The Best 5 Minute Financial Advice

Life is full of things to worry about, and a surveys show that two-thirds of people are more afraid of running out of money in retirement than they are of actually dying.  That may seem surprising, but it can be a real possibility – and therefore a very legitimate fear – if you haven’t planned properly.  Now, we assume you’ve done some planning.  If not, well, that’s the first place to start.  You need to put together a retirement plan;  don’t leave this to chance.  But assuming you have a plan, the trick is to make sure you’ve done it properly.  This episode covers ten preventative steps to help you avoid running out of money in retirement.

Parents and students all across the country continue to wonder how they are going to pay for college. Over the last thirty years, the cost of college has risen astronomically. Since 1987 we have had over a 500% increase in the cost of college tuition. In that same time frame, college tuition has risen at a rate 2.5x that of home prices, over 3x that of medium income, and 4x that of general inflation. Because of this, we often have parents who come to us wondering how they are going to afford the rising cost of college tuition. Luckily, there are numerous tools and loans available to help pay for college. Here is our suggested order of operations for how to pay for college.

Can you DIY your personal finances? By now, most of us are familiar with the term DIY or “do-it-yourself”.  The idea behind DIY is essentially that anyone can figure out how to do something by spending a few hours on YouTube or on the internet. We make our own home improvements, fill out our own taxes, and make our own car repairs.

• But what about the more complex situations?
• What if your home needed a serious paint job?
• What if your car needed to have its’ tires replaced?

There are some situations in which we could DIY our own projects, but the key difference comes down to the time and process involved in doing so. The same goes for your financial life and planning your financial future. You can certainly do it yourself or, you can consult a certified financial professional. The outcomes may be similar but again, it comes down to the time and process involved.

In this BenchTalk, we are going to help you decide whether you can DIY your finances or if you would be better served speaking with a financial professional.

How A Financial Planner Can Help

One thing we do know for sure is that money is a necessity in our lives. Money helps us pay for where we live and put food on our table. For some, money is the end all be all and means everything to them. Others view money only as a means to accomplish other goals. It’s a wide spectrum and wherever you happen to fall on that spectrum one thing’s for sure, it’s incredibly important to plan your finances and be responsible for your money. This is where a financial planner can be invaluable. Financial planners help the client understand their situation, establish goals for the short-term and long-term, and develop and implement a plan to make sure they arrive where they need to be financially. Sure, you can DIY your finances by following the same basic formula. However, for most, it all boils down to three key components: time, ability, and desire.

How to DIY Your Finances: Time, Ability & Desire

These three things are absolutely necessary to DIY your financial future. If you have the time, the ability, and desire to DIY your finances then you are on the right track. But if you are lacking in even one of these areas, it might be time to consult a financial advisor. If you decide that you might need a financial advisor’s help, we encourage you to reach out. As always, we provide 100% independent and objective financial planning.

Can A Financial Advisor Help You?

Can a financial advisor help you in a meaningful way? The short answer is yes but, we do in fact have the data to back it up. In today’s Bench Talk, we’re going to discuss how a financial advisor can help you in a meaningful way.

Let’s start with a quick example. Most of us reading this have probably tried to do our own plumbing or electrical work at some point in time. When you finished, hopefully, the lights turned on and the sink worked as intended. But did it work as well as it should have? Probably not, and in fact, you may have even ended up blowing a circuit or ended up with a leaky sink. So, would you have been better off using the services of a professional? Probably so, and the same is true in the financial realm.

Working with a financial advisor can help you in a meaningful way. In fact, there are a couple of different areas where this really stands out.

Customizing an Investment Plan

A financial advisor specializes in reconciling your assets, liabilities, and cash-flow into a plan that fits your specific needs and goals. Knowing when to put money in and where to invest it is crucial in building your investment plan. Without the help of a financial advisor, data shows us that the majority of people’s portfolios would not perform as well as they should. Similar to electrical or plumbing work, we aren’t experts and our results will probably be significantly less than that of a professional.

