives you access to that near-liquid money, should you need it. Then, you can always put it into a qualified account down the road once you’re more settled. You should also consider talking to a professional investment advisor before you invest. Not just going out there and trying to figure it out for yourself. Robo-platforms have made investing easy and convenient as well.

9. Sign-up for a software that helps you manage your financial life. I’m talking about a one-stop software that shows you every piece of your financial puzzle. Not a robo-investing platform that only focuses on one area of your financial life. Finances are complex, it can be hard to understand what you have and how it all works together. That’s why aggregating everything into an organized, easy to understand format is crucial in helping you make smarter decisions. We offer JB Wealth Builder to our clients, which shows them their current financial position in real-time. Another example of a software like this would be Hello Wallet.

10. Consider hiring a financial advisor. I would’ve never known the right way to build my financial foundation if I didn’t work at Jarred Bunch. Sure, I could’ve asked my parents for help, but even they would be limited in the advice they could give. To navigate the complex world of finance and investing, and to ensure you build a solid foundation, you’ll probably need the help of a professional advisor. Talk to your parents and friends about who they work with – you want to make sure this is someone you trust. Also, make sure they are truly an advisor, not a broker. You can learn more about the difference here.

Why Does it Matter to You?

Your 20s are an important time in your financial life. It’s the stage that sparks your financial growth, and sets the pace for the rest of your life. Getting it wrong now can have detrimental effects down the road. The tips discussed here are a good way to help you start your journey in the right direction.

The 5 Most Revealing Questions to Ask Before Hiring a Financial Advisor

May 1, 2017 by Office Admin

Hiring a financial advisor can be stressful. You’re trusting someone to help you accomplish one of – if not THE – most important things in your life. That’s why you need the leg up. And the best way to do that is to know what matters, what doesn’t, and the critical questions to ask a financial advisor before hiring them.

Seeing Through the Smoke and Mirrors

The institutions and Wall Street broker-dealers have spent the last century building their grandeur. And they want to hold onto that power, forever. As consumers have gotten smarter, the traditional industry has had to do a lot to cloud your vision from what’s really going on.

For example, a lot of people don’t even know what their investments are truly costing them. And costs matter – a lot. They directly impact your bottom line. When investing, you can incur fees and other costs at almost every turn, from the advisor fee, to the institution’s fee, to the cost of the funds in your portfolio (your expense ratio), taxes, and more. And unless you explicitly go digging, most of these costs will remain hidden from you.

They also try to saturate your brain with a lot of fancy terminology to describe those of us qualified to offer financial advice – broker, CFP, CFA, CMT, advisor, investment manager, financial planner, portfolio manager, and so on. Which combination of the alphabet do you choose? While you should do some basic investing research before hiring a financial advisor, I say ignore the words and letters. Instead, find out what this person actually does and how they conduct business. That’s what matters more.

The next few paragraphs will give you the most important bit of information you should consider when hiring a financial advisor – and that’s knowing the difference between an advisor and a broker.

Advisor vs. Broker: Who Has Your Best Interest at Heart?

It’s critical that you understand what I’m about to say – Most people 1) don’t realize that most advisors aren’t fiduciaries, and 2) don’t realize that they’re not actually working with an “advisor.”

Before the 90s, there used to be a known distinction between advisors and brokers. In fact, there’s still a hard distinction between the two – it’s just not known to most people. It was in the 90s when the traditional industry stopped calling their salespeople brokers, and started calling them advisors. Ever since then, they’ve done a good job keeping the catch-all “advisor” category alive and well.

The biggest distinction is that advisors are fiduciaries. This means they represent you, and are legally obligated to work in your best interest. No one else’s. They typically charge a flat fee of assets you have under their management, and that is how they’re compensated. Basically, they have zero to no conflicts of interest, because their loyalty lies specifically with you.

On the other hand, brokers are not fiduciaries. They work for an investment firm (commonly known as a broker-dealer), and are representatives of that broker-dealer. Not you, the client. Brokers are obligated to sell the products offered by that broker-dealer. When it comes to products, a broker’s standard is “suitability.” This means if an investment is suitable, but not necessarily the best or conflict-free, they can still sell it to you. They’re paid on commissions from the broker-dealer they represent, not by you. The need to sell among brokers is high.

