[Article today by Ben Luthi of The Wealth Gospel]
During my last year and a half as a college student, I did an internship with one of the top firms in the financial services industry. And lucky for me, it wasn’t one of those coffee/donut/make copies kind of internships. I actually had my own financial planning practice and did everything the full-time guys did.
I hit it off pretty quickly and within 6 months became one of the top interns in the country. When I left, I was #13 out of over 3,500. I was even bringing in more clients than a lot of the full-time guys in my agency, which made me feel all special and stuff.
In the end I had to make a difficult decision to leave because my wife and I felt that we should move close to family, and continuing with the company wouldn’t work. But I am grateful for the experience. In fact, I learned a lot about people and personal finance while I was working with them one-on-one.
Here are some of the things I learned:
1. Debt is a dream crusher
My favorite part about my job was the first meeting when I was getting to know potential clients and asking them about their goals. I always tried to get them to dream big, and then K.O. the stupid excuses why they said they couldn’t reach their goals.
But there were times when, after we’d get on that high of sandy beaches and helping the poor, we’d get to the current financial snapshot and they’d end up having crippling debt. It hurt my heart to have to tell them, “All of this is on hold until you get that debt under control.” Some families couldn’t even build an emergency fund because of the amount of their credit card payments, let alone look forward to retirement or family vacations.
It was depressing. We couldn’t do anything, even though they desperately wanted to.
So the moral of this story is, if you’re not in debt, especially credit card debt, stay out. And be careful about the amount of debt you go into for cars and other “stuff” too. If you’re heavily in debt, you are in a crisis. And if you’re complacent about it, it will kill your dreams and bring you more pain and stress in the future than you can imagine. So you better start attacking that with all you have.
2. Your 65-year old self will hate your guts if you don’t start saving now
I met with a lady in her mid-50s once whose husband was in his early 60s. They were wondering when they would be able to retire, so we ran some numbers for them based on their expectations and what they already had in place.
They still needed to save $1 million to reach their goals.
When we told her, I could feel the pain. I could tell she was holding back the tears. There was no way they were going to retire anytime soon. We started some different things with her to help her out, and before she left, she told me, “I wish I would have started this stuff when I was your age.” Talk about heart-wrenching. Us whippersnappers hear that kind of stuff all the time, but when you actually see the pain that comes when you don’t plan, it sticks with you.
So start saving and your 65-year old self will LOVE you for it!
3. An increase in income doesn’t need to mean an increase in lifestyle
When it came to working with younger people, I preferred meeting with people right before they graduated college. Why? Because when you get your first job out of college, you have more financial freedom than you have ever had in your life. And that’s generally when the spending begins… Then as soon as the pay raises come, the tendency is to get nicer things.
I had one guy who got a nice break with a raise and ended up matching his income with car debt, and then more than tripled it with mortgage debt. Which meant he and his wife had really nice cars, but couldn’t afford basic life insurance to take care of their 3 kids if they died – not to mention they weren’t saving anything for retirement. Not that having a nice car or a home for your family is a bad thing. They’re natural desires and aren’t inherently bad. But when you are trading your future financial security for stuff, you’re doing it wrong.
I generally recommended to my clients that whenever they get a pay raise at work, they put 50% of that increase toward retirement, 30% toward debt or other savings, and 20% toward a lifestyle increase. That way there’s balance and you’re keeping your priorities straight.
4. If you don’t change now, things aren’t going to be different next year
As part of my relationship with my clients, I did 6 month follow-ups and an annual review. The point of the annual review was for me to get caught up on any changes that happened in the last year and to see how they were doing on their goals.
A lot of my clients made progress after the first year, but many of them who were so excited when we started out ended up doing none of it. And that was probably my biggest disappointment.
One client had just gotten rid of a bunch of debt, and also got a raise at work when we first met. So his plan was to let loose for the first month or two and enjoy his new found awesomeness, then he’d get started on his goals. A year later, he had nothing saved.
So what I’m saying is the time to change is now. If you put it off, a year later your goals will probably still be on that shelf you put them on a year earlier collecting dust.