Minimizing Risks and Taxes

Both risk and taxes can be detrimental to your investment portfolio’s health. A financial advisor can help you mitigate risk by diversifying your assets into different portfolio mixes with lower risk. We can also pick tax-deductible investment vessels to ensure that your money stretches as far as it can when saving for your retirement.

Using Dynamic Withdrawal Strategies

A financial advisor can help you give thought to the best place and time to make withdrawals in retirement. This can be crucial when protecting you from taxes. It can also be especially important when it comes to providing an objective opinion in times of potential market downturns.

Properly Managing Liabilities

Not all liabilities are bad, and not all liabilities are good. Knowing which ones to maintain and which ones to pay off can save you and your family a significant amount of time and money.

We live in a technology and media-driven culture. We are bombarded with information every day and not all of it is accurate. Knowing how to filter through the noise and determine what to do and when to do it is where a financial advisor can really help.

The Data We Promised

Vanguard Study

Vanguard did a study of their “Advisor Alpha” which is an extensive piece of research on how advisors can add benefit to their clients. The study is extensive and too long to cite here but in summary, they concluded that working with a financial advisor represented a real improvement of 3% per year. Justin Wagner from Vanguard uses a great example that is worth sharing:

“Suppose the overall market return is 8%. Without good financial decision making, the combined impact of fees, taxes, and poor investment decisions is around 4%. This leaves a net return of 4% to the investor. However, for someone working with a capable advisor, they eliminate poor investment decisions, minimize taxes, and only pay the 1% fee, leaving a net return of 7%. That is the Advisor Alpha. The value added by good advice can greatly exceed the fees.” 

This quote by Justin Wagner is using a hypothetical example to describe the “advisor alpha”, or in short, the benefit that an advisor can add through their expertise that exceeds the total amount of their fee structure. A 3% improvement may not sound like a lot but keep in mind over a 22-year span that represents a doubling of added value.

Morningstar Study

Another study done by Morningstar reviewed the value of good decision making. They had a slightly different approach to their research and ended up estimating the return was about 1.8% to 2% per year.

Used Financial Advisor vs. Did Not Use Financial Advisor

The last study we will include was a long-term study done on K-12 teachers. In this study, they studied those who used a financial advisor and those who did not. The study concluded that those who worked with a financial advisor had double the retirement assets over the teachers who did not.

Working with a financial advisor represents a real and significant improvement over what you might be able to do yourself. If you think there may be room for improvement in your financial life, we would love to talk with you.

What is investing? We all hear about the great investors like Warren Buffett, Jack Bogle, and Benjamin Graham. Hollywood portrays these investors and the likes as shrewd investors who outsmarted the market. Investing can oftentimes seem like a difficult or foreign task when you hear these stories, but it doesn’t have to be. Here is the investment checklist that we look at before deciding if someone is ready to start investing. Read more at - https://firstfinancial.is/investment-checklist-step-one-got-cash-flow/. 

Investment Checklist 1: Cashflow

How much money do you make each month and how much are you spending? When we talk about investing, we are talking about putting money away for the long run. For this reason, it is crucial that we make sure that you have all of your current obligations met and that you don’t need to dip in and out of the money. The goal is to make sure that you have a positive cash flow each month.

Investment Checklist 2: Evaluate Your Personal Financial Situation

Evaluating a financial situation will differ from person to person but the metrics we look at stay the same. What do you own? What is it worth? Do you have any liabilities? Credit card debt? These are just some of the metrics we use to determine where your money can best be used. Investing is important, but it is crucial to make sure that all other financial duties are met before investing.

Investment Checklist 3: Solid Foundation

Before jumping into the investment world, it is crucial that your financial foundation is sound. Emergency funds are an important part of this. Your rule of thumb typically is to have 3 to 6 months worth of expenses covered. Insurance is also important. Do you have the proper life insurance and health insurance in place? We want to make sure that a catastrophic event does not derail your financial plan.

If you can check all three of these boxes, you are ready to become an investor. At this point, it is important to have a game plan with goals, benchmarks, and a disciplined approach.

1. Cash Flow
2. Personal Financial Situation
3. Solid Foundation

The great Yogi Berra once said, “If you don’t know where you’re going, you will end up in a different place.” When planning for retirement, Yogi’s words are spot on. Today, instead of lecturing you on retirement we thought it would be easier to ask two main questions.