The 5 Most Revealing Questions to Ask a Financial Advisor Before Hiring Them

There are numerous questions, theories, and strategies for picking an investment advisor. But I believe it really comes down to asking a few core questions that get to the root of what matters most – what this person stands for.

Here are what I believe to be the five most revealing questions to ask before hiring a financial advisor. Take these questions with you when you conduct your interviews:

1. Are you an independent advisor or a broker? Your first question should get to the root of whose best interests they represent – yours, or an institution’s. I started Jarred Bunch because I was passionate about making a difference in people’s lives – so much so, that I walked away from a cushy, six-figure job in corporate America to strike out on my own. I remember being so excited about building a company that was going to change the industry. On the day my business cards arrived, I looked on the back and saw in writing, “Scott Jarred is a Registered Representative of so-and-so big Wall Street broker-dealer.” This was the opposite of who I am, the opposite of what Jarred Bunch stands for. I couldn’t make money work for people – I was still working for and being controlled by the man. So, we broke free from the chains, and became an independent Registered Investment Advisory firm (RIA).

2. Who pays you? If they’re truly an advisor, their answer should be something like, “You pay me.” They should clearly lay out how they charge their fees, and disclose all costs associated with doing business. Down the road, if you decide to work with them, you should also ask for complete transparency on portfolio costs. Brokers, on the other hand, are paid commissions by the broker-dealer they represent. In addition to the conflicts of interest this can create, it can also cause them to jack up your advisor fees – they have to make money after the broker-dealer takes their cut off the top.

3. Are you legally obligated to act in my best interest? The answer to this must be yes. All the time, no exceptions. If they’re a true advisor, their answer will be yes. This is their duty as a fiduciary – they are legally bound to act in and offer solutions that represent your best interests. Brokers are legally bound by contracts with their broker-dealer, and must act in the best interests of that broker-dealer. Yet another red flag that they’re not a true fiduciary.

4. What is your firm’s history and current professional standing? In other words, you can ask to see a copy of their Form ADV. This is a registration document that advisors must submit to the SEC and to state securities authorities. Form ADV is divided into two parts. The first part discloses specific information about the Registered Investment Advisory firm that is important to regulators. This includes things like name, number of employees, nature of the business and so on. The second part acts as a disclosure document, and includes information on fees, any conflicts of interest that may be present, any disciplinary actions, if they act as a broker-dealer and more.

5. What do you think you can help me accomplish in the next three years that would make my life significantly better? During the interview, take the opportunity to outline your top priorities, and give the high-level overview of what reaching your full financial potential looks like to you. Note that you should be doing most of the talking when you get to this point. The advisor’s job should be to listen, and hear what value you’re looking for them to add to your life. Then ask them what specific steps they can take to help you get there – so that when you guys meet three years from now, you’ll feel like the time you’ve invested in this relationship has been worthwhile. Not only does it give you a glimpse into how well the advisor aligns with your values, but also gives you a clue as to whether they view the world with an abundance or scarcity mindset.

Why Does It Matter to You?

Two of the most important people in your life are your doctor and your financial advisor. Cliché, I know, but something that I believe.

In fact, think about hiring a financial advisor in terms of what made you pick your doctor. Would you have chosen them if they told you their loyalty lied with anyone but you, the patient? If they said that they have to represent the best interests of an outside group, not you? If they only offered you one treatment option, regardless of whether it was the best thing for you, because that’s what the group who controls them allows?

Heck no. So, why then, would you consider hiring a financial advisor, one of the most important people in your life, who conducts business this way?

That’s why it’s so important that above all, you ensure you’re working with a true advisor – not a broker using the traditional industry’s smoke and mirrors to make you think they’re an advisor. This means that you’ll have a fiduciary on your side – someone who’s bound to the same principle of “First, do no harm,” as your doctor. You’ll have hired someone who goes to work for you every day, and who you can count on to educate, guide and counsel you toward reaching your full financial potential. While it will be their job to listen to what it is you want, it’s their responsibility to protect your financial well-being. If you ask them to do something they believe would threaten your well-being, it’s their job to explain why you shouldn’t. Just like your doctor would do if you asked them to perform an unnecessary or risky procedure.

In the end, your decision for hiring a financial advisor comes down to what you value in a person who is responsible for playing this role in your life. After all, this is your financial life, no one else’s. But just remember, you get one shot at your financial journey. And failure is not option. So, I would caution you to hire wisely. I promise, if you find the right advisor, you’ll never want to leave them, because they’ll help you live the life you want.

