12 Powers: Strength & Money

Oak Tree

photo: MunstiSue

Last year my reverend gave a series of talks on a book he read entitled Twelve Powers in YouThe book describes  physical, spiritual, and emotional aspects of the 12 powers inherent in each of us. Fascinated by these talks, I’ve decided to expand on them through the money perspective that I often see things being a financial planner.

Spiritually, strength is having a strong will or inner voice that guides your actions.

Emotionally (soul), strength is being able to listen to that still small voice and persevere through adversity.

Physically, you would think that strength would be represented by muscles. It’s not. According to the book, the spinal cord and nervous system that send messages to your muscles represent strength.

What does strength have to do with money?

Our money strength is the ability to balance needs and wants. As a financial planner, one way I do this for people is to balance their needs for today with a desire for a better tomorrow.

Autonomic Nervous SystemA comparison drawn in the physical section of the chapter on strength was between the spinal cord and that of a tree. Like a tree with broad reaching branches, the spine has nerves that branch out. But also like a tree, it is the deep roots under the surface that enable the tree to stand and be balanced. Without deep roots, the tree would fall over. Without our nerves branching out from our body, we couldn’t move.

After reading this comparison, it was easy to see what this has to do with money. Many mutual fund companies and investment companies use trees as their logo representing the growth many aspire to with their investments. Most people only notice the beauty of the tree. But it’s the financial habits that we grow up with that form the foundation for our financial growth. If we understand that we must set aside some today in order to experience a better tomorrow, i.e. saving, we can begin to see our finances take root and grow. Little by little we save our 10% or 15% and by the end of our careers, we’ve growth a nice nest egg.

But, just like the energy that flows through our nervous system that have a positive and negative charge, so too can our financial habits be both good and bad. We all have a friend that always seems to have the latest and greatest gadget or gizmo. On the outside, they may look like they’re on the top of the world, but most of the time, they have little or no money saved and will have trouble in retirement.

The key is to balance your strength. For many that involves finding equilibrium between your head and your heart.

I love traveling with my family. Sitting in a nice restaurant enjoying my wife’s company, or seeing the joy spread across my kids faces at Disney, as we experienced last month,warms my heart. But we can’t spend everyday at Disney. We have to work so we can afford Disney, as I tell my son. So our head pulls us back into reality and says we must balance those heartfelt moments with a plan that allows us to experience more heartfelt moments. A plan build on good habits we create.

Did you know that aside from the brain, the heart has the most nerves endings running into it? If you’d like to learn more balancing your head and heart, check out my posts on Faith and Love. What would you say is your Strength power when it comes to money?


By | March 27, 2014 |

12 Powers: Love and Money

20140202_085829Last year my reverend gave a series of talks on a book he read entitled Twelve Powers in YouThe book describes  physical, spiritual, and emotional aspects of the 12 powers inherent in each of us. Fascinated by these talks, I’ve decided to expand on them through the money perspective that I often see things being a financial planner.

Spiritually, love brings life to the world. When we love, we experience life in its fullest. This is evident if you’ve visited anyone near death. The times they’ve felt the most loved are the times they felt the most alive.

Emotionally (soul), when we can live and express from our heart, we open barriers and experience the most growth in our life.

Physically, love is represented by the heart AND the circulatory system. We think of the heart intuitively because it is constantly giving us life, but it’s the circulatory system that moves that  life (blood) around in our body.

Interestingly, if our brain (Faith) didn’t have blood (Love), it would begin to die after only a few minutes.

So what does Love have to do with money?

Love moves our life in certain directions. You might work in a job you don’t like because you want to support your loved ones. Just as your heart pumps blood to your body, you life (love) is a reflection of the circulation of your cash flow, knowingly or unknowingly. If you’ve ever heard a spiritual leader speak of being awake, you can think of it as being aware of your life, or in this case, awaken to your finances or cash flow.

So how do you purify your cash flow and change your  life? Figure out what you’d LOVE to do in life! 

Most people go through life yearning for something better, but never take the time to sit down and spell it out. When you clarify in writing what you’d love to do with your life, you bring love/life to the world. You change that intuitive feeling into something you can mentally and physically grasp. Once that’s born you can start to look at your current cash flow, or where you’re spending your life, and make adjustments.

Some of you might say, I can’t do it. It’s not that simple. That’s where Faith comes in. Without faith, love can’t flourish. Just like without blood, the brain dies. In order to examine your cash flow, I’d suggest reading Organize Your Finances – Cash Flow.


12 Powers: Faith and Money

Rock Garden Stone

“You are Peter and upon this rock I will build.”

