Three Things Millennials Can Teach Us About Money

Posted On March 9, 2015 By Admin In Financial Planning /

As a financial planner, I spend a lot of time thinking about how to approach the different goals of my clients. While each client has a unique set of needs and circumstances, I’ve been studying and observing generational trends with a keen interest. Baby Boomers are approaching retirement, or newly retired, and are redefining what retirement means compared to their parents. Gen Xer’s (born 1965-1979), like myself, are mid-career and working towards myriad goals with cautious self-reliance. And then there are Millennials (born 1980-2000), who are now starting their careers and families and making their own stamp on financial planning.

Each generation has unique ways of doing things, and it’s not simply that today’s 30 year old has the same issues as a 65 year old had 35 years ago. We often hear about the financial challenges facing Millennials: student debt, living at home longer, less decisive about careers, delaying starting a family. There’s no doubt Millennials have been shaped by two recessions, a war, a housing bubble and collapse, and a difficult job market for entry level employees. But, there’s more than enough articles detailing those concerns. I want acknowledge three of the things they are doing right, because there are plenty of Millennials who have high expectations and are well on their way to becoming wealthy.

1) Millennials participate in their investing. Growing up with Google, cell phones, and the Internet, Millennials are going to gather information, confirm details, and find out what their friends and colleagues are doing. Comfortable with technology, they favor paperless banking and are more organized than previous generations, keeping track of their finances using online tools, mobile apps, and programs like Mint or Quicken. We can have meetings by video conference or webinar, and there will be no difference between having an advisor who is one mile away or a thousand miles away. Technology is here to stay, and is really only getting started as far as its impact on the planning process.

Millennials are more personally involved in their finances, seeking to be partners with advisors, rather than delegators. The more Millennials read about the rationale behind using index funds, the more indexing makes sense. They want to find an investment solution that works and are not as competitive about wanting to “beat the market”. Even when they use index funds, they want a plan which is customized just for them and their goals, and not a cookie-cutter plan. In that regards, they are actually more likely to value financial planning than Gen X.

2) Millennials are more frugal and less materialistic. They recognize that buying things you can’t afford with a credit card is a mistake. And while they want the financial freedom to express themselves as a unique individual, they are less interested in trying to impress others with a display of wealth. They understand that having more “things” doesn’t make you happier. Overall, Millennials are making good decisions as consumers and would likely have less debt than previous generations, if it weren’t for the dramatic rise in student loan debt in recent years.

3) Millennials recognize when renting is a better fit for their lifestyle than owning a home. They saw the effects of the housing crisis and likely know people who went through foreclosure and lost their homes. Unlike previous generations, they no longer consider home ownership as the definition of adulthood or as a sure-fire investment. Baby Boomers typically bought a house as soon as they could, upsized when possible, and used their home equity to fund their lifestyles. Millennials want community and convenience and are less willing to tolerate a long commute to the suburbs to afford the largest home possible.

For Millennials who are career driven, renting offers the flexibility to move anywhere in the country as their career dictates. This change reflects the new reality of today’s job market: employees aren’t going to have a career with just one or two companies. They need to move to where the jobs are located.

Millennials outnumber Gen X nearly 2 to 1, so they will have a significant impact on the development of our economy, business, and even the future delivery of financial planning. I don’t view the generational differences as right or wrong, or better or worse. Each is a product of their environment. What I am interested in is understanding each investor fully so that our plan can be as thorough and complete as possible in helping each achieve their goals. That’s my commitment to you and why I built Good Life Wealth Management: to provide the flexibility and resources to enable investors of any age to create and execute a plan that works.

And for those of use who are a little more experienced, keep an open mind – it’s never too late to learn a few new tricks from the younger generation!

4 Strategies to Reduce the Medicare Surtax

Posted On February 23, 2015 By Admin In Financial Planning /

It’s tax season and we’re always on the lookout for ways to save on taxes for our clients. 2014 was the second year under the new Medicare surtax system, but there are still questions as to what the tax is and how to reduce its impact.

The Medicare surtax has two parts and is levied on earnings above $200,000, if single, or $250,000, if married filing jointly. The first part is a 0.9% tax on earned income (wages) that exceeds the thresholds above. Second, there is a 3.8% tax on net investment income above the threshold. Net investment income includes dividends, interest, capital gains, royalties, rental income, and other passive income. (It does not include Social Security, pension payments, or withdrawals from retirement accounts.)

Employers will withhold the additional 0.9% if your individual pay exceeds the threshold. However, employers don’t know a couple’s joint income, so in a situation where both spouses make $150,000 there would not be any additional payroll withholding, even though their joint income of $300,000 will trigger the surtax. In that situation, you may need to direct your HR department to withhold an additional amount for taxes or make quarterly estimated payments directly to the IRS.

