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Building Your Financial House – From Bricks Not Straw

  By remymartini • February 4, 2013 , , ,

On my previous post, the metaphor of building a great financial plan is like building a house, starting with a solid foundation. This post is to expand on the topic and help you understand that the kind of knowledge you have about finances is the material you will use to build your successful house.



Is your house made of Straw or Bricks?



Remember the story of the 3 little pigs? Each made their houses with different material, straw, wood, or brick. I hope we all learned the valuable lesson of building with the strong, reliable brick to make sure our wellbeing is safe. When you’re building your financial house, your knowledge & the knowledge at your disposal is the material you’re going to build your house with.



Blair is a successful doctor. She’s highly paid for what she does, not only from the hospital she works at, but also from the many speaking engagements given to multiple universities around the country. She’s single, with no kids and spends most of her free time (the little she has) out with friends. She has dreams of retiring one day up in the mountains to be near the outdoors and hiking. She saves some money here and there in a bank’s money market account, but she typically buys whatever she wants, whenever she wants because in her eyes she has disposable income from her jobs. When retirement creeps up on her she takes a look at her “retirement” fund at 60 (5 years before she wants to retire). She realizes that the savings plan she created for retirement 30 years ago has barely done anything for her, and most of money has gone to frivolous whims such as cars, houses, multiple vacations throughout the years. Now with retirement 5 years away, her dream house of retirement has crumbled. Her limited knowledge created her house of dreams from straw.



Gary is a technology guru. He works at IBM in research & development making a good living. At home, he has a wife and 2 kids in elementary school. He enjoys travelling the country to other offices to show off what he has developed. He wants to fund his children’s education and wants to retire comfortably with his wife in 30 years. He talks to his bank about how to fund his children’s education first since that’s the first goal that will pop up. The bank sets up a college fund from their line of services and does not discuss Gary’s retirement goal, because he never mentioned it. When his both his girls graduate from college finally (they decided to get their masters) he goes back to take a look at his retirement that is coming up in 10 years. Even with his pension plan from work and the emergency fund he has been saving his entire life, the bank tell him he’s going to have to work until he is 70 to retire at the level he wants to with his wife. He had some resources available and used how he saw fit, he created his house of dreams from wood. Steadier than straw, but can’t stand up to too much pressure.



Carrie is an executive assistant. She works at a prestigious law firm and is typically called on to train the new assistants as well as the junior associates because she’s that good and has been there for so long. Her family has taught her to budget her entire life and she lives well below her “means” compared to other families her size. She has a husband that is a teacher and 2 kids that are in middle school. She has a savings account and separate accounts set aside for her kids college and their own retirement fund. When she first started dating her husband (20 years ago it seems now) they had some rough times, but always seemed to manage to get themselves out. Before they walked down the aisle, a friend of theirs thought it would be a good idea to just go to a financial advisor to help them get a plan in place so they would stop cycling through tough times. She appreciated the thought, and went to be polite (she is from the south), to see if it would help at all. After a year working with the financial advisor, her and her husband (now) could see small habits changing for the better and wealth being created. When the time came to buy a house, they made sure to consult their financial advisor, not only on what they can “afford” but what was in their best interest based off the other goals they talked about. A few years ago, their beloved car “Rick” died and even though they wanted to fix it because it was like family, their financial advisor showed the impact of repairing compared to buying a different car. Luckily, the way they were saving, they were set up to pay for a quality used car and not effect their financial goal of college for the boys and retirement for themselves. Carrie & her husband had created their house of dreams from bricks, and are ready for their financial goals to come to fruition.





Food for Thought

Blair is very bright and focused, going through that much school to become a doctor, you have to be. Just because she’s good at medicine, doesn’t mean she’s good with money. She focuses most of her time on her job and social life. All work and no play can beat you down. She would most definitely benefit to have someone to call and ask how to efficiently save her money and fund her dreams. She is a very bright individual, she’s just ignorant on what’s available at her disposal to help fund her dreams.