4 Reasons Why Market Timing Fails as a Money Maker

January 20, 2017 by Office Admin

Markets will easily rattle you. A couple hundred-point swing here. A doomsday headline there. But before you go and flee the market or try to strike it big through market timing, you have to stop and consider the consequences.

The Dilemma

Market timing may be one of the most controversial topics around – many say it’s impossible, while the exact same number of people will claim they can do it perfectly every time.

It’s true that markets move in cycles and general predictions can be made about what to expect. But, this is exactly where investors get themselves in trouble. These facts do not mean that you can accurately and consistently get in and out of the market at the exact right moments.

Why, then, do investors continue to engage in this self-destructing behavior? Maybe it’s the same reason that we’re all pulled to the neon lights on the Las Vegas Strip – we all want to prove that we can win big and beat the game. Sometimes you do, and when you do, luck is almost a bigger factor than anything. But most of the time you don’t. When you don’t, it’s easy to keep pouring money into the machines to try and prevail. What usually happens is you fly home with your tail between your legs, in a deeper hole now than when you arrived.

4 Reasons Why Timing the Market Fails as a Money Maker

Here are four reasons why timing the market fails as a money maker:

1. It almost always hurts your performance over the long-term. A recent analysis of investor behavior from SigFig found that during the market correction in October 2014, roughly one in five investors reduced their exposure to equities, mutual funds and ETFs, with 0.6% selling 90% or more. While this may have seemed like a smart move to investors at the time, SigFig found that the more investors sold, the worse their investments performed. Investors who panicked the most had the worst 12-month trailing performance of all groups.

2. It can cost more than you will make. Market timing prompts investors to be active. While active investing isn’t necessarily a bad thing, it can be costly. And the more active you are, the more you will pay in costs. Every time you make a trade, you will incur fees associated with the cost of making that trade. Investment decisions also have tax consequences. If you try to time the market and make trades without regard for the tax impact, you can find any returns you may make quickly squashed by a tax bill.

3. You have to be right twice. Gambling is easy – you only have to be right once to make it big. Market timing is a different animal. You have to be right twice in order to win, because investing has two sides, buying and selling. To be a master at market timing, you have to be able to sell at the precise moment that the market has reached the top of its climb and can’t go any further. Then, you have to be able to buy at the precise moment the market bottoms out, before it rebounds. Do you have the guts to make that bet?

4. Your focus is on reward, not risk. Investors who time the market are in it to reap big rewards – no matter the risk. You’re chasing the high of making it big, of greed. When you don’t get that reward, you run into big problems. A focus on winning doesn’t prepare you for a loss. You have no exit strategy when things go south, and they often will. In case you’ve forgotten, higher risk doesn’t guarantee higher returns. It just means a higher chance of you losing your money. If you have a high probability of losing money, you better have something to catch you when you fall.

Why Does It Matter to You?

The truth is that investors who adhere to one extreme or the other – impossible or possible – regularly find themselves less successful than investors who try to find a happy medium.

Everyday market volatility can do enough harm to your returns, without you throwing in a little extra turbulence yourself from trying to time the market. In fact, volatility is what makes market timing difficult to do, because markets can rise and fall close together. Reaching your full financial potential depends on engaging in the right types of active investing, on a balancing act between your active and passive strategies. And this doesn’t include market timing. The only form of active investing proven to work is trend following. To take it a step further, indexing almost always outperforms active investing. This is why your main goal as an investor shouldn’t be to strike it rich from one big pop of luck. Rather, lower volatility and consistent returns – even if they’re lower returns – will increase your dollar growth, make for a smoother investment ride, and help you avoid bad investor behavior by keeping you disciplined.

Our investment strategies are built on these very principles. They move with the market, but can avoid the big declines. They limit investor exposure while still capturing upside potential. Remember, it’s not timing the market that drives your success, but time IN the market.

The 4 Rules of Financial Institutions

January 18, 2017 by Office Admin

Breaking news alert – the financial industry has an agenda for your money! Okay, no offense, but if this is breaking news to you, then you need to read this article more than most.

Yes, the financial industry has an agenda for your money. Everywhere you turn, almost every solution you’re offered has their best interest at heart, not yours. But, shouldn’t your financial actions support your most important goals? Shouldn’t the effort you’re putting in be working to further your best interests? Absolutely.

Whose Agenda Are You Furthering?

