Independence Day

Some 236 years ago, the “founding fathers” decided that enough was enough and they decided to declare independence. It could be argued if they did that for less of a reason than we have today to declare “independence” from our governing body. That is not the reason I am writing this article. Rather it is in recognition that independence, if truly declared comes at a cost. For those who declared independence 236 years ago, it demanded blood, sweat, and tears.

For those who wish to declare financial independence, it will demand savings and reigning in control over one’s desires. This often is associated with budgeting. Many people ask me why is that I focus on budgeting with my clients rather than worrying as much about investments and their respective allocations. This is not to say that I do not worry about the allocations. I just always believe you should focus on the areas where you get the most impact. Time and time again when it relates to finances this comes down to budgeting/cash flow. It comes to budgeting in the front end in being able to save enough to possibly declare independence financially and it comes down to budgeting in the back end once one has declared financial independence in order to maintain it. All too often it is the budgeting in retirement which can be even more important than the budgeting during the accumulation period. The reason for this is that often when one is retired, there may not be an option to try to increase income otherwise. Budgeting of expenses at times like this becomes of paramount importance. After all, making certain that your investments are sufficient to last twenty to thirty years including the effects of inflation is one that requires discipline and careful attention paid to one’s expenses.

The good news is that if one is attentive to one’s budget and allocates one’s savings appropriately, one does have a very good chance in being able to declare financial independence without having to worry too much about having to go back under someone else’s financial rule.

As always, please send your thoughts and comments to info@objectiveplanningllc.com

 

 

Wiggle Room

Realistically one of the most important things that I can do to help my clients is help them find wiggle room in the resources that they possess to help them reach their goals. Sometimes it is realizing that there is no traditional wiggle room in the budget. Perhaps it may be that they may need to do some moonlighting or decide to sublet a room. Often times by taking advantage of wiggle room, one can begin to leverage the situation. Surprisingly, many times when it appears that there is the least traditional amount of room in the budget due to debt, etc. is when the greatest gains can be made by finding additional wiggle room.    Let’s say that someone is able to find an additional $500/month by subletting a room or finding some additional work. It could be through this additional money, that they can pay off some debt and become eligible to refinance their home, when they were not able to refinance their home before. This lowering of interest rates reduces their payments each month by hundreds of dollars each month, which then can be further used to reduced debt.

It is funny, how within a year or so, there can be several instances where that $500/month could begin to translate into a significantly larger amount of difference in one’s life. If one continues along the course, the dividends can become even larger. Once debts are paid off, one may be able to focus on building assets that add more income and increase one’s wealth. Usually by the time the debts are paid off, one has significant resources to put towards building even more resources. All of this began with finding a little wiggle room and the discipline to stick with the plan. The initial actions needed to find this wiggle room may not be pleasant. In fact in America, privacy has come to be valued at a premium. One question that comes to mind: “Is our value for privacy preventing us from getting the things that we truly desire? It may be something that we need to examine.” Food for thought.

Please send your thoughts and comments to info@objectiveplanningllc.com

 

 

 

The Logo, Origami, and Financial Planning

From the title, this post may entirely appear to be self-serving and self-gratifying. I would suggest that it still probably is worth a read. There are many aspects of the Objective Planning logo that I like. I want to take the time and share one that I like as it relates to financial planning.

The logo has an origami like feel to it and seems to suggest one form leading to another. Financial planning, in my opinion, should be very much like origami in that it demands vision of where one wants to go, the creativity to take what may appear to be an ordinary situation and turn it into something different. Part of this usually involves adaptability and flexibility on the participant’s part. There is the saying that if you do what you always did, you should expect to get what you always got. If you want something different than what you have, most likely it is going to require flexibility on your part, and in the case of financial planning, to make the folds necessary in your life to get where you want to go. Some of these folds may be stronger than others, sometimes they may even seem uncomfortable, leaving a crease, but they will help to create the shape of where you want to go.

