Copyright © 2014 Prosperion Financial AdvisorsAll rights reserved.

No part of this book may be reproduced, or stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without express written permission of the publisher.

Securities, Financial Planning and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

No reader should assume this book serves as a substitute for specific personalized advice. The content of this material is for general information only. No strategy ensures success or protects against a loss, and investing involves risk including potential loss of principal. To determine which investments may be appropriate for you, consult your financial advisor prior to investing.

To my wife and family,without whom none of this would be possible.

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TABLE OF CONTENTS

CHAPTER 1 - Do I Need a Financial Advisor? 6The Catalyst for AdviceWhat Should An Advisor Do for You?The Cost of a Financial AdvisorHow to Get Started

CHAPTER 2 - The Power of Time 29Behavior and Perspective

CHAPTER 3 - Going Downhill on Debt 38Strategy 1Strategy 2The Snowball MethodAdvice on Credit Card DebtAdvice on Home Equity Lines of Credit (HELOC)

CHAPTER 4 - Building a Budget - Where to Start 48What About OverspendingWhere Does Saving Fit in the Budget?What About Big Expenses?

CHAPTER 5 - Where to Save for Retirement 56Redefine RetirementNeeds in RetirementThe Greatest Retirement AdviceSounds Great, But Where Do I Start?

CHAPTER 6 - How to Save for College 67The Best Way to Save for CollegeHow to be FairWhere to SaveRemaining Balance

CHAPTER 7 - The Other Factors 78Life InsuranceTaxesEstate Planning

CHAPTER 8 - The Next 10 Years 85

Teach Your Kids About MoneyBuilding a TeamMaintain Focus

INTRODUCTION

Introduction

I believe there is an overabundance of families living in the most

financially impactful years of their lives who lack the necessary

guidance and leadership to make wise financial decisions that will

drastically influence their future.

In my experience, it’s these decisions early in your life which

have the greatest impact on future financial outcomes. For many

people, there’s so much going on in life they tend to lose focus on

what’s financially important – and there’s far too much riding on

your financial habits and behaviors early in life to go at it alone.

It’s like that old saying, if you miss by an inch today, you could

miss by a mile in 20, 30, or even 50 years. These pages are meant

to inspire individuals and families to start a conversation to help

enable them to make wise financial decisions and create the solid

financial foundation for the rest of their lives.

Before we get started, understand that my approach is rooted

in four simple, yet fundamental principles:

1. Only write on the backs of checks. Meaning you don’t owe

anyone anything. Being debt free means true financial

independence.

2. Have a reasonable budget that fits your lifestyle. No

judgment – your budget could be $30,000 per year or

INTRODUCTION

$300,000 per year.

3. Have an income strategy, not a liquidation strategy. A good

strategy focuses on growth of income rather than growth

for income. I’ll explain the difference in chapter 5.

4. Diversify with quality and intention. Seek ownership in

the greatest companies in America and around the world

that work endlessly to increase the value they provide to

customers and investors.

My passion for finance started at the kitchen table when I still

had baby teeth. My dad, now a seasoned financial advisor with

over 35 years in the business, would come home with stock quotes

and research pieces for various companies an 8-year-old might

recognize. Over a plate of fettuccine, he would explain what it

meant to actually own a small piece of a major company in the form

of stock. He reinforced power and importance of earning through

hard work, then gifting (to church or charity), saving, and spending

(always in that order). He used countless examples and lessons to

get each point across so that I might grasp the broader concepts.

I believe these important lessons taught to kids at a young age

are the foundation to life-long financial habits that will drastically

impact various phases of their lives—from their educational years

through retirement.

I attended Colorado State University as an early graduate

of their financial planning program. After college, I married my

INTRODUCTION

high school sweetheart. It’s not, and never will be, “rainbows and

butterflies,” but marrying my best friend is, and will always be,

the best decision I’ve made. (No, she didn’t make me say that.)

Fortunately, she has very little experience in personal finance and

accepted the role of filtering, refining, and reviewing all aspects

of this short book to ensure each element is clearly and concisely

covered in understandable language.

Upon graduating, I joined the ranks of my dad’s company,

Prosperion Financial Advisors (www.Prosperion.us). I specialize

in working with young families and busy entrepreneurs who are

passionate about their lives and want greater clarity building

their financial framework. I lead clients through all aspects of

their financial life including budgeting, debt reduction, saving/

investing, asset allocation, cash flow strategies, and generational

wealth transfers.

If you’re reading this book, I encourage you to consider yourself

a client. Should you have any questions as we walk through the

principles and behaviors in this book, or if you’d like to discuss

strategies and variations (of which there are many) surrounding

your financial life, please feel free to reach out to me at

John.Booren@lpl.com.

CHAPTER 1

Do I Need a Financial Advisor?

What do Peyton Manning, Missy Franklin, and my golf game

have in common?

Quarterback Peyton Manning is widely known throughout

the NFL for his intense preparation. Each week during football

season, analysts talk incessantly about the hours of preparation

and copious detail Manning puts into each game. He reviews game

film, studies defenses, recognizes tendencies, and reads disguises

in coverage. Regardless of his preparation and performance during

the game, after each possession he gathers his coaches to analyze

how he can improve on the next drive. Think about that, this is one

of the best quarterbacks of all time, a veteran, guaranteed future

Hall of Famer who is endlessly seeking the guidance, leadership,

and feedback of his coaches. Manning understands they are experts

at their jobs, even if they are younger or have less NFL experience.

He knows their primary objective is to help him achieve optimal

success on the field in order to benefit the team.

World-renowned swimmer Missy Franklin swept the nation

during the 2012 Summer Olympics. Though I haven’t had the unique

opportunity to meet her, we do share the same high school alma

mater. Missy was a young, humble teen blessed with an incredible

gift to swim. From her early days in the neighborhood swim club to

her many Olympic medals, Missy’s coaches played essential roles

DO I NEED A FINANCIAL ADVISOR?

in her success. Even as she grew in fame and status, Missy stuck

with the same coaches from her early years through the Olympics.

Why? Because she found the trust and leadership she needed in

her coaches who put her best interest as a young, student-athlete

first. She learned more than how to swim faster than everyone else

in the pool; she learned how to be a humble winner, how to focus

on what’s important, how to maintain perspective when things

are going right, and (especially) when they’re going wrong. These

lessons will have a far greater impact on her and those around her

than the medals dangling from her neck. Her coaches focused on

her behavior and habits in life first, and how to move effortlessly

through the water second.

In no way do I claim to be a “great” golfer. Fortunately, I don’t

have to make a living at it. But I have enjoyed the opportunity to

play some of the most beautiful courses in Colorado during which I

enjoyed the scenery far more than my shots.

If you have ever played one of the nicer courses in your area,

you may have used a “forecaddie.” For those unfamiliar with this

occupation, a forecaddie is a person who walks each hole with your

group and is a course expert on the layout and strategy of each

shot. They know distances, cuts in the grass, slopes of the greens,

and every other detail of the course. They will say things like, “You

see that tall tree on the horizon? If you aim at that, you’ll shoot

right over the rough and have a perfect landing in the fairway to

CHAPTER 1

approach the green.” If you follow their advice, whadda-ya-know,

you’ll have a perfect landing in the fairway to approach the green.

If you don’t follow their advice, you will either catch a lucky bounce

or be hacking through tall grass looking for your ball. In short, they

tell you exactly how and where to hit every shot on the course. At

the end of the round your score with a forecaddie is typically better

than it would have been without one. For me it’s significantly

better!

To answer the question that started this chapter: regardless

of age, skill, or experience, each individual sought the advice of

experts and coaches and trusted their guidance. I can think of

countless other examples of successful athletes and individuals

who surround themselves with coaches, experts and mentors.

The same reasoning should be applied to your financial life. I

believe a trusted financial advisor is essential, regardless of your

confidence, expertise, or season in life. Relying on that advisor is

especially valuable in laying the groundwork for your financial life

and ensuring that your resources fulfill your needs in retirement.

Even the greats have coaches and other professionals to help guide

them through their decisions. Just like a forecaddie directs your

shots on the golf course, an advisor is the expert of your financial

life. They know the lay of the land, they understand where you

should focus and what you should ignore. They will say, “If you aim

to save $1,000 each month you will have enough to send your kids

to college.” If you follow that advice, you will achieve your goal. If

you don’t, you might squeeze by, or you might find yourself in a

deep hole. In golf, it’s easy to miss a shot, drop a new ball down,

and take a mulligan. In life, surround yourself with experts who will

help you succeed. You only have one ball, make it count.

The Catalyst for Advice

I have heard countless reasons for why clients postpone

engaging a financial advisor. Some examples you might be thinking

are:

• “I’m too young for a financial advisor.”

• “I don’t make enough to need an advisor – only rich people

have advisors.”

• “I’m not retiring any time soon – I’ll get an advisor closer to

retirement.”

• “I pay attention to the markets, I watch CNBC and read the

Wall Street Journal – I’ve got a pretty good grasp on things.”

(My personal favorite.)

Each reason is easy to refute. First, you can never be too young

for an advisor. The younger you start saving and investing, the

better financial security you will have down the road. (I’ll explain

how and why in the following pages.) Second, you can never have

too little to start saving and investing. In order to become and stay

“rich” (however you define it), you will need the guidance of an

DO I NEED A FINANCIAL ADVISOR?

advisor to maintain your focus and encourage positive, productive

financial habits.

Third, some clients wait until they are about to retire before they

engage with an advisor, and from my experience it may already be

too late. Had they sought out the leadership of an advisor early on,

they may have established a better plan for fulfilling their income

needs in retirement. Finally, if you “pay attention,” watch or read

the financial news, or use the media as your investing research,

you will be encouraged to move in and out of the markets at the

worst times. You will likely be frustrated and confused because your

investment decisions and behavior will be dictated by headlines

pushing hot stocks and quick solutions. Remember, their objective

isn’t delivery of financial advice. It is to sell advertising and keep

viewers watching through the next commercial break.

I believe everyone needs the guidance of a trusted financial

advisor to address each specific and individual need. The most

popular strategies we provide clients are:

• Guidance in budgeting or paying off debts

• Strategies to save for travel and vacation

• Fully managing client’s personal finances so they can focus

elsewhere

• Establishing an investment strategy for an inheritance

• Replacing a lost source of income

CHAPTER 1

• Planning cash flow during retirement

Regardless of the objective, relying on a trusted advisor keeps

clients focused on their goals and maintains that focus through

every storm they encounter.