Gary knew he needed help and he went where he knew they dealt with money and was comfortable with them. The one thing he didn’t realize is that banks can be more or less self service. You tell them what you want and they deliver what is available on their menu. They may try to “up size” you by getting you to put in more money than you can afford, but they’re limited to whatever services they offer at the bank. Gary would benefit from having someone look at the grand picture, not just a very small piece of the giant puzzle as well as look at all available options out there, not limiting him to 1 bank.



Carrie was wary at first because it was something she was not use to. Being slightly nudged helped her get into the right mindset though and really helped her and her husband achieve all the goals they wanted. Of course their financial plan changed throughout the years to adjust for their life such as their 2 boys, but a good financial plan is flexible. The best part is they have a great relationship with the planner and can call for advice on anything money related.



In Conclusion



Whether you’re a doctor or an executive assistant, your money should be working hard for you so you can build your own house of dreams. Having the knowledge or access to the knowledge is key to making your house of dreams strong. It’s your decision to take the time to obtain the knowledge yourself, or find someone that has the knowledge to give you, but whatever you do – get the knowledge! Don’t build your house of dreams from straw, build it from bricks.



*Disclaimer*

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Financial Side Note: S&P is the Best Roller Coaster EVER!

  By remymartini • January 14, 2013 ,

Unless you don’t have a TV & don’t get on the internet (in which case I’m not sure how you’re reading this), you can’t help but notice the S&P’s roller coaster ride the past few weeks.

Being in the industry I’d have to say 50% of the people I know asked my blood pressure and stress levels recently. I’m thankful I have such good people around me that are concerned with my health, but I calmly explain the following:

Initially, it can be shocking when you see such numbers in HUGE BRIGHT RED CAPITALIZED font, but what you have to realize is

1) that is what the stock market does. There are time when it goes up, down, WAY up, WAAY down, but it’s part of the stock market. If I had a sensitive system, I shouldn’t be in the field.

2) Wait it out. If you have securities in the market now, talk with your financial planner about the optimal time to sell; if you HAVE to. If you’re investments are for long term goals, just change the channel to reduce your blood pressure.

3) It’s a buyer’s market. This is when smart individuals capitalize on an under valued stock. People are freaking out so much they’re throwing the baby out with the bath water. Smart people know how to catch that baby.

4) I’ve already preemptively sent emails to my clients explaining what’s going on before I have to field their calls. Keeping your clients in the loop is key to low blood pressure in this business.

5) The reason I’m in this job is keep the fires at a minimum, teach out what I know, and keep a cool, collected head when fires do come up.

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Money & Motorcycles

  By remymartini • November 9, 2012 ,

For those that don’t know, I use to ride a motorcycle. I guess I would still ride a motorcycle if I didn’t sell it years ago when things got financially tight. Car VS Motorcycle was a tough decision for me since I LOVED my bike and it saved me TONS in gas. However, given the seasons here and the fact that I occasionally like to buy build it yourself projects that are impossible to get on a bike, I had to make the hard choice of selling it.

I tell you this story because it’s part of my financial journey and even I have to make the hard decisions. Those that are logically are probably going “PSH… that’s not a hard decision, it’s only logical to sell the motorcycle.” Yes, of course you’re right and I made the logical decision, but that didn’t make the decision any easier. I had put time and memories into that motorcycle. I had my first wreck on it and then built it back together myself. It wasn’t a horrific accident, just dirt and gravel around a curve and threw me off in a field. 95% of the fairings had to be replaced because they were shattered, but I was fine. I had put money, effort, and time on my first motorcycle (it will not be my last) so having to make the decision to sell it was hard.

We come up with issues everyday that require logical decisions to be made but emotions will linger. Many times when I’m talking to my clients the basis of each decision is because of finances. Things we have to cut back on, find alternatives for, or eventually decide to sell. There are memories, time, and finances wrapped into each decision. Having to make the decision to sell car because it has payments to purchase a used car instead can be a logical one, but it doesn’t make it any easier at times.

