You don't need to be told that managing your personal finances can be tough. Virtually anyone reading this will be able to say truthfully that money is tight in their household. Too many things need to be done, and there's not quite enough income to cover everything. So we all make choices. We prioritize. We postpone.
And, with embarrassing frequency, we also blunder.
In this Motley Fool Answers podcast, co-hosts Robert Brokamp and Alison Southwick have invited certified financial planner Josh Strange, the founder of Good Life Financial Advisors of Northern Virginia, to talk about the five most common money mistakes he sees his clients make, and how we can avoid them. But first, they'll share a "What's Up, Bro?" segment that's one part financial voodoo, one part political malarkey, and one part inspirational generosity.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Sept. 03, 2019.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by "Bobert" Brokamp, personal finance expert here at The Motley Fool.
Robert Brokamp: What the helicopter? Bobert.
Southwick: Bobert. It's fun to say.
Southwick: Say it!
Southwick: See, it's fun!
Brokamp: It is kind of fun.
Southwick: In this week's episode we're joined by Josh Strange. He's here to talk about the most common mistakes he sees people make in his role as a financial advisor. All that and more on this week's episode of Motley Fool Answers.
Southwick: So, Bro, what's up?
Brokamp: Alison, I have not one, not two...
Southwick: Three. Come on, three, three, three.
Brokamp: ...but three things for you today. Yes, OK. So here we go. No. 1. Financial voodoo never pays. So gather round, children, as I tell the tale of Dawn Bennett, who was once a respected financial advisor with a radio show. She owned an online clothing store. And in 2009, she made Barron's list of top 100 women financial advisors.
Southwick: Oh, no. And here comes the voodoo.
Brokamp: Yes, that was then. As for now, Bennett was recently sentenced to 20 years in prison for defrauding 46 investors of approximately $20 million. Primarily, by inducing them to invest in her clothing store and promising 15% annual returns. So where did the money actually go?
Southwick: But why would that be illegal? Oh, because she didn't actually invest it in her business.
Southwick: There we go. I'm sorry. I'm still hinging on the hope that there's actual voodoo in this story.
Brokamp: Oh, you wait. You wait. So here is a long quote from Investment News, a trade publication about where this money went. "The evidence showed that Ms. Bennett misappropriated investor funds, using them to fund a lavish lifestyle, pay her personal legal expenses, and repay previous investors with funds she received from new investors." In other words, a Ponzi scheme.
Brokamp: But they also charged that she used the money to pay for a luxury suite at the Dallas Cowboy's football stadium. To pay a website operator to arrange for priests in India to perform religious ceremonies to ward off federal regulators and to purchase astrological gems and for cosmetic medical procedures." By the way, do you know how much it would cost to hire those priests in India?
Southwick: What? She should get her money back.
Brokamp: I'd say so. And then there's this quote from financial-planning.com. "When FBI agents searched her penthouse, they came across evidence of voodoo-type witchcraft. Bennett allegedly had instructions for how to put people under a Beef Tongue Shut Up Hoodoo Spell..."
Southwick: A shut up voodoo spell.
Brokamp: "...reportedly intended to silence individuals. And FBI agents also found two freezers containing sealed Mason jars with SEC attorneys' identifying information suggesting that she had cast the voodoo spell several times in order to paranormally silence those pursuing the case, according to an FBI affidavit submitted in court filings."
And it turns out it wasn't just clients she fooled. She fooled banks, as well -- again, according to the financial-planning.com article -- to secure a $750,000 line of credit in May of 2015. Bennett falsely told the bank that she had a brokerage account with a net portfolio worth over $4 million, but in actuality her net worth was just $35.
So the lesson here, of course, is here's a financial advisor who had all the trappings of success. Radio show. Barron's list.
Southwick: Mason jars full of beef tongue.
Brokamp: [Laughs] Exactly.
Southwick: Beef tongues. Cow tongues. Whatever.
Brokamp: So regardless of all those things, you're going to have to make sure that whatever you are actually investing in is an actual thing and I would definitely say that any time a financial advisor wants you to invest in something that she or he owns, or is something that is off the radar of just general stocks and bonds, be very careful. No. 2.
Southwick: How can you beat No. 1?