Some clients seek out an advisor after a major life event. A

family member lost a spouse or got divorced and was unsure

where to start or how to recover. A friend lost their job without

any savings and is barely scraping by. Their parents retired and

outlived their money. A friend received a life-changing inheritance

and sqaundered it away. Whatever the case may be, it’s a rude

awakening. But you don’t have to wait for a life-changing event to

get the ball rolling.

I have experienced numerous examples of real people who

sought out advisors that helped them make real progress in their

lives—from debt reduction to multi-generational inheritance

planning. Looking back, each client believes they are far better off

with the leadership of an advisor than going at it alone. Seeking

the guidance of an advisor will help in the pursuit of your family’s

goals in a more efficient, effective and successful way.

DO I NEED A FINANCIAL ADVISOR?

What should an advisor do for you?

Most people jump straight to investments and returns. Their

advisor should manage the portfolio and send them monthly,

quarterly and annual statements showing their performance over a

given period. While investment management is very common and

typically considered the foundation of the relationship, I consider

it the last, and sometimes least important, service I provide my

clients. Let me explain.

If we were to fast-forward 30 years from today, I would argue

that selection of investment managers in your portfolio would

likely account for less than 10% of your total lifetime returns.

Why? Because the variance of investment manager performance

is so narrow over the long-term, it simply doesn’t have a material

effect on your lifetime investment returns. Over three, five, or ten

years, managers will report that they “beat their benchmarks” or

“lead their competitors” by so many fractions of a percent. But the

reality is, past performance is no (and I mean zero) indication of

future return. Who is to say an investment manager who “led their

competition” or “beat their benchmarks” in the past five years will

do the same in the next five years? Over the long-term, selection

of managers reverts to the mean, that is, performance will never

be drastically more or less than average for the long-term investor.

I only say manager selection may account for 10% of total lifetime

returns which take into account the slight chance of a selected

CHAPTER 1

managers “beating the market” during the last five years of the

investment.

If manager selection accounts for so little of an investor’s

lifetime return, why do you need an advisor to oversee your

investments? Where does the other 90% of the return come from?

To answer the first question, your advisor should first and

foremost develop a clear financial plan for the foreseeable future.

This should include advice on every detail of your complex financial

life, from investments and saving, to insurance and estate planning.

The financial plan should be a compass directing you from where

you are today to the life you dream of having tomorrow. It’s your

roadmap with step-by-step instructions on how much to save

each month or year. It guides your investments to intentionally fit

in your plan and meet your goals. Your financial plan should not

be a thick packet or dense binder that you throw in the closet and

forget about. It should be light, understandable and dynamically

adjusted to changes in your life. Your advisor should monitor your

progress and ensure that you are making strides toward your

goals, modifying the plan along the way to best suit your long-

term success.

To answer the second question, the majority of that 90% is a

result of investor behavior. Remember, we are talking about total

lifetime investment returns. There is no lasting value in short-

DO I NEED A FINANCIAL ADVISOR?

term performance, day-trading, market timing or other methods

of “gambling.” Investing in the “three stocks that will double

this year” or the “five-star rated investment manager” isn’t an

investment strategy, it’s an advertising strategy.

My process for clients looks a little like this: first, we spend a

few hours getting to know each other, understanding the family’s

goals and setting expectations. Next we gather and discuss all the

financial data we need to build a clear financial plan (we call it the

Game Plan). Then we craft and deliver a plan personalized to fit the

client’s needs based on their life. It details exactly where they are

today, where they are going tomorrow, and most importantly, how

they will get there. In all, we spend about five minutes discussing

investments because the portfolio is built only after we understand

their goals and create a plan toward achieving them.

Your relationship with an advisor should start with a financial

plan similar to this. Only after establishing a clear plan should

your advisor build a portfolio designed to achieve the goals and

objectives outlined in the plan. The portfolio should be allocated

with investments that can be tweaked slightly for moderate

variations in your life, but never frequently altered in hopes of

“outsmarting” the market. Your advisor should build a diversified

portfolio with proper allocations that fit your needs, goals, and

even morals. Many advisors offer diversification by spreading

investments across a variety of sectors or global regions with little

CHAPTER 1

intentionality to individual positions. I define proper diversification

as simply never having so much of one thing that it could single-

handidly make you rich, or that it could destroy your financial

plan. Each decision, action, and investment should have a specific

purpose and be adjusted accordingly to complement your financial

plan.

I like to use this analogy: your financial plan is the map and your

portfolio is the car that drives where you want to go. The make

and model of the car is irrelevant. All that really matters is that you

follow the map and keep moving. If you can do that, you are well

on your way toward achieving your family’s financial goals.

Lastly, your financial advisor should not only create a plan,

allocate your investments and encourage you to save, but should

act as a behavioral counselor riding beside you on the roller

coaster of euphoria and panic throughout your financial life. They

encourage you to focus on what’s really important (progress,

innovation, opportunities) and ignore what’s not (buzz-word

headlines, frequent market gyrations, doubt/fear/uncertainty).

Counseling your behaviors and emotions can have the single

biggest impact on your future, drastically exceeding the selection

of investment managers.

DO I NEED A FINANCIAL ADVISOR?

The Cost of a Financial Advisor

“Price is what you pay. Value is what you get.” – Benjamin Graham

There are two ways a financial advisor is typically compensated:

A fee-based advisor typically charges an annual percentage

fee on the assets under their management. This method is

optimal because it aligns the primary objectives of the client and

the advisor together. The advisor is incentivized to build a nice

portfolio according to the goals the client has outlined. As the

account grows, everyone benefits. When (not if) the account falls,

no one is happy.

A commission-based advisor is compensated through trading

activity in the account. The advisor is incentivized to make

adjustments in the portfolio frequently, regardless of the account

performance. Many advisors have moved away from this fee

structure due to financial conflicts of interest and adopted the

“fee-based” model.

Some advisors charge a separate fee for developing an initial

financial plan. Others, myself included, will include this as part of

the services provided during the relationship.

As a lifetime investor, it’s important to remember what you

CHAPTER 1

are paying for. You are not paying for outperformance. It’s not a

horse race to see who in the neighborhood is ahead at the end of

the week, month, or year. Remember what I mentioned earlier,

manager performance over the lifetime of your portfolio accounts

for less than 10% of your total returns.

What you are really paying for is wise behavioral advice.

Consistent outperformance cannot be bought year after year.

Real, lasting financial security is acheived through consistent

saving, investing, and the behavioral guidance of a trusted advisor

who will help you maintain focus regardless of the weather.

An annual fee is not simply to have your advisor glance over

your investments and meet with you once a year. It covers a humble

perspective for when everything is going right, and especially

when everything is going wrong. Wise counsel of behavior and

emotionsare the biggest factors impacting your financial future.

The greatest value of an advisor lies in the conversations that

reaffirm your long-term focus and prevent a foolish decision that

could take years to recover from. I can almost guarantee that those

conversations will occur, and when they do, that advice alone is

worth multiples of an advisor’s annual fee.

How to Get Started

Be prepared, selecting an advisor may take a while. It’s similar to

DO I NEED A FINANCIAL ADVISOR?

dating. Sometimes you get lucky and marry the first one (speaking

from personal experience). Other times it takes a few relationships

before you find “The One.” Regardless of how long it takes, once

you find “The One,” you may wonder how you ever lived without

them. But where do you start and what should you look for?

Start by asking around—friends, family, and people that you

respect. Personal referrals and introductions are the best way to

find an advisor because you receive unbiased, honest reviews. Ask

friends in your same chapter of life. Ask those who are already in

the next chapter of life. Again, it’s like dating, you have a better

chance of a mutual friend playing matchmaker than randomly

running into someone at Starbucks.

As you start “dating around,” an initial connection is obviously

a good place to start. Make sure you are comfortable and can be

honest about your needs and expectations. I invite potential clients

in for a complimentary meeting to understand and assess their

needs to see if and how I can help. Look for transparency around

fees, methods, and process. Before you leave you should have a

clear understanding of what it’s like to be a client, what you can

expect from them and what they should expect from you.

In my interview meetings with clients, we focus on four things:

1. What they’re worried about,

2. What they’re excited about,

CHAPTER 1

3. What their ideal future looks like, and

4. What could prevent them from achieving their future.

We then build a financial plan to seek their ideal future, taking

steps to eliminate their worries, focusing on their opportunities,

and maximizing their strengths.

As you meet with and interview advisors, be cautious of those

who emphasize portfolio performance. Remember, no one has the

crystal ball. You show me a portfolio that beat another portfolio last

year, and I’ll show you one that beat both. Investment performance

is consistently inconsistent. Your advisor should instead guide

your focus toward the progress of your financial plan, rather than

chasing the performance of different investments in the portfolio.

Remember, the plan comes first and the portfolio follows. Don’t

let the tail wag the dog.

Be wary of advisors using complex financial instruments and

abstract jargon. The tools necessary for achieving your goals can

be very simple. Each investment in your portfolio should have a

specific purpose that compliments an understandable strategy.

Follow the famous words from investing legend Warren Buffett,

“Don’t invest in a business you cannot understand.” The same goes

for the overarching strategy of your portfolio. Simple, consistent,

and long-term equity investing does not need to be complex or

confusing.

DO I NEED A FINANCIAL ADVISOR?

Your advisor should provide clarity, not confusion. Feel free

to ask what they did or learned during times of euphoria and

excitement (2002-2007) and during periods of fear and panic (2007-

2009). This will give you a good idea of the leadership and advice

they will provide when those periods happen again (which they

will—guaranteed). Above all else, the advisor you choose should

place the goals of your family first, keeping you accountable to

them with wise behavioral guidance throughout the lifetime of

your relationship.

Summary

Regardless of your level of expertise, it’s crucial for your

financial future to seek out a trusted advisor not only to guide

your investments, but to counsel your financial behavior. The best

athletes and most successful entrepreneurs in the world have

coaches and mentors to challenge and guide them in their decisions.

A trusted advisor who understands the landscape can lead you

through the darkness, keeping you on track and accountable to

the goals you have outlined. Whether you lean on them for clarity

when you are out of your element or simply confirm your plans to

increase your confidence, an advisor will help you stay on the right

path or (more importantly) help you avoid the wrong path. The

lifetime success of your family should be the root of each decision

and should guide you toward the life of your dreams.

CHAPTER 1

CHAPTER 2

The Power of Time

“Someone is sitting in the shade today because someone planted a tree a long time ago.”

