5 Ways You May Be Sabotaging Your Financial Independence

July 02, 2018

Take a moment to think about what you would do if you were financially independent. Would you travel, volunteer, spend more time with family or friends and “treat” them or yourself more often? Is financial independence something you want to achieve and life keeps getting in the way?

This month, take a stand and start choosing the financial lifestyle you want. When the people who founded the United States of America declared the nation’s independence, their biggest interest was in achieving each individual’s freedom to determine his or her own financial destiny. Here are some things you may be doing wrong, and the keys to setting yourself up for financial independence:

NOT writing down your financial goals or action plan. It’s easy to procrastinate your way to financial mediocrity or even financial ruin, but studies show that people who just write down their goals and action plans are significantly more likely to achieve them. You’ll be thanking yourself later. Create a S.M.A.R.T. (Specific, Measurable, Attainable, Relevant, and Timely) goal plan using the S.M.A.R.T. Goals worksheet, and use online calculators to figure out the savings or payment rates you’ll need.
NOT using a spending plan to guide your financial decisions. Look at your transactions over the first six months of the year, and compare them to the plans you made. Can you see where you need to reign some things in, and where you’ve done a good job sticking to your plan? Keep up the good habits, and change the ones that aren’t working now.
NOT paying off debts quickly and wisely. Include a plan to pay off credit cards every month, automate the payment of low interest debt, and eliminate high interest debt.
NOT keeping an emergency fund. Lacking a cushion of funds to pay for the occasional car repair or veterinary bill can repeatedly sabotage the best of financial plans. Use a separate savings account or a Roth IRA, whatever works best for you, to stash some cash that you will not touch unless it’s for an emergency.
Making poor investment choices. Don’t leave your financial dreams to chance! Invest for the long run and not like a day trader (unless you ARE a day trader). Take advantage of the tax benefits offered by retirement accounts to set up a diversified, long range portfolio. Then put money into those accounts consistently and generously to accelerate your achievement.

It’s never too early, or too late, to start matching your financial decisions up to your goal of financial independence. You might even enlist your friends to help you stick to the plan and avoid poor choices that will sabotage your success. Keep with it and soon you will be enjoying your financial freedom.

What Pro Athletes Wish They’d Known Sooner

March 23, 2018

At Financial Finesse, I have had the honor of working with former NFL, NBA, and MLB players through the financial wellness benefits their leagues have established for them. As we work together, these guys have generously confided in me many things that they and their wives wish they’d known during their pro career. Most of us may never be professional athletes, but I’m pleasantly not surprised to note that what they’ve shared really does apply to all of us. Here’s a few things they’ve had to say:

Having money in the bank right now doesn’t make you a successful businessman. I think that anyone who’s ever experienced an unexpected event like a job loss or major illness can relate to this — times may be good now, but they may not always stay that way. If you’re flush with money these days, lucky you! Enjoy, and use that money to secure your financial future as well — get at least 6 months expenses into your emergency fund, pay off any debt, and get some invested for retirement.
I wish I’d started my business while I was playing, not after I left the league. We’ve had some debate about this on the planner team at Financial Finesse, but what I think he means is that before you lose your current stream of income (or give it up), make sure you’re set up to keep things going. Before you quit your 9-to-5 to pursue your dream of starting a business, start learning what your new adventure will entail by learning the vocabulary, shadowing someone else who’s doing it, and immersing in the hard work that goes with the glamour. Try to get a year’s worth of expenses set aside — that will give your business a solid year to get up and running, without you having to worry about turning a profit in order to pay your bills.
Enough is never enough. You’ll never have a paycheck like the one you have right now. Don’t take it for granted! This one is pretty specific to pro athletes and highly paid entertainers, but it’s the truth! Save early and save often.
I bought houses and some family lived in them. I didn’t start charging rent until two years after I’d left the league. You need to have that conversation and take that action before you leave the league. It just gets more awkward, and possibly disastrous, afterward. Lesson for the rest of us: if your income is helping to take care of others and your situation changes, don’t wait to give them a heads up that the change will affect them, too. We talk to so many people who are barely able to make ends meet due to a spouse’s disability or job loss, and yet they are still funding their adult children’s lifestyle. You have to change the agreement when your situation changes.
I failed to run my life like a business while I was playing. I wish I’d done at 25 what I’m doing now. I wish I’d learned to run it like a business. You should always be looking at the numbers to make sure what’s coming in is enough to cover what’s going out, while also accumulating more to invest in the future. That’s the essence of running your life like a business.
There will be awkward conversations, especially with your S.O. [significant other], no matter what happens when you leave the league. Be transparent. This is your time to shine, and she has her time to shine. The successful ones hash that out now. Your life partner can make or break you financially. Do the work to make sure you’re both playing for the same team.
I spent 4 years NOT wanting to call Financial Finesse because I was convinced I could handle things on my own. I’m so glad I finally called. If I’d done it sooner, my life might have been better. There is no weakness in reaching out for help from the resources that are available to you. Whether that’s making use of a financial wellness benefit or calling your EAP for help with something else going on in life, it’s always a smart move.
I should have been more aware of the benefits I would have AFTER I left the league, and more assertive about keeping them. I talked to a former player who missed out on hundreds of thousands of dollars of disability income simply because he moved and didn’t open his mail for two months! Many people I get to know across a variety of industries don’t know what benefits they have right now beyond a 401k and health insurance, and even fewer know that they could take some of those benefits with them when their job or career ends. Investing a little time right now in meeting with HR or researching your benefits internally may make a world of difference to you and your family, financially.