Last year my pastor gave a series of talks on a book he’d read entitled Twelve Powers in You. The book describes  physical, spiritual, and emotional aspects of the 12 powers inherent in each of us. Fascinated by these talks, I’ve decided to expand on them through the money perspective that I often see things being a financial planner.

According to Google, faith is complete trust or confidence in someone or something.
Spiritually, faith it is a strong belief in God or good. For others it is a belief in the doctrines of a religion based on spiritual apprehension rather than proof.
Emotionally (soul) we have faith based on our limited experiences. These experiences change our view of the world. Just ask someone recently divorced if they have faith in marriage.
According to the book, faith is physically represented by our brain. What you believe, or have faith in, is often a reflection of your thinking.
So what does faith have to do with money?
For many of us, faith is about being able to say, I’m going to start saving 10% because I know I have to. Rich says I need to. And I don’t want to end up not being able to retire like my parents. Faith is saying, I have no idea where it’s going to come from, but I am going to start saving today. When it comes to finances, that’s having faith. The best part is that in my experience, once you start doing it, once you start saving, you’ll wonder why you haven’t done it all along. The same can be said for faith on many other levels, I’m sure.
Here’s a story of someone we all know. I have a friend that has never saved, always has the best cars, and lives in the biggest house in the neighborhood. Why can’t he save? He doesn’t think he could afford to. One day, his car dies. He needs a new car, so he goes to the dealer and buys a new one. For 6 years he pays off his $40,000 car loan. A loan at 6% with a $663/mo payment. At the end of the 6 years, his car is worth $12,000 and he’s paid (663 x 6yr x 12mo) $47,736.
In other words, for 6 years he’s saved $12,000 and paid $47,736. Does he start saving when the car is paid off? Unfortunately, no. He’s just got out from under his payment, why would he start saving now when he can finally breath? The truth is, the $663/mo is always there, his thinking isn’t.
Somewhere, someone along the way put it in his head (emotion/soul) that he couldn’t save, or that maybe he wasn’t worthy of saving. Yet he also has very strong beliefs that he needs the best cars, maybe to make good impressions. Here’s where faith and money comes in to play. IF he believed that he needed to save $663/mo in order to retire as much as he needs to have transportation, saving would come naturally. 
A good way to approach this article is to look at your money scripts around money. See my article on Financial EmotionAsk yourself, what are your limiting beliefs around money? Change your thinking! We’ll talk more about how to tap into your other powers (think heart) and change your thinking around money in the next blog on 12 Powers.

By | January 30, 2014 |

On Giving

As a verb, give means freely transfer the possession of. It can also mean cause or allow to have. As a noun, give means capacity to bend or alter in shape under pressure. According to Google, give has recently seen an upsurge in usage.[1]

Interestingly, to give can illustrate the give of something. The two are obviously related. For example, if you give breath into a balloon, you’ll see it’s give through the expansion of the balloon. If you give too much breath, it’ll pop. Too little breath and the balloon never takes it full shape.

Life is like that too. What we give is a direct reflection of who we are. I am a advisor,  I am a teacher, I am a husband and father; therefore, I give advise, I give instruction, I give knowledge and love.  

This rings true for our gifts of money too. Often times I hear from clients that they want to leave money to causes that they believe in. Many times these are causes that they’ve already donated time and talent too by serving on boards or committees. This makes sense because we give to that which we believe in. That’s probably why most of the prosperity courses I’ve taken always say tithe to where you are spiritually fed, and give that which you want to receive. You are fueling that which fuels you. For most people, that’s their church. But have you ever given money to someone that you’ve learned a great lesson from? The gratitude shown through their eyes is a heart felt experience that can’t be expressed in words.

The holidays re-mind us about giving, particularly those that celebrate the idea of giving. There’s a reason most of these holidays fall on, or around the winter equinox , when things begin to go dormant for winter.  Winter is a good time to reflect on the gift of life. Having just experienced the passing of my godmother, I appreciate her gifts. Remembering her quiet demeanor and loving gaze will always re-mind me of her.

Recall Winston Churchill:

We make a living by what we get, but we make a life by what we give.


By | December 13, 2013 |

The Journey of $1 Million Dollars Begins with 1%

Shells

photo: jfl1066

Many of us think about adding money to our 401k or 403b and we panic with fear. We tell ourselves that  if I put (any) more away, I might not have enough now! But that’s a pre-conditioned fear we’ve created for ourselves about money.

About a year ago, Jim Blankmenship, who authors the blog www.financialducksinarow.com, challenged his readers and fellow bloggers, to spread the word about the 1% challenge. This year he’s declaring November the 1% month.