With the top tax bracket back up to 39.6%, the surtaxes create a top marginal rate of 40.5% on earned income and 43.4% on investment income. With such high tax rates, it pays to make sure we turn over every stone in search of any possible way to reduce these taxes.

Below are four strategies which can lower your exposure to the new Medicare surtaxes. If you can reduce your taxable income to below the threshold amount, the surtaxes can be avoided altogether.

1) Maximize your 401(k) or employer sponsored retirement plan. Your pre-tax contributions will lower your taxable income. While that’s pretty obvious, we still find that many families are not contributing every dollar they’re eligible to invest. For example, make sure you are taking advantage of catch-up contributions in the year you turn age 50. For couples, make sure both spouses are making the full contribution amount to their retirement plan.

Deductions for Traditional IRAs are generally not available if you are subject to a Medicare surtax, unless both spouses are not covered by an employer-sponsored retirement plan. However, if you have self-employment income, you can contribute to a SEP-IRA for your self-employment, in addition to making contributions to a 401(k) at your regular job. And if you’re self-employed and have a high income, you may be a candidate for a Defined Benefit plan, which can offer a higher contribution limit than a Defined Contribution plan like a 401(k).

2) Health Savings Account (HSA). If you select an HSA-eligible high deductible health insurance plan, you can contribute to a pre-tax Health Savings Account. For 2015, the HSA contribution limits are $3,350 for a single participant, or $6,650 for a family plan. Holders age 55 or above can contribute an additional $1,000.

3) Choose Municipal Bonds. Interest from tax-free municipal bonds is not subject to the Medicare surtax. While their interest rates are lower than some other types of bonds, their tax-effective rate is attractive for taxpayers in higher tax brackets. Here at Good Life Wealth Management, we can help you select a municipal bond mutual fund, exchange traded fund (ETF), closed end fund, or even buy individual muni bonds directly for your account.

4) Employ a Tax-Efficient Portfolio approach. There are four ways we can reduce taxes from a portfolio. First, we can use low-turnover funds (such as index funds or ETFs) which do not distribute capital gains. Second, we can be judicious about buying and selling positions and creating unnecessary capital gains. Third, we can harvest losses annually to offset any gains. Lastly, we can use asset location to place income generating investments into a qualified account, such as an IRA, where the income will not create a taxable event. Tax-efficiency is not an afterthought for us, it’s a cornerstone of our investment process.

None of these methods are going to eliminate the Medicare surtaxes for everyone, but they can certainly help reduce your tax bill. It’s not too early to put these in place for 2015, so don’t wait until next January to take action if you might be subject to the Medicare surtaxes this year.

How to Become a Millionaire in 10 Years

Posted On January 26, 2015 By Admin In Behavioral Finance, Financial Planning / 2 Comments

Answer: save $5,466 a month and earn 8%.

I thought about ending the article there, because that’s all you actually need to do. Investing is simple, but it isn’t easy. No one likes the answer above, even though it really is that simple. When confronted with a difficult task, our brains are wired to look for an easier way, a shortcut. Many investors waste a vast amount of time and energy trying to improve their return by timing the market, buying last year’s hot fund, or day-trading stocks.

Unfortunately, these attempts at finding a shortcut don’t work. It’s like someone who wants to run a marathon but not train for it. There isn’t a shortcut, you just have to do the right things, stick to the training schedule, and put in the miles. You have to earn it. Yet there are entire magazines, TV networks, and firms who make their living from telling people that the shortcut is to trade frequently, and that beating the market is the sure path to prosperity.

The truth that no one wants to hear is that investors would be more successful in achieving their financial goals if they instead focused on how much they save. Let’s step back and consider what we actually can control when it comes to our investment portfolios:

how much we save and invest
our asset allocation and diversification
investment expenses
tax efficiency, which can reduce (although not eliminate) taxes

We cannot control what the market will do this month or year, so ultimately we have to accept the ups and downs of each market cycle. We have many studies which consistently show that the majority of active fund managers under perform their benchmarks over time. We also have compelling evidence that the average investor significantly lags the indices due to poor decisions and fund selection.

Few people are able to save $5,500 a month. It’s not easy, but that is the way to get to $1,000,000 in 10 years. For a family making $200,000 a year, this would require you to save one-third ($66,000) of your pre-tax income. Again, not easy, but possible. After all, there are many families who are able to “get by” on $134,000 (or much less), so it is certainly possible for a family with an income of $200,000 to save $66,000. While there are many families in Dallas who make this amount or more, saving is viewed by some negatively, as a sacrifice, rather than with pride and recognition that it is the key to accomplishing your financial goals.

If you did the math, saving $5,500 a month, or $66,000 a year for 10 years is asking you to save $660,000 over 10 years. So even at an 8% return, the market performance is not the main source of your accumulation. Your saving is the main driver of your accumulation.