– Warren Buffett

The greatest power in finance is time. I’ll explain with an

example.

We’ll use twins, Mario and Luigi, who just celebrated their 30th

birthday and were each given $10,000 (or coins) from their parents

to use how they see fit. Mario immediately invests his entire gift.

Luigi decides to keep the cash for two years, then invest it the

exact same way his brother did. Both investment accounts have

an average return of 10% (which happens to be the long-term

compound equity market return over the past 80+ years). Who has

more money in 10 years?

It may seem obvious that the answer is Mario. A more difficult

question is how much more has Mario earned after the first 10

years? Over $4,500. What about after 20 years? Almost $12,000.

Or 30 years? Over $30,000. This example speaks explicitly to two

fundamental truths of investing: the cost of waiting to invest and

the role of time as a magnifier.

This occurs through the principle of compounding, which Albert

Einstein considered to be “the greatest mathematical discovery

THE POWER OF TIME

of all time.” Compounding requires two essential elements: the

reinvestment of returns and time. In an investment account,

reinvested annual returns have the potential for returns on returns.

The longer returns are reinvested, the greater the potential

opportunities to accelerate your future investment returns.

In the previous example, Mario captured two extra

reinvestment years by starting immediately. Those first two years

are compounded over the next eight years. As the duration of the

investment increases (10-20-30 years), so does the difference in

their total investment return. In Luigi’s case, the cost of waiting

just two years to invest compounded to almost $30,000 after 30

years. Mario’s good decision to invest immediately, and Luigi’s bad

decision to wait, is significantly amplified over time. If Mario and

Luigi are like any other competitive siblings I have met, Luigi is not

too happy.

Let’s do another example using Mario and Luigi again. This

time, however, Mario starts saving for his retirement at age 40.

Every year he sets aside $5,000 from age 40 to age 65. In total,

Mario contributes $125,000 to his retirement over 25 years. Luigi

decides to start saving for retirement at age 30. Every year he sets

aside $5,000 from age 30 to age 40. Luigi’s total contribution of

$50,000 is spread out over 10 years of retirement saving. We’ll

assume the same long-term average equity market return for both

accounts (10% per year). Really think about this, Luigi invested

CHAPTER 2

a total of $50,000 in the first 10 years compared to Mario’s total

investment of $125,000 over the last 25 years. At age 65, which

brother has more retirement savings?

A little less obvious this time, but the answer is Luigi. He chose

to immediately invest the same annual amount for 10 years early

in his life while reinvesting returns. Then he stopped contributing

and only reinvested his annual returns, watching his account

compound at 10% per year (on average) for the remaining 25 years.

At age 65, Luigi retired with nearly $950,000 in retirement savings.

Mario chose to wait 10 years before he started saving and investing

for retirement. Then saved every year for 25 years and reinvested

his annual returns. At age 65, Mario retired with $600,000 in

retirement savings. In the end, the power of time significantly

favored Luigi by $350,000 despite contributing $75,000 less in total

retirement savings than Mario.

Of all the principles in this book, this is by far the most impactful

and clearly exhibits the purpose of this chapter. The greatest power

in saving and investing is time. Being disciplined to save early in life

allows you to save less down the road and still achieve your long-

term goals. While the example above uses retirement saving, these

principles can be applied to any saving and investing objectives in

your life (retirement, education, after-tax investments, etc.). To

better illustrate this point with clients, I like to reference our Goal

Achiever on the following page.

THE POWER OF TIME

Time is essentially a magnifier—it makes good decisions better

and bad decisions worse over extended periods. So how do we

prevent bad decisions and encourage good decisions?

In reality, nobody is perfect and the answer is not an exact

science. But there are two major factors that can move a client in

the right direction and they go hand in hand.

Behavior and Perspective

Behavior has already been mentioned several times in these

pages (and we’re only two chapters in), so you might assume it’s

fairly important. In reality, it’s very important! Behavior is the single

most important factor impacting your total lifetime investment

returns—far greater than selection, timing, consistency, and all

CHAPTER 2

other elements. Controlling your behavior, and most importantly,

trusting an advisor to keep your behavior accountable, is how you

prevent the bad decisions and reinforce the good ones.

Perspective is the best way I encourage clients to manage their

behavior. When everything is going right, you believe that nothing

could go wrong, until it does. When everything goes wrong, you

believe things will never get better, until they do!

Let’s use the most recent example from 2007-2009.

In late 2007 when the financial markets were making new

highs every day, investors saw no problem “selling the farm”

and investing everything they had. Some people even borrowed

money to invest. After all, the market was a rocket from 2003-2008

and if it goes up this week/month/year it must certainly go up next

week/month/year (I hope you’re sensing the sarcasm). Let me stop

there and insert a quote that I look at every day in my office, from

the greatest investor of all time, Warren Buffet.

“Be fearful when everyone is greedy. Be greedy when everyone is fearful.”

You know how the story ends. For the next 17 months, or 517

days to be exact, the market fell nearly 40%. Sheer pandemonium.

For those who “sold the farm” or borrowed to invest, life was pretty

bleak. They saw their life savings disappear in front of their eyes.

Borrowers defaulted on their loans. Things were pretty darn ugly.

THE POWER OF TIME

Then on March 9, 2009, the market bottomed and started to

climb. As of December 31, 2013 it’s higher than it has ever been.

Those who did not keep perspective at the top, made a bad

decision to double down their investments. Those who didn’t

keep perspective at the bottom, “cut their losses” and sold it all

therefore missing the recovery. Investors who look too closely

lose perspective and alter their behavior. They jump in or out

of the market at the worst times. It’s easy to look back to 2008

with perspective and see what investors “should” have done.

Unfortunately, no one can invest yesterday.

So what can we learn? Several things:

Declines are temporary: In each of the last 13 bear markets

when the market has fallen (or “corrected” is the usual buzzword),

it has come back higher than before. Bear market declines are

common and inevitable. They will occur, guaranteed. But they

never last forever. They are merely a temporary interruption of

the permanent uptrend in the market. Those who lose perspective

tend to change their behavior and make bad decisions that they

may never fully recover from, both financially and psychologically.

Advancements are permanent: If I told you on October 9,

2007, at the peak of the market, that prices would continue to go

higher, would I have been right? Yes, even though what followed

was a 40% decline. The point is, you, nor I, nor anybody else can

CHAPTER 2

predict when or how much the market will go up. But I can say that

it will go up. And eventually it did.

In January 1950, when the market was recovering from its first

post-WWII bear market, the S&P 500 was around $17.30. Sixty-

four years later, the S&P index is around $1850—over 100 times

higher. Each and every one of the 13 bear markets has been driven

by a terrifying financial and/or economic crises, perpetuated

through the media as the event that would end the great American

financial system. But we are still here and over 100 times better off

than we were, thanks to the power and beauty of the free market.

Read it over and over, especially in the darkest of days—“The

advancement is permanent, the declines are temporary.”

This time is never different: When markets fall the media

screams, “Although the market recovered last time, this time will

be different because [insert reason here]!” Last time we squeezed

by, but this time is Armageddon!

The reality is this time is never different. This lesson has one

truth and two variables. The truth is, markets always recover.

The variables are when, and how much. The average decline and

duration of the 13 market tumbles in the last 65 years was roughly

30% and individually lasted around 12 months. Some recovered

faster, some slower. Some stronger, some weaker. But don’t be

fooled, they all recovered. This time is no different.

THE POWER OF TIME

Think about this: if we have endured 13 bear markets in the last

65 years, that’s an average of one bear market roughly every five

years. Assuming the average person works and accumulates an

investment portfolio for 40 years, they will likely endure roughly

eight bear markets. If they retire and live an additional 30 years,

they will likely see about six more. Bear markets are inevitable.

If you are not trained to behave properly and follow the guiding

leadership of your advisor, you will fall victim to the media voices

constantly saying that this decline will surely end at the bottom.

If you managed your behavior and had the support of your

advisor focused on your long-term success, then you endured a

bumpy, scary, yet extremely successful roller coaster. You saw the

value of your portfolio temporarily fall, which felt bad, but you did

not panic. Instead, you maintained perspective that these periods

happen. Then you watched your portfolio recover and grow past

your previous high. Still, you maintained perspective that these

periods happen as well. And 30, 40, or 50 years down the road,

you may have a growing investment portfolio because you stayed

disciplined, maintained your perspective, and never altered your

behavior.

Summary

The important lessons to remember are how the power of time

magnifies good decisions like saving and investing early and often.

CHAPTER 2

On the flip side, time amplifies the bad decisions like following the

media to think this decline, unlike all others before it, is different.

Winston Churchill said, “The further we look back, the further

we may see ahead.” As history is our guide, declines are always

temporary interruptions to the permanently advancing equity

market. Maintain your perspective, control your behavior, and rely

on the leadership and guidance of a trusted financial advisor to

help you build a financial foundation for achieving the life of your

dreams.

CHAPTER 3

Going Downhill on Debt

“Any economy which saves and invests and works hard always wins out in the future over countries which consume, borrow, and spend.”

– Jim Rogers

Many families are great collectors. Unfortunately their

collection is not fine wine or rare artwork—it’s debt. In reality, debt

is a necessity. In order to live the life of your dreams, you have to

take on some debt. Whether it’s student loans early in your career,

credit card debt that got you through a pinch, or a mortgage to put

a roof over your family, everyone has been there. Some families hit

the trifecta with all three at once! It’s a tough situation, but one that

can be overcome with the right strategy and priority. Otherwise it

can feel like climbing a mountain and getting nowhere.

The first and obvious question is, “Where do we start?” Like all

elements of your finances, you need to develop a plan. For debt

reduction, it’s really a plan of attack. There is no universal answer for

where to start or what the plan should look like, but it’s something

your advisor should counsel you on during the development of

your financial plan. Regardless of where you start, the greatest

progress in debt reduction comes from paying additional dollars

toward debts above the required payment. You have likely already

heard that at some point in life, but to help you understand why I’ll

give a quick overview.

GOING DOWNHILL ON DEBT

Debt obligations are essentially made up of two separate

“types” of payment. The principle payment represents a fraction

of the dollar amount borrowed. The interest payment represents

a fraction of the cost for the amount you borrow. This is because

the bank or lender you borrowed from wants to be paid back the

initial amount loaned (your principle) plus a return on the money

they loaned you (interest). So why pay extra each month? Because

any payment over your monthly obligation goes to paying down

your principle. The more money that goes toward your monthly

principle payment, the faster the loan is paid off and the more you

save in interest expense.