5. Having a solid financial advisor who’s got your back is a must
I’m pretty handy with little car repairs, but on the big stuff I usually hire a mechanic. I could probably figure it out myself, but it would A) take too much time and B) I’m too afraid I would screw it up.
That’s the same reason I have a financial advisor. First of all it saves me time, and secondly he eats and breathes this stuff every day. So no matter how much I know, he probably knows more. And you’d be surprised about what you don’t know about financial planning. It’s a vast ocean of possibilities, my friends.
That doesn’t mean I won’t have some index funds or something on the side, but it’s good to have a barrier between me and a portion of my money because I’m likely to get all emotional and freak out when my investments go down. And he can help me stay rational.
That being said, there are a lot of shady advisors out there, so you’ve got to be careful. But there are good ones too. There was actually one client I had who I argued with back and forth for a while about the type of insurance policy he should get. He was basing his decision off of some generalization a radio talk show host taught, and I was basing mine off of their situation and what was best for them. The funny thing, though, was that I would’ve gotten paid more on the one he wanted!
I’m not trying to be bragadocious here; I just want you to know that there are good guys out there, and those are the ones you want. Someone who is going to fight for your best interest even if what he/she’s fighting is you. Good ones are great, but bad ones are good too, because it could help someone else know what to watch out for.
What are your experiences working with financial advisors?
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Ben Luthi is a personal finance blogger who does his thing over at The Wealth Gospel. His passion is to help people to stop thinking about personal finance in the conventional way, and to find their true potential and align their behaviors with it. And he speaks German fluently, just like that Einstein guy.
[Photo cred: Dave Catchpole]
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“So what I’m saying is the time to change is now.” I could not agree more Ben! If you see the need to change/start/improve on something you need to start now and not screw around and put it off…because generally you won’t start. I worked in the brokerage industry for just over four years and saw many of these same things. It was saddening, to say the least, to see so many held back for one reason or another, but it was a huge motivator for my personal life with my family. That said, you’re last point is spot on. If you don’t/can’t manage it yourself then you most certainly need someone who has your back. They’re not all good, but there are some great ones out there.
Yeah, as sad as it is, seeing all those people do nothing was a great motivator because I didn’t want to end up like them!
And you know what’s even worse? When PEOPLE YOU WORK WITH don’t even take advantage of retirement perks and/or their own advice they’re giving to all their clients – always so hard to believe. (For example, I know a guy working at a center that teaches companies/employees how easy it is to max out 401k benefits yet he doesn’t do it himself. WTF?)
Yeah, sadly some financial advisors aren’t very good at taking their own advice. I met some who were terrible with money. That’s not the guy I want managing mine!
Good advice! The only financial adviser I have worked with so far has been my wife. :) I continue to say I wish we began repaying out debt 20 years ago. We are teaching our kids not to fall into the same traps we did and avoid credit cards.
That’s great! Sometimes you have to learn the hard way, but I’m glad you’re taking initiative to help your kids to not follow in those same mistakes. That’s the sign of a great parent right there :)
Totally agree with 1-4! Not so much on #5. A couple of personal finance reads can probably get you 90% there in terms of what you need to know and how to execute it. The rest you can get from us PF bloggers for free :-)
There’s definitely a lot of stuff out there that people can use to educate themselves, but one thing I learned when working with people is that they didn’t know what they didn’t know. There were products and strategies that they never would have even thought to search for on their own. It gets especially tricky when you get to the retirement distribution and estate planning phase. That being said, if you personally have done well without an adviser and have the time to do everything on your way to reaching your goals, there’s no judgment here :)
I know we’re probably in the minority in the PF blogging world, but I’m with you on the personal advisor stuff. We already have full-time jobs (plus I have my blog and writing on the side, which is more like a second job!), hobbies, family obligations.. throwing in managing our investments full-time on top of that seemed like a bad idea. I know financial advisors have fees – but I firmly believe I will be able to make better investments with my guy (and his full-time, active, non-emotional management) than I would be able to on my own, which means, even after I pay him, I still end up with more money that I would have had I tried to handle it on my own.
