[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?
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]