1. Are you saving enough for retirement today?
2. How much is enough?

Its important to know what you need to be earning on your retirement assets in the next 20, 30, or 40 years to ensure that you can retire comfortably and meet your goals. Navigating risk is important in retirement as well. What funds you will invest in. What insurance or long-term health care will you need and have when you reach retirement. What about taxes? What are you doing today to minimize your taxes in the future? These are all very important factors we all need to consider when planning for retirement.

A good retirement plan provides a roadmap that ensures you know where you are going, and that you will arrive at your destination safely.

Did you know that there are over 45 million people in the United States that carry student loan debt? And….as of right now, you just watched me make my last payment, and I am no longer one of them. Here’s how I paid off $50k in student loan debt.

When I graduated from undergrad less than four years ago, I had 12 different loans with a principal balance of 42k. Upon entering the workforce, I wasn’t making much money, so I chose a graduated re-payment plan with low payments. I saw that I wasn’t making much progress, and I couldn’t stand the thought of making these payments for the next 10-30 years, so I decided to make a plan.

The Plan

The four key steps to this plan were:

1. Creating a Budget
2. Automating my Payments
3. Creating a Repayment Strategy
4. Monitoring my Progress and Staying Focused

The budget wasn’t too bad, I had just gotten out of college and was used to living on very little. But by actually putting my expenses on paper and tracking those opened my eyes to some areas where I could be doing better.

Automating Payments was important because it ensured that I never defaulted, and it forced me to contribute every month.

For my Repayment Strategy, I actually kept the low monthly required payments so that I could choose where to allocate my additional money. (Image of Repayment Plan) By attacking the smaller loans first, it helped me realize the progress I was making and build momentum towards my goal.

This is where monitoring my progress and staying focused came into play. After the first year, I had made solid progress paying off two of my highest interest loans, but I wasn’t moving quickly enough. I added a second job and took any additional side work that I could find.

Now here I am, having just made my last payment on $50k in student loan debt in less time than it took me to accumulate that debt. Ridding yourself of your student loans is attainable. It didn’t take an inheritance, a government bailout, and I certainly wasn’t making a 6 figure salary; just a plan and some hard work.

One of my favorite movie quotes is from a film called Miracle. If you’ve seen that movie, you know it’s about the 1980 U.S. Men’s Olympic Hockey Team, a team that was comprised of a bunch of college-age boys who were given no chance as they entered Lake Placid, NY in the Olympics. They ended up stunning the world by taking gold.

The scene that’s my favorite scene is the night when the U.S. is getting ready to play the Soviets. The U.S. coach, Herb Brooks, who’s played by Kurt Russell, gives what I consider the greatest pre-game speech. He says this, “Great moments are born from great opportunity. And that’s what you have here tonight, boys. That’s what you’ve earned here tonight. One game. If we played them 10 times, they’d probably win nine. But not this game. Not tonight. Tonight, we skate with them. Tonight, we stay with them because we can, and we shut them down. Tonight, we are the greatest hockey team in the world.”

He goes on, but as I’ve seen that clip probably about 50 times I am always impressed with the influence that a great coach can have on their teams. In my opinion, great coaches know their players. They know their weaknesses, they know their strengths. Great coaches know how to cast vision, and great coaches get their players to accomplish things that maybe they never even dreamt of.

I find there are a lot of similarities when it comes to coaching as there are when it comes to financial advising. Those same traits, I believe great financial advisors know their clients, and they know their clients by how they ask questions. And maybe more importantly how they listen to those answers. Great financial advisors know how to cast vision. They know how to come alongside their clients and help them accomplish their dreams and goals.

So, in this brief Bench Talk, I want to leave you with three questions to ponder. As it pertains to your financial plan, number one, what’s your vision? Two, what are your dreams? And thirdly, have you shared that with anyone? I’m absolutely convinced, whether it’s in the athletic arena or the financial planning arena, a great coach can make all the difference.