How I Learned To Lend Money To Family & Like It

October 13, 2017

In traditional financial planning circles, lending money to family is considered taboo. However, I must admit, I’ve bent the family finance rules a few times. Please don’t judge. After making some big mistakes (that you don’t have to make because you are wisely reading this blog), it’s actually worked out well for everyone. Here’s what happened.

Lending to family the first time: 3 big mistakes

A close relative of mine who had been living with me in the Rocky Mountains found a job opportunity in Las Vegas that was exactly what she needed to get her foot in the door. All she needed was a reliable car to get there and then to use while living there. Since she had no money, I agreed to sell her one of mine at less than market (because she is family) and we agreed she would make payments to me once she got settled.

Saying good-bye to my Trooper

So, that’s how my perfectly maintained, excellent condition 1992 Isuzu Trooper was soon never to be seen again. Long conclusion short – things hadn’t gone according to plan and my family member didn’t want me to know that the job hadn’t panned out the way she’d hoped. She had sold that awesome SUV for an absurdly low price to raise cash, keep her place, and continue her job search. She couldn’t bear to tell me and kept hoping she’d get a job and be able to start paying me back without my noticing too soon.

When I finally did find out, I felt soooo foolish. Every older person I knew had warned me never to lend to family or friends. I learned some valuable lessons:

Mistake #1 – Not assigning market value. The market is the market when it comes to anything, and if you end up with an asset for whatever reason, you want to make sure you’re not devaluing for no good reason. (even if it is family)

Lesson: Assign a realistic value to things.

Mistake #2 – Not formalizing the agreement. There’s a stereotype about rural folks whether they be from the mountains or the plains: Your handshake is as good as your word. While I’ll admit the stereotype is completely true (it’s still dangerous to go back on a handshake deal), you may be surprised to know that even where it’s recognized as official, it’s just a place holder until something formal is put in place. Without something in writing, the terms of any loan can get fuzzy and someone or everyone gets hurt.

Lesson: Put it in writing. As my father always said, “When you trust each other, neither of you has any problem putting it in writing.” When it comes to family, the formal agreement is arguably even more important than in traditional business. The repercussions are very long, after all.

Agree to sign a Promissory Note with your borrower (you can get a template online for free) and set up a payment schedule in the document. You can always make changes, but this ensures you are both on the same page with expectations (and should the deal go bad, you may even have a tax write-off).

Mistake #3 – Not insisting on insurance of some kind and letting her keep the title (presumably for automobile registration). If the family member doesn’t have the money for the transaction, how do you think they’re going to be able to pay you back if something goes wrong?

