What to Do When Life Happens

Financial Planning for the Unexpected

This week’s Money-Guy podcast was inspired by the simple fact that life happens. Even though we try to plan for everything, we can’t possibly know what life is going to throw at us next.

So how can we financially prepare ourselves for life’s emergencies? How can we work in financial planning for the unexpected?

Brian and Bo are big on planning with an emphasis on being flexible, and they’re providing the steps you can take now to ensure you’re prepared for when life happens and you have to adjust.

How You Can Plan for the Unexpected

Brian has six recommendations on how you can get your finances in order before a major life event happens:

Create Emergency Savings

This is an absolute must — you need cash savings held in a liquid account that can help get you through any unexpected financial disaster. From an expense you weren’t prepared for to a loss of income, your cash reserve can get you through some tough times.

Brian and Bo recommend thinking about how long you might be out of a job to determine how much you need.

Maintain Insurances and an Estate Plan

Having an estate plan is especially important if you have children, as you want to assign guardianship for them. You should also have enough life insurance coverage that your family’s needs are taken care of in the event that you pass.

Avoid Being Life-Poor But Retirement-Rich

You should have some liquidity in the event that something unexpected does happen. While it’s great to fund retirement accounts, you’ll be glad to have extra reserves in a taxable brokerage account for when life gets hectic.

Be Flexible with Your Finances

You need to be flexible enough with your finances that you’re not committing to any one direction. Don’t be on the extreme end of the spectrum.

Know When It’s Okay to Scale Back

While Brian and Bo consider themselves hyper-savers and normally encourage others to save as much as possible, there are times when it makes sense to ease up. It’s more than okay to cut back on saving if your life circumstances necessitate it.

Find the Positives

When an unexpected situation arises, try to find the positive in it. As an example, think of the countless successful entrepreneurs out there that started their companies after being laid off. They decided to turn their unemployment into an opportunity. 

The most important thing when financial planning for the unexpected is to find the ability to pivot and adjust. We all will need to deal with some unfortunate situations and less-than-ideal circumstances throughout our lives. It doesn’t need to be the end of the world if you can prepare as best you can and maintain flexibility in your finances.

5 Investment Mistakes Couples Make

Investment Mistakes Couples Make

Have you talked with your spouse about your investment strategy, or what the purpose is for your investments? Investing can be tricky enough alone, but it’s extremely important to include your other half in investment decisions so that you’re on the same page about how your money is being put to work.

If you haven’t yet discussed investing with your partner, you should read on to be aware of the common investment mistakes couples make so that you can avoid them.

Mistake #1: Only One Spouse Has Contact with a Financial Advisor

It doesn’t matter if one of you is more comfortable with the idea of investing. Both of you should be attending meetings and calls with your financial advisor because you’re in this together. You both have an equal stake in how your portfolio performs.

In the event that something happens to the spouse handling investments, the other will be lost when it comes to picking things back up. Avoid this burden by working as a team.

Mistake #2: Not Being Clear on Common Goals

You should be investing with a goal in mind — whether you’re aiming for early retirement, funding your children’s college expenses, or saving up for a down payment on a house in five years.

Are you and your spouse in agreement on your investment goals? If you haven’t talked about investing beyond “it’s the right thing to do”, then you should. Otherwise, you might face an issue down the road where one spouse wants to withdraw money early from a retirement account for an expense that was never discussed.

Mistake #3: Investing Without Being Informed

Just because your investments might be managed by someone else doesn’t mean you should blindly follow their advice. You should absolutely know what you’re investing in and be a part of the decision process.

Never be afraid to ask your advisor questions. They should be able to answer them honestly, and they should want you to understand the reasons behind their investment decisions.

Mistake #4: Not Taking Advantage of Employer Matching Contributions

Do you and your spouse have a 401(k) retirement plan offered through your employer? Are you contributing enough to receive the amount your employer will match?

If you don’t know the answers or aren’t sure, you need to look into this. You could be leaving free money on the table. You should be able to ask your HR department about the details of your retirement plan.

If you’re not sure what matching contributions are, here’s an example of how they work: If your gross annual salary is $75,000 and your employer matches contributions up to 6%, then that means you have to contribute 6% ($4,500) of your salary for them to match that contribution.

If you only contribute $3,000, then you’re missing out on $1,500 from your employer. Likewise, anything above $4,500 won’t be matched, but you’ll still be funding your retirement.

Mistake #5: Being Unaware of How Your Advisor is Paid

One of the biggest mistakes you can make is hiring an advisor without knowing how they get paid. Are they fee only, do they get paid a commission, or a hybrid of both?

This is important because you want to ensure there’s no conflict of interest when your advisor recommends certain products to you. If they make a commission off of sales, then they might not be looking out for your best interests.

You should also check to see if your advisor is a fiduciary. If they are, then there’s no doubt they’ll be acting in your best interests, as financial fiduciaries are required to do so upon taking an oath.

To avoid these common investment mistakes couples make, remember that investing requires teamwork. Neither of you should be working alone when it comes to financial matters.

If you don’t have confidence in your knowledge of investing, you can always learn from the many resources available to you online. Building wealth through investing will ensure a successful financial future, and it’s not a matter to take a backseat on.

Fiduciaries: What They Are and Why They Matter

Fiduciaries

Have you heard the term “fiduciary” before? It’s may not be a term you use every day, but it’s extremely important to understand when it comes to your financial situation.

If you have a financial advisor managing your assets, you’ll want them acting as your fiduciary. Here’s why.