It’s important to assess the health of your estate plan. More often than not, people do not adequately prepare for estate planning and retirement. In order to make it easier, we compiled together 10 simple yes or no questions to help you assess your estate plan.

1. Does your family have a mission statement?
2. Can your heirs participate in decisions?
3. Do all your heirs have an option to participate in the management of the family assets?
4. Do all the heirs understand and want to fill that particular role?
5. Have your kids actually reviewed the estate plan?
6. Are you distributing your assets based on age or readiness?
7. Are you creating opportunities and incentives for your heirs?
8. Do the younger children participating in the family’s philanthropic decisions?
9. Does your family consider family unity to be as important as financial success?
10. Does your family communicate well and meet regularly to discuss major changes?

If you answered yes to 7 or more, you are doing great. If you answered yes to 4 – 6 of these, you are well on your way, but there are some holes that you need to review. And lastly, if you answered yes to 3 of less of these questions, that makes you normal. Most people don’t transition assets from one generation to the other successfully. Wherever you happen to be in this journey remember, completing the journey successfully means assessing first where you are and where you are starting from.

For today’s episode, I’m going to be talking about beer and financial plans. I know what you’re thinking, those two things don’t go together. But, the similarities may surprise you. As an avid home brewer I’ve spent countless hours trying to perfect different recipes. However, the process as a whole is actually quite simple and requires only four ingredients. You have water, grain, hops and yeast. From those we can produce hundreds of different beer styles with different colors, smells and flavors.

When creating a financial plan you only have a few main ingredients as well. Everyone has assets, income, and living expenses but everyone’s financial picture looks quite different. Just like with beer only a few ingredients can create many different outcomes. It is the craft of the brewer or the financial planner to then take those different ingredients and mold them into something special.

When it does comes time for your financial plan you’ll be glad to know that someone has thoroughly reviewed your financial ingredients and custom brewed a plan for financial success.

This episode is all about understanding your 401(k) plan. At its core, a 401(k) is a type of retirement savings plan that companies will offer to their employees to help save for retirement. The general consensus and what most of us have been told is that you should contribute to a 401(k). This is true for many of us, but a lot of people follow this advice blindly and don’t ask the right questions when it comes to their 401(k) plan. The goal of this BenchTalk is to provide you with a few tools that can help you maximize your 401(k) and ensure that you are saving as efficiently as possible for retirement.

Employer 401(k) Contributions

In a typical 401(k) plan, your employer will contribute to your account on your behalf. These employer contributions mainly appear in two forms:

Outright Contributions

With this method, a company will contribute to an employee’s 401(k) as a straight percentage of the employee’s paycheck.  For example, the company might contribute 3% of your income into your account, regardless of any contributions you might make. If your employer does this, it will help you tremendously.

Employer Matching

This is the more common method of employer contributions that we see. With employer matching, an employer will match your 401(k) contributions dollar for dollar up to a given amount. For example, if you contributed 3% of your paycheck to your 401(k) your employer would match this and also contribute 3%.  It is basically free money going into your account. If your employer offers a 401(k) plan with employer matching, you need to make sure that you are maxing out the matching contributions every month.

Employee 401(k) Contributions

Employee contributions are the contributions that you specifically make into your 401(k). These contributions are typically contributed as pretax dollars. This means that the money you contribute to your 401(k) today is not taxed. However when you withdrawal that contribution in retirement, you will be fully taxed at whatever your tax rate is in retirement.

The Roth 401(k)

On the flip slide, many companies are turning towards a tax-deferred retirement vessel called a Roth 401(k). A Roth 401(k) allows you to contribute to your retirement on a tax-deferred basis. This means that you are taxed on any contributions you make into your 401(k) at your current tax rate. When you want to withdraw money out of your Roth 401(k) in retirement, any withdrawals you make are 100% tax-free. All the earnings your 401(k) made throughout the years are also tax-free. The Roth 401(k) allows you to maximize the earnings in your account while also providing you with better tax flexibility. If you are familiar with a Roth IRA account, the Roth 401(k) is almost identical.