The non-emotional thing is the biggest thing for me. As much as I understand the importance of it, I still don’t know if I would be able to control myself if something crazy happened. Having a “gatekeeper” so to speak is good, especially because that’s their life. They spend all their time doing it.
As a financial planner, I agree with all of these statements. I always hate meeting with people in their 60s and they “think” they are ready for retirement and I have to tell them they are not (despite the large sum of money they have accumulated) because it is not enough for the lifestyle they want or they have developed bad habits over the last 40 years that are difficult to fix.
Yep! And they think that as soon as they retire, all of the sudden all these bad habits are going to go away and they’ll be able to live on less, but it’s just not going to happen unless they start changing now.
So sad :(
The story of the older couple hoping to retire broke my heart. I can’t tell you how many of my fellow millennial friends simply refuse to contribute to a retirement account because they’ll “worry about it later.” Your story is exactly why you need to do it NOW! It’s one reason I harp on that so often in my own posts.
I agree with you about a financial advisor — when the situation warrants one. As a single, childless young woman , I don’t feel like I’m at a stage that I need one. Especially because I have options through work and my epic bank to speak to someone when I need to. But, that will likely change in the next few years.
Yeah, it’s horrible :( I feel the same way everytime I see an elderly person greeting people or cashiering at Walmart. I can’t imagine most of them being very happy. And yeah, some people are in a situation where it really isn’t necessary. Although I met with some of my single friends, but mostly to educate them on how it all works so that when they’re ready, they know what the heck they’re doing. I’m sure that you’re pretty set on the basic education, though, being a rockstar financial blogger and all ;)
Debt is definitely a dream crusher. I have seen far too many friends get trapped in shitty jobs because they have tons of debt that they just can’t handle.
I’ve had some people close to me get stuck in that same situation, and unfortunately they blame everyone and everything else but themselves.
One of the advisors I deal with does not seem to understand what I am trying to do. I did not pick this guy to help manage a portion of my money, he was assigned to me when my old advisor moved to another state (she was awesome and was 100% on board with what I was doing and was a great sounding board). The only reason I don’t move my money is because I’m pretty much set up with that account the way I want it. If things change or he continues to be pushy I will probably move that money somewhere else. Again I get that he is just trying to do his job, but my account is one he can pretty much ignore until I call him.
Shoot, that sucks! Does he have his own practice or does he share an office with other advisors? If so, I’d call up the office and explain things and ask for a different advisor. I’ve seen that happen before. It really sucks when your advisor leaves and you get stuck with someone you didn’t choose and doesn’t fit you at all.
I love your 50/30/20 plan for raises. I feel like that’s an area I never quite know what I’m doing in. I like that it really helps plan for the future, but still lets you have some benefit for all your hard work now.
Thanks! It’s hard to resist the urge to just spend it all. I’m pretty sure I’d have trouble with that too, if I ever get one haha :)
50/30/20 plan for raises is really good. When I got my first raise earlier this year, I increase my retirement contributions in my 401K. Right now I’m maxing it, so next raise will probably go to ROTH IRA or an after tax brokerage fund.
I like it! You’re going to thank yourself later for that one :)
Great post, Ben! It’s really sad that so many don’t even start thinking about saving until they reach their 40s and 50s when they have extra responsibilities and expenditures. Starting early is the best way to make sure that one’s retired life is stress-free.
Agreed! I even had one guy who said to me, “You’re going to hate me. But instead of putting all my extra money into retirement, I’m going to pay my house off faster.” It would take him until he’s 51 to do that. Then all he’ll have is $50,000 in a 401(k) and nothing else. Some people are ignorant, but some people actually do consider the consequences and still make the wrong decision…
I’ve never had a financial advisor before! Closest ever would be from reading pf blogs haha. Some good tips here:P Thanks!
Thanks! It wouldn’t hurt to give it a try :)
These are all great things to learn. I like the 65 year old self will hate you. LOL. I think people must consider the future all the time.
Yes, but the trick is *ACTING* on it ;)
Agreed! That’s the problem most of us have…