Rules Designed with a Goal of Financial Success

A friend I work out with approached me one day as we were leaving the gym.  He asked if we could sit down on a professional basis and visit over breakfast.  He had never sought financial advice from me before and was not a client.  He was utilizing another very well-known company and advisor who also worked out at the same club.  This individual was highly successful and very organized.  I assumed he was being well taken care of by the well-known advisor.

When the day came for us to meet, I was very curious to see what was on Kevin’s mind.  Kevin discussed his present advisor was doing a great job of managing his money. But when he sought “overarching financial strategies” from the current advisory firm, the advisor would suggest he talk to his CPA, attorney, or some other financial specialist.  Kevin said it all boiled down to one question:  “Other than trying to grow my wealth through an investment portfolio, what else should I be doing?”

What a great question!  Too often, every client's financial goal results in a new investment portfolio accumulating another pile of money to address the future need.  In other words, the answer is always the same:  start a new systematic accumulation account of some kind to save the money that will be needed. This requires the client to lower their lifestyle and live on less.  The biggest flaw in this approach is it assumes the accumulation of money is a strategy. Accumulation is not a strategy in and of itself.  It takes more than one financial product to create an “overarching” strategy.  Financial products must be coordinated and integrated to create strategies.

Here is what I told Kevin:  “The answer to your question is easy, but the devil is in the details.

There are 8 things every family should be fully educated about and given the opportunity to say yes or no to implementing.”

In my professional opinion, here are the 8 items that underpin a family’s financial security:

1. Property & Casualty insurance is designed to protect the insured, not just the insurance company
2. A strategy to protect your income from sickness, injury, business interruption, and job loss
3. Estate planning (including Wills & Trusts as applicable) is in order
4. Appropriate (potentially substantial) amounts of life insurance coverage  
5. A high savings rate (15-20% of gross income)
6. Ample liquidity (A cushion of at least 6 months of gross income)
7. Limited exposure to market volatility in line with your objective and risk tolerance
8. No bad debt (not over-leveraged)

 

If a person has all eight of these items in place, they may put themselves in a financial position designed to help withstand a variety of negative economic circumstances.  This does not mean if a person is without all eight items, their financial world will fail.  It probably will not.  But it also does not mean that bad things do not happen to good people because they do. I believe if a person has all eight items in place, they may be better off…at least financially.

This is what makes me different.  I help families and businesses to work through these eight items and make conscious, deliberate decisions regarding each one.  Using a comprehensive economic model, we test and verify various options to implement the eight items.  Every financial product has a place on our financial model. This allows your financial strategy to be modeled and tested.

This process has many potential benefits, such as:   

1. Building more wealth and/or enjoyment of wealth
2. Reducing financial risks
3. Creating more protection from all the “what if’s” that can derail a person’s financial security.
4. Avoiding impact on your lifestyle by working with your current cash flow

 

The last thought I left with Kevin is the last thought I will leave with you. Many details underlie the 8 items, and we are busy people.  We move at 80 mph during the week, and because of our families, we move at 100 mph on the weekend.  We are smart people, and we can handle these 8 items on our own. However, because we are busy being the best at what we do for a living, the best spouse we can be, and the best parent we can possibly be, we become vulnerable by default. Life forces us to take our eye off the ball.  Therefore, it makes sense to consider outsourcing these items to a personal CFO.  Someone qualified to help you handle these 8 items and maintain their values throughout your entire life.  This is what I do for the people I have working relationships with. This is what I can do for you.

 

 

 

Not all strategies may be suitable for all investors. Investing involves risk, including loss of value.  No investing strategy can assure a profit or protect against loss in a down market.

Life insurance is subject to certain costs, limitations, terms, and conditions not outlined here.  Investing involves risk, including loss of value.  For Educational Purposes Only - Results may vary.

HTK does not provide tax or legal advice.