Why 1%? My take is that most people can put an additional 1% away and not even feel a difference. If you put 0% away two years ago, and 1% after the first challenge last year, and 1% this year, seeing how easy it is, next year you might put 2% away, then 3% and 5%, or 8% the following year?

The growth you’ll see in your savings as a result of accepting the 1% challenge can be exponential. Physically, your savings may grow faster. Seeing this growth you may think, I can do more. As a result, you change, and maybe inspire others to change. By increasing your savings 1%, you’re taking a step forward from doing nothing. And we all know that the journey of a thousand miles begins with a single step.

Last year I accepted the challenge and increased my savings. It didn’t hurt much at all. As a result, I decided to set up automatic monthly contributions to my family’s ESAs, Roths, and other retirement savings, instead of contributing at tax time. All as a result, I’ve seen steady growth through automatic savings and a favorable market. More importantly, I’m not worried about 1% anymore. Take the challenge today!

Other 1% articles:

The 1 Percent Solution by John Davis, @MentorCapitalMg

Friday Financial Tidbit-What increasing your retirement contributions 1% can do for your retirement account by Jonathan White, @JWFinCoaching

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP


Financial Emotion

cascada

photo: paul bica

Money can be a very emotional topic. Many times when we are young we experience an emotional happening in our family that can have an impact on us for the rest of our lives. In fact, there’s a whole area of financial planning study devoted to it. See How Clients’ Money Scripts Predict Their Financial Behavior in the Journal of Financial Planning. These scripts help identify emotions you have around money.

When I was young, my dad impressed upon me the idea that time was money. He was always working. As the sole breadwinner in a household of five and the owner of his own business, he had a tremendous amount of stress put on him. Because of that stress and his belief system, if things weren’t going right, he worked harder and longer. Recognizing this false belief early on, I’ve been able to shape my life around a different belief system, and to plan so that the money worries he had, weigh a little less on my conscience.

If you do not address these emotions around money, physical symptoms arise. Stress, pain, or even a heart attack or family break-up, can culminate as a result of this pent up emotion around money. One way or another, the universe will get you to listen. It’s best to listen early on to that still small voice inside you that says do something with your financial worries.  One of the ways to address this emotion is by identifying these worries, and doing something about it. Have a plan to address  your worries.

If you’re worried about your kids not getting an education, figure out how much an education costs, and how much you should be saving. If you’re worried about credit card debt, talk to someone about how to get out of it. If you are worried that you’ll never be able to retire, have someone crunch some numbers and offer some solutions. A good financial plan addresses your emotion around money in a simple, logical way that you can understand. It sets your mind at ease, allowing you to make conscious decisions with your money that settle your emotion. It also opens the door for you to dream about things like retirement and travel. When you can connect your head with your heart in a plan, you have the opportunity to live a life with higher purpose. This higher purpose resonates with your being and allows your spirit to soar, less hindered by emotion.

 


Egoless Investing

Investors constantly come to me with financial worries. One of their biggest worry is if they are earning enough return on their money. We’ve all had that experience before. Someone tells you about their investment winner and you’re envious. You think that if only you could get that return too, you wouldn’t have to worry so much about money. But the truth is, the key to not worrying about money has nothing to do with returns and everything to do with our Ego.

Ego is the biggest killer of investments. In my experience, and probable that of most of the investing world, trying to get better returns generally results in worse returns. See my blog on 3 Mistakes Most Investors Make and How To Avoid Them. It’s like trying to hold tightly onto sand. The tighter your grasp, the more seeps through your grip. Unless you are a master of your emotions when it comes to investing, such as Warren Buffet, and can buy when your emotions are screaming to sell, you probably cannot outperform the markets over a long period of time.

When Warren Buffet said “be fearful when others are greedy and greedy when others are fearful” he was demonstrating his knowledge of investments. Actually being able to do this is wisdom. Most people can’t. So how do we cut the ego out of investing?

They key to egoless investing is not to beat the market, but join it using index funds. Index funds remove the worry of beating the market because you are the market. That’s one less thing you have to worry about and one more opportunity to choose to be peaceful.

The added benefit of indexing are low fees. Index funds, such as Vanguard’s, have super low fees making your investing journey towards retirement lighter. Low fees, over time, can lead to better returns. The only challenge is that you have to have patience. It can take years or even decades to see the benefit of low fees. But the benefits far outweigh the cons. You aren’t worried about whether you are beating the market. You are the market. That’s why I am an indexer. It takes the ego out of investing and allows you to focus on things you can control, like how much you’re saving.


Are You Tax Diversified?