However, in the next decade, after you have achieved your first million, things become much more interesting. Compounding is your new best friend. At $1 million, an 8% return means you’re up $80,000, and you’re now making more from the portfolio than you contribute annually. Continue to invest $5,466 a month for another 10 years at 8%, and you’re looking at a portfolio with over $3.2 million.

And that’s why I get very excited talking about saving with high-income professionals. If you can commit to that aggressive level of saving, your success will be inevitable. Is an assumed 8% return realistic? No one knows for 2015, but I think 8% is likely to be attainable for 10 years and almost a certainty over 20 years. 8% isn’t going to happen every year, but historically, it is possible to average that rate of return over time. In the long-run, the returns can take care of themselves when you stick with a sensible, diversified approach. The factor which needs more attention, and which you can control, is your savings rate.

Should You Invest in Real Estate?

Posted On January 19, 2015 By Admin In Financial Planning /

Almost everyone has wondered at sometime: should we invest in real estate? Perhaps it sounds appealing compared to the intangibility and lack of control in the stock market. However, for 90% of the people I meet, I think the answer is a definite no. I’m going to tell you why, and for the 10% of you who might still want to invest in real estate, I’m going to tell you how.

First, let’s get this on the table. Most financial advisors make their living from recommending or managing stocks and bonds, so yes, we have a conflict of interest. Unlike many advisors though, I have some first hand knowledge of real estate. Growing up, my parents purchased, managed, and sold 10 apartments, which in retrospect, was no small feat on teachers’ salaries. The proceeds from selling one property (which contained four apartments) comprised their entire contribution to my college education. It didn’t cover everything (the rest came from student loans, work study, and graduate assistantships), but I know that real estate investing does work and can be a wealth generator. I’m not fundamentally opposed to the idea of real estate investing for the right person who does it wisely.

During my childhood, we spent many weekends mowing lawns, doing maintenance, and interviewing prospective tenants. We cleaned, painted, did plumbing work, and whatever else was needed. The first thing that any potential investor needs to understand is that real estate is not a passive investment; it is a business which makes demands on your time, resources, and patience. Being a landlord is not about bricks and mortar, it’s a people business. Your job is to find, manage, and retain good tenants. Inevitably, you will still encounter the Tenant from Hell who doesn’t pay the rent, steals, vandalizes, and then moves out in the middle of the night owing you thousands. It can be frustrating, time consuming, and at times incredibly stressful.

You’ll never get a call in the middle of the night from your mutual fund because the hot water heater blew up. So trying to compare a real estate business to a passive investment program is apples and oranges. Don’t expect real estate to be easy, regardless of what “reality” program you saw on HGTV. For most people, you are already stretched too thin juggling your career, family, and other interests to want to tackle being a direct investor in real estate. It can detract from your quality of life, and there’s no guarantee of success.

As a stock investor, you can own the whole market with an index ETF and be very diversified. You can buy the same stocks as Warren Buffet, if you want, and get the same return. A person with $10,000 in a fund will receive the same return as someone with $10 million. Fund investing is liquid, requires no effort, and is very democratic, if you will. Real estate, on the other hand, is completely idiosyncratic. Every deal is different. Your neighbor might do well, and you could do poorly. A house in one city might appreciate significantly, but might depreciate in another city. Thinking that you have control over real estate, because it is a tangible item, is an illusion. Buying a house in 2005 could have created a substantial loss, while buying the same house in 2010 may have created a large gain. You have no control over the underlying economic factors which drive real estate prices, just like we have no control over the factors which drive stocks and bonds.

In the last downturn, I know several smart, hard-working people who went into personal bankruptcy because of their real estate investing. It can be risky. If you still want to own real estate, I suggest having it be only a portion of your portfolio, and keep your retirement accounts invested in stocks and bonds. Here are seven tips to keep your investment safe:

1) Get rich slow. Forget about flipping houses. Buy residential properties to rent and plan to hold them for years or decades. Make sure you are investing and not speculating. Buy a house that has good ratio of rent compared to its costs. A $100,000 house that generates $1000 a month in rent is obviously better than a $200,000 house that rents for $1600. The property is an investment, and not for your personal taste, so it does not have to be a luxury home. Wealthy people are not your target tenants. Look for clean, well-maintained properties with access to good schools.

2) Focus on building equity. Use your tenant’s money to pay down the mortgage – that’s how you create wealth in real estate. Get a short note (15 or 20 years) rather than a long mortgage, an interest-only loan, or balloon. Each year, your equity in the property will increase and the amount of interest you pay will decrease. Eventually, you can sell the house for a large gain, or you will pay off the note and then you can bank the rent each month. Don’t make it your goal to have high cash flow from the property for your own income. Invest that cash flow into the equity. And whatever you do, don’t quit your job thinking you will live off your real estate investing – that’s often a disastrous idea. Inflation (rising home prices) should be the icing on the cake; your primary objective is to build equity by paying down debt.