Now that you have a grasp on the difference between principle

and interest, how are you going to pay down your debt? In my

experience, there are two main strategies to choose from. Though

most families use a combination of the two.

Strategy 1

Pay off debts with the highest interest rates first. After all, they

are the most expensive in the long-run, meaning you pay the most

in total interest costs at the end of the loan. Generally, consumer

debt (credit cards, etc.) have the highest rates and mortgages

have the lowest rate (especially if you recently refinanced). This

strategy is optimal for families with significant excess monthly

cash flow (monthly income exceeding their expenses) that can be

CHAPTER 3

paid toward their most expensive loans.

Strategy 2

Prioritize debts by remaining balance. Pay off the lowest

balance first and work your way up to the largest one. This strategy

is less conventional but plays toward one major psychological

factor in debt reduction—accomplishment. Paying off your

smallest balance means you have one less obligation, three debts

instead of four. Celebrate your accomplishment and progress, then

move onto the next debt. For some families, eliminating just one

small, monthly obligation can have a big impact on their monthly

budget and give them greater motivation for the remaining debts.

The Snowball Method

Once you have chosen a strategy, or some combination of

the two (for example, paying off one debt with an outrageously

high rate, then shifting priority to the remaining low balance

obligations), the fastest progress is made using the Snowball

Method. The premise is to focus on your first debt until its fully

paid off. Then apply the money devoted to paying the first debt

toward payments on the second. When debts one and two are paid

off, those payments are applied to debt three and so on—hence

the term “Snowball”. This results in greater progress in debt

reduction without incurring any significant declines in lifestyle.

But remember, no progress can be made without challenges. You

will likely need to make sacrifices early on to “get the snowball

rolling” on your first debt. And as you pay off each loan, it’s hard to

ignore the monthly “raise” from eliminating each obligation. But

by conquering these obstacles you will feel accomplished and see

the momentum you have gained paying off each debt. Before you

know it, you’re debt free!

The best way to understand this is through an example:

Let’s take the Millers, a young husband and wife in their early

thirties with two kids. Together their monthly income barely

exceeds their spending and in some months, they have to dip

into savings to pay the bills. Let’s say the Millers have four major

obligations:

• $5,000 credit card debt with 20% APR (Annual Percentage

Rate) and a minimum payment of $250/month

• $18,000 Car Loan at 4% for $400/month

• $30,000 Student Loan at 6% for $350/month

• $250,000 Mortgage at 3.5% for $1200/month

Because their credit card debt has the lowest balance and

the highest rate we’ll focus on that. They make regular monthly

payments on all debts and are able to sacrifice $500 in their

monthly budget to add toward their credit card payment. In total,

they pay $750 per month toward their credit card debt. After eight

months, their credit card is paid off—they celebrate!

GOING DOWNHILL ON DEBT

CHAPTER 3

Next they tackle the car payment. Notice I’m selecting the

car loan as the second debt priority even though the student loan

is technically “more expensive” based on the interest rate. The

Millers pay their obligated $400 payment plus the previous $750

credit card payment. In total they pay $1,150 per month on the car.

Their monthly car payment is more than double and car is paid off

three times as fast—celebrate!

Next the Millers focus on the student loans. They pay the

obligated $350 payment plus the previous $750 credit card

payment and the previous $400 car payment. They pay a total of

$1,500 per month and eliminate their student loan in less than two

years (rather than nine years paying the minimum $350/month)—

celebrate!

All that’s left is a very reasonable mortgage payment and the

Millers now have an extra $1,500 per month to allocate to the

mortgage or save and invest each month.

From where I sit, that’s major progress!

The keys to this example are focus and the priority of debts.

The Millers sacrifice early on by paying extra toward the credit

cards. Then instead of taking the monthly “raise” from paying off

the cards, they focus on applying it to the next debt and so on.

Their monthly budget is unchanged but they make significant

progress on each debt, allocating old monthly payments onto their

next obligations. In the end, they are rewarded with the freedom

of having only one reasonable debt payment and excess monthly

cash flow.

For many families the process starts with an advisor who can

personalize your debt reduction strategy, prioritize your payments,

and keep you focused and accountable. The sacrifices made today

are absolutely necessary for progress in the future. Adjustments to

any element of your financial life will impact all the other pieces,

from budgets to retirement savings. This is explicitly true early on

in life where small modifications can be reflected and compounded

over many years to come.

Advice on Credit Card Debt

There is a reason why I typically recommend my clients pay off

any credit card debt as a first priority. Usually it’s a relatively low

balance compared to your other debts (mortgage, car loan, etc.),

but more importantly credit card debt is outrageously expensive!

Aside from the monthly or annual fees, credit card companies

are in business to make money on your debt. The national average

credit card APR is around 15%. Compare that to your mortgage

rate, likely 3-5%. At 15% APR, a $5,000 balance carries almost $700

in interest expenses annually. Like I said, outrageously expensive.

Credit cards do have some very useful functions, namely

GOING DOWNHILL ON DEBT

CHAPTER 3

consolidating, tracking and reporting your monthly and annual

spending. Essentially the credit card company is bookkeeping

your monthly transactions for you. As long as the balance is paid

each month, the stated APR does not affect you. For my clients,

I recommend picking one card and using it exclusively for your

family. Enjoy the rewards program, link your transactions to a

budgeting software (which I’ll mention in the next chapter), and

always, always pay it off every month.

Advice on Home Equity Lines of Credit (HELOC)

With a traditional mortgage, the bank or lender agrees to give

a homeowner a large sum of money in exchange for the monthly

commitment to repay principle and interest for a certain period

of time (typically 15-30 years). A HELOC, also called a “second

mortgage,” has a similar premise with a slight variance. A HELOC

is actually a line of credit (hence the name) that can be drawn upon

as needed using a home as collateral. In essence it turns the home,

a non-cash (or illiquid) asset, into an liquid asset. You are actually

using the equity you have built up in your home (calculated by the

home value minus the balance of your mortgage) as cash.

For example, if you purchased your home for $400,000 and

borrowed $250,000 in the form of a mortgage, your equity is

$150,000. With a HELOC, you can borrow up to a certain percentage

of the equity (typically 80%) you have in the home, in this example

roughly $120,000. But remember, using a HELOC means you are

increasing your total obligation and as a result increasing your

monthly debt payments. Simply put, you are “adding” to your

existing mortgage.

The benefit of a HELOC is the flexibility to draw up to a

percentage of your equity. Also, payments committed to HELOCs

can be “interest only,” meaning your monthly payment covers only

the interest cost of borrowed amount. However, at the end of the

stated term you still have to “pay the piper” and cover the principle

amount borrowed. HELOC interest rates are usually comparable

to mortgage rates, however, they are often variable interest

rates. This means they are tied to a common universal rate (the

Prime Rate or LIBOR), which can rise or fall depending on various

circumstances (political, economic, etc.). The most common use

of a HELOC is to help pay for major home renovations. If those

renovations significantly increase the property value of the home,

you could equally increase your debt obligation and your home

value at the same time. Regardless, you will still have an increased

monthly payment.

The major downside to a variable rate is the exposure to rising

interest rates, meaning increased monthly payments. Using a

HELOC in a way that does not significantly increase the value of

your home reduces your equity and increases your debt. Generally,

HELOCs carry an annual fee for the option of using the line of

GOING DOWNHILL ON DEBT

CHAPTER 3

credit. Even with a zero balance on the HELOC, you may still pay

annually for the option to borrow. Some people use a HELOC as

a cash reserve for emergencies, unexpected medical expenses,

or even education. It’s been my experience that during periods

of unexpected emergency, the last thing they need is one more

monthly payment. A more conservative strategy is to plan your

savings and maintain a cash reserve for emergencies rather than

relying on lines of credit or increasing debt.

While a HELOC has it’s few benefits and purposes, it ultimately

adds to the pile of debt. Remember, we are striving toward the

freedom of being debt free! Rather than increasing your debt,

ensure you have enough in emergency reserves, then focus on

planning, saving, and investing.

Summary

We focus on debt reduction as an early and essential piece

of a client’s financial plan. Regardless of how much debt client’s

have accumulated, the goal is eliminating monthly obligations as

soon as possible. At the very least, try to eliminate all debt before

your working income stops in retirement. This goes back to the

foundational principle of only writing on the back of checks—

work toward a point where you don’t owe anyone anything.

Before investing dollars, ensure there is enough money in risk-free

reserves that can be accessed quickly should an emergency arise.

How much is enough? That depends on several variables based on

your individual situation. During the process of paying down debt,

focus on the progress you have made rather than the balance

remaining. After each balance is paid off you will feel a tremendous

weight lifted and, through focus and perseverance, the freedom

and independence of being totally debt free!

GOING DOWNHILL ON DEBT

CHAPTER 4

Building a Budget - Where to Begin

“Chains of habit are too light to be felt until they are too heavy to be broken.” – Warren Buffett

The word “budget” may be considered a bad word in your

household. For example, “Honey, that new TV isn’t in the budget.”

Or maybe, “This month we really can’t go over the budget.”

The way I see it, a budget is an ideal accounting of your monthly

income and expenses. It’s simply a way to monitor, manage and

plan monthly income and expenses to understand how much is

coming in and where it’s flowing out.

In the past, monthly expenses were recorded in a check register

making it common and convenient to maintain a budget. Make a

deposit, record it. Write a check, record it. The money in minus

the money out equals an ending balance. Today, people are in the

habit of putting expenses on the credit card and hoping that total

spending is less than the total income.

Building a budget is usually difficult for people, but it doesn’t

have to be. Most people start by picking a few numbers and trying

to meet those estimates on a monthly basis. Go over budget this

month and try again next month. That approach leads to an endless

cycle of frustration and a ballooning budget. There’s a better way

to build a budget than guess and check.

BUILDING A BUDGET

The first step is to take a look at existing monthly expenses. Try

to establish a comfortable baseline for recurring monthly expenses

without including any irregular expenses. Typically the best place to

start is the credit card company, as they automatically categorize

expenses and can offer an initial grasp on your monthly spending.

You can then divide the categories into different subcategories.

Some popular categories include:

• Savings (emergency, retirement, education)

• Home Expenses (mortgage, furnishings, projects)

• Food & Dining

• Car, Gas & Transportation

• Bills & Utilities

• Gifts & Donations

• Shopping & Entertainment

• Pet Expenses

I highly recommend using a spending and budgeting tool to

view and track your monthly expenses. The most convenient

programs are internet-based which enable dynamic links to online

banking and credit card accounts. This allows transactions to

be automatically documented, categorized by description, and

reviewed anywhere with an internet connection.