Lesson: Keep collateral. I should have held onto the title of the vehicle until my family member paid me back, and I certainly should have obtained a copy of the insurance policy to make sure my collateral could be replaced if something bad happened.

Lending to “family” the second time: a success story

My good friend, David, had been a great employee of mine in corporate America, and I supported him with advice and motivation when he chose to leave and figure out his true career path in music. David was in his late 20’s. He was single, owned a nice little condo, a cool jeep, and an adorable cat.

The time came when he needed to buy a new vehicle and clear his debts in order to keep pursuing his career in music (which was actually going well). It made sense for him to sell his condo — he could rent for less than his mortgage and the debt was limiting his credit. In the meantime, he needed some cash to tide him over — $30k to be exact.

Putting the deal together

He came to me with a formal proposal (in writing), basically saying that if I could lend him the $30k he needed to buy a new vehicle and clear all his other debts right now, then when the condo sold he would reimburse me, with interest. It was big chunk of change, but it all went according to plan because we solved all of the mistakes and he and I became partners in his condo sale.

Assigning value — David and I worked together to sell his condo. We were realistic about the market value and I knew that if the sale didn’t happen and I didn’t get my $30k cash back, the value was still there.

Putting it in writing — We signed a Promissory Note and I recorded a lien on the property at the county in case anything went wrong.

Keeping collateral — What if the condo sale hadn’t gone according to plan? If I had been a banking institution I would have pursued David for the remainder, foreclosed on the property, taken him to collections or court, you know the drill.

Since he is a friend (and adopted family), I instead had to be prepared to walk away with my losses and the condo as collateral. Since I’ve been a landlord since I was 22, I knew I could use the condo either as a sale or a rental to offset the worst-case scenario; and David and I could still look each other in the eye and smile at family gatherings.

The result

I broke even on the deal, and David went on to become my business partner for 12 successful years, and remains my closest, surrogate brother. I’ve since been able to assist family with other needs, including helping my brother open and sell a successful restaurant in Madrid, an experience that we all profited from.

Thanks in part to the things I’ve done right in family and friends lending, I’ve been able to revel in their successes more, and even have a part of ownership in a number of businesses and properties that I never would have considered on my own. The successes are great stories at family gatherings, and with the right pieces in place, the failures are a laugh and a bonding moment.

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Want To Help The Victims Of Harvey, Irma & Maria? Make Sure You’re Not Part Of The Problem

September 28, 2017

I’ll never see a hurricane in Colorado. While there’s a pretty good chance I’ll be near a forest fire at some point, or a crazy blizzard, at the moment it’s hard to watch my fellow Americans in the south endure storm after storm, disaster after disaster. The news out of Puerto Rico devastates me while scenes of pets waiting to be reunited with their people in Houston tug at my heart strings.

That’s the way it is for most of us. While the news makes every disaster look like a world-wide apocalypse right at our front door, the truth is that most of us are safely out of the fray, and our minds naturally turn to how we can help. I look around and say to myself “I’ve got plenty of food, water, clothes, and toys. There must be some way I can get these to folks in need. The news keeps showing me how desperately without these people are.”

We definitely need to help those in need, and satisfy OUR need to help out our fellow people wherever they are in the world. But there are also ways that our well-intended help can actually add to the problem. We all have limited time and dollars, so it’s best to avoid wasting our money.

Here’s a guide on what to send (and not to send) to make an impact.

Medicine

If you’ve got extra, unexpired medicine in its original packaging, and want it to go to people in need, you should send it to Project Cure or Medshare. These aid organizations have a system for evaluating medication and making sure it gets to where it’s most needed. Do NOT send medicine to the disaster area directly, it can waste precious resources. For example, the World Health Organization shares a story about seven truckloads of expired aspirin that arrived in Eritrea as aid that took six months to burn in 1989.

Clothing

If you’ve got clothes you want to donate, it’s actually better to sell them and donate the money instead OR donate them to a local charitable second hand store like Salvation Army, Goodwill, ARC, etc. These organization are designed to do a better job than you and I at getting these goods to people in need. Do NOT send clothes directly to a disaster area. They often end up rotting there if they’re not part of an organized relief effort, and direct clothing and furniture donations are actually known in the industry as the disaster after the disaster. Besides, by donating them through a charitable organization, you’ll have the benefit of the tax deduction.