If you fail to acknowledge the simple fact that the institutions have designed things mostly to benefit themselves, you may find yourself never living the life you envisioned. Essentially, the game of finance is just that – a game. Successful players take the time to understand the rules and instead of admitting defeat, figure out how to make the rules work to their benefit instead.

Now, the point of this isn’t to paint the traditional financial industry as the enemy. Besides, making them the enemy doesn’t do you or I any good, we still have to deal with them every day. But there are in fact rules that the financial industry adheres to. Rules that you need to be aware of, as they can limit your financial success. You can’t change their agenda or the rules they stipulate for the game. But, you can define the way that we live and work within them, and bend them to your advantage.

The 4 Rules of Financial Institutions

The traditional financial industry has four core rules that they live by:

1. They want your money. This simple rule is what starts it all. You want to save for retirement? Here’s an IRA. Oh, you want your employer to help you save for retirement? Here’s a 401(k). When you’re ready to save for your child’s college education, pick from our selection of 529 plans. And the list goes on. The institutions have designed solutions for your biggest needs simply because of rule number one – they want your money.

2. They want your money systematically. Once you give the institutions your money, they want to make sure that you keep giving it to them, on the same day, every moth, year after year. Think about 401(k) contributions – these often come straight out of your paycheck. People often make IRA contributions on a schedule as well. Many times, we operate in ways that are convenient for us, hence paycheck deductions. Yes, the institutions do a good job of tricking us with convenience.

3. They want to hold onto your money for a long time. All of that money you’re putting into your 401(k) is locked away until you’re 59 ½. And just in case you get antsy before that, you’ll find yourself slapped with taxes and penalties galore should you try to pull it out. Isn’t it funny how you have to pay to get your own money back? For all of those responsible people who want to keep saving into their IRA past this same age, don’t worry – they’ll hold onto it for you until your 70 ½ .

4. When the time comes, they want to give back as little as possible. Money that you take out of your 401(k) goes in pre-tax. That means when you go to take it out, you’ll be paying taxes on it. The same goes for an IRA. This is different than a Roth IRA, where you put in post-tax money. Concerning IRAs, they also don’t want you to let those sit and grow for too long. They’ll keep it until you’re 70 ½ , but then you must start taking distributions from it. This lowers the principle, which lowers the return.

Why Does It Matter to You?

Yes, you can’t change the rules of the financial institutions. But you can change how you live within them. And I’m not trying to trash 401(k)s, IRAs or any of the other things we’ve mentioned here. These aren’t “bad” things to do – in fact, they can be essential tools to help you succeed financially.

What is important for you to take away is that part of winning the game of finance is mastering a balancing act. Financial success depends on a healthy balance of money that is under your control, and money that is out of your control. Based on these rules, all of your money shouldn’t be tied up in long-term savings accounts. Life happens, that’s a fact. When it does, you need to be able to access your money when you need it. For instances where your money is tied up, you need to know what role these strategies are playing and exactly how they fit into your complete financial life.

You don’t lump all of your goals into one end all, be all goal. You have multiple goals, multiple things you’re working toward. Money is the same way. You have to dedicate different buckets of money to different goals. And it’s not just about having a lot of buckets – it’s about having the right ones that are best suited to the purpose that money is serving.

Let me put it this way – one of my cardinal rules for reaching your full financial potential is to never have more money out of your control than in your control. Remember this, and you can go far.

Memories from a Millennial: 7 Simple Ways to Teach Your Kids About Money at Every Age

January 11, 2017 by Office Admin

As important as money is to our everyday lives, it’s always baffled me what little is done in the education system to teach your kids about money.

I guess I can’t say they didn’t try though. When I was in elementary school, we took a field trip to a place called Exchange City. It was a mock town set-up in a children’s learning center. In the town, everyone had a job that they were paid for, and could then go spend their money in the stores. And I guess I did leave high school knowing that an IRA was used to save for retirement.

They’re Always Watching

Much of what I learned about money came from my parents. I still remember when my parents made me open my first savings account at a bank when I was teenager. I watched how my parents spent money, listened to how they talked about it my entire life. While I never wanted to for anything growing up, I understood the importance of not living above your means. I understood the importance of saving, and that your wallet should never be full of credit cards.