We offer clients complimentary access to an internet-based

program called WealthVision™ that incorporates each aspect

CHAPTER 4

of their financial life and aggregates everything onto one simple

dashboard. Clients can link their credit cards, bank accounts, 401(k)

s, investment accounts, mortgages or other debt balances. Even

sensitive documents like wills, trusts or tax returns can be stored

on a secure, cloud-based vault. Not only do clients track their

spending and monitor their monthly budgets, the tool is also used

as the foundation of their financial plan. It allows us to collaborate

in planning out estimated income, saving strategies, retirement

contributions, investment performance and other elements

essential to achieving long-term goals. Utilizing a powerful tool

like WealthVision™ is integral to building a lasting financial plan.

With an understanding of your total spending and monthly

cash flows, continue using the tool to monitor total monthly

expenses ensuring that they stay close to your ideal budget. While

building your budget, it’s important to understand the difference

between non-discretionary and discretionary expenses.

Non-discretionary expenses are those monthly payments

that must occur to maintain a current standard of living. These

expenses typically include mortgage and debt payments, utility

bills, gas, food, childcare, etc. For the most part, non-discretionary

expenses remain mostly consistent from month-to-month.

Discretionary expenses are those that vary from month-to-

month and are typically entertainment related. Expenses like

BUILDING A BUDGET

tickets to shows or sporting events, dining out, gifts, or home

projects for example. These transactions are not essential to daily

living, but they certainly make life more enjoyable.

After categorizing your non-discretionary and discretionary

expenses, you should have a good understanding of your total

monthly household expenses.

Now focus on the second step in building a budget—ensuring

monthly income is greater than monthly expenses. If you make

more than you spend each month, you are cash flow positive. If you

make less than you spend each month you are cash flow negative

and adjustments should be made. Cash flow negative families

often dip into their savings to fulfill their monthly expenses. This

strategy is fine for the occasional month but it’s far from optimal.

Continuing this approach could eventually wipe out the family’s

cash reserves, increase their debt obligations (and therefore debt

payments), and eliminate their investment or retirement assets. In

short, it’s the gateway drug to poor financial habits.

Now that we have discussed expenses and income, we can

explore the often-forgotten third step of budgeting—grow the

budget. Every year life gets more and more expensive. Said a

different way, a dollar this year will buy less next year. In finance,

no one can guarantee annual investment performance, but I can

guarantee life will be drastically more expensive five, ten or even

twenty years down the road. Consider how the price of first class

postage has increased exactly 32% from 2004-2014 (from $0.37 to

$0.49). This element is especially true with kids. Their expenses

grow every year on top of the normal increases in the cost of living.

Ideally, household income will rise each year to fulfill some of this

growth in expenses. However, there will be periods where income

does not grow, so it helps to have cushion in your budget and cash

reserves available.

What about overspending?

This will happen occasionally so don’t panic. Simply make

a mental note, communicate it with your spouse and/or family

and adjust accordingly. For example, if you go over budget in the

entertainment category, hold off on a home improvement project

until next month. Remember, non-discretionary expenses cannot

be reduced without altering lifestyle. Discretionary spending can

adjust based on varying monthly expenses.

The same strategy can be applied to going over-budget for the

entire month. Make a mental note, communicate with your family,

and adjust accordingly in the following month. Go out to dinner

once every other week instead of twice every week. Rent a movie

instead of going to the movies. Making up the entire deficit is not

vital to your long-term financial health, but the effort to moderate

spending following an over-budget month can go a long way both

CHAPTER 4

BUILDING A BUDGET

emotionally and financially. Spending over the budget in one

category or month means sacrificing to stay within the budget in

another category or month. Thoughtful and frugal spenders use

this strategy to maintain a long-term perspective throughout their

monthly expenses.

Where does saving fit into the budget?

Contrary to popular opinion, saving is a non-discretionary

expense. You may recall in the budget categories listed earlier

that savings was the first point. Most people go through their

monthly budget and save if there’s any dollars left at month’s end.

In my experience, that’s a big if. Instead I encourage my clients

to save first and spend the rest. Take your monthly income, set

aside savings (retirement, education, emergency reserve, etc.)

and budget expenses around what is left over. By making saving

the first priority, the focus and emphasis is on the future, instead

of your temporary “wants” today. Maintaining this perspective

month-to-month can be really tough, especially in tight, over-

budget months. It’s easy to skip savings one month in an effort to

make up for it the next month without actually doing it. Remember

what we talked about in chapter 2, the longer money has to grow,

the greater positive effect in the future. Adopt this habit of saving

first to capture all the benefits of the power of time.

What about big expenses that come up?

Typically these irregular expenses are over-and-above the

monthly budget and spike spending for a given month (which is

easy to see when using a budgeting and transaction tool).

Whenever possible, I always recommend clients plan and save

for large future expenses before they arise. If you need a new car

in two years, start saving and allocating some dollars each month

toward that major expense. If you are planning to update some

furniture, allocate savings each month to fund the future purchase.

This way the credit card is used for the transaction and reward

points, but not for the debt and resulting high interest expense. To

avoid disrupting monthly spending, major planned expenses over-

and-above the budget should be saved for before the purchase,

rather than paid off after the purchase.

In my opinion, creating a “project account” is the best way

to plan for inevitable big expenses. This is accomplished either

by physically having a separate savings account or mentally

earmarking dollars in other cash accounts. This account will ebb

and flow throughout the year based on projects and other major

purchases. Throughout the year, set aside some money each

month to build up the account until the next project comes up

(which it always will), then transfer your project savings to pay the

expense. Most importantly, plan out the major upcoming expenses

CHAPTER 4

BUILDING A BUDGET

so you can save for them accordingly.

A frequent example I encounter with clients is increased

spending during the holidays. Christmas is not an emergency,

it happens every year on the same date. So plan accordingly by

saving some money each month in the project account. When

December rolls around, you will have already accounted for the

increase in holiday spending.

Summary

A budget is simply an ideal accounting of monthly income and

expenses. It’s a mental check to keep monthly cash flow in line

with a long-term financial plan. Though budgets may come in all

different sizes based on your lifestyle, they must be realistic. Tools

like WealthVision™ are necessary to track expenses, categorize

transactions and monitor progress. The results each month are

often surprising. When (not if) you go over budget, make a note,

communicate with your spouse and/or family and modify as

needed. Like that old Saturday Night Life skit, without moderation

and self-control, you could end up with Chris Farley “living in a van

down by the river.”

CHAPTER 5

Where to Save for Retirement

“The economy depends about as much on economists as the weather does on weather forecasters.”

– Jean-Paul Kauffmann

What keeps you up at night? When I ask clients this question,

the most popular responses, aside from ensuring their family is safe

and provided for, is making sure they can retire without running

out of money. Obviously, retirement is a major point of emphasis

with clients and is often their greatest source of motivation and

fear. We provide a roadmap for clients to work toward their goals

before retirement, and an income strategy to support their lifestyle

during retirement, as a part of their long-term financial plan.

The path to a traditional retirement usually involves

working several decades, saving consistently, investing well and

establishing enough to live on for the duration of retirement—on

average roughly 30 years. The greatest challenge, however, is not

simply running out of money. The real challenge is growing your

investment income in retirement to maintain your lifestyle without

dipping into the principal invested.

Think of it this way: What if you never receive a raise for the

next 30 years? Could you still buy the groceries you need or pay the

utility bills? If everything costs more in 10 or 20 years, your income

must rise in order to maintain your lifestyle. The same holds true

WHERE TO SAVE FOR RETIREMENT

during retirement. Income that doesn’t grow means a decline in

purchasing power for goods and services. For retirees, this means

taking withdrawals from invested principal and usually results in a

tight race against the clock. Which will exhaust first: your lungs or

your portfolio?

Redefine Retirement

Before digging into the concept of retirement income and

hashing out the details and strategies of retirement saving, I

challenge you to really think about what retirement might look

like. Your parents, likely somewhere in their 50s, 60s, or 70s, have

probably retired or plan to do so in the near future. For their

generation it was common to graduate college (or high school,

trade school, etc.) and start a 30, 40 or even 50-year career with

the same company. After a long career they reach a specific age

and decide to retire, collect their pension income and move to

Arizona to play golf and watch the world go by.

Today, I think the idea of “retirement” is transitioning toward

the freedom to choose when, where, and how much you work,

rather than quitting at a certain age. The younger workforce today is

motivated to continue to work hard, be innovative, and contribute

during the entire duration of their lives. Life expectancies are

increasing more than ever before because individuals grasp the

importance of maintaining good mental and physical health, and

CHAPTER 5

having a creative purpose in the world. I think these characteristics

will create less “retirement” and more “work by choice.” If this

transition is true, investors must modify and adjust the strategy

for retirement planning from the traditional methods used by the

previous generation.

Needs in Retirement

In the past, individuals spent years working at the same

company. Knowing they could rely on their pension income and

social security for retirement expenses. Unfortunately, pension

plans are far less popular today as employers prefer defined

contribution plans (like 401(k), 401(a), 403(b)), putting greater

responsibility for retirement saving on the employee. Without the

guaranteed income of pensions, employees must prepare their

individual retirement accounts to generate enough income to rely

upon for the next three decades. How is this done?

People typically view this as building up a nest egg where,

upon retirement, they switch to a “relatively safe” investment

that pays a fixed income each year while slowly depleting the

principal. Essentially, they spend years working and building up

their retirement savings, then gradually liquidate the assets to

support their lifestyle. This strategy is littered with uncontrollable

risks which are significantly amplified over a 30-year retirement

period. I’ll highlight a few:

WHERE TO SAVE FOR RETIREMENT

• Fixed Income Risk – Upon retirement, investors may seek

income through bonds or other fixed income generating

investments. They are considered a “relatively safe”

instrument as they require a principal investment and will

usually provide a flat rate of income for a specific number of

years. At the end of the stated period, the bond returns the

full amount of principal investment. However, as we have

seen in the last ten years, fixed income rates have declined,

requiring a greater principal invested or a longer investment

duration to achieve reasonable annual income. The risks lie

not in the guarantee of income, but in locking the flat rate

of interest when retirees flip the switch to income. When

rates are low, it’s far better to borrow, than to lend.

