by Shannan Denison
This time of year, most of us resolve to improve our lives in the areas of health and wealth, and then promptly drop our best intentions before the 31st of January. Instead, I invite you to examine your thoughts around money. If you find yourself thinking any of the following, perhaps you should pick up the needle and move to another groove.
1. “I don’t make enough money…”
Here’s a secret that’s not really a secret. It doesn’t matter how much money you make, it’s what you DO with what you make. After 17 in the financial services industry, I know this to be a fundamental truth. So important is this truth that it necessitates bold reiteration. And this time I invite you to read it aloud and make it personal. It doesn’t matter how much money I make, it’s what I DO with what I make.
When I first started in my career as a financial advisor I thought, “Show me clients with big six-figure incomes. I will be able to do so much for them with a killer financial plan.” Guess what? I had clients with that kind of income. They hired me to give them financial advice, and they followed absolutely none of it. I thought there was no way they could spend all of the income they brought in every month, but they actually spent more money than that. Being fiscally irresponsible, it didn’t take long for their bad habits to snowball into the financial avalanche that would precipitate them having to file for bankruptcy. The straw for them was a job loss. With no money in savings and a lifestyle more suited to the rich and famous, it didn’t take long for their lives to crumble in short order after an unexpected layoff.
On the flip side: In my early years as a financial advisor, I worked with clients that on paper looked like paupers. They were a young couple, just starting in their careers, with two young children and one on the way. Together their income wasn’t even $30,000. They paid me a nominal fee for my advice, and they followed it. Today, they are some of my most prosperous clients. Through our unique holistic and comprehensive planning process, we identified their strengths and weaknesses and helped them implement a plan to get them closer to their financial goals. The first year the priorities included developing a logical budget they could follow, creating a cash reserve, making sure they were adequately protected with insurance and creating a simple estate plan. Each year we build on the successes of the previous year, and we watch them continue to prosper financially.
2. “That will never happen to me.”
I call this the invincibility syndrome, in which we may fall victim to not thinking through how a devastating event could affect our lives financially. I tell people in our first meeting that we’re going to (hypothetically) kill you, disable you, put you in a nursing home and give you a costly and necessary one-time expense just to see how you will fare financially. You could have the best investment plan on the planet, but if you’re not prepared for the unexpected, your nest egg could dissipate quickly.
Your biggest asset is your ability to earn an income. It’s not your home, not your 401k, not your music collection, but your ability to work and make a living. Is it protected? What happens if you can’t work? Do you have disability income protection? If it’s a workplace benefit that your employer covers, the average benefit is 60 percent of your salary and that’s BEFORE taxes. Would that be enough?
How about life insurance? Life insurance provides money after we die because we love someone or we owe someone. How much you should have depends on those two things. At a minimum, you should have enough life insurance to pay off your liabilities and final expenses. At the most, a death benefit from a life insurance policy provides for your loved ones as if you were still there financially. Think about this. If you were to fill out a blank check for the amount of money you will make between now and the day you retire, how much would that be?
Additionally, if your life and disability income insurance are provided only through an employer-sponsored plan, consider getting something on your own. Jobs aren’t forever and as a participant of these types of insurances, many times they aren’t transportable. I had a client once that said he had plenty of life insurance through work. Then he was diagnosed cancer, became uninsurable, eventually lost his job, and died with no life insurance proceeds to leave his family. Bottom line is that he should’ve had insurance independent of his workplace plan.
3. “That’s a good idea. I should do that.”
Certainly, we all do this to a certain degree, in a variety of different aspects of our lives. Then instead of taking action and getting it accomplished, we procrastinate. Financially this manifests itself in thoughts like:
We SHOULD really get a will done.
We SHOULD review our insurances and make sure we are adequately covered when and if the unthinkable happens.
We SHOULD start saving for retirement and/or make sure we’re saving enough.
We SHOULD make a plan to eliminate debt.
We SHOULD create a cash reserve.
Let’s face it. Procrastination stops all of us from turning good ideas into realities. Hiring a financial advisor can help hold you accountable for a lot of those “shoulds.” A sound financial plan will uncover cracks in your financial foundation that could result in your own personal economic recession/depression. Creating a timeline for when you will change the things on your “should” list to things on your “done” list is essential for creating a sound financial foundation.