However, I graduated college never having paid a bill in my life. My parents made my brother and I the promise that if we went to college, worked hard and graduated in good standing, they would take care of housing expenses. And guess what my dad made me do when I signed my first lease in the “real” world? He made me pay the deposit, first month’s rent, and moving costs all by myself. To go from never paying a bill in my life to dropping a few grand – not to mention the cost of living I would incur moving forward – knocked the wind out of me. While I’m forever grateful for the opportunities my parents gave me, that was one of my biggest reality shocks to date.

Now at age 26, I’m actually very proud of the financial progress I’ve made. That savings account my parents made me open over 10 years ago I still have – and it has a very healthy balance in it. I’ve started saving for long-term goals. But all of this is because of what my parents taught me about money. I didn’t learn my good habits from school – I learned them from my parents.

7 Simple Ways to Teach Your Kids About Money at Every Age

Giving your children this foundation is essential. I don’t know where I would be today if my parents hadn’t done it for me. And it’s easier than you may think.

Pulling from my own childhood memory bank, here are seven simple ways to teach your kids about money at every age:

1. Waiting to buy something you want. I was in the store the other day, and in front of me walking down the aisle a boy was bugging his mom for a toy. When she said they didn’t have money for that right now, he fired back with “Just put it on your credit card.” Kids are smart. If you’re constantly whipping out your credit card to buy whatever you – or they – want on the spot, they learn they can buy anything, any time. Rather, teach them the importance of saving their money to make a purchase. This is a hard concept for even most adults to grasp, but the positive effects that come from mastering it are invaluable.

2. Designate money for saving and spending. I remember that I always had “spending” money and “saving” money. In fact, I still do as an adult – you probably do too, even if you don’t consciously call it that. Kids need to understand that you can’t spend everything you make. A portion of their money should be put into savings every time they earn it. Then, the other portion can be used for their spending money. This starts to form the good habit of “paying yourself first” at a young age – something I’m very grateful that my parents taught me.

3. Congratulate them on saving their money. Saving money is boring. It’s way more fun to spend it. And your kids will quickly realize this once you start giving them money. Tell them this upfront, be direct with them. But, stress the importance of this “boring” habit. And make it fun – when they’re younger, track their savings progress and make a big deal about how much they’ve saved. Show them how much they could have if they keep saving, talk through it with them and tell them how much they need to reach their goal and when they’ll reach it.

4. Show them how to spend money wisely. This is probably the second most important lesson. Kids need to understand that money is finite – once you spend it, it’s gone until you can earn more. Be firm, and don’t let them dip into their savings. That money is only for emergencies or unexpected costs. If they buy that video game, they can’t buy that toy. When they’re older, involve them in some of your financial decisions to show them your reasoning. This helps them weigh decisions and understand those decisions have consequences.

4. Don’t hand out money for free. One of the biggest mistakes you can make is giving your kids money for no reason. This can teach them that they don’t have to work for money. My brother and I had to do chores in exchange for an allowance when we were younger. If we worked hard and got good grades, we got $5 for every A and $50 for straight As. Do I need to say how hard I worked to get straight As in high school? If I was in sports, I still had to do chores for an allowance, even though my parents did help fill in here and there. If I wasn’t in sports and was old enough to have a job, that was my only option. Mom and dad weren’t handing it out for free.

5. Make your kids get a job. As annoying as it was at the time, I’m so glad that my parents made me get a job when I was teenager. Not only does it teach your kids responsibility, but it opens their eyes to many things about money, like taxes. They’ll also take pride in earning their “own” money, not money from mom and dad. This isn’t only applicable to teenagers either – when your kids are younger, treat chores like their job.

6. Compound interest is powerful. Even young kids can grasp the basics of this concept. Give them a certain amount of extra money every month – say 50 cents or a dollar. Tell them this is the interest that their money earned, and talk through it with them. Explain to them that money can make money. Once they’re teenagers, a good idea is to have them open up a bank account. While interest on savings accounts can be low, it still teaches them the foundation for how it works. This can help them understand the importance of saving even more, and how it can help them when they start investing for long-term goals as an adult.

7. Explain the concept of “credit.” A crucial lesson to teach your children is that using a credit card means you’re using borrowed money. I remember seeing my parents put things on their credit cards when I was younger, but not grasping how credit worked until they actually explained it to me. Teach your kids that purchasing items with credit cards is essentially making a purchase with borrowed money. You have to pay that money back every month, and if you don’t, you’ll pay extremely high interest. This is a great plug for telling them you should never charge more on your credit cards than you can afford to pay off in a month.