*Bonds are subject to market and interest rate risk if sold

prior to maturity. Bond values will decline as interest rates

rise and bonds are subject to availability and change in price.

• Market Risk – Regardless of market gyrations, income

during retirement is sometimes drawn from an Individual

Retirement Account (IRA). Without proper planning and

investment strategies, an investor may be forced to sell

during periods of market corrections to fulfill their capital

needs. That translates to selling at the worst possible times.

This timing risk could drastically alter a retirement plan and

reduce the vital income needed for reccurring expenses.

• Inflation Risk – When it comes to purchasing power,

inflation is a silent killer. Let’s assume an annual inflation

rate of 3%, which is roughly the long-term average. This

means the exact same goods and services will cost 3% more

next year than they did this year. Extend this over a 30-year

period and the compounding impact of inflation is life-

altering. For example, $1.00 of goods or services today will

require $2.45 for the same goods and services in the 30th

year. A retirement strategy that does not provide growing

income to account for this increased cost of living will result

in either rapid depletion of assets or a gradually diminished

lifestyle during retirement.

These risks can be avoided with a retirement strategy that

includes investments paying rising income at rates exceeding the

rising cost of living. One strategy is to invest in great companies

with a history of growing dividend payments and the ability to

continue grwoing them in the future. Dividends represent profits

earned by a company paid out in cash to shareholders. Investing

in companies that continually increase their dividends is the

best way to combat the gradual risk of inflation. During periods

of market corrections, income can still be paid to shareholders

regardless of the changes in market value. The most healthy and

stable companies will continue to grow dividends paid to investors

even during corrections in the market.

CHAPTER 5

WHERE TO SAVE FOR RETIREMENT

Above is an illustration of a real, public company that has

grown its dividend each year for the past 40 years. This includes

periods of market panic and the market declines of 2000-2002 and

2007-2009. In order to meet compliance standards, I can’t disclose

the company’s name, but I can say they make global consumer

products. The stairstepped line represents the gradual dividend

increases while the jagged line represents price fluctuation.

In other words, this strategy focuses on growth of income

rather than growth for income. As I mentioned earlier, over the

long-term, the average annual return of the equity market is

roughly 10% in the last 80+ years. However, market recessions

are a normal and natural part of long-term expansion and have

occurred, on average, once every five years. It’s wise to position

your retirement portfolio to seek predictable, growing income

especially during your retirement years to combat the long-term,

gradual effect of inflation.

The Greatest Retirement Advice

I’ll say this again and again: start early and save often.

There’s an equation in finance used to estimate the doubling

of a portfolio value called the Rule of 72. It’s based on the same

compounding force we discussed in chapter 2 where returns are

reinvested over a long period of time. The premise is to estimate

how long it takes a portfolio to double in value given an average

growth rate and time period invested. The equation is:

If Rate x Time = 72, then the portfolio value is doubled.

For example, a $50,000 portfolio would double in value

assuming an average annual return of 10% invested over 7.2 years.

If 10(%) x 7.2(years) = 72, then a $50,000 portfolio doubles to $100,000.

However, if the portfolio’s annual return was closer to 7% per

year, it would take 10.3 years for the investment to double in value.

CHAPTER 5

WHERE TO SAVE FOR RETIREMENT

The Rule of 72 is a mathematical concept and does not guarantee investment results nor functions as a predictor of how an investment will perform. It is an approximation of the

impact of a targeted rate of return. Investments are subject to fluctuating returns and there is no assurance that any investment will double in value.

If 7(%) x 10.3(years) = 72, then a $50,000 portfolio doubles to $100,000.

The earlier you start saving, the more opportunities you will

have for doubles in your account. This is especially important for

capturing the last and greatest doubling period. A retirement

account of $50,000 invested for 35 years averaging 10% investment

return could have roughly five doubles! This is illustrated above.

The same rule can be applied to a portfolio generating income.

Let’s assume $500,000 portfolio generates 4% in dividend income

equating to $20,000 of income per year. If the dividend income

grows on average 10% per year, then in 7.2 years the account

will generate $40,000 of income per year. Then 7.2 years later,

the account will generate $80,000 of income per year and so on.

Remember, in retirement you have two choices: growth for income

or growth of income. This strategy focuses on investing in the

best companies in America or around the world which historically

provide stable and predictable growth of income through rising

dividends.

As I mentioned in Chapter 4, it’s essential to have growing

income before retirement and it’s just as crucial to have growing

income during retirement. Income that does not grow during

retirement translates to a reduction in purchasing power due to

inflation. We call this effect “getting poor slowly.” One of the best

ways to achieve growing income throughout retirement is seeking

ownership in companies that grow dividends.

Sounds great, but where do I start?

There are several options for retirement savings accounts. The

types and characteristics vary from one to another and each come

with their own complexities which should be reviewed with your

advisor.

401(k), 401(a), 403(b), etc. – The greatest benefit of these

instruments are the matching contributions typically offered

through an employer sponsored retirement plan as a part of the

company’s benefit package. Many employers will offer incentives

CHAPTER 5

WHERE TO SAVE FOR RETIREMENT

to employees who contribute and save by matching contributions

up to a certain percentage of income. This is essentially a tax-

deferred annual “bonus” contributed to employees who save

for retirement. When possible, always contribute enough to the

employer sponsored retirement plans to at least max out the

employer’s matching contribution. Otherwise free retirement

money is left on the table.

Traditional IRAs – Individual Retirement Accounts (IRAs)

outside of employer sponsored plans are set up by individuals as

a tax-deferred retirement savings vehicle. This means the amount

contributed to a traditional IRA is not taxed until the individual

reaches a certain age and begins receiving income from the

account. These retirement distributions are taxed at the ordinary

income rate in the current year. The benefit with traditional IRAs

lies in the reduction of taxable income today, and deferring that

income until retirement.

Currently, income from a traditional IRA cannot be withdrawn

until the account holder reaches 59 ½ years old. The IRS issues

a 10% penalty tax for any early withdrawals in addition to the

ordinary income tax on the withdrawal. The details (especially

limits for contributions) change frequently and should be reviewed

with an advisor.

Roth IRAs – Roth IRAs are a relatively new retirement savings

instrument and have only been around since 1997. Roth IRAs are

similar to Traditional IRAs in that they are established by individuals

and have the same restrictions and penalties for withdrawals

before 59 ½ years old. The greatest benefit, however, is that

contributions grow tax-free for the duration of the investment.

Dollars contributed to a Roth IRA are taxed today, but the

investment grows tax-free so long as withdrawal restrictions are

met. Some employers offer the Roth feature on 401(k)s for eligible

employees with the same restrictions for withdrawals. Roth IRAs

offer major benefits for clients and I strongly recommend making

a yearly contribution to a Roth IRA whenever feasible. There are,

however, income restrictions for individuals contributing dollars to

Roth IRAs which should be discussed with an advisor.

Summary

The retirement plans covered in this chapter are just a few of

the many options suitable for retirement planning and savings.

There is great complexity and minute details with each retirement

instrument that should be considered and reviewed with your

advisor in order to build an optimal retirement savings strategy.

Consulting an advisor and CPA will provide more information on

your specific situation and any taxable strategies for contributions.

The most important element to retirement savings is to start early

and save often. Doing so will always provide the greatest and most

lasting financial impact when you decide to “make work a choice.”

CHAPTER 5

CHAPTER 6

How to Save for College

“Temperament is more important than IQ.” – Warren Buffett

This chapter will focus exclusively on the factors and elements

around saving for college. I will cover college saving strategies,

scenarios, and frequent questions I receive.

In my experience, a majority of parents desire to fund some,

if not all, of their child’s undergraduate education expense, when

they are able. My advice is based on that assumption.

The Best Way to Save for College

Fortunately, the themes and strategies already covered in the

early pages of this book are fully transferrable for nearly all saving

objectives. That being said, the best way to save for college is to

pre-fund an investment account for each child early on and make

additional monthly contributions on a consistent basis until they

graduate high school.

As we learned in chapter 2, the Power of Time means starting

sooner is always better. With college saving there is a finite

and relatively short period of time to invest and grow their

education account. The previous example of Mario and Luigi

saving for retirement could be applied here, but with a slightly

HOW TO SAVE FOR COLLEGE

less compounding impact due to the shortened time of the

investment—18 years instead of 30. However, we can glean the

same important principle which is to start early and save often. This

strategy provides the greatest opportunity for long-term growth

(over an 18-year period) by investing a large amount early on

(preferably at birth), and adding to the investment with automatic

monthly contributions.

So where does this early lump-sum investment come from?

Some families may receive financial gifts from friends and extended

family when a child is born. Maybe the future grandparents

would like to provide a financial gifting for their new grandchild.

Regardless a large majority comes from planned savings set aside

prior to birth. Recall from chapter 4 on Building Your Budget, major

expenses are best funded by saving for them before the purchase,

rather than paying them off after. When planning to have a baby

start setting aside money each month to help seed an investment

in their education fund. Similar to a project account, these funds

can be earmarked mentally or in a separate physical account.

After the child is born, make consistent monthly contributions in

their account and invest newly contributed dollars immediately.

Automatic deposits from a bank account is an excellent way to

make saving for college a priority.

This strategy is also easily scalable for whatever your goals

may be. Whether you are trying to fund all, half, or maybe just a

CHAPTER 6

semester or two, start early and save often!

How to be Fair

This is one of the major concerns in my conversations with

clients regarding their college savings plan. No parent wants to

show favoritism to one child over another, at least not publicly!

However, when building and implementing a strategy for education

savings, fair does not always mean equal.

For example:

Jack and Jill’s parents invest $5,000 on the day each child was

born, and automatically contribute $200 each month to both

education accounts. Over 18 years, both Jack and Jill receive total

contributions of precisely $48,200 dollars from their parents—

completely and totally fair.

Jack was born in 1990. During the first 18 years of his life, from

1990-2008, the average annual return of the S&P 500 was 10.40%. If

his parents followed their consistent saving and investing strategy

(invest $5,000 at birth and $200/month until age 18), Jack’s college

account would total roughly $159,000.

Jill was born in 1995. During her first 18 years from 1995-

2012 the average return of the S&P 500 was 8.42%. Keeping with

their decision to remain fair, Jill’s parents contributed the $5,000

investment at birth and $200/month until her 18th birthday. Jill’s

HOW TO SAVE FOR COLLEGE

college account would total roughly $124,000.