Understanding Your 401(k) Fees & Investment Options

401(k)s are known for having a lot of fees. A huge part of understanding your 401(k) is being aware of these fees and how they might affect you. There are two main categories of fees in a 401(k).

Management Fees

In short, these are the administrative fees that you pay for being a part of the 401(k) plan. If you are lucky, some companies will absorb these fees for you but oftentimes, these fees are passed along to you, the participant. You should check your 401(k) policy to see how much, if anything, you are paying in management fees.

Investment Fees

Investment fees are arguably the most important fees in a 401(k) because you can control them. In a 401(k), your employer will typically have picked a number of mutual funds that you can invest in. Each mutual fund has its own investment fees associated with investing in the fund. These fees can be really low or really high depending on the mutual fund that you choose to invest in. Our advice is to look at each mutual fund you are currently invested in or plan to invest in to minimize your investment fees. If you are paying more than 0.05%, you might want to reconsider investing in that fund. Of course, there is more decision making that needs to go into this, but generally, this is a good place to start.

Understanding Your 401(k) and Your Retirement

So whether it’s understanding the different types of contributions or how the fees and investment options work, you should have a better understanding of how your 401(k) works. In order to maximize your 401(k) and save as efficiently as possible for retirement, it all begins with analyzing your 401(k) plan. Some people are better at this than others, and we understand that. If you think you might need help, your HR department should be able to answer some of the questions you might have. If they can’t answer all of the questions you have, or even if you want to review the entirety of your retirement plan while you’re at it, feel free to reach out. We are always here to help.

One of the biggest concerns couples have is how to talk about their finances. When it comes to money and finances, this question almost always hits the top five list.

So, how should couples talk about finances? Well first, it’s important to ask these three questions: What? How? and When?

First, you need to determine what you are specifically going to talk about when it comes to your finances. Start by asking questions like what are you goals together?  What are your dreams?  What are your concerns?  Questions like these are crucial for you and your spouse to get on the same page.

Next, it’s important to ask how. How will you talk about your finances? The environment in which you talk about your finances needs to be open, safe, and honest.

Lastly, you need to ask when.  When should you talk about your finances. You need to set up a consistent time for you to discuss your finances together. Whether it be weekly, monthly, or even quarterly, you need to set apart specific time to talk about your finances.

Finances are not easy to talk about, but they are a crucial part to any relationship. You can’t stick your head in the sand and hope they will somehow sort themselves out. Learn how to effectively talk about your finances.

How To Become A Millionaire

Do you want to be a millionaire? Of course, that’s a silly question because most people would answer yes. When we think of millionaires, we think of people with big mansions, fast cars, and elegant clothes and jewelry. We also tend to have an image in our heads of how they became millionaires. If you Google “how to become a millionaire,” you will see numerous results for how millionaires acquired their wealth. According to Google, here’s how people think millionaires acquired their wealth:

1. They Inherited their money
2. They got Lucky in the stock market
3. They are a brilliant high-tech Genius
4. They have a fancy Ivy League Education
5. They have a high paying Job
6. They are Dishonest and stole their way to the top

However, the reality of the situation is entirely different. Most are rarely flashy. In fact, people that look like they are rich are often times over spenders and have tremendous debt. Our preconceived notions of how the rich look and behave are entirely different from how most millionaires actually live their lives.

How Did Millionaires Get to Where They Are Today?

So how did millionaires get to where they are today? Well thanks to a guy named Chris Hogan and his team, we now have a pretty good understanding. Chris and his team interviewed 10,000 millionaires and in doing so, they debunked most of these myths.

• Inheritance? It turns out, 80% of millionaires today didn’t receive a dime from their parents.
• Luck? Roughly 75% of the interviewed millionaires said that nothing extraordinary happened in their life.
• Fancy Education? 60% of millionaires attended public schools and a lot of them didn’t even graduate.
• High-paying Job? Yes, some earned a decent living. However, roughly 33% never earned a six-figure income.
• Dishonesty? If we look at police statistics, the vast majority of all millionaires have never even been accused of committing fraud or a crime.