Why Does it Matter to You?

Parents, knowing how to teach your kids about money is crucial. Of all of the lessons you will teach them, lessons in money are some of the most important ones they’ll get. It will shape their view on money for their entire life. It lays the foundation for whether they will fail or succeed financially. Think back to what your parents taught you about money, about the things they did with money or how they spoke about it. Chances are, you still think and talk about money in a similar way. Your kids will be thinking and talking similarly when they look back 20 years from now. And guess what? What you teach your kids about money, they will teach theirs. Give them the tools to succeed.

3 Dangers of Ignoring Your True Cost of Living

October 26, 2016 by Office Admin

Understanding your true cost of living is one of the most commonly overlooked concepts. That’s because traditional planning does little to examine lost opportunity costs, much less offset them. But how can you reach your full financial potential when you don’t attempt to overcome one of the biggest wealth eroding factors you’ll encounter?

Lost Opportunity Cost

First, you have to understand just what I mean when I say “lost opportunity cost.” In relation to finance, it represents the actual amount of money you lose when making a financial decision. A great way to illustrate this is by using David Bach’s Latte Factor®.

Let’s say that every week-day morning you stop and buy a Venti Vanilla Latte from Starbucks on your way to work. This specific beverage will cost you $4.85. We’ll round that to $5 just for simplicity. This means that you are spending roughly $960 a year on coffee. Say you usually buy lunch three days a week as well, and spend about $10 every time. That’s $1,440 a year on lunches. Add this to the $960 you’re spending on coffee and you have a combined total of $2,400 a year.

So, what are coffee and lunches costing you? The answer isn’t $2,400.

What if you had invested that money instead?

Investing $2,400 annually earning 5% growth produces a gross value in 10 years of $30,351. In 30 years, it produces a gross value of $162,671.

THAT’S your true cost of living. THAT’S lost opportunity cost. See why you need to understand it, account for it and offset it?

3 Dangers of Ignoring Your True Cost of Living

There are three dangers that arise from ignoring your true cost of living:

1. Widespread wealth erosion. What we just examined is only one small area of your life. What about new technologies, goods and services that are created almost daily? I can barely keep up with having the latest and greatest in computers, smart phones and iPads. And now my kids are demanding the best when it comes to these gadgets. What about the planned obsolescence of everyday items, like appliances and cars? These products are made to break down so that you will have to buy them again. What about insurance premiums, investment fees, commissions and taxes? Add all of this lost opportunity cost to the previous totals and you can see your true cost of living.

2. The inability to recapture lost dollars. Two of the most common forms of lost opportunity cost are insurance premiums and financial fees/taxes. People have high insurance premiums because they want low deductibles. But if you were saving the ideal rate of 15%-20% of your income, you would have enough liquidity to cover expenses. Then you could raise you deductible and possible lower your premium costs. All fees associated with any investment account should be completely transparent, and justifiable based on the return and size of the account. Taxes can drastically reduce your net return as well; make sure that your investment accounts are tax managed to help control this erosion. Once you discover the areas where you may be spending money inefficiently, you can then recapture those dollars and put your money back to work for you.

3. Not reaching your full financial potential. Almost every decision you make can result in lost opportunity cost. This makes it one of the largest wealth eroding factors you will encounter and one of the biggest threats to your financial success, now and in the future. If you saw someone casually throw a $100 bill in the trash can, wouldn’t you think they may be a little crazy? Well, if you do nothing to mitigate this risk, you might as well join them. Doing nothing to mitigate this risk can result in you forfeiting millions of dollar over your lifetime.

How a Financial Model Can Help

This doesn’t mean you have to restrict yourself from your favorite coffee, dining out, taking that dream vacation or purchasing things you want. But it does mean that you need to understand your true cost of living, which can be hard to do in traditional financial planning.

A financial model can pick up where tradition falls short. For example, our digital financial model, JB Wealth Builder, can allow you to see where your money is actually going. It can diagnose problem areas where you may be spending money inefficiently. You can then evaluate your degree of lost opportunity cost, and implement strategies to recapture that money and put it back to work.

This can help you remain in the proper financial position where you are able to enjoy the sweet indulgences of life, but also have a financial backbone capable of helping you reach your full financial potential.

