In order to build wealth you need a good financial plan. Most people start by talking with a Financial Advisor or a Stock Broker.  The most unfortunate thing that happens is that they ask for advice right away without even considering what it is that they want.  A financial professional can guide you to what to do with your money to make the best of it, but only you can decide on how those  funds will come about. Will it come from wages, self-employment income, inheritance, other investments?

Many people will just say that they want to make money. That’s a little like saying I want to be rich. Yeah, well that is nice but the  next step is what you are willing to do to get there. If you don’t have any idea of how much you can save or what action you can take to meet your goals, you will likely be disappointment. Why? Because you are counting on someone telling you what to do and right away you will say that you don’t want to do that.

So before you even discuss personal finance with a professional and I hope it is a fee-only professional, you and your partner should have an idea of actions steps that you would be willing to take to build wealth.  A good wealth coach can help you come to some conclusions about that. Options may be reducing debt, moving to a smaller home or less expensive one, saving more, sacrificing education plans for more retirement money, reduce spending on vacations, etc.

All of the above may sound difficult but let’s consider the alternative. You do nothing. That is a choice in itself. By doing nothing you are insuring that you will lose. It takes action to get ahead of taxes and inflation in order to build wealth. Are you ready to take action?

Don’t let a Financial Professional  tell you what action to take. They are there to guide you and a Wealth Coach can mentor you into the minefield of personal finance but only you can decide to take the actions to build wealth that will help them do a good job for you.

The post Are You or Your Broker In Charge of Your Wealth? first appeared on Whole Hearted Way.

You walk into a hospital and can work with one of doctors. Each is given a few minutes to speak with you and explain how they offer their medical services, after which you have to choose whom to work with. Each doctor attended the same medical school, completed residency at the same hospital and seems nearly identical to the other in training and skill. The only difference you can discern from the conversation is how you will have to pay each doctor.

The first doctor discusses that he will charge you an appointment fee each time you meet. The only services included with that fee are his diagnostic services, physical examinations and treatment recommendations based on these examinations. The fee does not include any laboratory services or medication prescriptions under the treatment recommendations. All expenses beyond the appointment with the doctor will require additional payment by you. To fill medication prescriptions, you will have to select a pharmacy and pay for the drugs at that pharmacy.

Then you meet with the second doctor to discuss his services and fees. The doctor explains that you will be able to meet with him any time you wish with no cost to you. He will provide diagnostic services, examinations and laboratory services as required without any cost to you. Come for a cold, come for a broken bone…you will never be charged a penny for diagnostic work and treatment recommendations. All this doctor asks in return for his service is that if he prescribes you a treatment plan that includes medication, you visit with him in his pharmacy and purchase medication prescribed to you from him. Next he discloses that, while he is able to sell drugs from most major pharmaceutical brands, he gets paid a significantly larger commission by some brands than others. He goes on to tell you he is actually employed by one pharmaceutical company as a salesperson. He makes it clear that you are under no requirement to use his pharmacy, but that it is extremely convenient for you to do so. As you mull over your choice, you may begin to think that the first doctor sounds like he could become very expensive. After all, you have to pay for his services and then pay for any other services as well. The second doctor does not ask for a penny, but would like you to buy your medication from him. Is there a problem with this?

That free financial plan you have been offered is very similar to the free medical advice the second doctor offered. The deal sounds pretty nice and it sure is easy to say yes to free. That free financial plan being offered is not in reality quite so free, however. As might be the case with doctor number two when providing medication treatments, a financial advisor offering a free plan will be inclined to recommend financial products for you to purchase. This is, after all, how he gets paid. If you do not purchase products, you do get a free financial plan (albeit one with recommendations that may be questionable or skewed toward a product sale.) Moreover, the products recommended under the free financial plan may end up costing you more than it would have cost to pay for planning services and products separately!  You have been told that the commissions by some brands are higher than others…which do you think the financial advisor is likely to recommend? And you pay that commission. It may not be outright in the form of a check directly to the financial advisor, but it comes out of your premium payments or money being invested. It is NOT free.
Assume now you meet with two financial advisors. One works for a large investment brokerage, and the second for an independent fee-only financial planning firm. The following comparison is simplified, but offers a representative model of the type of fees you might pay.

Assume the first financial advisor recommends a mutual fund with a 3% commission and a 1.5% annual expense. You could invest $100,000 dollars with this advisor, who then receives $3,000 of your money from the mutual fund company. Additionally, you pay an expense to the mutual fund company of $1,500 every year. If the value of your investment goes up, this figure will rise. So, the total expense for the advice the financial advisor provides and his treatment plan recommended is $4,500. If your advisor recommends changing your investment in the future, he could receive another commission at that point, as well.

