Financial Planning

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Coordinate Your Capital

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There were a lot of lessons learned in 2020. Things like how important it is to have a stockpile of toilet paper; that you can get through the valley and reinvent yourself and your business; and of course, being grateful for the people we care about and the relationships we cherish.

There were also lessons learned about financial preparedness for the unforeseen or unexpected. Here are 4 financial metrics you need to evaluate in the new year when coordinating your capital and how it is being used. All of these apply both to your business and personal finances.

1. An Emergency Fund is essential. This one is so simple, but it can be underappreciated and is often overlooked. However, if you needed cash in a time like 2020 and had the emergency fund, you likely rested a little easier. There was arguably no better reason to tap into that emergency fund than during the pandemic if you were struggling to keep your doors open and staff employed. Yes, the funding from PPP, EIDL, grants or other sources were a lifesaver, but don’t count on something like that always being available. You need to create that safety net for whatever may happen next time. Liquidity is access to cash or something that can be immediately converted to cash without significant loss of value. It’s imperative to understand what access to capital you currently have which could include checking/savings at a bank; a line of credit based on collateralized assets (on your house, investment account, etc.); or conservative investments like Treasury bills. There is no one-size-fits all approach to an emergency fund as the proper amount depends on a number of factors.

2. You should have a Budget that you review on a consistent basis. Whether it’s sophisticated or simple, creating a budget is guaranteed to help you improve your financial situation. If you’re just getting started, the first step is to capture all of the information on your income and expenses and group it in a way that is easy to understand. There are plenty of resources ranging from apps like Mint to an Excel spreadsheet. Next, understand what is coming in and what is going out (and where to) for a period of time, like the last 3, 6 or 12 months. Step 3 is to evaluate what you could do to help you achieve your financial goals. Finally, track your progress over the next 1, 3, and 6 months to see how you’re doing. This truly takes an ongoing effort, but it doesn’t have to be complex. It just takes a commitment and monitoring. You know the target numbers for your business. Personally, try the simple 50/20/30 method where 50% of your after-tax income is for fixed expenses (mortgage, utilities), 20% is for improving your financial situation (savings, investing, paying off debt) and 30% on discretionary spending (dining out, shopping).

3. Create a plan for how you will eliminate Debt. Sometimes debt is necessary, especially if it provides a long-term return. No one likes student loans, but they help provide an education which launches your career. A mortgage allows us to have a roof over our heads. A bank loan allows you to expand your operations. Conversely, many people accumulate debt that provides no real value other than short-term satisfaction. Buying a new wardrobe on the American Express or taking out a personal loan to go on vacation are not great decisions. Regardless of what debt you have, you should have a strategy for how you will get rid of it. Start by writing down what you owe on all debts, notably the lending institution, current balance, interest rate, minimum monthly payment, and payoff date. Then determine the best strategy to pay it off. Maybe it’s the “snowball” method where you pay off the lowest balance first, regardless of interest rate, in order to create some momentum. Debt affects all of us psychologically and impacts our decision-making and our stress. It does not have to be that way!

4. Invest in your future. Investment comes in many different forms (it’s January, so we all have a fitness goal for at least the next few weeks). Consider investing in two ways this year. First, invest in your employees through enhanced benefits. A company retirement plan can be an attractive benefit and aid in retention, especially if you are helping them contribute. There are several different types of plans that could fit your needs. A 401(k) that is properly structured can be a big benefit for both the Owners as well as the employees. There are many factors that can take your 401(k) from a bare-bones headache to a significant benefit, so work with the right advisors to help you in the decision making. There’s other types of plans, too, depending on your circumstances. Secondly, invest your savings to receive a return on your capital. Set a savings goal (see the part above about budgeting), and then establish a systematic way to have savings happen automatically via electronic transfer. Many investors fled to cash during the downturn in 2020 due to perceived safety but may have done more harm than good. You should have a healthy cash position as a safety net (see the part above about emergency funds); but your investments should have the long view in mind. Don’t worry about the noise of the day and what happens in the stock market over the short-term. Instead, maintaining a long-term perspective will allow you to experience the power of compounding returns.

Last year, we experienced how just one thing can dramatically impact all of us. That impact can have a domino effect personally, professionally and financially. You likely saw how your financial plan stood up against the unexpected.

Coordinate Your Capital: Consider a financial check-up and prioritize a stress-test of your plan to ensure there are no gaps that exist. Having the proper pieces in place financially to help you weather the next storm can be the difference between defeat and success.