3) Do it yourself. Profit margins are razor thin in real estate. After you pay property taxes, insurance, the mortgage, and maintenance, there is almost nothing leftover. If you plan to hire a handyman every time you need to change a light bulb, you can easily slip into a negative cash flow situation. You have to save money where ever you can, so be prepared to be hands-on. No one will care more about your property than you. Don’t be a long-distance landlord; aim to buy properties within a 10-mile radius of your home. If the idea of sweat equity is a turn-off, real estate is probably not for you.

4) Use leverage wisely. If you have $100,000 to invest in real estate, you could pay cash for one $100,000 house. Or, you could make $20,000 down payments on five houses. Owning five houses will give you better diversification and a much better long-term return because of the leverage. It really is smarter to use the bank’s money for real estate, especially with today’s low interest rates.

5) Keep a strong cash reserve. You will have unexpected expenses, and they can be large. Real estate investors must have a sizable cash position and cannot be living from month to month. Budget for maintenance and vacancy. Will you be okay if you have to spend $10,000 on a new roof or HVAC system? Can you survive if the property is vacant two or four months a year? Know the occupancy rates and market rent rates in your area.

6) Be super organized. Everything needs to be in writing, including applications and lease agreements. Check references for prospective tenants. Keep all receipts and work with a good accountant to track your deductions, depreciation, cost basis, and other tax benefits. This is a business, not a hobby. Treat it seriously.

7) Appreciate your good tenants. They make your life easy, take care of your property, and keep your account in the black. Do nice things for your good tenants and make them want to stay. Their money is building your wealth.

As for me, I spent enough time with apartments to know I’d rather stick with stocks and bonds. It’s a better fit for my schedule and I know myself well enough to know that my efforts are better directed elsewhere. And over the previous 30 years, the nominal return of residential real estate was 4.38% versus 11.09% for large cap stocks. When we include taxes, inflation, and expenses, single family homes returned only 0.80% over those 30 years, compared to 5.97% for large cap stocks. So real estate is often not the home run that people believe it will be.

If you’re thinking about real estate investing, let’s get together and discuss what it entails before you get started.

How Some Investors Saved 50% More

Posted On November 18, 2014 By Admin In Financial Planning /

While some people view risk as synonymous with opportunity, the majority of us don’t enjoy the roller coaster ride of investing. Our natural proclivity for risk-avoidance can, unfortunately, become a deterrent in deciding how much we save. Without having specific goals, investors often default to a relatively low contribution rate to retirement accounts and other investment vehicles. They commit only how much they feel comfortable investing, rather than looking at how much they actually need to be saving in order to fund their retirement or other financial goals.

In the November issue of the Journal of Financial Planning, Professors Michael Finke and Terrence Martin published a study of 7616 people born between 1957 and 1965, looking at whether working with a financial planner produced improved outcomes for accumulated retirement wealth. Here are their conclusions:

Results indicate consistent evidence that a retirement planning strategy and the use of a financial planner can have a sizeable impact on retirement savings. Those who had calculated retirement needs and used a financial planner… generated more than 50% greater savings than those who estimated retirement needs on their own without a planner.

When I read the executive summary of their article, I wondered if perhaps the results reflected that higher income people were simply more likely to use a financial planner. However, the authors took this into consideration. They controlled for differences in household characteristics such as income, education, and home ownership… Even after controlling for socioeconomic status, households that used a financial planner and calculated retirement needs had significantly higher retirement wealth accumulation across all quantiles relative to households with no plan.

Interestingly, the authors noted that this result of 50% higher wealth was not due to investment performance. When they looked at individuals who used a financial advisor who was not doing a comprehensive plan (such as a stock broker), they noted that using a planner without estimating retirement needs had little impact on accumulation compared to having no retirement strategy at all.

And that’s why we put planning first at Good Life Wealth Management. Goals dictate actions. Only when we have a clear picture of what you want to accomplish will we will know if you are on track or behind schedule. We’re more willing to save when we are working towards a finish line, as opposed to worrying about what the market is going to do next. If you’re looking for a comprehensive advisor to bring clarity to your goals and to carry out your game plan, I hope you’ll give me a call.

5 Ways to Save Money When Adopting a Pet

Posted On November 11, 2014 By Admin In Financial Planning / 1 Comment

Americans love their pets, and although they repay every penny with their love and devotion, the amount we spend on our pets can be astronomical. I’ve been a volunteer in animal rescue since 1997 and here are my top five suggestions for ways to save money if you’re looking to add a four-legged companion to your family.

