Resolutions: The candid ones your financial planner might want you to consider
Happy New Year!
This is the time of year when we consider setting resolutions. The media love talking about resolutions because the subject is so easy to write about, since it’s often the same article every single year. We also often never stick to them because they’re so generic and really don’t inspire.
In consumer magazines, you often hear suggestions like this:
1. Save more.
2. Spend less.
3. Invest wisely.
4. Update your insurance.
5. Hire an advisor …
6. … etc., etc.
These are all good, and I don’t want to take away from that, but if you asked me or your financial planner to be candid, she or he might say something like this:
1. Turn off those financial TV programs and stop reading those crazy magazines with titles like “The 7 best stocks for 201X”! It’s investment pornography. These are reactive enterprises that need advertising revenue to succeed, so they write and say things that get you to do very “dirty” things with your money; they are not interested in your long-term welfare.
2. Don’t just save more; save A LOT more and start early. Saving 10% of your income at age 22 and keeping up with that as your income rises is a great idea, but starting to save 10% of your income at age 50 will probably not move the dial. Ideally, you want to be saving at least 10% of gross income when you’re young (i.e., the day you start working full time). For every 10 years after your 20s that you wait to save, you should be increasing that by at least another 10% of gross income just to catch up. So if you are in your 50s and never saved anything, you probably need to be putting away at least 30% to 40% of gross income immediately and still plan to work longer. That’s a big hurdle. Start early if you can; if not, find a job you love.
3. Find a job/career you love. It is so much easier to build a financial plan for people who love their work. Retiring early or at a young age is “so 2000s.” Unless you’re sitting on at least a million, or if you have a fully vested inflation-adjusted public pension, you would have a tough time retiring early. Even if you have those means, I think you’re still better off financially, intellectually, socially, and maybe even physically if you find a job or career you love and do it as long as you can. The world is a better place when we like what we do.
4. Don’t just spend less, spend A LOT less and live within your means. I’ve met folks with very comfortable six-figure incomes whom I can’t help and have to refer away because they simply spend too much. I’ve met folks with modest incomes who are financially independent because they “get it” when we say live within your means. Income is less relevant than your ability to control your spending and savings.
5. Stop taking “tips” from your friends and colleagues. They mean well, but they don’t know your situation better than a good financial planner and they certainly don’t have the thousands of hours of training, experience, and education necessary to navigate the financial planning process in line with your unique goals and objectives. (Note: Of course, this assumes your financial planner does in fact have training, experience, education, and ideally, is a fiduciary who works for you.)
6. Don’t put off what needs to be done until the deadline: taxes, Roth conversions, IRA deposits, 529 plan contributions, 401(k)s, RMDs, gifting, etc. Procrastination takes attention away from valuable planning opportunities.
7. Tell us if you don’t understand something. If you don’t understand what we’re saying, please speak up. In fact, cut us off and tell us to start over. It’s our job to educate you. It’s a partnership: We are here to serve you. It is your money – it is your life.
8. Use us as a sounding board beyond just the basics. Seek our guidance on major purchases and financial decisions early in the process. This would include car purchases, refinances, college funding, home purchases, etc. It is much easier to add value before you have made any significant, or irreversible, decisions.
9. I say this often: Recognize that in a world of long-term inflation, short-term volatility, and taxes, there is no such thing as a risk-free investment, so don’t allow yourself to think it exists and don’t expect us to find it. Risk means potential for loss. Addressing risk exposure is one thing, eliminating risk entirely is unreasonable. (Note: If you are working with someone who says you are in a “risk-free” investment, run, don’t walk, away!)
10. Finally, recognize that financial planning is a process, not a result. We are operating in a social science, not a hard science. Course-correcting, choice-trade-offs, and being flexible to change are necessities. If you can appreciate that, it is a lot more fun and successful for everyone.
(Thanks to the members of my peer group who contributed to this list.)
I hope that if you grab on to even one of these recommended resolutions, your 2012 will be more prosperous because of it.
Michael Dubis is a fee-only certified financial planner and president of Michael A. Dubis Financial Planning, LLC. He is also an adjunct lecturer at the University of Wisconsin Business School James A. Graaskamp Center for Real Estate. Mike can be reached at firstname.lastname@example.org.
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