Financial Planning Foundations - Emergency Fund

As part of our bi-weekly webinar series, we’ll be speaking to you about three main topic areas: 1) financial planning foundations, 2) investments and 3), advanced planning.

In this webinar, we start with the basics - each financial plan must be built on a strong foundation, and an important part of that foundation is an emergency fund. Learn the why, what and how, and understand why it’s not a one-size-fits-all model.

Note: while we have been Zoom users for quite some time, we’re still adjusting to technology for recording and playback. We had some technical difficulties and unfortunately, the first few minutes of the webinar were cut off. However, much of it was captured, and we’re a phone call away for any of your questions!

Click here to view our prior webinar - Uncertain Times - where we discuss fear and volatility in the markets and what you should do about it.

Our next webinar is April 13 at 12:00 p.m. EST. Please let us know if you would like to attend.

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Baer Facts Friday - March 20

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We’ve put together an enhanced communication strategy to keep you up-to-date on all you need to know. It will include one update each Friday and two webinars each month. That way, you won’t have to expend as much time and energy throughout the week…you have many other important things to focus on! However, we’re always here for you whenever you need, 7 days a week.

Our best advice this week comes from Lisa - spend this weekend disconnecting from devices and distractions; devote yourself to spending quality time with your family and loved ones.

Here’s Why You May Need to Update Your Estate Plan

Estate planning—the process for how you transfer your wealth to heirs and others—can be very important for anyone who wants to be certain that their loved ones are adequately provided for and taken care of. When done well, estate planning aims both to allow you to pass on your assets as you see fit, and to minimize the state and federal tax bite that often accompanies the transfer of significant wealth.

Even if you are not subject to estate taxes or don’t have family, estate planning can potentially enable you to decide which people and charitable organizations will receive your wealth at your death. Failing to plan can mean that you will let the government make those decisions—and we find that few people are fond of that choice!

But if you think that your current estate plan is up to those tasks, you might want to think again. Here’s why your estate plan may need to be refreshed.

Most estate plans are old—and potentially outdated

First, some good news: Eight out of ten affluent individuals (those with investable assets of $500,000 or more) in one survey by AES Nation had some sort of estate plan in place.

Here’s the less sanguine news: Even if you have an estate plan, you may not be nearly as well prepared as you think you are for transferring wealth according to your wishes. That’s because more than half of the estate plans these affluent individuals have in place are more than three years old.

Here’s why that’s a big deal—one that should raise a red flag that your plan could be outdated:

·        Continual changes in tax laws mean that older estate plans may not take full advantage of current opportunities to transfer assets optimally.*

·        Tax law changes also could mean that some aspects of an older estate plan are no longer effective.*

·        Changes in your wealth status mean that your estate plan may no longer accurately reflect your financial situation—and your future needs and goals.

·        Changes in your personal and family situation may make your estate plan ineffective in accomplishing what you actually want it to do given those changes.

* A tax professional should be consulted on all tax-related issues.

Estate Planning Uncertainty Abounds For Many

In order to attain the greatest benefits from estate planning, it’s a good idea to stay on top of your plan and revise it when appropriate—especially when new events occur that potentially affect your wealth.

Having an old estate plan can potentially create uncertainty in a key area of managing your wealth. Example: The vast majority of individuals—71.4 percent—with estate plans that were three or more years old said they did not know whether their plan would deliver the results they wanted, according to AES Nation. Just 17 percent of this group said they were confident their plan would deliver the results they wanted. And a little more than 10 percent said it would not perform as desired.

In contrast, an updated plan can potentially provide a sense of confidence. Consider the individuals with plans that were less than three years old: Nearly half said they knew their plan would deliver the results they want. About 15 percent said that their plan needs to be revised because it would not deliver the desired results. Fewer than 40 percent did not know or were unsure about how their plan would perform.

Those results are much better than the results of the group with the older plans—but the AES Nation data shows that a large percentage of people from both groups are uncertain about the effectiveness of their plan. 

Next steps to consider

The messages from these findings that should be considered are:

·        Have an estate plan in place if you want a say in where your wealth goes after you’re gone.

·        Don’t let your plan gather dust in a binder, folder or drawer (or in the cloud, for that matter).

Your next step: If you already have an estate plan set up, you might want to stress test it to see if it is still positioned to achieve your specific wealth transfer goals (especially given some of the tax law changes in recent years). By stress testing the plan, you can assess the outcomes it would likely deliver under various scenarios that could potentially occur. Many families regularly use stress testing to evaluate their existing strategies as well as strategies they are considering implementing.*

*A tax professional should be consulted on all tax-related issues.