1) Adopt Don’t Shop. Puppies in a pet store or from a breeder can cost hundreds or thousands of dollars. Adopting from a shelter may cost a fraction of this amount, and often, a shelter pet has already been vaccinated, wormed, and neutered, saving you $300 to $500 in initial vet bills. Additionally, adopting a shelter pet saves a life, as currently, approximately 4 million unwanted pets are euthanized each year in the US. Take your time and make sure the dog or cat will be a good fit for your household – many pets are returned or wind up in shelters when people underestimate how much time and effort it will take to train a puppy to become a well-behaved adult dog.

2) Crate Train. Although cute, puppies love to chew and can be quite destructive when left unsupervised. They are naturally attracted to shoes, furniture, and other expensive items in your home. Besides being costly to replace these items, it can also be dangerous for dogs to ingest these items. There have been many expensive vet visits from dogs who got sick from eating something in their home that should have been off-limits. Save yourself this headache and expense by buying a crate to keep your dog from causing trouble when you’re not home. This has the additional benefit of helping with house training, which will save your carpets! Over time, dogs really do start to like their crates. My dog goes into his crate immediately when we get ready to leave the house – it’s his safe place. Read up on crate training. The $50-100 you spend on a crate may save you hundreds or thousands in preventable destructive behavior.

3) Ask Friends for a Veterinarian Recommendation. The price of vaccines, neutering, or heartworm treatment can vary significantly from vet to vet. Ask friends for a recommendation for a low-cost vet. Some clinics offer one or two days a month that they provide discounts on vaccines. Ask your shelter if they know of any free or low-cost vaccination or neutering clinics in your city. Still, make sure to develop a relationship with one veterinarian who knows your dog or cat, to monitor changes in your pet’s health over time and make sure you stay up to date with any needed care.

4) Consider a Mixed Breed Dog. A lot of people want a specific kind of dog, but unfortunately, many breeds have a higher likelihood of developing certain health issues. For example, some breeds are prone to hip dysplasia, cancer, or ear infections. These can be expensive to treat and often result in a shorter life expectancy for the animal. Mixed breed dogs tend to be healthier, live longer, and have fewer of these genetic predispositions for certain ailments. If you do want a specific breed, you can still probably find one through a local shelter or rescue group.

5) Buy Smart. A 15 pound bag of my dog food costs $35, but a 30 pound bag only costs $45. Buy the larger bags and use an airtight storage container. Buy a high quality food and skip the expensive treats, such as rawhides, that have limited nutritional value and can upset a sensitive stomach. Keep up with heartworm preventative and flea/tick medicine. Although it is one of the largest ongoing costs, these preventative medicines are much less expensive than treatment, should your pet become sick. And here in Texas, even indoor dogs have a very high likelihood of developing heartworms without prevention.

If you are looking for a pet, let me know and I will look for a good fit for you at Operation Kindness. We also have fosters in our home several times a year, if you are interested in a puppy.

Community Property and Marriage

Posted On October 14, 2014 By Admin In Financial Planning /

In Community Property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI), assets acquired during marriage are considered to be jointly owned regardless of how the account or asset is titled. Separate property includes assets which pre-date the marriage as well as inheritances and gifts received during the marriage. In the case of a divorce, community property is split equitably while separate property will remain with its original owner.

Assets are considered to be community property unless you can provide clear and convincing evidence that they are separate. You may have heard that you only need to keep your financial records for six years, as that is the length of time that the IRS can go back for an audit (unless you submitted a false or fraudulent return, in which case there is no statute of limitations). However, for the purpose of proving separate property, you have to keep documentation permanently.

It is important to also understand that income from separate property is considered community income in Texas. If funds are commingled, contributions added, or dividends reinvested, you may inadvertently cause separate property to become characterized as community property.

When a couple is getting married, it is important for both spouses to understand their individual separate property rights and to take steps to ensure that their assets maintain their separate property character. We suggest having all income, such as interest and dividends, swept from the separate account automatically when received and deposited into a joint account. Capital gains from mutual funds can be reinvested, and of course, you can sell one position and use the proceeds to purchase another another one in the account.

In Texas, we have an “inception of title” rule which means that any asset acquired before marriage is separate, even if debt for the asset is discharged with community income. For example, a home purchased before one day before the wedding will forever be a separate asset, even if the mortgage is paid during the marriage. The same applies for a business entity – if created before the marriage, it will be separate property, and if created during the marriage, it’s a community asset, regardless of debt or title of ownership. Debt can be a part of community property, so any debt acquired by one spouse during marriage may be considered to be a joint debt.

