There's More to Financial Planning Than Financial Planning

Brian Zeek, Dee Dee Brooks

• Publisher: Morgan James Publishing
• Year: 2018
• ISBN:
  9781683506027
• Topic: Personal Development
• Subtopic: Personal Finance

A more comprehensive, topic-by-topic approach to securing your future that can prevent you from leaving tens of thousands of dollars on the table. There's More to Financial Planning than Financial Planning doesn't simply cover the obvious topics in personal finance. Brian Zeek and Dee Dee Brooks go beyond the fixation on investment portfolios to present a comprehensive picture of financial planning that includes everything from car insurance to the ins and outs of a home mortgage to health insurance and the lesser-known benefits of life insurance—and shows how so many people leave tens of thousands of dollars on the table by not tending to these crucial issues. With an intuitive, one-topic-at-a-time layout, There's More to Financial Planning than Financial Planning makes a resounding case for a smarter, and genuinely comprehensive, approach to building a watertight financial plan.

Chapter 1

YOU DON’T HAVE TO SACRIFICE TODAY TO BE FINANCIALLY SECURE TOMORROW

These days, you can throw a rock and hit a financial advisor who will invest your money for you. But how do you know what you’re getting?

Most of the advisors out there handle only a single aspect of your finances. They put your money into a variety of investment vehicles and then manage that portfolio over time. That’s it.

But investments are only one dimension of financial planning. In fact, there are dozens of other aspects to managing your money, from making sure you’re not bleeding cash on a poorly structured mortgage, to managing for the greatest tax efficiency, to choosing the right way to pay for a new car, to holding the right life insurance … the list goes on, and on.

Yet since the vast majority of advisors deal only in investments, and since most consumers have never had the opportunity to discover what else is out there, a lot of people end up lacking a financial plan that incorporates the many other important aspects of their lives.

That’s the first thing that sets us apart from the field. At Surf City Financial Group, we look at the complete picture. We don’t think it’s an “extra” to understand the complex details of your finances or to build a comprehensive plan that places as much emphasis on smart expenditures as it does on smart investments.

In our office, we’re committed first to understanding you and your unique financial life, and then to making sure your existing assets and liabilities are structured as efficiently as possible, and only then to investing your money on your behalf.

It’s an approach that isn’t just grounded in the belief that superior financial planning results from stronger one-on-one relationships—though that’s certainly the case. On a fundamental level, we’re committed to understanding your individual financial landscape because that’s where we begin putting money back in your pocket.

Here’s how it works:

If what you thought to be true about money wasn’t, when would you want to know?

The financial services industry is like a lot of other industries in the sense that consumers are typically sold stuff without being told (taught) stuff.

Consumers have little opportunity to learn the complicated details of what they’re getting, whether the product in question is an investment vehicle or a car loan. That means most people don’t have the information they need to make smart decisions.

So when a new client walks in our door, our first task is to put together a complete and detailed picture of all their financial obligations and assets. We want to reverse the standard practice in financial services; we want to change the paradigm to told stuff from sold stuff. Through that process, our clients begin to see their finances in full color, allowing for a better understanding of priorities as well as challenges. And, at the same time, a variety of inefficiencies often come to light—creating opportunities for deep savings.

For instance, we regularly discover that new clients have been holding credit card debt while at the same time overpaying on a mortgage and maintaining a bag of cash in a money market fund. That’s an inefficient combination; soon we’ll explain the details and how we help all of our clients structure their finances in a way that puts money into their pockets, saves for the future, and provides plenty of room for enjoying today.

In one recent situation, we met with a great guy who had gotten some poor information from a previous advisor. This person came to see us and said his plan was simply to get 6 to 10 percent returns in the market over the next seven years, and then retire. It would be great if the market was so reliable, but it’s not. And that means this guy had less of a financial plan and more of a financial hope.

At the same time, it makes perfect sense that he’d been thinking along those lines for so long; it was the direct result of the sold stuff rather than told stuff mentality. With everyone trying to sell him financial products and quoting him average returns, he’d come away with the idea that you can simply expect average returns every year.

So what did we do? We sat down together and started talking about the difference between average returns and actual returns—and then we focused on building a plan that would make him secure no matter how the market behaves.

In other situations, we’ve found that many people make the expensive choice of raiding their 401(k) to help fund a child’s college tuition. That’s problematic; while you can borrow for college, you can’t borrow for retirement, and raiding a 401(k) is an especially expensive way of surfacing cash for those tuition bills. In fact, the tax liability alone makes it an unwise choice.

When you pay into a 401(k), it’s with income that was subject to Social Security tax and exempt from federal and state income tax. But when you raid that fund, you end up paying it back with after-tax dollars—and then down the road, when you make withdrawals, they’re subject to ordinary income taxes once again.

These are the kinds of complicated repercussions that come along with financial decisions of every variety, and we’re here to help you sort out the details and choose the wisest path.

There’s a similar story when people have to pay for big lump-sum expenses, like a wedding, a Bar Mitzvah, or a nice vacation. We find that clients often withdraw substantial sums of money—tens or hundreds of thousands of dollars—only to realize, after the fact, that the withdrawal had messy tax implications. When you pull a sum of that size out of tax-deferred accounts, it has the potential to bump you into a higher tax bracket, and the cost can be considerable.