ACKNOWLEDGMENT: This article was published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2019 by AES Nation, LLC. This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services.

How Playing the Long Game Could Help Build Wealth and Success

Many extremely wealthy people have a much better handle than others on a key concept of success: the long game.

The long game means having a concrete vision of your ideal future down the road—years or even decades from now—and taking specific, carefully considered action steps at every stage along the way to maximize your ability to get there.

Unfortunately, we find that most people don’t effectively plot out their financial futures, or lay out a clear and actionable path to follow. As a result, people often come up with scenarios that are as unrealistic as they are attractive—fantasies that stand little chance of becoming reality.

The upshot: It’s probably time to honestly assess how well you’re doing at both creating a detailed vision of your ideal long-term future and acting in ways that consistently move you toward that result. That’s true whether you’re trying to get wealthier through investing, earn a higher salary or retire on your terms.

These guidelines can help you get on track!

Start at the End

Always work backward from your desired end result. This big-picture thinking starts with creating a vision of the ideal future you want (for yourself, your family and so on). Vision—a term some find to be New Agey—is a powerful tool that can be used to motivate, unify and inspire. As you develop a vision for your future, you start to gain an understanding of why you do what you do. Such clarity can be extremely motivational.

Well-conceptualized end goals have a number of benefits, including:

  • Keeping you highly motivated

  • Helping you concentrate your actions productively

  • Helping you focus on the processes and activities that really matter and avoid distractions

  • Helping you stay on the path as times get hard

Next, think about the specific obstacles that could prevent you from reaching those specific goals. Say you’re a business owner. Specific hurdles that might get in the way of your target revenue or valuation goals might include outdated systems you have in place. Or perhaps you have a goal of building your retirement dream home in another state. Your obstacles might include a lack of adequate wealth or liquidity, or even health-related challenges. The things that seem to oppose our goals are actually the raw materials for achieving them. Thinking about obstacles in this way is extremely liberating. If your obstacles are closely tied to the results you said you wanted to achieve, you suddenly have the keys to overcoming them.

PLOT OUT INTERMEDIATE GOALS AND PLANS

As part of your long-game path to your end goal, you will need to specify intermediate goals. These are stepping-stones on your way to the end goals. You’ll also need to delineate well-thought-out plans that will enable you to achieve the intermediate goals that push you toward your end goal. In short:

Intermediate Goals + Thoughtful Plans = End Goals

Example: If you want to become seriously wealthy, you need to specify exactly what that means to you. It might be a net worth of $10 million or $20 million (or much more). This is your financial end goal.

Now, you need to determine how you are going to get there. One possibility is to establish and grow a business. A successful business then becomes an intermediate goal. There also may be other intermediate goals (such as finding and working with a high-caliber wealth manager) that will help you accomplish your financial end goal.

Execute your plan

Perhaps the biggest challenge of playing the long game well is execution. But face it: You’ve got to act on your plan or you’ll make no progress.

Set specific goals and milestones to begin the work of making your vision a reality. Choose the broad strategies you will use to reach each goal. Identify the tactics for implementing each strategy. Once these tactics are clear, decide on actions to execute each tactic. Ensure that each action is specific and achievable, and set a target date for completion.

The importance of perseverance

Perseverance is central to a good long game. As with most meaningful and large-scale endeavors, great results are unlikely to happen quickly. You need to be willing and able to stay the course for quite some time, as most successes are built on incremental achievements—that is, on attaining your intermediate goals.

Of course, life has a way of pulling us in all sorts of directions. Perseverance becomes much easier and more productive when you keep your end goals, your intermediate goals and the plans to get there top of mind. Doing so can help you avoid being overwhelmed by immediate circumstances.

Remain flexible

The advice that you should stay on track and persevere through challenges comes with one big caveat: You can’t be rigidly locked into a plan. Flexibility is vital as you navigate inevitable changes in your life and the world at large that impact your vision, your goals and your course of action. But to constructively adapt, you need clear goals and the processes to achieve those goals. Without them, you risk overreacting to challenges and veering too far off your desired course.

A road and a road map

In the end, long-game planning builds a bridge that links where you are today to where you want to be down the road. To get the most out of your efforts, remember a few key tenets of success—start with the end in mind, develop intermediate goals that propel you forward and execute with focus. With these ideas and your self-created road map to guide you, you can put yourself on the road to an ideal future. 