Brokamp: Yes, that's a tough one to beat. Anyways, No. 2. 403(BS). We talk a lot on this show about 401(k)s, but many workers, particularly those who work for non-profits, or the government, or in education have something called a 403(b) and the rules are very similar to 401(k)s. The difference is that with 403(b)s often annuities are involved, which can drive up costs and sometimes political pressure is involved, which is often not in the interest of the employees.
A recent example is highlighted in a post by financial planner Tony Isola. He's a former social studies teacher who blogs at a site called "A Teachable Moment." I highly recommend it. So his post is basically on two rules that were changed for teachers in Pennsylvania and Texas. I don't want to get into all the details, but if you are a teacher in those states, definitely go to his site to learn about it.
But I do want to highlight one thing that he pointed out just to show how political pressure can influence 403(b)s. He talked about how in Texas it used to have some ludicrously high caps on the fees for 403(b)s, such as you could only have a front-end load or back-end load no higher than 6% and annual expenses couldn't be higher than 2.75%.
Which is just ridiculous; because, no one should be paying anywhere close to that. So what did Texas decide to do? Did they decide to lower these caps? No, they decided to just get rid of the caps altogether.
Southwick: There you go. Problem solved.
Brokamp: That's right. These are thanks to a bill introduced by State Rep. Dan Flynn. What was Flynn's rationale? He said, "Limiting fees may not only reduce product offerings, but also limit a company's ability to provide services." Blah blah blah.
Southwick: Blah blah blah is right.
Brokamp: "And further, focusing only on fees ignores product performance and could deny teachers access to the products that may have higher returns."
Southwick: Won't somebody think of the teachers?
Brokamp: Of course, Tony, on his post, points out that Flynn's top contributors, in terms of his...
Brokamp: An estimated $286,000 from the finance and banking industries.
Southwick: That's all. Doesn't that make you upset when you actually find out how much someone has been lobbied? Like how little amount of money it takes to lobby someone to do a lot of harm.
Brokamp: It's crazy. There's also an article I read about him that he's No. 2 in terms of the top-spending [members of the state legislature]. He even charged his Netflix subscription to his campaign. He's kind of an interesting character. Anyways, point being everyone out there, particularly with a 403(b), but everyone; expenses do matter. Study after study has shown if you have a 403(b), choose the lowest-cost option available to you.
And No. 3 we have a carpenter builds a lasting legacy. Now since we're on the verge of another football season, I was tempted to talk about Washington Redskins running back Adrian Peterson. Have you heard about him?
Southwick: No. I don't follow sports ball.
Brokamp: Well, anyways, he has earned an estimated $100 million over his career, but is now being sued by multiple parties for defaulting on loans worth millions of dollars.
Southwick: And I was hoping it was going to be a good story.
Brokamp: I've got a good one coming. How could he have blown so much money?
Southwick: Indian curses and beef tongue. We know this story.
Brokamp: No, bad advice and lavish spending. So here's how the website nine.com described the birthday party that Peterson threw for himself when he turned 30. "The party, itself, was set to an Arabian theme and featured belly dancers, snake charmers, and a rented lemur. Peterson also had Oscar-winning actor Jamie Foxx deejay the event. The NFL star arrived at the party sitting on top of a camel and then took his seat on top of a pretend throne with a python draped around his shoulders."
But I'm not going to discuss Adrian Peterson because I want to end this "What's Up, Bro" on a positive note. So instead, I'd like to tell you about Dale Schroeder who was a carpenter in Iowa for 67 years before he died in 2005. He died with two pairs of jeans, a rusty old Chevy, and $3 million.
And he didn't have any living relatives so he created a fund that would send small-town kids in Iowa to college because, he said, he never had that chance. To date the fund has paid for the education of 33 kids -- doctors, teachers, therapists, all kinds of professions. They formed a group called "Dale's Kids" and this past July they all gathered together for dinner which featured a display that included pictures of Dale as well as Dale's old lunch pail. It was there.
Southwick: No rented ferret? Or was it a lemur?
Brokamp: No lemurs or anything like that.
Southwick: They have no idea how to throw a party.
Brokamp: One of these people -- her name was Kira Conrad -- said, "I grew up in a single-parent household, and I have three older sisters, so paying for all four of us was never an option. For a man that would never meet me to give me a full ride to college is incredible." And she learned about it at her high school graduation party. She was going to tell folks that, "I just can't go to college. I don't have the money." She got the phone call from Dale's lawyer saying, "We are going to cover your whole cost," and so she broke down in tears.