Though there are basic patterns, there are many different ways to help you achieve your objectives. Hopefully, these should be tailored to your individual needs in how one should get there. Also, in many cases, there are many different goals that you may want to achieve and if you are like most people neither have the resources nor the desire to accomplish/have all of them at once. As it relates to financial planning and origami this could mean taking the same resources and turning them into different things at different times to match your preferences.

The bottom line is that financial planning like origami should involve creativity and flexibility. If you are merely told you need to save X number of dollars to get to Y and that is your financial plan, I would think that you have received something that does not come close to capturing the potential that financial planning can bring. I would suggest that is only one aspect of financial planning, which though important, if one has the willingness to adapt, may not be as important as it appears on the surface.

As always, please send your questions and comments to info@objectiveplanningllc.com.

 

Memorial Day

There are many assumptions that exist when it relates to financial planning. Many people will talk about assumed rates of return, tax rates or life expectancy. I want to give a nod to several interrelated ones that are often taken for granted by many in the United States. Many of these assumptions are in a significant part due to the men and women who preserve the peace of our country. On Memorial Day we remember those that gave their lives while serving in the military for our freedom.

How much meaning would the amount you accumulated in your Roth IRA mean if you had to worry about people threatening your life on a regular basis led by either foreign invaders or mobs within our country?

What would it mean if we as the people were forced to live under a system where we had no choice, no influence or direction as it related to law or governance? Tyranny could easily reign. Things or privileges for which we have long worked could end up being taken from us at the whim of our leaders. If one lives long in such a society, what impetus is there for hope or production?

Not to make light of it, but a relatively small example of how violence and terror can affect our lives can be seen in the fallout from September 11, 2001. Approximately 3,000 people died and billions of dollars were lost. This was caused by a terrorist organization. Could you imagine what impact it would have if we had to worry about war on our own soil?

Peace and stability are some of the foundations on which any financial planning rests. Without these twin pillars, building wealth becomes a very different exercise where one always must be on one’s guard against the potential of someone with more power or cunning.

Please take a moment to thank and consider those who have fallen. Many of the things that you enjoy today are in part due to their blood.

As always, please share your thoughts and comments to info@objectiveplanningllc.com.

Skiing

I have a confession. I am not much of a skier. Occasionally I have been known to don some cross country skis, but more often I have been known to wear snow shoes. That being said, a couple of times I have participated in alpine skiing.

Perhaps many of you wondering by know, why is a personal finance guy talking about skiing? Summer is almost here!

In previous blog posts, I have talked about “withdrawal rates” which refers to how much one can plan on withdrawing from one’s retirement portfolio without having to worry too much about the money running out. I tend to recommend to my clients between 3-4% of their portfolio per year as a good rule of thumb.

It has been said that planning for/going into retirement is a lot like going alpine skiing. You do not hear about many people suffering that much as they go up the hill (the financial equivalent of building up assets to prepare for the ride of your life), but you may hear a fair amount about people doing a face plant when they got off of the ski lift (the financial equivalent of the market dropping suddenly when one first retires and has nowhere else to draw money), or people breaking a leg or something else and calling in for the medics, etc. (which may be closer to the financial equivalent of having to make unprepared drastic cuts to one’s lifestyle in retirement or having to more in with family or have family pay the bills because you can no longer support yourself).

Many people are surprised of the amount that they have to save in order to sustainably support the lifestyle to which they have grown accustomed. This may be mitigated by many different factors which may or may not include: changing one’s lifestyle, having investments that provide a steady stream of income for you, increasing one’s savings, planning on working while in retirement.

While all of these options may seem feasible, in some cases the final option is not. In fact there are many workers who find that either due to health issues or other reasons, that they end up working for less long of a period than they initially intended. This only serves to emphasize the importance of saving up as soon as possible so one does not find oneself getting off on the double-black diamond rated slope of retirement as opposed to the bunny slope of retirement. I will suggest that though excitement and challenge can be fun at times, few people actually want to navigate a challenging retirement financially.