Separate Property can sometimes be an issue for first marriages, however, most first marriages are with young couples who have little or no assets. It’s a more common concern for couples getting married (or re-married) in their 40’s, 50’s, or later who may have substantial separate property and who often have children from a previous relationship. These issues could be addressed by a pre-nuptial agreement, and if you do decide to have a pre or post-nuptial agreement, both spouses should have separate counsel. The nine states which do have community property laws, all have slightly different rules, so be sure to use an attorney and advisor who are familiar with your state’s laws.

If you’re getting married or remarried, your financial advisor should be having these conversations with you well in advance of the marriage and be taking steps to ensure your separate property rights will be maintained.

Bringing Financial Planning to All

Posted On October 7, 2014 By Admin In Financial Planning /

In my first position as a financial advisor, I worked at a “Broker Dealer”, where we charged commissions on the sale of products. As an educator in my previous career, the sales aspect of the job was challenging and at odds with my belief that good financial planning encompasses much more than just which funds or securities to buy. Any investor in a transactional account is bound wonder from time to time if a trade is being suggested to improve their portfolio, or because the broker needs to make a sale.

In order to focus on a more holistic approach, in 2012, I joined a Registered Investment Advisor (RIA), a firm which did not charge commissions on the sale of investments, but charged a management fee based on the assets under management. I think this is a much better solution for both investors and advisors. It’s completely transparent and the client pays for on-going service, rather than upfront commissions. This eliminates feeling like you have to stay on guard to make sure a broker is not placing unnecessary trades to make more revenue for their firm. A fee-based account places investors and advisors on the same side: if the portfolio goes up in value, the advisor will make more, and if the portfolio declines, so will the advisor’s compensation.

While the RIA approach has many advantages over the commission platform, as a business model, it is difficult to spend a great deal of time on a client with limited assets as the revenue is low and it might take years to justify the initial time and costs. As a result, most RIA firms have minimum account sizes, often $1 million or more; at my previous firm, we did not take any clients under this level. It was a good business model for the firm, and it gave me the chance to focus extensively on investment research, developing portfolio models, and implementing trades across $375 million in client assets.

However, I found it frustrating to have to turn away friends and family who wanted to use my services. I believe in the American dream of financial independence. I want to help others achieve those dreams and not limit my efforts to solely helping those who have already accomplished their financial goals.

That’s why we created a two-part structure at Good Life Wealth Management – to have the ability to help clients of all sizes and ages. Here’s how it works:

Families with over $250,000 in investable assets will participate in our comprehensive Good Life Wealth Management Program. This includes creating a financial plan and customized management of your assets in a tax-efficient investment portfolio. The fee is 1% annually, (charged quarterly). This approach provides established investors with an ongoing financial plan that addresses your unique needs and changes as your situation requires.

For families below $250,000, we offer our innovative Wealth Builder Program. We create the financial plan you need today, with a focus on improving both sides of your net worth statement: your assets and your liabilities. We invest your accounts using no-transaction fee funds or ETFs, and will advise how to allocate your other accounts such as 401(k)s. Rather than charging as a percentage of your accounts, the Wealth Builder Program costs just $200 a month, which can be paid by credit card or debited directly from your accounts.

Using a monthly retainer is a relatively new approach in the RIA business, but I think is the crucial next step we need to bring the benefits of financial planning to the 90% of Americans currently not being served by the “$1 million and up” firms.

For more information on this approach, check out this article in October’s Think Advisor magazine, which quotes myself and other advisors who are leading and advocating for this change in the industry. Here’s the link:

http://www.thinkadvisor.com/2014/09/29/experimenting-with-new-compensation-models

5 Techniques for Goal Achievement

Posted On September 22, 2014 By Admin In Financial Planning /

Goal Setting is a key step to the financial planning process, and helping clients achieve goals is the value I provide. Everyone would like to be wealthy, but that is not a goal. To me, it only becomes a goal when we can state a clear, tangible objective. So, if you’d like to retire, we’d calculate how to make that happen and develop a specific goal like “accumulate $2.1 million dollars by 2026.” That long-term goal gives us a timeline and dictates what we need to do each year and month to make your goal a reality. We can observe if you are on track and make adjustments as needed in the years ahead. The key step though is translating an ambiguous desire into a goal which is measurable.

Below are 5 Techniques For Goal Achievement, starting with high-level and moving to detail-oriented. The key is finding not the tool which you like the most, but the tool which helps you address the area where you are most likely to fall down or become distracted or disillusioned with your goal. If you need motivation and confidence, focus on the the high-level tools; if you need help with implementing goals, focus on the daily tools. And while I’m writing about financial goals specifically, these concepts could be applied to any goal you want to achieve.

1) Visualize your goal with a daily reminder and affirmation.

For the retirement goal above, write a check to yourself for $2.1 million, with a date of January 1, 2026. Put the check someplace you will see it everyday. Over time, our goals will naturally start to shape our behavior. Daily repetition helps internalize the goal and we come to see it as inevitable, rejecting any fear or self-doubt.

