Think back to the last time you experienced a major life event. How did you feel? Was there a sense of uncertainty?
Did that uncertainty lead you to question whether you were making the right choices?
People often ask me what are the most common reasons that clients hire me for tax and wealth management advice. Upon reflection, I have boiled it down to the fact that a) individuals have major life events which create uncertainty; and, b) they want assurance that they are making the right decisions.
Looking at the population of the United States, there are three distinct segments when it comes to managing personal finances.
- Segment #1 is uncomfortable talking about money to anyone. They would rather bury their heads in the sand and potentially make bad financial decisions than meet with a professional who could help them. They may feel embarrassed about their personal situation because they are comparing themselves to others or to what they hear in the media and they make excuses instead of mapping out a plan for improvement. They procrastinate and tell themselves they will work on their personal finances later in life, but they fail to realize that a little guidance and time spent now can bring enormous benefits in the future.
- Segment #2 believes they either know all the answers already or can research on their own and figure them out. They go to Google and search for advice, then try and apply that generic advice to their very personal situation. Sometimes they take advice from friends and colleagues - who have no formal financial planning, tax, or investment education - without a thorough understanding of how such advice impacts their personal financial plan. These individuals are confident in their personal finances, but they don’t know what they don’t know, and that is dangerous.
- Segment #3 delegates their financial management. There are three primary reasons people delegate to a tax and wealth management firm:
- They value their own time and would rather pay someone else to manage their personal finances. This frees up their time and attention for something that brings them joy.
- They don’t have the educational background or financial intelligence to make good decisions.
- They value a third-party perspective, as money and emotions are often intertwined. Sometimes you need a neutral party who isn’t connected emotionally to help navigate decisions.
A few months ago, two toilets in my house began to malfunction. One ran water constantly and the other made loud noises that sounded like a pipe was about to burst. Even though I knew it was important, I kept procrastinating on getting them fixed. I even thought to myself that I would just go to YouTube and watch a video on how to fix the issues, then do it myself. I believed I had the intellectual capacity to figure it out on my own, so why did I keep procrastinating?
The truth is that I procrastinated because I really wasn’t interested in taking the time to learn how to fix it, buy the parts, and then actually do the repair. This would not bring me any personal joy. The problems were persistent, potentially getting worse. I kept telling my wife I would fix them, and she reminded me of home repairs I have attempted in the past. Those usually ended very poorly, ultimately requiring a professional after I spent my time and money trying to do it myself.
Long story short, I quickly found myself in segment #3. I valued the time I could spend with my family or wealth management clients much more than figuring out how to fix the toilets. I certainly didn’t have the educational background on plumbing, and I valued a third-party perspective on the best way to fix the problem. I mentally prepared to spend a lot of money on the plumber, thinking the problem was way worse than it really was. My wife scheduled the plumber, the issues were fixed in under two hours and my total cost was under $200. That $200 saved me at least a dozen hours of my personal time trying to fix it on my own, potentially even making the problem worse.
Tax and wealth management is very similar to my plumber experience. People think hiring a financial advisor costs money, but it’s actually an investment. It is an investment in your future self and allows you to buy time back so you can spend it on things that are truly important.
I believe there are seven critical life events where you want to enlist the support of an advisor:
- Starting a family: When you bring a new child into this world, life changes completely. Meeting with an advisor can ensure you have structured the proper legal documents, guardianship appointments, insurance coverages, and cash flow analysis and savings plans in place.
- A new job opportunity: When you have the opportunity to take a new job, an advisor can help analyze your potential compensation offer, benefits available, as well as financial resources you may be giving up at your previous employer.
- Sudden wealth through company stock or options: If you are granted stock or stock options in your company, you have an incredible opportunity to participate in the value you are helping to build within the company. With that benefit comes complex tax and financial decisions that need to be navigated properly. We have seen this sudden wealth transform client's lives and having a trusted advisor to help coordinate your decisions is essential.
- Thinking you are paying too much in taxes: All of us engage in tax preparation, as it is mandated by the federal government, but very few engage in proactive tax planning. An advisor can review your current tax situation and identify areas to not only save today but help reduce any potential future liability.
- Launching a new business: As an entrepreneur, you have an enormous amount of complexity to deal with in running your business. A competent advisor can serve as a CFO to help ensure you are making the right financial decisions. Whether it be business entity selection, cash flow planning, retirement plan selection, tax planning, or liability analysis, hiring an advisor can bring tremendous value.
- Preparing for retirement: Retirement brings a lot of complex choices such as planning for the timing of Social Security benefits, retiree-specific tax planning, making Medicare and other health insurance decisions, and combating longevity risk. This are decisions that are made once but last a lifetime and an advisor can help competently navigate all of these critical decisions so you can spend your time living a worry-free retirement.
- Death of a family member: When a loved one passes away, there is enough of an emotional burden, don't also create a financial burden. There are so many complexities that can arise in settling a deceased family members financial affair and an advisor will help coordinate all areas of a family succession plan to ensure the family doesn't have to struggle navigating financial decisions while they are grieving.
If you and your family are currently facing any of these critical life events, we encourage you to invest in your future and schedule an introductory call to learn what you might be missing.