Blankets

Best to keep your blankets or consider taking them to a local animal shelter. Large scale disaster organizations have more blankets on hand than they know what to do with. After the Japan tsunami of 2011, small donations of blankets from around the world ended up interfering with clean up efforts more than helping. It’s estimated that 60% of direct donations aren’t beneficial to disaster victims.

Food & water

Leave this to the pros! Large disaster relief organizations are able to obtain food and water much more efficiently and effectively than by having you send it to them. It’s a waste of resources to package yours up. Donating money to disaster relief instead will not only obtain these items, but also stimulate the local, decimated economy. That’s where you can help them out the most.

Money

Obviously, this is what works the best, but how do you know your donation is going to someplace legit? Unless you’ve got a substantial, reliable history, always check the group out on Guidestar or Charity Navigator before donating; and always get a receipt or confirmation to be sure your funds got to the right place.

Plus, you can take a tax deduction because your money for this purpose is usually more efficient in the hands of an aid organization than it is in the hands of the government – and the IRS backs that up! Your workplace may also be the very best place to donate to relief for fellow employees or larger disaster relief organizations.

Pet supplies

Pets seem like the lost and forgotten victims in a disaster, but a donation of supplies ends up in the same place as food or clothing donations — mostly trash. Be more effective by donating to the American Humane Society Red Star (like the Red Cross, but for animals).

Your time & expertise

Just showing up at a disaster scene is actually another disaster, no matter how competent you are. Connect with a major disaster relief coordinator (Red Cross, UMCOR, FEMA, etc.) to volunteer your skills before you just hit the road. The pros know best where and when to deploy you so you can do maximum good without getting in the way.

Your generosity, especially in times of need, goes a LONG way to help others. Keep it up! Just don’t expect a thank you note. Think of it more like karma — people will hopefully return the favor when you need help someday.

Is The Financial Tail Wagging Your Retirement Dog?

August 28, 2017

When someone asks you about your retirement plans, is your first thought to check your account balance? That could be holding you back from the life you dream of living in the interim years. Remember that money is there to support your life, not the other way around.

Here are 3 steps to help ensure you’re on track for retirement without letting it rule your life:

1. Forget about the money… for now. Money might limit some of the things we can do today, but it’s still just a tool, not a master. Make sure you’re using it the right way. Since the future is unknown, start by writing down everything you imagine your retirement lifestyle would be if you didn’t have to worry about the money:

Where will you live?
Where will you play?
Will you work or volunteer?
Perhaps a little of both, or neither?
Who will join you?

Consider the things you like to do and you want to continue doing regardless of your finances.

2. Compare the cost of your ideal retirement to the cost of your lifestyle today. To compare whether your ideal lifestyle will be a reality, use an Expense Tracker to help you review expenses over the last three to six months, then place a “plus” sign next to those you think will be higher (in today’s dollars) in retirement, and a “minus” next to those that will be lower.

Will you save money by not commuting to work anymore? Or pay less state and local taxes if you move? Websites like retirementliving.com and AARP.org offer a plethora of resources to help you with these details.

Now add up those pluses and minuses. Generally, more pluses mean your retirement lifestyle will be more expensive than your current one; and more minuses means it will be less expensive.

3. Run a retirement calculator. Once you have a better idea of what your ideal retirement lifestyle will cost, calculate if you’re on track for your goal or if you need to make up for any gaps. The sooner you know where you stand, the sooner you can make necessary adjustments like saving more, working longer, or re-evaluating your retirement ideals.

4. Make saving automatic. Make full use of your 401(k), which makes saving brainless and painless. If your plan offers an auto-escalator tool, enroll in that to have your contributions increased each year without you having to worry about making the change. To supplement your 401(k), set up a direct deposit from each paycheck into a separate savings account. That way you can relax, knowing that you’re accumulating savings, while enjoying the rest of your earnings to live for today.

Your retirement really is whatever you choose to make it. Let your dreams guide your actions, and you have a great chance at turning them into a wonderful reality.