2) Chart your goal road map.

Why do you need a road map? Imagine you wanted to drive from Dallas to New York. You could just start driving and figure you’ll get there eventually through trial and error. But most people prefer to know where they are going and to choose the most direct route. This makes perfect sense for a long drive, but most people haven’t taken the same step of putting together a plan of how to accomplish other long-term goals relating to their finances, career, or health. Sometimes our destination is not on the road we are on today and we have to know when it’s time to change direction. This is the difference between hoping we accomplish our goals versus knowing what we need to do today and tomorrow to get to a destination that may be years away.

3) Keep a daily goal journal.

Often times, to reach our goals, it requires that we upgrade our daily habits. This can apply to financial behavior, but also to improving your diet, exercise, or your performance at work. Making a change is challenging because our habits become ingrained and second nature to us. It’s helpful to be able to see ourselves and our behavior from an objective, outside point of view. The best way I’ve found to increase our self-awareness is through keeping a daily journal. The journal becomes a mirror to see ourselves better. Write down what you do each day relating to your goal, your progress or set-backs, and how you felt about the day’s activity. This focuses your attention on today which is the only day that you can really control. A journal motivates you to do what you need to do and feel good about your progress. Sometimes, simply knowing that you have to write down your day’s activities will keep you on track and prevent you from old behaviors which you want to change.

4) Focus on accomplishing the essential with the 90% rule.

Imagine a pyramid of goals, with long-term at the top, supported by intermediate goals, and short-term goals at the base. Start each day with a short to-do list of what is essential to complete today to advance your goals. It’s easy to get bogged down in putting out fires and responding to issues, rather than following your own agenda. For a perfectionist, it’s difficult to leave a task, email, or project, until it is 100% complete to the best of your abilities. The reality is that there is not enough time to be a perfectionist about everything and it is a better use of time to focus on touching everything that is on your essential to-do list. The 90% rule is asking yourself if each task truly requires 100% perfection or if it just needs a 90% summary. Do you really need to write a 10-page essay with footnotes, or will a 2-page overview accomplish the desired outcome? It may take 2 hours for a “100% job”, but only 45 minutes for a “90% job”. Some tasks do require 100%, but recognizing the difference allows you to spend more time on the essentials that will get you closer to accomplishing goals.

5) Stop procrastinating by using a timer.

Oftentimes, a task seems so monumental that we don’t even know where to begin. Or it’s something we don’t enjoy doing, so we put it off for as long as possible. We become so concerned about how long it will take to finish that we never even begin. Take the pressure off yourself! Instead of worrying about finishing the task, just pick an amount of time you can spend right now: 15 minutes, 30 minutes, whatever. Set a timer and let yourself to focus exclusively on that one item, with no checking email or other interruptions, until the timer rings. You can do anything for 15 minutes. You’ll surprise yourself how often you can complete a dreaded task in 15 minutes, or get 90% of it done. This tool takes advantage of the fact that we have a limited amount of concentration (often only 15-30 minutes) on any subject. Our use of electronic media today can often hinder our focus. Consider setting specific times each day to check email, Facebook, etc., to avoid having your schedule hijacked by distractions.

Machiavelli and Happiness in an Age of Materialism

Posted On September 1, 2014 By Admin In Financial Planning /

Hence it is to be remarked that, in seizing a state, the usurper ought to examine closely into all those injuries which it is necessary for him to inflict, and to do them all at one stroke so as not to have to repeat them daily; and thus by not unsettling men he will be able to reassure them, and win them to himself by benefits. He who does otherwise, either from timidity or evil advice, is always compelled to keep the knife in his hand; neither can he rely on his subjects, nor can they attach themselves to him, owing to their continued and repeated wrongs. For injuries ought to be done all at one time, so that, being tasted less, they offend less; benefits ought to be given little by little, so that the flavour of them may last longer.

– Niccolo Machiavelli, The Prince (1505)

Machiavelli’s political treatise, The Prince, remains an interesting, at times brutish, study of human nature 500 years after being written. If you’ll grant me some liberty in interpretation, his advice to experience pain quickly and reward slowly applies nicely to today’s field of behavioral finance.

The Hedonic Treadmill is a psychological premise that people require constant effort to maintain satisfaction, or “happiness”, if you will. A related concept is Habituation, which is that we tend to have a baseline state of happiness, and that when events move us above or below that level, we gradually become used to the new situation and revert back to our previous levels of satisfaction. Both principles suggest that to increase and maintain happiness, we have to work at it continually.