How to Lose Your Money in 5 Different Ways

October 23, 2016 by Office Admin

It’s easier to lose money than it is to accumulate it. This is because accumulating wealth requires you to make a conscious effort. Losing your wealth doesn’t require much thought at all.

You don’t build wealth without some form of discipline, good habits that you practice religiously and that inch you closer toward your goals. This is the conscious effort. Often, the conscious effort tends to disappear once you’ve achieved success. This is the part where you want to enjoy all the hard work you’ve put into building the life you’ve dreamt of. Your conscious effort can even disappear while you’re still working toward your goals. Reaching new milestones of financial success can enable you to do things you couldn’t do previously; it’s easy to get swept up in your newfound freedom. This is why it can feel like you’re constantly taking one step forward and two steps back.

5 Ways to Lose Your Money

The things that can prevent you from reaching your full financial potential are the same things that can wipe out your wealth once you’ve accumulated it. Here are five ways to lose your money in both instances:

1. Not protecting yourself for your full economic value. People want to pay as little insurance costs as possible for the minimum amount of coverage. Most think that leaving enough behind to cover the mortgage or a few years of their salary is sufficient. But your full economic value is worth much more than this. It’s worth the money you will now and in the future, your net worth now and in the future and your legacy now and in the future. Protecting yourself means protecting against premature death or disability, accounting for excess liability coverage and properly structuring your estate. Failing to do any of these things can leave your wealth exposed to a handful of threats.

2. Failing to offset taxes and inflation. These are two of the biggest wealth eroding factors that are out of your control. First, your money needs to outpace inflation, which is the natural erosion of your money’s purchasing power. For example, if inflation is 3%, then your $10,000 this year will only be worth $9,700 next year. Investing your money is a way to offset inflation. While the goal of most investors is to achieve the most efficient after-tax returns, many of them forget to evaluate the tax implications of their portfolio as a whole. Your return doesn’t mean much if you lose most of it to taxes.

3. Living beyond your means. One of the simplest, cardinal get rich rules is to spend less than you earn. Sure, you may have the huge dream home or the exotic foreign car, but if you can’t truly afford it, this doesn’t make you rich. It makes you house poor and car poor, two of the best ways to lose your money faster than you can earn it. It also probably means that you’re building up a substantial amount of wealth. Here’s another cardinal get rich rule: If you have to finance it, you probably can’t afford it. Debt detracts from your net worth, from your ability to save and achieve your goals.

4. Not saving enough money. If you’re not consistently saving a substantial portion of your income every month, then you’re violating another cardinal get rich rule: Pay yourself first. With American savings rates teetering around 5%, it may seem drastic that I’m telling you to aim for a savings rate of 15% – 20%. But this is what funds your core liquidity, your ability to save for and achieve short-term goals. It also funds your future, and includes saving into different unqualified and qualified investment accounts for retirement, your child’s college tuition, and more.

5. Lacking a defined investment philosophy. One of the best things you can do for yourself before you start investing is to create an Investment Policy Statement. This is a guiding statement of how you will invest according to your values and desires, your most important financial goals. Otherwise, you can find yourself making emotionally charged decisions and engaging in bad investor behavior. This includes stock picking, market timing and forecasting, following investment trends and more. Investors who engage in these behaviors often get burned big time.

Why Does it Matter to You?

If you want to reach your full financial potential, you must understand how each of these five things can deter your success. For instance, protection isn’t just about insurance. It’s about protecting your life’s work from the numerous threats that can destroy it. Inflation alone is enough to erode your wealth. You have to put fear of the market to the wayside, and let your money work for you. Taxes will have a direct effect on the real returns your money produces and can significantly erode them. Include low-turnover and tax-managed investments in your portfolio. We can also offer our clients Separately Managed Accounts, which offer the greatest level of tax control.

Acting rich doesn’t count for much of anything. Most of the truly wealthy people would more than likely tell you that they would rather defy society’s image of being rich than being deceptively poor. Neglecting to pay yourself first means that you may lack the funds to achieve your most important goals or living a reduced lifestyle in retirement. Engaging in bad investor behavior can also guarantee these things. But how can you avoid it? How do you know if you’re making the right investment decision? Easy, refer to your Investment Policy Statement. If an investment doesn’t meet its criteria, then you shouldn’t invest. Period.

Building wealth is no small task, but the work doesn’t end there. If you can’t sustain your wealth, then all your hard work means nothing. Sustaining your wealth is where the real work happens.