The $35,000 difference in total account values is 100% attributed

to the variance of average annual return during the first 18 years

of each child’s life. Remember, their parents contributed the same

$48,200 to each child’s account—totally fair. Yet their accounts

were different at the end of each child’s investment period—but

not equal.

So how do parents deal with the difference? Aside from saying,

“Life isn’t fair,” I always encourage clients sit down with each child

and explain the strategy, variables, and outcome. What was done?

Why was it done? What does it mean for the child? This is a great

way to educate kids on the elements of saving, investing, and the

power of time. Explain how the financial investment made early on

and the consistent monthly contributions grew enough to provide

a nice source of funding for their education expenses, regardless of

the ending balance.

Whether the objective is to fully fund or partially fund your

child’s education, this strategy is an excellent and efficient way to

save and invest for college. With a little planning and the guidance

of an advisor, the parents in this example were able to pay for a

large piece (if not all) of college while only contributing about

$50,000 per child. Using the right variables and tuition estimates,

your advisor can walk through an education saving strategy for

your family.

Keep in mind though, if the timing of an education withdrawal

falls during a normal correction in the market, it will have a negative

impact on the balance of the account. If your desire is to fully fund

education, combat this by temporarily funding education through

monthly expenses, then reimbursing from the child’s education

account after the market has recovered. An advisor can personalize

this adjustment based on your specific scenario.

Where to Save

There are several options for saving and investing dollars for

college. I’ll explain the two most popular methods and provide

some advice on each.

The first and most common option is a 529 college savings plan.

The name is derived from Section 529 of the Internal Revenue Code

which created these savings plans in 1996. They are essentially

tax-deferred savings plans, meaning taxes are paid on the dollars

contributed, but gains on the investments grow tax-deferred.

Withdrawals are federally tax-free so long as distributions are

made for college tuition (or as the code states it post-secondary

education) and/or related expenses. Some states offer additional

tax benefits, but may vary from state-to-state.

The 529 plans are technically offered “through” states though

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HOW TO SAVE FOR COLLEGE

they have no state restrictions associated with them. For example,

if someone lives in Colorado and purchases a 529 plan through

Rhode Island, their student could still attend the University of

Oregon. The state association only distinguishes slight variations

in 529 options.

The benefit of 529 plans is the potential for tax-deferred

growth of investments. Another smaller benefit could be the

ability to change an account to the benefit of other siblings or

family members. This essentially transfers any remaining account

balance to another family member for use toward their post-

secondary education expenses.

There are, however, several disadvantages to 529s to be aware

of:

1. The tax-deferred benefit is only eligible for “post-

secondary education”—meaning college, graduate school

or any education after high school. If your student attends

a private elementary, middle, or high school, 529 account

funds can’t be used without a 10% penalty tax in addition

to the income tax on the withdrawal.

2. If your child attends college and doesn’t use the full balance

of his or her 529 account, the remaining balance must

either be transferred to another family member to be used

for post-secondary expenses or is fully taxed at the penalty

rate at withdrawal.

3. 529 plans are offered by states, but are invested through

an investment management company. The investment

options are typically adjusted based on the age of the

student. In my opinion, the overall performance of 529

plans are relatively mediocre compared to average long-

term equity returns. The plan investment options are

typically limited to roughly a dozen investment choices

or a predetermined investment strategy ranging from

aggressive growth to conservative.

The second option for college savings is through the Uniform

Transfer to Minors Act (UTMA). This type of account allows for

dollars to be saved and invested for the benefit of the child and

withdrawals are not restricted to post high school education and

expenses. However, assets transferred to the UTMA account are

irrevocable and cannot be transferred to another beneficiary or

recovered by the parents. The account is overseen by a custodian

(typically a parent) until the minor reaches the state-specified age

of majority, usually 18 or 21 depending on the state. The child then

retains full ownership of the account.

I prefer UTMA accounts and recommend them to clients for

several reasons:

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HOW TO SAVE FOR COLLEGE

1. UTMA law permits virtually any type of investment for

the benefit of the minor. This allows the advisor to build

a portfolio that is specific to the needs of the child while

also considering the financial standing of the family. It

allows far greater flexibility in the investment allocations

without restriction to specific fund options or prepackaged

investment strategies.

2. Funds from a UTMA account can be used for pre-college

education and any other expenses explicitly benefiting

the child. If your child receives grants or scholarships for

college, the balance of their UTMA account is maintained

until they reach 18 or 21 at which point they may take full

ownership of the account.

3. While gains are not deferred, income produced by the

investment is taxed to the child, who is typically in a lower

tax bracket. There are certain limits, however, which should

be discussed with a tax advisor or CPA.

The greatest disadvantage of a UTMA account is the lack of

tax-deferred gains. Additionally, some families may not like the

irrevocability of UTMA asset transfers. However, when properly

addressed, this encourages the child to assume responsibility for

the gifted investment provided by their parents.

Remaining Balance

As mentioned earlier, I strongly advocate explaining the

process, reasoning, and elements of education savings. Encourage

your children to think of their education investment accounts as

money to be spent in a way that benefits their future. Sounds

a little scary right? How is a high school graduate going to act

knowing several thousands of dollars are set aside for him or her?

It starts with a conversation. Explain that money is set aside for

them to be used for education first. Any remaining dollars, can be

used for other major and productive expenses in their life (not for

a new BMW). This encourages them to think seriously about their

college decision and motivates them to grow and mature into a

young adult over the next 4+ years. That conversation might look

like this:

Parents: Jack, a few days after you were born we decided to

set aside $5,000 and invest it for you to help pay for college.

Every month since then we’ve added $200 to that account.

The money was invested for all 18 years of your life and

has actually grown to almost $160,000! You’ve already

accomplished so much and we’re excited to see what you’ll

do in the future. We’re giving you this money to use for your

education at whatever school you decide to attend. After

you graduate, any remaining amount is yours to help pay for

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HOW TO SAVE FOR COLLEGE

things like graduate school, starting a business, or paying for

a down payment on a house.

That being said, we wanted to tell you this now as you think

about where you want to go to school since this may play a

factor in your decision.

What naturally follows is great jubilation as your teenager leaps

into your arms for an deeply emotional embrace while expressing

their endless gratitude that you planned so well for their future.

(Not likely, but we can dream.)

This knowledge may be a significant factor in what colllege

they attend and in their motivation during college. They may

choose a school with more “bang for the buck” instead of going

to an expensive, out-of-state university. It could motivate them to

graduate a semester early so they can save the money for grad

school. Either way, this conversation can be a great starting point

where an almost-high-school-graduate starts thinking like an adult

and making decisions that impact their future.

Today, I still manage converted UTMA accounts for post college

graduates using their remaining balance as a foundation for their

families. It started as a seed gifted by their parents and turned into

the foundation for their financial future.

Summary

The principle bears repeating—start early and save often.

Regardless of your objective, education saving and investing is no

different from other large, long-term expenses. For families with

multiple children, it can be difficult to be entirely fair. One child

might go in-state, one might go out-of-state, and one might get a

scholarship. Each family and each child is different.

Where to save is just as important as how much to save. The

objectives for education savings can fully dictate what type of

accounts or investment vehicles should be used. Parents should

have a conversation with their student about the elements of their

education planning. Have them join you in a meeting with your

advisor who can help teach them about the power of time, the

impact of compounding of returns, and the importance of planning

and saving responsibly. In my experience these conversations can

have a lasting impact on both your family’s and your child’s future.

CHAPTER 6

CHAPTER 7

The Other Factors

I want to begin this chapter with a disclaimer. Experts in specific

fields are there for a reason. They provide immense knowledge

and experience in their specific area. A financial advisor should

act similar to a general contractor. Meaning he or she has some

knowledge of each aspect of your financial plan with specific

expertise in a few areas (typically planning and investments). All

other areas are valuable pieces of the puzzle, but require experts in

their specific topics (namely insurance, taxes and estate planning)

these areas are discussed in the following pages.

Life Insurance

One of the many questions I ask clients to think about is what

would derail their train. What major life events could really put your

life in a spin and knock your financial plan off its tracks? This might

be the death of a spouse, a disabling injury of a family member or

some other form of a lost income stream. The primary objective

of insurance is to eliminate the risk of loss leaving you in financial

ruin.

I estimate roughly how much insurance clients need using a

very simple rule: have enough insurance to cover all outstanding

or future debt obligations and replace any lost sources of annual

income. This typically includes the annual income of the insured

THE OTHER FACTORS

individual, the mortgage balance, and future childcare and

education expenses. If those areas are not covered, there is a high

risk of a significantly altered or reduced lifestyle in addition to the

emotional stress of loss.

For example, Johnny and June are reconsidering their life

insurance coverage. Johnny is a small business owner making

around $75,000 per year and June is a new teacher making

$40,000 per year. They have two kids, a $200,000 mortgage and

$10,000 remaining on their car payment. They have done a great

job building up their emergency reserve and other cash accounts.

Their living expenses and budget are consistently around $65,000

per year and they have a good start on retirement savings and

education savings for the kids.

My rough estimate on life insurance coverage comes in around

$1.5 million for Johnny and around $900,000 for June. I’ll break

down my reasoning:

• If Johnny were to pass away, the family would rely on June’s

income for their yearly living expenses. Her salary alone

would leave an annual shortfall of roughly $35,000-$40,000

(after taxes). In order to replace this she would need a

portfolio of at least $1 million generating around 3.5–4%

of growing dividend income (like we’d use in retirement).

She would also pay off the mortgage and other debts,

an additional $200,000. The remaining $300,000 would

CHAPTER 7

be used as a cushion for additional childcare expenses

and general escalating costs. Education expenses would

continue to be prefunded through monthly savings for each

child. Therefore, I would conservatively say Johnny should

have at least $1.5 million in life insurance for the benefit of

his family.

• If June were to pass away, the family would rely fully on

Johnny’s income for their family living expenses. Losing

June’s income would create an annual shortfall of around

$20,000 for the family (after taxes). Roughly a $500,000

portfolio generating 3.5–4% in growing dividend income

would satisfy that shortfall. The other assumptions are

transferable like education funding, paying off the mortgage

and having a nice cushion for any additional childcare and

escalating expenses. Therefore, I would conservatively

say June needs at least $900,000 of life insurance for the

benefit of her family.

There are several variances in types of insurance policies. I

recommend most clients use a term life insurance policy that

covers at least the period of education costs and debt payments.

This option often carries lower premiums because risk of loss

is lower when limited to a specific period. Also, it goes without

saying, but the younger and more healthy you are, the lower the

cost of insurance.