Advance planning for big expenses can create enormous savings, and that’s a service that we provide for each of our clients.

Then there’s the all-important decision about how to pay for your home. Most people take out a mortgage, though there are many different variables to consider when signing a mortgage, and they aren’t all on the radar for most consumers.

An obvious reason to take out a mortgage is because you can’t afford to pay cash; a less obvious, but still very important, reason is the tax deduction, since the home-mortgage interest deduction is one of the most significant tax relief measures for middle-class families.

But there’s a third—and frequently overlooked—reason to borrow from the bank to buy your home: There’s often a favorable difference between the interest you’ll pay on the loan and the interest you’ll earn by investing your cash instead of tying it up in home equity.

This has everything to do with a concept called opportunity cost, which is something we’ll return to again and again. Opportunity cost refers to your next best alternative: If you’re deciding between taking a trip to Hawaii and buying a sailboat, and you decide to go with the sailboat, your opportunity cost was those two weeks in Maui.

The same thinking applies to taking out a mortgage. If you’re deciding between a fifteen- and a thirty-year mortgage, your opportunity cost in making those higher, fifteen-year payments is what you could have done with the difference.

By making higher payments, you’re giving up the chance to invest that extra cash. And when you examine that opportunity cost over a thirty-year window, it can total hundreds of thousands of dollars in foregone investment income. That’s a mistake we see again and again, even as people are certain they’re making the prudent choice.

We’re only scratching the surface. In the coming pages, we’ll cover these kinds of weighty decisions in detail. You’ll see how important these calculations really are—and how they can deliver the kind of prosperity you might have thought was beyond your reach.

PLUGGING HOLES IN A LEAKY BUCKET

If you visit a more typical financial advisor, you won’t hear about any of the things we’ve just mentioned. Instead s/he’ll be single-mindedly focused on assessing your risk tolerance, determining an appropriate asset allocation, and then putting your money into an investment portfolio. He or she might even recommend a higher level of savings—that is, saying that you should make cuts to your lifestyle—in order to invest more money for your future.

But at Surf City Financial, we think that approach has it wrong. It all comes down to a leaky bucket.

That’s right, a leaky bucket.

Imagine that your retirement savings are stored in a bucket. When the bucket is full, you’ll have enough to retire. Unfortunately, though, it has a couple cracks in the bottom, so even as you keep pouring more and more money into the bucket, your savings keep escaping out the bottom.

You’ve got two strategies available to you: You can pour in ever more money, at an ever faster rate, hoping that you’ll have enough to reach the top; or you can plug up the holes.

The typical investment advisor will recommend that you pour more money into that leaky bucket. Very often, you’ll get the advice that trimming down on your lifestyle expenses—that is, reducing your quality of life—is the way to build up the retirement portfolio you need.

But when you think about it from the perspective of a leaky bucket, you can see just how outrageous that is. The better strategy is obvious: Plug up the darn holes!

That’s why, when we first start working with a new client, we begin with a conversation about what kind of mortgage they have and how they’re paying for a family wedding or a big vacation. We talk about whether they’re carrying credit card debt while overpaying on mortgage installments, or making withdrawals from a 401(k), or making any number of other decisions that aren’t serving their best financial interests.

All of these choices, and zillions of others, are ways that money can leak from that bucket. And so, rather than telling our clients to cut back on their lifestyle—and before we recommend a specific mutual fund, annuity, or life insurance—we’re going to work with you to plug the leaks in your financial life.

What’s more, plugging up that leaky bucket has one huge advantage: It’s risk-free.

When you put your savings into an investment vehicle, there’s always a degree of risk that goes along with it. The market is unpredictable. The guy who thought he could rely on 6 to 10 percent earnings every year for most of the next decade was poorly informed; that’s just not the way the market works.

Markets go way up and way down. And if you haven’t accounted for all that volatility, it could hurt you and your family at the most inopportune time. But there’s no risk in plugging the holes in your bucket; that is, there’s no risk involved when you become financially efficient.

The most efficient financial advisor would first identify where money is leaking from inefficiencies in your day to day money management and bring it back to your use and control: a risk-free way of putting dollars back into your pocket. That’s exactly what we’re doing: You now have thousands of dollars in your pocket that you didn’t have before, risk-free. It makes no difference that you came into that money by making smarter expenditures rather than earning dividends on the stock exchange. Money is money, and now y...

Table of contents

• Cover
• Title
• Copyright
• Table of Contents
• About the Book
• About the Authors
• Acknowledgments
• Chapter 1: You Don’t Have to Sacrifice Today to Be Financially Secure Tomorrow
• Chapter 2: What Do You Really Want Out of Life?
• Chapter 3: How Can We Help You If We Don’t Really Know You?
• Chapter 4: 401(k) Plus 529 Equals… Financial Freedom? Not Exactly
• Chapter 5: Is Your Money In Tanks (Good) Or Behind Padlocks (Bad)?
• Chapter 6: Picking the Right Health Plan: It’s Not Just About the Deductible
• Chapter 7: You Don’t Have to Give Up Your Starbucks Now to Have Big Bucks Later On
• Chapter 8: No More Free Money for Banks And Uncle Sam!
• Chapter 9: Avoiding the Retirement Tax “Torpedo”
• Chapter 10: Should We Continue the Conversation?
• References