The fund is administered by Dale's lawyer -- a guy named Steve Nielsen-who has told the kids, "All we ask is that you pay it forward. You can't pay it back because Dale is gone, but you can remember him, and you can emulate him." And that, Alison, is what's up.
Brokamp: No one is perfect. Everyone has a financial foible or two, but what are some of the most common? Well, to help answer that question we are joined, today, by Josh Strange, a certified financial planning professional and the founder and lead advisor at Good Life Financial Advisors of Northern Virginia. Josh, welcome to Motley Fool Answers.
Joshua Strange: Thank you, Robert. It's good to see you.
Brokamp: Well, it's good to see you, too. Let's start with you telling us a little bit about yourself and how you got into the financial advice biz.
Strange: Born in Illinois. I've got a wife and three kids. And the way I got into the financial advice business was when I was 18 I enlisted in the Air Force and during tech school they had a personal financial briefing. A lot of people were falling asleep, but they were talking about this idea of a Roth IRA, which I had never heard of and if you save $3,000 a year, you would be a millionaire by the time you were 60 assuming an 8% return, which is probably high now. But I was like, "Wow, this is the secret to the world revealed to me."
Growing up I'd see people that had problems with money and I just knew that if I have this knowledge and I didn't have it before -- if I could share that with people and help them reach a level to where they don't have to worry about money and they can have that financial independence -- that would be a really worthwhile profession, so I kind of got hooked there.
Brokamp: So you were in the Air Force for six years. Left. Joined a bank if I remember correctly. Is that how this goes?
Strange: So it's a really difficult business to get into. After the military I actually had a number of different jobs and then I started at a firm where I failed miserably, which is not atypical. Then I went to a bank and was able to actually meet with clients and get to know what happens in a person's financial life. And went to another bank and then pursued my dream of opening my own firm and being an independent advisor. I've been doing that, now, for a little over a year as an independent. It's the best move I ever made.
Brokamp: And when you say failed, I'm assuming it means you were among the 70% of people who when they enter the financial services industry don't meet their sales goals in that first year and they are no longer kept in the business. At least that was the stat when I was a broker many years ago.
Strange: That's exactly right. I had this illusion that if you have a Series 7, all your friends are going to be like, "Oh, wow. You're a financial advisor now. Let me bring you all my money." But they don't. And the people, there, are like, "Yeah, you should go for it." When you get your license they're like, "Oh that's great. I've had a guy I've worked with for a number of years." So I wasn't as good at the sales piece as I would have liked to have been, but I did learn a lot about financial planning during what I call my wilderness years, and it turned out to be a great learning experience.
Brokamp: So we're here to talk about mistakes. Now there are plenty of surveys that will list the most common mistakes, but I thought it would be helpful to have you in here, because you're sort of on the front lines. You're in the trenches, every day, working with actual people. I thought we'd get your input as to what you see as the top five most common mistakes. Are you ready to get into it?
Brokamp: The No. 1 mistake is paying for kids' college while neglecting saving for [your] retirement.
Strange: So that's a big one. They call economics a dismal science because it's the study of infinite wants and limited means. We all want to do everything. You want to retire. You want to take care of your kids. You want to have work-life balance and all these things, but some of these are competing goals and there's just not enough money to go around. And I tell people there's really only one way to pay for retirement and that's to save and have various income streams coming in.
With college there's a lot of ways to pay, so we really need to prioritize what's the most important; otherwise, there's a good chance that people might wind up living in their children's basement.
Brokamp: I was curious at how prevalent this is. It turns out T. Rowe Price had a recent survey that asked parents [which is] the higher priority for you and your family between retirement and college. Fifty-three percent said college and 47% said retirement. So it is clear people have that priority kind of mixed up. They also asked the kids what's more important. Sixty-three percent of the kids said college is more important and 37% said mom and dad's retirement is more important. Of course.
So you can understand it. You want to help your kids and all that, but obviously if you get to retirement and you don't have any money, you can't retire. So what do you recommend to people who are in this tough spot? Their kids might be in high school or on the verge of going to college and they haven't saved enough for college. What should they do?
