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Monthly Archives: January 2017

You’ll Spend Money and Time, For a Successful Financial Plan

On the surface, the cost of a financial plan is simple: generally between $2,000 and $4,000, depending on its complexity and where you live.

But dig deeper and you’ll find that the plan’s success also depends on you spending time to implement it.

Consider the case of a young physician who recently came to my office inquiring about a financial plan. His primary issues were cash flow with tax considerations, debt service and investment advice. I suggested he would also need an insurance review and estate planning, since he had none. At the conclusion of our getting-acquainted meeting, my colleagues and I quoted a fee for the financial plan and what it would include. He decided to work with us.

Next we had a goal-setting meeting and collected his pertinent financial documents such as his tax return, investment statements, debt statements and more. We provided risk-tolerance questions and discussed his short- and long-term goals in greater detail. Then there was an interim meeting where we reviewed his goals — to be sure we prioritized them correctly — his risk-tolerance results and his investment analysis.

A couple of weeks later, we had a plan-delivery meeting, where we reviewed the recommendations in all the areas of his financial plan. He took the binder home to review and start implementing the plan.

He returned in a month for a progress meeting. He had made some headway on our list of recommendations, but not as much as I had hoped for. At the conclusion of that meeting he told me: “You were very clear as to what the plan would cost me in dollars. What I did not know was the time it would take me to collect the information on which the plan is based, to meet with you, to read and study your recommendations and then to finally implement them.”

He was correct: It costs both time and money to enact a financial plan that will really help you. Eight months later, I received an email from the doctor, letting me know he’d completed all the recommendations. In the end he said the total cost, in terms of dollars and time, was well worth it.

Beware of additional costs

Keep in mind that with some financial service providers, there could be huge additional costs in the form of fees or commissions. This could also be a conflict of interest if your advisor recommends products that pay him more, rather than the ones that are best for you. So be sure you know exactly what fees are involved when you start working with an advisor.

While my recommendations in the doctor’s plan included specific changes to his insurance and investment holdings, I did not sell him any of the coverage plans that I recommended, nor did I sell him the investment products he needed. That’s because I am a fee-only advisor. I want my clients to know that I have no vested interest in the implementation of the insurance or investment part of the plan.

This is not the case for advisors who provide both a plan for a fee and then sell you the investments or insurance products as well. All too often, the insurance recommendations made by those who sell the products, too, include more and larger policies than what I would recommend. It is a sad fact that the commission may be driving the plan recommendations, rather than what is best for the client.

When you are looking for a financial plan, be sure that you use the services of a Certified Financial Planner and that the planner does not sell any products. To find such an advisor near you, contact Garrett Planning Network or the National Association of Personal Financial Advisors.

Plant Power Investing

Evidence increases by the day that more consumers are moving towards a plant-based diet. How can the average investor take advantage of this trend?

Low-cost index investing has become a popular approach to achieve market returns and will continue to be used by more individual and institutional investors. On the other hand, sustainable investing is also a growing trend, as more investors recognize that an “all-of-the-above” index investing strategy conflicts with their worldview. Index investors are accepting the status quo by owning companies as they are. Sustainable investors are driving change by using fund managers who engage with companies to adopt positive changes or by simple divestment (i.e. avoid investment in the company or sector).

I envision three groups of individuals who would find plant power investing attractive – vegans, vegetarians and advocates of a healthy eating / living lifestyle (ironically, HE/LL for short). The majority of individuals in this category, however, are not in a position to take on an extraordinary amount of investment risk. Investing in “pure play” meat or egg substitute start-up companies is beyond their financial reach.

The growth in the number of mutual funds that divest from fossil fuels provides an example that plant-based investors might want to follow. Why not simply avoid companies that are in obvious conflict with your worldview? Truth is, there are sufficient large, established companies to choose from in order to develop an investment portfolio that may satisfy both financial and personal goals.

As I point out in my book, Low Fee Vegan Investing, there are currently no mutual funds targeted to plant-based investors. This is unfortunate since, without this option, most investors are not in a position to take on the effort or cost to implement a strategy that would otherwise meet their needs.

I believe there are two easy steps plant-centered investors can take to encourage the development of a suitable investment tool (e.g., mutual fund, plant-based index fund). The first step would be to contact their investment professional and state an interest in having a portfolio which reflects their worldview.

If sufficient demand develops, this will be noticed by financial service providers (again, recall what happened with fossil fuel divestment – many mutual funds and ETFs options were developed in a fairly short amount of time). Second, participate in the short “Plant Power Survey” that I developed to start counting the number of plant-based investors interested in this concept and, equally importantly, develop a consumer preference data set that might help the community of portfolio managers generate a set of filters for use until investor demand warrants the expense of more rigorous research.