Consumer spending is important to our economy, but at the household level, we’re spending more and more money to realize a middle class lifestyle. Economists look at things like the change in the price of a gallon of milk as inflation, but it might also be relevant to consider how living has changed for the typical family. In 1973, the average new house size was 1,660 square feet, compared to 2,679 square feet last year. Over the same time, the average household size has shrunk from 3.01 persons to 2.54. Today, we have many more bills – cell phone, internet, satellite TV – than existed 40 years ago. These are all great improvements over previous technology, but the cost of a middle class lifestyle has likely grown well in excess of the reported inflation rates in the CPI. But are we happier for the increased spending?

We experience a brief increase in happiness from buying new items, but habituation has two effects: (1) the enjoyment we get from a new item quickly wears off, and (2) once we do become accustomed to the “bigger and better” item, we are generally unwilling to replace it with a lower cost option. Once we have a smart phone, there’s no going back to a regular phone. After living in a 3,000 square foot house, a 2,000 square foot house feels too small. If you’ve owned a luxury car, you won’t want to drive a simpler car. Will a Kia get you to work as effectively as a Mercedes? Yes, of course, but that’s not the reason we buy an expensive car. We decide what we want and then we rationalize why we have to have it.

I chose the name Good Life Wealth Management, because I view money as a tool to help us enjoy life. Not in the materialistic sense of fancy cars or fine wine, but in the holistic pursuit of finding meaning and balance. The Good Life, then, is not achieved by the acquisition of items, but by enjoying a state of financial independence and using those resources to live fully. It’s my job to help investors find that freedom and I love my job. It’s the last thing I think about at night and the first thing I think about in the morning.

I share the following six principles to define what we stand for. This is how we can seek happiness and financial security in an age of materialism. If these make sense to you, then I think our financial planning approach and sense of purpose will resonate strongly with your goals.

Spend money on experiences rather than things. I went on a hot air balloon ride this summer. If I considered the cost for a one-hour flight, it was perhaps expensive. However, I have since spent many hours thinking about that wonderful experience and enjoying my photographs of that day. I’ll always have those memories.
As Machiavelli suggests, take pain quickly and rewards slowly. If you decide to make spending cuts to be able to save more, make the cuts deep and immediate. If you want to save an additional $1,000 a month, you’re not going to get there by giving up a daily coffee. And you’re setting yourself up for continual frustration because you will have to make that sacrifice every day going forward. By making many small changes, it will feel like a death by 1000 cuts. Instead, have the courage to make a big move like downsizing or finding a different job. Once you adjust to the new change, it will be fine and it is not going to impact your happiness in the long-run. (To see an extreme example of a human’s ability to adapt, two friends recently completed a Buy Nothing Year, with interesting reflections on their experience.) Take your rewards slowly to enjoy them. Feed your Hedonic Treadmill gradually.
Saving is not self-denial. Some people view saving and investing from a negative view – they only do it out of fear. Fear of falling behind, fear of not having enough, fear of dying broke. No one wants to experience any of those unpleasant things, but fear will only motivate you to save so much. And you’ll resent the saving because you’re doing it because you have to and not because you want to. Saving can be its own reward. Make it fun and a game to see how much you can save. If you want to be financially independent, take the steps that will get you there as soon as possible. Do it for yourself – the more you save, the faster you achieve your next goal. Be laser-focused, driven, and determined when you have a goal. Saving is a virtuous cycle when it becomes an ingrained habit.
Money doesn’t define us and our value is not a number. If I did lose everything, I know I could make it all back. And I’d make it back even faster because I wouldn’t make all the mistakes I did the first time around! That doesn’t mean it’s okay to be reckless with investing, only that money is not the most important thing in life. And once you have money-making knowledge and skills, you realize that wealth is abundantly available for those willing to save and invest.
Our concept of frugality was framed by our parents or grandparents who lived through the Great Depression in the 1930’s. They learned to be self-reliant and strong, but for some, those tough times created permanent fear and mistrust. (Can you feel fulfilled and happy if you bury cash in coffee cans in your back yard because you think banks will lose your money?) The new frugality is about simplicity, optimism, and making the decision to place financial independence ahead of consumerism. It’s a positive choice and not a negative reaction based on hoarding, fear of loss, or mistrust of the system. Used properly, frugality is having the maturity to make decisions today that will be smart 10 years from now. It’s a recognition that “more stuff” does not create lasting happiness.
Tis better to give than receive. Donate, volunteer, make a difference. Happiness comes from a sense of purpose and living to the best of your abilities. Daniel Kahneman found that higher income increased happiness, but only up to about $75,000. Above that level, individual differences prevailed. Money does not create happiness, but we do know what is the most common cause for unhappiness: loneliness. Connect with people. Use your money to visit friends, take someone to lunch, or travel and make new friends.

Is your money helping you move closer towards financial independence or is the rising tide of middle class materialism keeping those goals a distant dream? If you’re not sure where to begin, give me a call and let’s get to work on your financial plan.