Strange: I think, as with any financial goal, if we could have started early, it would be good; but, I think you need to sit down and really understand what retirement looks like, what that's going to cost, and where you're going to be able to do that. It's kind of like the adage on the airplane. First put on the mask to help yourself and then help your children. We all want to help our children as parents. It's really important to help our children. But sometimes the best gift that we can give them is by actually helping ourselves, first.
And so when we think about people that maybe haven't saved enough for college, I think it's important to think, "What are my child's gifts and talents?" Maybe college isn't the right path for everybody. I think we have a problem where we think everybody needs to go to the traditional four-year university. And for some people it's just not possible from a financial perspective, as they don't have enough saved.
Looking at two-year school is a really good option. I mean, the amount of money that somebody can save by going to a community college for the first couple years while they figure things out and get their generals done is significant. There are also, obviously, student loans. Now, nobody likes student loans, but that's just the reality. When you're looking at an investment in college, sometimes you have to fund that by taking out a loan. That's something.
I would also say looking at part-time work. Helping kids actually have a stake in the game can not only help from a funding perspective but gives children that ownership of the college experience. So those are some of the things that I would certainly take a look at.
Southwick: It would be interesting to know in the research who they asked. Did they ask middle-class Americans? Wealthy Americans? Americans that don't actually make a lot of money and college isn't even on the table for them? Because it will be interesting to know who actually is going broke. If college isn't even on the table to begin with, if you're in a family that doesn't make any money and it's like, "No, college isn't even an option. What are you even talking about? We don't go to college in this family." Is it middle class and wealthier people who are actually putting their kids' education in front of their retirement?
Brokamp: The survey at the end had the demographics of it and it was a pretty widely dispersed demographic. One stat from the survey I thought was interesting asked the parents how much they were going to be able to help at all, and many said, "I'm not going to be able to contribute at all." Some a little bit. Only 12% said they were going to be able to cover the entire cost of college, which means the majority of kids will have to find some other way to pay for college. And we all know that the majority of people do graduate with debt. The average debt is around $30,000 which is manageable. It's when I hear about people who graduate with over $100,000...
Southwick: Six figures.
Brokamp: ...it's just crazy. I don't blame you when I'm saying you're crazy. If you have that kind of a loan I feel bad for you. It's a tough situation to be in.
Southwick: It's even rougher when you graduated with a degree in literature and you've got six-figure debt...
Brokamp: Like some of us did that.
Southwick: You're not paying that off anytime soon.
Strange: I'll tell you the truth. When I was 17 I thought, "Hey, I'll be a philosophy major."
Southwick: Great idea.
Brokamp: I was, too. Of course, I went into the seminary. We all had seminarians, we were philosophy majors.
Strange: And somebody said, "Well, what are you going to do to make a living with that?" And I thought, "Oh man, that's a great point."
Brokamp: Open a philosophy shop.
Strange: Well, do you want to teach? No. So that kind of narrows that down. I think it is really important, though, to try to get your child -- and at 18, a lot of us are still children, I certainly was -- to consider this as a business decision. How is this major and this debt that you're going to take on an investment in yourself?
I've [heard] your podcast where you've talked about improving your own personal capital and I think that's one of the best investments you can make, but there's got to be an expected return. So pick a major that's marketable, not just interesting. It's not just about self-actualization. At some point, when you're talking about the money that a four-year university costs, it's a business decision.
Brokamp: I totally agree. Let's move on to No. 2. Getting a 15-year mortgage that they can't afford. Why is that a mistake?
Strange: The thing with a 15-year mortgage is, especially in a low-interest rate environment today, the spread between a 15-year and a 30-year isn't as significant as it used to be, but the payment is a lot more because you're paying off principal on a 15-year schedule versus a 30-year schedule. All too often I'll see people who have done this. It's a very noble goal to pay off your house. Unfortunately, we have a lot of people that are house rich and cash poor, and a 15-year mortgage can exacerbate that.
My advice to clients is it might cost you a little bit more in terms of interest, but depending on their situation, obviously by having the flexibility of the lower payment, they can always pay it off faster. Nobody's going to take your house if you don't make the extra payment, but if you don't make that minimum payment and you come on hard times, you're going to have problems.
Brokamp: I pulled up some numbers. These days, the rate on a 15-year mortgage is 3.05%. A 30-year 3.6%. So it's not that big of a difference. The average size of a new mortgage these days is $350,000. The payment difference is almost $900 a month between the two and you have to have some way to cover that because that's $10,000 a year.