The moral of the story when it relates to retirement is that you need to save as much as you can as early as you can because there is too much uncertainty in the slippery slope of life. Assuming that you have the option to continue working, check with a financial advisor to make sure that you have enough saved for a pleasant retirement.

Please send any questions or comments to info@objectiveplanningllc.com.

Live Your Own Life

People are often surprised at the amount of time that I spend trying to find out about what it is they that want, their likes and dislikes. I hate to say this. I am also a little surprised that I feel I have to say it. There are many people that are living someone else’s life. They are devoting their resources: time, energy, and possessions to items that are not truly important to them. Instead of focusing on what they may list as truly important,  they instead spend time keeping up with the Jones’s… buying a certain type of house, a certain type of car, etc. not because they truly want that, but in order to keep up appearances.

Are our lives truly so dictated by others? Do we find ourselves succumbing to the same peer pressure that we as a society preach against to our children? I run across a number of couples each year who I have to give permission to live their own lives. That if time doing something is important to them, then focus on the things that will allow them to do that without worry rather than building up a bunch of stuff that would please someone else. If you have to buy something to impress your friends, perhaps you should ask yourself if they are really your friends.

I read through this article and realize that many will take a look at this and think to themselves, where is the financial planning here? There are no numbers. There are no investment selections. There are no directions for special tax treatment. There is no protection or estate planning. To those of you who are wondering, I challenge you to contact me, because there are many people who are wasting hundreds of thousands of dollars if not millions living someone else’s life. By first deciding to bark up the right tree, one can save years of heartache.

 

Please send questions and comments to info@objectiveplanningllc.com.

 

Tax Now or Tax Later?

Over the years I have heard discussion on whether one should invest in tax deferred structures where on is taxed now or where one is taxed later.

I would probably be able to give my typical response to this dilemma in one word. Yes.

This response does not seem to answer the question. After all the question is directed at where one should invest one’s money whether it be a pre-taxed arrangement that grows tax-deferred and is taxed on the withdrawals such as a traditional-IRA, 401(k), 403(b), etc. or one should direct one’s money to areas where one pays the tax now, it grows tax deferred, and one is able to pull the money out at a later time tax free such as Roth IRA, Roth 401(k), etc…

Normally one would take a look at a number of variables including what one’s tax rate is now and what one would predict one’s tax rate is going to be in the future in order to determine the different effects associated with whether one should prefer to invest in one or the other. Of course, this presupposes that one is under the income limit so that one can be able to invest in a Roth IRA or has the Roth 401(k) option available to them.

I would have questions in regards to these assumptions in that one may have great difficulty in prognosticating the future and what the future may hold in regards to tax rates… Such questions also assume that one would have saved enough to be affected by the same marginal tax rate in the future. Given the rampant lack of savings throughout this country especially with people nearing retirement, I question how truly important it is to distinguish where one saves as opposed to how much one saves. Save as much as you can in either place, or preferably both places if that option is available to you would be more my inclination.

If you have the option of receiving a match from your employer for your retirement, I would suggest taking advantage of any free money that you can get by contributing to the matching amount accordingly. Secondly, once you have taken advantage of a match, if you are eligible, consider investing in a Roth IRA. After you have taken advantage of both, you may want to contribute the rest that you are able to contribute to your retirement plan. The reason associated with encouraging contributions to a Roth IRA is that this could provide greater flexibility in the future in terms of how one is taxed. It is not because one will necessarily have the best return when one looks at the tax rate ramifications. There are no guarantees. Having one’s money invested in a variety of areas could provide flexibility in the future.

Thus my full explanation of my yes answer. One does not know the future. That being said  savings, free money, and flexibility often seem like positive things to pursue.

Please send your questions and comments to info@objectiveplanningllc.com

 

 

 

 

Savings or Spending?