4 Reasons Why Renting Is Better than Buying

Have you ever felt pressured to buy a house? Maybe from your friends, your family, your co-workers, or even yourself? Like you haven’t actually made it as an adult until you own your home?

It’s a common feeling, but the truth is that buying a house ISN’T always the right decision. In some cases renting is a smarter move, both for your wallet and your lifestyle. Here are four reasons why.

1. Flexibility

Life changes fast. That great new job you just started might turn into an exciting opportunity in a different city. That big family you planned on having might turn into a smaller one.

Renting gives you the ability to quickly change your living situation to best match the new realities of your life. That flexibility can be the difference between seizing an opportunity and having to pass on it.

2. Cost

Proponents of buying like to say that when you’re renting, you’re essentially paying off someone else’s mortgage. So why not buy and make sure that money is going towards yourself?

There is some truth to that, if you stay in one place for an extended period of time (typically 5-7 years or longer), then buying often results in the lower long-term cost.

In the meantime buying can be really expensive. There’s the upfront cost of the down payment. There’s the cost of handling the fixes and improvements that come with any new purchase. There’s the cost of new furniture. There are the ongoing costs of insurance, taxes, and maintenance.

Renting has costs too, but they’re often much smaller and more predictable, at least in those first few years. And in many markets where housing prices are high, renting can actually be a better long-term financial decision.

You can use this calculator from The New York Times to figure out just how long you would have to live in one place before buying became cheaper than renting.

3. Adjustment

Renting is often a great idea any time you move to a new place.

It gives you the opportunity to figure out which neighborhoods you like and which you don’t so that you can eventually make a buying decision you’ll be happy with for the long-term. There’s no sense in being stuck somewhere you don’t like simply because you felt rushed into buying a house.

4. Stress

Owning a home has plenty of benefits, but it can also come with a lot of stress.

Any time something needs to be fixed, it’s on you to either do it yourself or pay for it to be done by someone else. And of course there’s that big mortgage that can feel like a weight on your shoulders.

Renting comes with fewer commitments and fewer responsibilities, which can lead to lower day-to-day stress.

Money Lessons from a Non-Frugal Purchase

I’m usually pretty frugal. I’ll often do without something I want but don’t need, or I’ll find a cheaper alternative. It’s just my nature.

But just after the holidays, I decided to indulge. I bought a navy blue Brooks Brothers blazer I’ve had my eyes on for years, the kind of thing that never goes out of style and that I can wear in all kinds of situations.

As silly as it might sound, I’m really excited about it! It’s something I’ve wanted for a while and I can’t wait to wear it. But I’m also excited about the deal I got. Instead of paying the full $558.49 price tag, I was able to get it for $260.47.

Here’s how I saved the money, and how you could do the same on your next big purchase.

Step 1: I Waited

I didn’t buy the blazer as soon as I saw it. It probably sat on my wish list for a few years before I actually pulled the trigger. And that waiting did a couple of things for me.

First, it allowed me to find an opportunity to buy it for less. Instead of paying full price, I was able to get it for 50% off during the Brooks Brothers annual sale. That saved me $249 on the price of the blazer, and another $22.81 on sales tax.

Second, I benefited from delayed gratification. I got to spend a long time anticipating the purchase, which is actually a key part of enjoying something. And when I finally did buy it, it felt like a gift. I appreciated it more because I had been waiting for it.

Waiting helped me save money AND enjoy the experience more than if I had bought it immediately.

Step 2: I Looked for Alternative Savings Opportunities

With a little digging, I found that I could buy a $250 Brooks Brothers gift card for just $225. So I bought the gift card, used the card to buy the blazer, and saved myself another $25.

Whether it’s a gift card, a coupon code, or something else, it never hurts to look for alternative ways to save money before buying.

Step 3: I Used a Cash Back Credit Card

When I bought the gift card I used a credit card that earns 1% cash back, which saved me an extra $2.25. Certainly not a life-changing amount, but every little bit counts!

Step 4: I Bought Quality

This is a high-quality blazer I expect to use in many situations for many years to come.

When I spread the cost out over a number of years, it becomes a lot less expensive. Especially when compared to cheaper alternatives that might fall apart, or go out of style, a lot sooner.

Lessons Learned

Now let’s be clear: this was still NOT a frugal purchase. I spent a lot of money on something Iwanted, but didn’t really need.

But that’s okay from time to time. Nobody should feel like they always have to stick to the bare necessities or like they can never indulge.

I couldn’t make a purchase like this all of the time, but I’m happy to spend money on a high-quality product that I’ll use a lot and enjoy wearing, especially when I’m able to stack savings for a great deal.