Taxes

photo: John-Morgan

At a recent NAPFA conference in Las Vegas, a couple key note speakers said that good financial planning was a key element in retirees having a secure retirement. Obviously they may have been just trying to make all of us advisors feel good about ourselves, but they had some pretty compelling information to support the claim. One of the factors that benefited retirees that used comprehensive financial planners was tax savings. With tax loss harvesting, advanced tax deferral, and other tax strategies, financial planners were able to add value to their clients’ retirement and account values. But many of these strategies aren’t possible unless you are tax diversified.

Tax diversified means that you have money saved in different types of accounts. For example, money in a joint account is taxed at capital gains tax and dividends are taxed at ordinary income. Money invested in a 401k and Traditional IRA account are taxed as ordinary income, while money invested in a Roth IRA isn’t taxed at all.

One of the biggest mistakes I see investors make is putting all their investments in their 401k or 403b because they save money on income taxes now. They don’t have any money outside this account to fall back on in the event of an emergency. When their car breaks down and they have to buy a new one, they have to get a loan. When they have an emergency, they use credit cards. Setting up an automatic monthly investment into a taxable account at a discount brokerage firm like Schwab or TD Ameritrade is easy to do, and important to diversify your tax situation. If you have losses carried over from down markets like 2008, you can use these losses to withdraw money with no capital gains tax due.

For example, I had one client that had losses of over $200,000 in his taxable account. That sounds bad, but it was only abut 28%, similar to what many others lost in 2008. If he needed $40,000 for retirement income one year, he could withdraw it from his taxable account and not have to pay any capital gains tax. This would let his IRA grow.

If you own a Roth IRA, you could even use a different investing strategy. You might consider putting the small cap portion of all your accounts into the Roth, because historically small cap has outperformed other asset classes. This would allow the portion of your investments that should grow the most, get the most tax benefit. Obviously historical performance is not indicative of future performance, and there are no guarantees when investing in the stock market. But this is the sort of planning that one could benefit from if one were tax diversified.

 


Organize Your Finances – Plan

Couple walks on the Morro Strand State Park beach at sunset

photo: mikebaird

After you’ve set your goals, and taken stock of your situation with a cash flow analysis, you can determine the steps necessary to accomplish your goals. You do this by putting yourself in situations that will add to your success. This might be visiting an advisor for financial help, a travel agent for information about a destination, or joining clubs and associations that will teach you what you need to know for your goal. 

Financial planning really only involves 3 steps:

  1. Figure out your goal
  2. Access your current situation
  3. Determine steps to get you where you want to be.

Most people just save and wait until they’re a few years from retirement and then ask me, can I retire? Planning gets you headed in the right direction right from the start. A basic example would look like this:

Goal - Retire in 8 years at 67 on $65,000/yr income
Current Situation – Investments, $500,000
Steps – To Be Determined

You could retire at 67 under this scenario if you had $1 million in investments and social security. In order to do this have to save about $22,000/yr and earn 6%. This would give you a little more than $1 million at 67. Using the general 4% withdrawal rule of thumb, you could expect $40,000 income from $1 million dollars (1,000,000 x 0.04 = $40,000). Social security income of about $25,000/yr, plus $40,000 income from a $1,000,000 investment portfolio should, in theory, give you $65,000 worth of income in retirement.

This is an overly simplistic example. The 4% withdrawal rule of thumb is based on research that suggests a 60/40 stock to bond portfolio, which in theory should give you the $40,000 income over about 30 years. Factors such as inflation, investment returns, and even increased life expectancy can alter your plan. So it’s important to revisit your plan every now and then.

The more factors, the more complicated your plan. When to take social security, IF you have pension income, what your spending habits are, all can change your outcome. But it’s still better to have a plan and change it, than to wait until you’re 66 and ask “can I retire?”

You can find some basic planning software online at Bloomberg, FINRA, SmartMoney, and many others.


The Bucket System Explained!

Here is a video from Morningstar where Harold Evensky of Evensky and Katz explains the Bucket System of investing.

This concept essential visualizes what most advisors do with Asset Allocation. According to Investopedia.com,

An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.

The three main asset classes – equities, fixed-income, and cash and equivalents – have different levels of risk and return, so each will behave differently over time.

The cash and equivalent portion is usually 4% to 8% or 1 or 2 years worth of income and expenses. This takes care of the alternative bucket, or in this case, investment. Where most bucket investors get confused is that you don’t have to have the buckets in different accounts. It just makes it easier to conceptualize. You can actually invest different funds for the buckets in one account. Morningstar does a good job explaining this in some Sample Retirement Portfolios Using the Bucket Approach. The only caveat I would add is that you don’t need to diversify your buckets so much. As someone who subscribes in the KISS philosophy, I believe you could actually use a couple short and intermediate term funds for those buckets. What do you think?