Brrr, where is that draft? It’s a cold winter’s evening. The wind is howling. Temperatures are creeping near zero-degrees. You feel a draft on the back of your neck, and turn to notice a window seal is broke. Cold air is seeping steadily into your house. You immediately think of the amount of fuel in the tank, and the cost to fill it.
What do you do? Do you turn a blind eye and let the air seep in, hoping it doesn’t become more concerning? Do you wait for a month to evaluate how it’s doing? Do you think, “since all window companies are like this, there really is no need to take action”? No, probably not!
Yet, we find this same thing happening everyday with people’s finances. The wintery grip of the financial industry seeps inefficiency into our lives. But it’s not only the financial industry. It’s also the IRS, the way we own financial products, and our own behaviors and habits. And, what do we do? We keep an eye on it hoping the problem doesn’t get too big. We evaluate it monthly – looking at our statement balances thinking “oh, yay” or “oh, no” as we look at the size of the account. We think this is just the cost of working with a financial company, and no matter where we turn we will experience the same.
I often hear people are not motivated to fix the issues. It certainly seems so, but why is that? I say they are not motivated to fix the issues because they are not aware of the severity of the problem.
Here’s what I mean. In the insurance world, customers get a premium invoice. The bill prompts the customer to think “what is this insurance doing for me? What value am I getting?” And, so they are more prone to price shop and compare.
The investment world is not like this. Understanding investment costs is difficult. There is a laundry list of expenses consumers can incur, outlined in a legal document that can be difficult to understand. A document you may not even have anymore. It’s chilly in here!
This doesn’t fix the leak, however. There are other elements seeping into your life. Many people own products they bought years ago. A financial life is built similar to a brick-wall – layer by layer. As we migrate through life – and marry, have kids, retire, experience diminished health – the layers of financial products stack. There is a chance a product is owned incorrectly and is costing too much. There is also a chance a product is not serving what you need it to do and should go away. Often this inefficiency lives in our employer benefits, insurance products, and debt relationships. When was your last comprehensive financial planning review completed by an objective financial professional? Brrr!
Paying unnecessary taxes is a primary concern. Uncle Sam has attached rules to each type of asset. It’s important to understand retirement account taxation, investment taxation, inheritance taxation, and any other rule linking to an asset. The IRS, in so many words, says you can either pay taxes this year, or you can enter an agreement to pay taxes in some fashion in the future. Very complex! Losing money to taxes is making this place frigid!
Finally, we have our own financial habits and behaviors. Who taught us these? A parent or an adult figure? Were these teachers flawless? No, and not to their fault. Take the financial habits for a married couple, and you might see the improvement opportunity compounds. It is common for us to perform a cash flow analysis, or budgeting analysis, that shows a household accounting for less than ninety-percent of their monthly earnings. If the household is making $100,000 per year, this equates to $10,000 unaccounted for dollars. It’s freezing in here! I might have to move south. Wrong, you will just trade a heating expense for a cooling expense.
The point is this, no matter where you are working with a Financial Planner – Stowe, Vermont, Burlington, Vermont, Frederick, Maryland, Boston, wherever – it is important the financial planner works to seal the financial inefficiency. The Financial Planner should first show you where you are losing money in all aspects of your life, before recommending you put more money in an account. That would be like turning up the heat when freezing air is pouring in.
Shelburne, VT 05482
Burlington, VT 05401
Portsmouth, NH 03801