ACKNOWLEDGMENT: This article was published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2019 by AES Nation, LLC. This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services.

Elite Wealth Planning

What it is and why it matters

Elite wealth planning often plays a key role in the lives of today’s highly successful individuals and families—as well as those who are on the path toward great financial success.

With that in mind, here’s a closer look at just what elite wealth planning is—how it works and how it can potentially have a powerful impact on your life as you seek to build, preserve and protect your wealth.

The key elements of elite wealth planning

Before we can see what makes elite wealth planning so special, it’s important to understand the various planning strategies that make up the core of most elite wealth planning efforts.

Typically, elite wealth planning consists of seven main types of planning:

1. Income tax planning focuses on mitigating taxes on money earned by working—potentially enabling you to keep more of the money you make.

2. Estate planning involves using legal strategies and financial products to determine the future disposition of current and projected assets. Critically, it is important to determine who will own the assets and how they will be owned.

3. Marital (and related relations) planning entails planning for disruptions in the relationships between spouses and other partners. The intent is to take actions that will protect your family’s wealth.

4. Asset protection planning entails employing legally accepted and transparent concepts, strategies and financial products that are designed to help ensure your wealth is not unjustly taken.

5. Charitable tax planning addresses ways to be philanthropic in the most tax-efficient manner. The tax code fosters philanthropy, and charitable planning can help maximize the impact of your giving.

6. Business succession planning principally deals with helping entrepreneurs tax-efficiently transition their businesses to others, whether they are family members or not.

7. Life management planning addresses an array of concerns from a wealth management perspective—for example, structuring wealth to deal with longevity- and health-related concerns and actions.

In practice, there can be great overlap between these areas of planning, as well as opportunities for them to work together to accomplish more than they could alone. Some examples:

·         By placing assets into an irrevocable trust for the primary purpose of transferring them to heirs—an estate planning strategy—elite wealth planning might pinpoint related strategies for protecting your assets.

·         Business succession planning can be entwined with estate planning and potentially other planning specialties to support your goals in multiple areas.

Clearly, elite wealth planning is designed to help address your needs, wants and preferences across a full spectrum of planning specialties—potentially enabling you to optimally structure all the areas of your financial life.

PUTTING THE ELITE IN ELITE WEALTH MANAGEMENT

These various types of wealth planning are not new, nor are they in any way restricted to the very wealthiest among us. Lots of people can seek help with their charitable giving, marital planning or income tax planning.

Additionally, the level of technical expertise possessed by a professional wealth manager offering wealth planning isn’t a major differentiator. Wealth managers who are “just” technically adept and elite wealth planners both can be considered state-of-the-art in terms of their expertise (see the table below). All technically skilled wealth planners should be able to deliver essentially the same menu of solutions to their clients.

But there is one key characteristic that tends to make elite wealth management so—well, elite: the focus of the particular wealth manager.

Specifically, elite wealth planners focus intently on the human element of the wealth planning process—understanding their clients on deep, personal levels that go beyond the numbers that appear on their tax returns or balance sheets.

In contrast, technically adept wealth planners are generally more focused on the legal strategies and financial products such planners can offer. This doesn’t mean that technically adept wealth planners are not concerned with interpersonal relationships with their clients and the psychology of the affluent. But from an objective standpoint, interpersonal relationships with clients are of much less concern to technically adept wealth planners than they are to elite wealth planners.

While elite wealth planning can include some highly sophisticated thinking and solutions, we strongly believe the human element is much more important. In elite wealth planning, the client—be it an individual, a business owner or a family—takes center stage in all discussions and decisions. The elite wealth planner’s technical capabilities and solutions exist only to serve the client and provide what he or she wants most as a person.

That’s why we define elite wealth management this way:

Elite wealth planning is a comprehensive planning process that incorporates state-of-the-art technical expertise in legal strategies and financial products with the human element.

Unfortunately, the human dynamic is too often overshadowed by legal and financial expertise. To get truly meaningful results, a wealth planner must be acutely attuned to both the rational side and the emotional side of a person—the logical and the illogical. It’s this awareness of and sensitivity and responsiveness to the human element that we firmly believe makes wealth planning elite.

Bonus: The comprehensive process at the core of elite wealth planning enables both the wealth planner and the client to reveal more about themselves (including the way they like to work, their aspirations and even their limitations). Along the way, elite wealth planning creates a level of security and comfort that is the foundation of a rewarding relationship.

ACKNOWLEDGMENT: This article was published by the BSW Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2018 by AES Nation, LLC. This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services.