More often than I would care to admit, I hear people brag about how much they have saved. Often I will hear people say that they saved $50 on their groceries or they saved fifty percent on some purchase. Some people may even talk about saving for a vacation or some luxury item. I will suggest that such saving may not be truly saving at all, but rather spending in different areas. This is not to say that I am not guilty myself of saying I saved money when I felt as if I got a good deal or that I never put aside money for a large purchase.

I would argue that such savings is not really savings, though I may be able to purchase nicer stuff or nicer experiences. All of the above really translate into spending. At the end of the month if you do not have any extra to show for the money you saved while shopping, it really isn’t savings now is it? At least it is not the savings that will matter on a rainy day when you find that you need the money because of an accident or you were laid off of work, etc.

What then would I truly consider to be savings? Money that is not spent for over a year and is not designated for a specific purchase I would qualify as savings. Some of these savings may be invested, while others may be held in cash.

Spending less on items may lead to savings, but only if one has the discipline to actually put aside the amount spent rather than purchase another desired item or experience. It is an important mindset to maintain if one wants to build wealth.

Please send your questions and comments to info@objectiveplanningllc.com

 

 

 

The Danger of Comparison

Let us get something straight. At least as I write this article, I am fat. I am not just overweight… I am technically obese. Am I as fat as other people that I know? No. I know people who are obviously less healthy when it comes to body size, etc. Am I fatter than other people I know? Yes. I definitely know of plenty people who are thinner, more muscular and healthy than myself.

Perhaps some of you are wondering where this is going. After all, this is supposed to be a blog at least in some sort related to financial planning…

The point is this. There is a very great danger in comparing yourself to others and using it as an excuse rather than focusing on what matters… where you should be in relationship to the capacities that you have and your goals.

People often tell me “but so-and-so spends more than I do and they make the same amount of money.” Unless your goal is to be so-and-so and to try to live the exact same life that they do, does that even make sense? Of course it does not.

Focus on your own stuff. Do what you need to do to get to your own goals. In my case with my weight, I need to exercise and watch my calorie intake. There are many ways in which I can exercise and there are many different foods which I may eat and either gain or lose weight respectively. What I may not do is take a look at other people and think that looking at other people is going to help me achieve success. If the ship is sinking… just being on a higher deck of the ship may not prevent me from being in trouble. Likewise, when it comes to peoples’ finances there are many ways to earn money, to invest that money so it will grow and to control spending so that you get the results that you want.

If you are in a situation where you truly do not need to work again because you have enough wealth built up to last you the rest of your life, please let me extend my congratulations. If you have not, then may I suggest that you need to do the things that will get you towards your financial goals instead of comparing yourself to others?

Please send your questions and comments to info@objectiveplanningllc.com

When Time is More Important Than Money

For most people that are affluent, there comes a time in their lives where time is by far a more precious commodity than money. Often they have either reached a point where they are truly wealthy  and will not need to work another day in their lives or they are very close to it.

At this point it is important to ask what it is that you truly enjoy. Is it your work or is it something else? Would you rather be volunteering or puttering around the house? Perhaps you have not quite reached the stage where you cannot decide to quit work entirely, but you could take a drastic cut in salary or income and decide to try consulting, part-time work or a new profession altogether.

But why would time ever become more important than money?

There is an important concept in economics known as the law of diminishing returns. It effectively says that an additional unit of X in general gives less satisfaction than the one before it.

To illustrate, think about the pride you may feel if you saved your first $100,000. Now imagine that you have already saved $1,000,000. Is the next $100,000 really as exciting as the first $100,000? If you are like most people, the answer is probably no. But $100,000 is still $100,000 isn’t it? Yes. But its relative usefulness has gone down.

Given that time is a finite resource (we each have 168 hours in our week), It is easy then to see if you already have all of the money that you need that time to do what one wants becomes more important than the additional money one may accumulate. It is important to recognize however that if one wants to fully get out of the “rat race” one have enough wealth to live the lifestyle one wants to live…

Please send your questions and comments to info@objectiveplanningllc.com