Compare this to the second financial advisor who charges you a fee for his financial plan. He charges you $1,500 for the financial planning work and 1% annually to provide ongoing financial advice and manage your investments. Then he recommends you invest in several no-load (no commission) index funds with an average annual expense of .6%.  Again you invest $100,000 with this advisor. Now your total out of pocket expense is $3,100. The financial advisor receives $2,500 total and the fund companies receive $600. AND in future years, you only pay the advisor $1,000 for ongoing financial advice and financial planning services plus the $600 mutual fund company fees (which could increase or decrease depending on how your investments perform.) There are no future commissions charged to you and the advisor is under no compulsion to recommend you change your investment plan in order for him to get paid again.

Think twice about that free financial plan. It’s really not so free and it carries with it a lot of conflicted advice. Would you choose the pharmaceutical representative who is also a doctor? Do you think the treatment plans this doctor offers might be a bit skewed? That free financial plan is very similar. I know I do not want my medication advice coming from a pharmaceutical representative and equally do not want my financial advice coming from a financial product salesperson. How about you?

Nathaniel G. Gehring CFP® –Living Financially Aware

The post About That Free Financial Plan first appeared on Whole Hearted Way.

The first three steps in this do-it-yourself financial plan are building a firm financial foundation. When we have insurance to offset our risk, we won’t be tempted to dip into our long term investment plans and screw that up.  There are lots of posts and resources here to help guide you to the right insurance at the right price with the right vendors.

Feel free to share your resources, too.

The post Do-It-Yourself Financial Plan Step #2 Risk Management first appeared on Whole Hearted Way.

1. Get serious about an Emergency Kit for you  home and office
2. Your business will not survive without a Contingency Plan
3. A Financial Plan is the essential last step

Emergency Kit

• House or office may be dangerous or impossible to enter
• It is likely there will be NO outside help for 3 to 7 days
• Three to seven days of supplies are essential
  • Water, food (no cooking)
  • Clothes, shoes, rain protection, sleeping gear
  • Medicines, radios, flashlights, batteries, some cash, etc.
  • Special needs for babies, elder people, pets
  • Have a family contact plan and practice/ update it every quarter

Contingency Plan

• Up to 80% of small businesses disappear in a major crisis if there’s no plan
• Backup or copies of data, project details, equipment and supply inventories
• Contact information for employees, vendors, clients, etc.
• Consider needs to shelter in place, transportation back to homes, families’ safety
• Create a team with assigned responsibilities to handle basic business, employee and customer needs, access to all information/ equipment/ supplies/ cash/ etc.
• Specific plans will depend on your business type and needs
  • Can all employees work from home?
  • Will you need an alternate, temporary site?
    • Find a realtor who can help list available sites;
    • Consider a competitor’s premises in another area

Financial Plan

• Your business and your family will need money or access to funds to weather the recovery period
  • LOC
  • HELOC
  • Stash of cash – small bills and accessible
  • Consider insurance coverage options
    • EQ on your home
      • Check with broker or agent: CEA, Geo-Vera
      • Coverage is expensive and limited and deductibles are high
      • Building, minimal contents and additional living expense
  • Business EQ coverage
    • Full coverage can be expensive and deductibles are high
    • EQSL might be a minimal alternative
    • Prevention steps as an alternative to insurance
      • Prevent collapse – various retrofit projects
      • Prevent fire from inside; prepare for fire from outside
      • Consider parking a car outside the garage for easy access

-Charles Wilson, Risk Smart Solutions

The post Disaster Planning for Home & Business first appeared on Whole Hearted Way.

Cash flow is where you start. You may not think that you have cash flow but if you are earning money either through a job or investments, then money is coming into your bank account and that is cash flow. But wait! – Before you start paying the bills- start by paying yourself FIRST- not after all the bills are paid, but before. Start with taking 10% of your salary and divide by 12 months.  That is the monthly amount you should save. Open up a savings account and request a direct deposit from your paycheck to your savings account. That is automatic savings and a smart way to start paying yourself first every month.

Congratulations! You have made the first step in creating wealth- saving. A savings account will give you a cushion. Don’t worry if you are only getting a small amount of interest on the money. The point is to have some funds to rely on when the roof needs repair or the car breaks down. That’s what this money is for- short term expenditures and surprises that come up in life.

Also a good savings account will prevent you from dipping into investment funds which should be held for the long term for maximum value. Many good investment plans go sour when they are dipped into for emergency cash. Keep them separated, and you will keep your investments intact and you are on your way to real wealth.

I have written some posts also about having and maintaining good credit, too. After you have money going monthly into a savings account and your credit score is 720 or better, then you are ready for step #2.

Congratulations! You have made the first step in creating wealth- a savings account and good credit.

The post Do-It-Yourself Financial Plan Step #1 -Cash & Credit first appeared on Whole Hearted Way.