Motorcycles:Accident::Money:Debt

Another reason to reference motorcycles and money is that there is another correlation that I can thank my friend Dawn for. We often discuss financial dilemas and brainstorm about marketing. She mentioned that many people don’t respect the money they make and if you don’t respect it, it will ruin them. For those that aren’t motorcycle enthusiast, it’s the same concept. If you don’t respect the bike and you think that you are invincible on it, it will eat you alive. When you ride you have to respect the power that is underneath you, just as you have to respect the money that you have coming in. The moment that you think you know EVERYTHING that the bike can do, it will surprise you and it’s typically not in the way you would like. Once you think you know EVERYTHING about money, it will eat you alive and possibly bury  you. Having the understanding that there is always more to learn about a motorcycle or money will keep a healthy balance of respect to either.

The Moral

Moral of the story is make sure you understand that there will ALWAYS be more to learn about money no matter what position you may hold, including myself. Keeping yourself open to learning more keeps a healthy amount of respect for growth.

As always, I would love to hear your thoughts. Do you have a story where money has eaten you alive or the lack of respect on something has caused detriment to your life?

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The Power of “No”

  By remymartini • November 7, 2012 , ,

The very root to many monetary issues small and large can typically be found to be from one simple little word, or the LACK of one simple word. “No”

Whether it’s choosing to say “No” or avoiding saying “No” is your issue, you’re not alone. It can be for many different reasons. Typically it’s not a conscience decision to avoid saying “No,” it’s an emotional decision.

Let’s take a moment to review some typical scenarios to think about where to say “No” but maybe choose not to.

 

Family

Whether it’s your parents, kids, brother, sister or best friend, it can be very hard say no to your family and friends. Let’s think about a kid wanting to go out to the movies for the weekend. He tells his parents that he wants to go out for the weekend. The parent hand him $50 and tells him to have fun. As the parent, you failed to say “no,” so what does that me for you? Well, you’re $50 poorer for one. Next you haven’t set perimeters and now you’ve set your kids up for just asking and they shall receive. The more often this type of situation happens, the harder it will be to stop. On the flip side of this same example, what if you were the kid, what do you get out of this? Yes, you may be $50 richer, but at what cost? What does this teach you about the real world? Not much. The real world will not just say “yes” to your every desire so it’s really setting real life expectations up incorrectly and setting you up for future failure.

Think of this same example when it comes to friends and family that constantly ask for money. It can be the friend that always gets himself in trouble and needs to be bailed out all the time or the brother/sister that always leans on you to get them out of a financial jam.
Friends

Even if you don’t have friends that are constantly asking directly for money, many can still drain your resources in a different way. Do you like to go and “hang out” at the bar or go out to movies on a constant basis? Being social is completely healthy and needed for a happy life, but it does not necessarily mean it should require to you spend money constantly to keep everyone happy. Let’s say for fun you go out every weekend. The bar scene Friday nights, the club on Saturday, and maybe dinner & a movie. If you think of just the basic cost of that 1 weekend it can easily be in the hundreds, $100-$300 PER weekend. You have 4 of those in a month and it’s $400-$1200 any given month. You can still be a socialite on the weekends, but finding a way to cut costs and being mindful of what you spend. If you save what you would have spent, you’re well on your way to saving a useful emergency fund.

 

Yourself
This happens in a few ways. Spending, not tracking your spending, not saving, and putting it on credit without paying it off monthly. Think about these typical situations:

You work hard and “deserve” that night out or Starbucks on the way to work. Here you neglect to say no to spending. You’re also probably not tracking your spending which is just as important, I mean it’s a couple bucks, what’s the big deal? It can at times be ok to spend on yourself, but if you’re not tracking what you’re spending, how do you know what is ok to spend? Also many times these habits aren’t just 1 timers, they happen on a consistent basis and quickly can drain your resources.  A few bucks here and there quickly add up and you’re spending more than you know it on coffee, drinks, and overpriced nights out.