What Is a Fiduciary?

Fiduciary means “involving trust,” and someone acting as a fiduciary has undertaken the responsibility to provide the highest standard of service for their clients. That means fiduciaries eliminate conflicts of interests and put the needs of their clients above everything else.

Trained, certified, and educated professionals act as fiduciaries for average individuals in a number of fields, including finance. They have highly specialized knowledge that isn’t common across a general population, and as such they can make the right, informed decision about complicated issues where other people may not have the knowledge to do so successfully.

That’s why it’s important your financial advisor acts as your fiduciary. A professional who takes a fiduciary oath swears to act in your best interests at all times. Having a financial advisor act as your fiduciary ensures that your needs are put first.

Why It’s Important that Professionals Work as Fiduciaries

If you’re worried about a financial advisor being motivated to recommend certain products because they make a commission on them, then having a fiduciary can erase that worry. Since they are committed to your financial well-being, they will only recommend products they truly believe will work in your favor.

This also means they won’t try to push you to buy certain financial products that you don’t need or don’t make sense for your situation.

Essentially, your fiduciary will be biased toward helping you. If you ask for their opinion on two different products, they should be able to explain the benefits and drawbacks of each, and then explain their reasoning for picking one over the other in your particular case.

Having this trust also makes it easier to form a relationship with your advisor. If you ever need to consult with them on your financial goals, you can do so without the worry that they’re only out for themselves.

Their number-one goal should always be to build and preserve your wealth to the best of their ability.

Finding a Fiduciary You Can Trust

As you want your relationship with your fiduciary to be based off of trust and respect, it’s important that you find an advisor willing to answer all of your questions. They should be transparent about their practices and the products that they sell (if any).

Do your due diligence in researching advisors, and be aware of the different ways advisors get paid. A fee-only structure further ensures that advisors only get paid what you pay them — they don’t earn commissions off what their clients do.

However, if an advisor is fee-based, then they can charge a flat fee or get paid via commission. Ask your advisor about their fee structure and make sure it’s going to benefit you. There shouldn’t be any hidden fees.

And don’t be afraid to ask an advisor, “Are you a fiduciary?” or “Would you be willing to sign a fiduciary oath before working with me?” If they refuse to act as your fiduciary, it may be in your best interest to look for a different financial professional to have on your side.

Fiduciaries take their oaths extremely seriously and won’t jeopardize your finances for their own gain. Being able to trust your advisor with your assets will go a long way toward giving you peace of mind when it comes to your portfolio.

What to Look for When You Need a Financial Professional

Financial Professional

It’s the first podcast of 2015! Brian and Bo are kicking off the New Year by giving out valuable advice on what to look for in a financial professional — be it a tax preparer, insurance agent, or financial advisor.

These are services nearly everyone uses (or should use!), and it’s important to connect with a financial professional who can actually provide value.

The guys walk you through the important questions to ask each of these individuals in order to make sure they’re in the right position to help you. This episode will also provide you with a better idea of how to vet each one so that you end up a happy client.

What Should You Look for in a Tax Preparer?

Brian tackles this question right off the bat, citing a wonderful article written by Kelly Phillips on Forbes: 11 Questions To Ask When Hiring a Tax Preparer.

Brian goes through a few of these questions and offers his perspective:

  • Knowing your tax preparer’s tax background sounds like a no-brainer, but you want to find out if they specialize in your situation.
  • Your tax preparer should be well aware of the intricacies of the credits and deductions offered by your state and local government. (Make sure your tax preparer will check on these things if you’re hiring one out-of-state.)
  • What do you want to get out of the transaction? Are you looking for just a tax preparer, who will have you in and out of the office within an hour? Or are you looking for someone that will also help you with tax planning for the upcoming year? What you need will help you determine which professional is right for you.

What Should You Look for in an Insurance Agent?

Everyone needs insurance of some kind — there’s no way around that. So how can we make sure we end up with a respectable insurance agent who is only recommending products that will truly benefit us?

Bo and Brian acknowledge that Amica, USAA, and Auto Owners are the three leading property and casualty insurance companies according to Consumer Reports. If you’re not with one of these companies, seek out an agent who will look out for you in the following ways:

  • They set annual reminders to check-in with you to see if you’ve gone through any big life changes recently.
  • They look for holes in your insurance coverage. (You want to make sure your agent is truly looking out for your best interests!)
  • They are well-established and have a history of success, as they will be less likely to recommend products based on commission.

What to Look for in a Financial Advisor

The guys also touch on what characteristics your financial advisor should have, and what questions you can ask them to make sure they’re a good fit for you.

You should always look for someone willing to work with you as your fiduciary. This means they always put your interests ahead of all others, including their own.

Bo and Brian also suggest asking the following before hiring an advisor to help you manage your finances:

  • What type of advisor are they? How do they receive compensation?
  • What is their motivation behind their recommendation? Are there conflicts of interest?
  • What’s the value proposition? (You shouldn’t pay a dime to anyone if you’re not getting value out of it.)
  • What’s their wealth management philosophy?

What to Do If You Need a Financial Professional on Your Side

Always do your due diligence and don’t be afraid to ask questions when looking for a financial pro to help you with various money issues. The right professional will make you feel comfortable and put your needs and interests ahead of anything else.

Could you use help from a financial advisor? You can always reach out to the Money Guys to help get you on the right track — Bo and Brian are currently accepting new clients.

Email brian@money-guy.com or bo@money-guy.com if you’d like the pros behind The Money-Guy Show in your financial corner.