In their research, Chris and his team were able to identify three real ways on how to become a millionaire. Our own experiences at First Financial also closely mirror these three things. The top three ways people become millionaires are through their hard work, discipline, and attitude towards money. That’s it.

You Are In Control

All these things are in your control and we’d be happy to help. Surveys show that over 60-80% of millionaires use a financial advisor. The reason? It’s actually a lot easier to influence all of these financial factors by allowing a financial advisor to help. Creating a financial plan with an advisor not only allows the advisor’s expertise to impact your finances, but it also keeps you accountable for your goals and work laid out ahead. If you think this might benefit you, give us a call. Our first consultation is always free and we’d love to see how we can help you achieve your goals.

Value of Fee-Only Advice

After being in the business for a while now, I have found that most people really don’t know what we do. Of course, our clients know, because they see it on an on-going basis, but does the general public really know the value that we add?

Let’s take a step back…

Most of us are familiar with the traditional relationship with a stockbroker. He/she would call you about some “hot new stock” or tell you to “buy this!” or “sell that!”. That is NOT what where the business is today and it certainly is not what First Financial stands for.

First Financial has committed to giving 100% fee-only objective advice. Which means we don’t push any product, we are never selling clients anything, we simply receive an agreed upon fee for the advice that we give.

There are thousands of firms out there that do this very same thing and have committed to upholding the highest of standards when it comes to giving financial advice. Which leaves us with a question. How in the world do we differentiate ourselves? The answer is this.

Yes, we can help you decide if you can buy that new house, figure out when you can retire, or manage your investment assets, but we believe that a relationship with a financial advisor is so much more than that. Every single fee-only firm should be doing the exact same thing. What separates us is our ability to let our personalities shine through.

Clients should genuinely enjoy being around us. The enjoyment of each other’s company first leads to a greater sense of trust and then ultimately to a highly successful relationship. In our opinion, trust and comfortability are the two most important things. We could give the BEST objective advice possible, but if you don’t feel comfortable with us, why in the world would you listen or better yet, why would you act on that advice.

Here at First Financial Consulting, we aren’t trying to push you to do anything that isn’t right for you. We truly want what’s best for you. That’s why we’re so adamant about building incredibly strong relationships with our clients that will result in long-lasting and successful relationships. You deserve an advisor who will walk through life with you. That’s what we do with our clients, and we would love to do that with you, too.

You Need a Solid Financial Plan

Here’s a quick recap of the importance of having a solid financial plan.

Some of you will remember the football player Brandon Williams who was drafted in 2006 by the San Francisco 49ers. In his early career Brandon’s Uncle, who was a die-hard fan, would send him a 49ers jersey every year – unaware that Williams could get them for free.

Playing in the NFL is often the pinnacle of the football career field. It means you’re good, very good, at the game you love to play. Brandon is no exception. He worked hard on and off the field and mastered the sport is passionate about. However, in a later interview Brandon admitted that despite his success on the field, he was not successful in financial affairs. Much like many Americans today, Brandon was never taught how to handle his finances. Within four years, Brandon left the NFL.

Brandon’s situation is not unique. Regardless of your career, the odds are that most people will not adequately prepare for their financial success or financial setbacks. Most don’t even have a solid financial plan to guide them. Here are some real-life numbers to use as an example:

• 78% of former NFL players are bankrupt or in financial trouble
• 62% of college graduates have an average of $28,000 in student debt
• 38% of American adults do NOT have retirement savings
• 60% of adults do NOT have a budget
• 78% of adults say they need more help

Financial ruin can even affect successful people. Many times, it occurs in the form of a financial setback that we cannot predict. However, we should prepare for. Take the example of the surgeon. Widely successful in the field of medicine making $400,000 a year. However, the same surgeon would spend $410,000 each year.

A Solid Financial Plan Requires That You…

• Have an understanding of where you are
• Have a good sense of where you want to go
• Awareness that you have to plan for the known and unknown
• Willingness to balance competing goals

Financial Planners can be a great tool in helping people overcome their financial burdens and plan for their financial future. We know, we’ve done it a thousand times. Get an outside, objective perspective from a financial advisor to gain the best view of your financial situation. We can even help you build you own solid financial plan.