THE OTHER FACTORS

Taxes

An advisor should have thorough knowledge of the taxable

implications around your investment portfolio including dividends,

capital gains or losses, and a few other tax-specific variables. They

should also have a general understanding of your annual household

filing status, marginal tax bracket, and any tax-loss carry forward.

These elements should be considered when allocating or adjusting

the portfolio. While tax consequences should not always be the

deciding factor for adjustments in a portfolio, your advisor should

review how the taxable investments may alter your annual tax

return.

I encourage my clients to seek council from a CPA or other tax

advisor to at least review their return each year, in addition to any

other major taxable events during a given year (home purchase/

sale, business sale, other large expense, etc.).

One of the greatest complexities in our country is the Internal

Revenue Code. Not falling victim to it requires far more attention

than a computer tax-prep program and a Google search. Tread

carefully.

Estate Planning

At the very least, all financial accounts (investment, banking,

retirement, etc.) should name designated beneficiaries, both

primary and contingent. This will automatically transfer ownership

to the designated individual(s) or Trust upon the passing of the

account holder. Beneficiaries actually supersede any account

transfer expressed in the Will. Assets that transfer via beneficiary

designations avoid the probate process, while assets transferred

by request of the Will are subject to probate, which can be a very

expensive, complex, drawn out, and mostly avoidable process.

At the very least, insure each financial account lists your desired

beneficiary and is updated after major life events (divorce, death,

etc.). Beneficiary designations are the simplest and most efficient

form of estate planning.

Your Will should state any remaining wishes and especially

name guardianship over your children. The guardians should be

decided only after thoughtful consideration with your family. I

encourage clients to have a conversation with the named guardians,

requesting permission, and verbally outlining the their requests

should the worst occur. Have the Will drafted (or at the very least

reviewed) by an Estate Planning Attorney to ensure your objectives

are explicitly stated and goals are met. Like beneficiaries, your Will

should be updated following major life events.

Many clients wonder if they should establish a Trust for their

family or children. Trusts can be very expensive to create and

update, so I generally recommend them only in more complex

situations where families have very specific goals or restrictions for

CHAPTER 7

THE OTHER FACTORS

their capital. Most families can accomplish any objectives outlined

in a Trust through proper planning, beneficiary designations, and

financial guidance with their families.

Finally, I encourage clients to seek the council of an Estate

Planning Attorney for other legal documents, such as a Durable

Power of Attorney (DPOA). This document grants authority to

someone to make personal (and often financial) decisions on behalf

of an incapacitated individual. Directing events like making bank

transactions, signing for checks, applying for disability benefits,

etc. can be accomplished through a DPOA or similar document.

Another document I recommend for clients is a Medical Directive

or Living Will, which states an individual’s wishes concerning

medical decisions should they become incapacitated or terminally

ill.

Summary

There are several considerations when putting together your

entire financial puzzle. Seeking the guidance of an advisor is just

the first step in insuring that your family is planned for and your

wishes and objectives are correctly established. From there,

engage other professionals who have specific knowledge and

expertise in fields like insurance coverage, tax consequences, and

estate planning strategies. With all the complexity, changes, and

nuances, there is far too much riding on these decisions to go at

it alone. It’s your life and family you are playing with—be careful.

CHAPTER 7

CHAPTER 8

The Next 10 Years

“The future starts today, not tomorrow.” – Pope John Paul II

Now that you have spent a fair amount of your 30s establishing

good financial habits and planning for the future, what’s next? How

do you prepare for the next 10 years? Over the next 10-15 years

focus on these areas to ensure all the elements are covered and

your family is equipped for a life filled with wise financial decisions.

Teach your Kids About Money

Let’s start with the most important element in life: family. As in

all aspects of life, kids tend to imitate the behaviors and principles

reflected in their parents. They watch and learn how their parents

handle various situations; from relationships with family and

friends to their reaction after bumping their head on a cabinet.

They see experiences and mimic the resulting behavior. The same

premise applies to money.

Too often, family finances are considered taboo and the

topic gets swept under the rug. I encourage clients to start

the conversation about money while children are young with

tangible lessons and examples their kids can grasp. Show them

how you work hard every day to earn money and they can do the

same. Whether it’s chores around the house or odd jobs in the

THE NEXT TEN YEARS

neighborhood, kids have several opportunities to work hard and

earn their own money. Explain what they can do with the money

they earn. Illustrate the importance of saving money for a big

expense like a family vacation or how you spend it on food, games,

and toys. Encourage them to save what they earn and spend it

carefully and thoughtfully on things that they want.

Some clients encourage these values by choosing to reward

chores with an allowance, matching the money their kids set aside

for saving, or splitting the cost when they want to buy a new toy.

Going through the process of earning, saving and spending their

own money illustrates valuable lessons and gives kids great pride

and a sense of accomplishment. Developing an understanding of

money early on instills these foundational principles for the rest of

their lives.

As they reach their teens, encourage your kids to make wise

financial decisions with the savings they accumulate. Their money

habits learned early in life will impact their financial decisions

and behaviors throughout high school, college, and during their

income-producing years. Consider funding an investment account

for them and encourage them to save and contribute to it. Invest

in companies they have an interest in such as sports, technology,

or entertainment. Be transparent about the temporary declines

and the long-term growth of their portfolio. If you established

a UTMA or 529 account, discuss with them your reasoning and

CHAPTER 8

expectations for the account. Explain long-term growth in the

account and the value of investing many years ago. Revisit the

sample conversation from chapter 6 regarding education savings,

especially if you decide to gift the remaining balance to your child.

Transparency and honesty will help your children understand the

value of money, the importance of saving, and the long-term

impact of investing.

Consider the financial values, behaviors and principles you

want to pass on to your children. I often invite clients to bring

their kids to a meeting to review their education portfolio and see

what their investments are doing for them. Having it explained

by someone other than a parent can help them understand and

absorb the importance of saving and investing. For the rest of their

life, money will play a major role in almost every challenge and

decision they face.

Building a Team

As mentioned throughout these pages, your financial life is

filled with complexity and ever-changing details. The only way to

mitigate this is to surround yourself with experienced professionals.

There are not enough hours in a day to draft a budget and savings

plan, monitor and manage an investment portfolio, file a mistake-

free tax return, select an adequate amount of insurance, and

ensure your estate plan, Will and Trusts are valid and appropriate.

THE NEXT TEN YEARS

It’s just not feasible.

Instead, gather a team of advisors with expertise in each field

then trust their advice and guidance. Picking the right team of

professionals is like picking a football team.

Start with a financial advisor to act as your quarterback. He or

she has a good understanding of each position on the team and

grasps the importance of selecting the right player to fit your needs.

Their primary expertise is around budgeting, generating income,

investing your portfolio and other financial planning elements.

The quarterback does not have the skills of a receiver and

can’t block like a lineman. Similarly, your advisor should not draft

your Will or Trust documents and review your tax return for errors

unless they are experienced in doing so. He or she should have a

good understanding of exactly what you need from an insurance

advisor, CPA or Estate Planning Attorney. They should provide

advice as you look for each professional on your team.

Often an advisor will offer referrals to other professionals

they frequently interact with, guiding you toward those who are

thoughtful with clients, understand objectives, and use the best

tools available to help you work toward your goals. Be wary of

those who try to sell you additional products and services often

creating more confusion and complexity. Seeking referrals from

your advisor or other friends and family can help avoid these

unnecessary situations.

Like a quarterback, your advisor should make sure each player

is doing their part for the team. I offer to join clients when meeting

with each professional on their team to ensure their objectives

and priorities are properly met. This keeps everyone on the same

page and covers each element in a clear and efficient manner.

A tool like WealthVision™ (the one discussed in chapter 4) can

help keep each professional updated on your progress. Clients

can grant other professionals temporary access to their financial

dashboard where CPAs can see gains or losses, insurance advisors

can see debt obligations, and Estate Planning Attorneys can

view total household financial assets. This tool greatly enhances

the whole planning process while minimizing mistakes and

miscommunications.

Maintain Focus

I believe there are only a few ultimate truths in finance. One is

the permanent, long-term advancement of the financial markets.

The other is the inevitable storm that will temporarily disrupt

that advancement. Bear markets, corrections, or anything else

the media chooses to call them are an essential element to the

progressive, long-term financial cycle. During each storm, investors

think the world will end. But in reality it’s never any different.

Markets recover and those who maintain a long-term focus see

CHAPTER 8

THE NEXT TEN YEARS

opportunity and pursue growth in their portfolio. Investors who

lose focus and obsess on the short-term “Panic du Jour” can make a

life altering mistake. It only takes one bad decision to significantly

disrupt your long-term financial plan.

I also believe debt obligations prevent lasting and ultimate

freedom for families. I encourage clients to work toward being

entirely debt-free, achieving the point where they write only on

the backs of checks and don’t owe anyone anything. Then they

have the freedom of excess cash flow without any obligations. It

may feel like a long road but stay disciplined, focus on progress,

celebrate achievements and you will reach your goals.

There’s a simple equation I like to use:

Consistency + Time = Freedom.

By consistently saving and investing over a long period of time,

you will achieve financial freedom in your life and for your family.

Follow this equation using good habits and great discipline in

every aspect of your financial life and you will build a solid financial

foundation. Good actions make great habits. Great habits turn into

lasting behaviors to be passed on to future generations.

Most importantly, seek out the guidance of a trusted financial

advisor and follow their advice with intention and focus. Ensure

they place your goals, objectives and family’s success above all

else. Life is far too long and too important to go at it alone. The

principles outlined in these pages only scratch the surface of some

elements and decisions which can drastically impact your family’s

financial success. Take this advice along with the guidance of your

advisor and create the life of your dreams.

CHAPTER 8

#

# ABOUT THE AUTHOR

John Booren is a partner with

Prosperion Financial Advisors, a

Denver-based financial planning

and investment management

firm that delivers unbiased,

independent investment advice.

He provides leadership for young

families and busy entrepreneurs

who are passionate about

their lives and seek greater

clarity in their finances. His

strategy enables clients to build

a lasting financial foundation

strengthened through wise

behavior and realistic investment

strategies.

John is a Colorado native and

enjoys coaching ice hockey at his

alma mater, Regis Jesuit High

School. He and his wife Malorie

live in Parker, Colorado.

John BoorenProsperion Financial Advisors

8400 E. Prentice Ave., Suite 1125Greenwood Village, CO 80222

Phone: 303.793.3202

john.booren@lpl.com

http://prosperion.us