On the flip side of spending  with what you have is spending what you don’t have AND not saving. If you’re driving through those windows and charging on your Visa, Mastercard, etc and not paying off the balance each month you’re walking on a tight rope. If you’re having to use your credit cards to pay for daily expenses you will be wasting money on interest rates. Also, when an emergency hits, those credit cards will more than likely get maxed out quickly.

 

Working Hard: Saying “No”

I know it may seem silly to instruct people on how to say “no” but it can really get you to think. In the first example when it comes to family it’s about setting clear boundaries and expectations. At first it might be hard to tell your family no, and it can feel awkward to set expectations for your family but it can be the easiest. If you think about it, they love you and want the best for you, so if you can set the expectation by explaining WHY you are doing what your doing in terms of yourself AND them, they should be understand. From this example think about it like this: “I know you want to go out with your friends, so that you can earn the money you need to go out I need you to do x, y, z first.” You didn’t say no, you set the expectation that they need to earn the money they want to spend… Just like real life. Imagine that. After a few different instances just like this, instead of asking for money, they’ll ask what they need to do to be paid.

 

The harder example is telling your friends no. Setting expectations can feel a little awkward and unnatural. Though many friends can be like family, it can be strange to “set expectations” with your friends when it comes to cutting back on social events out. You don’t want to seem like you’re in financial troubles and you want to show that you can “keep up” with their own social activities. First, you don’t know their financial status and they may be trying to keep up with you so this can be an endless logic cycle. If you take the first step, you can actually be helping them cut back too if you think about it. Keep it real and honest and find alternatives that are cheaper. If you have to go out to the bar scene, you can buy the special, or choose water. I’m not a drinker myself so it makes my life cheaper. Cut back on movies to 1 a month if you go every weekend. Try movie nights at home and have a pot luck so everyone can enjoy reasonably priced food and not overpriced candy and popcorn. (Don’t you love it when you’re saving money AND becoming healthier, or at least the opportunity to become healthier)

 

Now comes the hardest person to stick with “No” – Yourself. It’s easy to tell yourself “no” because you understand the reasoning. However, sticking to it is much harder. Temptations happen everyday. It can be something that seems tiny like picking up a quick bite in the drive thru to save time. It could be something larger like getting a new car or going on a shopping spree because you got a bonus check. When you’re responsible for yourself it can be hard to tell yourself no. You work hard and deserve some bonus time to yourself, so why can’t you splurge on something little for yourself? The trouble that gets you in is consistently splurging on the “little” things. Those little instances add up quickly. It will take some training and a good support structure from friends and family but if you set goals for yourself, such as a vacation fund or Christmas fund, it will be easier to see the big picture and say “no” to the little stuff . Make sure you have short, mid, and long term range goals. When you’re out and about think about what is going to get you to those goals.  If it doesn’t contribute to that Caribbean vacation or Christmas fund for the kids, is it worth spending the money? Personally I know I can skip those run through the drive through if the alternative is sitting in the sun on a gorgeous beach.

The power of saying “no” is created when expectations are set appropriately for anyone that has any passing sway of your finances. Setting expectations can be hard, but not impossible. Family and true friends will understand why you are setting the expectations and might use you as a role model.

When setting expectations try:

1) Don’t give them specific numbers, just tangible reasons and goals. “Hey, I’m trying to save up for the Caribean. I’m going to hold off going out for a while”

2) Find alternative that everyone can agree upon. “Why don’t we just hang out at my house and grab a redbox movie?”

3) Communicate what’s in it for them. They could be learning from you as role model, but I wouldn’t say it like that. They can save money too so they might be able to come to that Caribean vacation with you. Vacations can be much more fun when you have friends with you. “It would be great if you could come with us. Why don’t we plan on going together? It would be way more epic if we were both partying at the island”

So what are your thoughts? I know you have the power to say no, so what is your story?