Strange: Exactly. And so I think that comes back to the infinite wants and limited means. If you're going to put your retirement at risk for paying off the house, that might not be the best choice. Or funding a child's college education. It may be better to invest those monies elsewhere. What happens is that people have done this. Then they need money and they don't have money on the side. Guess where they go? To the house.
Brokamp: To the house.
Strange: They get an equity line, so they're reversing what their initial goal was.
Brokamp: So they were trying to pay off the mortgage and now they just had to reincrease it because they had to access those funds.
Strange: It's one of those things where sometimes quantitatively and when you just look at the numbers, it makes sense, but when you actually deal with real-life people, the theory and the reality of people's situations doesn't always jive.
Brokamp: You mentioned the low interest rates and they've dropped significantly over the last year. These days are you talking to your clients about refinancing?
Strange: Absolutely. There's a couple of reasons for that. One is, obviously, the reduced interest cost and if their goal is to pay off the house. I just had this conversation the other day. It was really hard to get this guy to understand. If we could get him to refinance, he's got more money that will go to principal. He could continue to make the same payment that he's been making -- which he's comfortably making -- but just pay off the house even faster; or, he could look at diverting some of those funds to other investment strategies.
Brokamp: And anyone who's thinking about it, I read recently something like eight million homeowners, now, would benefit by refinancing, and there are plenty of good calculators on the internet that can help you make that decision.
Southwick: We have the appraiser coming by on Sunday.
Brokamp: There we go.
Southwick: But I don't know what to do, because our house still has walls that have been ripped apart, so I don't know how I'm going to explain that away.
Brokamp: Hang blankets. Very large blankets.
Southwick: Because we just have tapestries in this house. They'll convey. Can we add that to the appraisal cost of the house?
Brokamp: If they increase the value.
Strange: If you were going to an open concept.
Southwick: Right. We'll see how it goes.
Brokamp: Mistake No. 3. Having accounts spread all over the place.
Strange: Yes, life's busy. It's hard to keep track of things. We're a transient society when it comes to employment, so people will have old retirement accounts and they're not really sure what's going on with it. They have them spread out piecemeal, so it's very hard to develop a strategy when they're spread out all over. So being able to see everything in one or two places can really simplify things for people and help them have a better understanding of where they're at when it comes to their finances.
Brokamp: As I said in the beginning, we've all made financial mistakes and this is one of mine. I recently rediscovered that I opened a Roth IRA years ago and it's only $2,000. That's what the annual limit was. That's over a decade ago and I'd totally forgotten about it because you have these accounts spread all over the place. You lose track of them.
Southwick: Well, that's a fun surprise. You didn't find five dollars in your jeans.
Brokamp: Unfortunately I didn't invest it, so it's still sitting in cash.
Southwick: Oh. It was just sitting in cash for the last 10 years?
Brokamp: I don't want to hear about it. That's a mistake that cost me thousands of dollars. Literally thousands of dollars.
Southwick: That will just make our listeners heartsick. That will make them feel so much better about themselves. That's really kind of you to share that story.
Brokamp: Thank you. Thank you very much. So when it comes to consolidating accounts, it often comes down to saying, "I want to keep all my accounts with maybe one or two providers." A lot of transfers. Things like that. Any tips people should know or traps they should avoid as they do that?
Strange: It depends on the tax classification. If it's qualified money, don't take possession of it yourself. You don't want to say, "Oh, I'm going to take this money out and I'm going to go put it back in."
Brokamp: Qualified meaning a 401(k) or an IRA. Something like that.
Strange: Exactly. Because what happens is that could trigger a taxable event and if you don't handle it right, it's complicated. They withhold some money back and you have to pay it back plus what they withhold, and if you don't have the cash flow it could be really problematic. So you want to make sure you're doing either a direct rollover or a custodian-to-custodian transfer.
I had a client who had a CD IRA at a bank. They went in and they said, "My CD's up. I want to take my money." Well, the banker wasn't that experienced in this, and so they actually just moved it to their money market.
Brokamp: Oof. Did he get taxed on the money?
Strange: And they get a bonus for opening the new money market -- a taxable money market. So I met with this guy. We talked about this. It was over $300,000.
Brokamp: So that was considered a distribution.
Strange: It was considered a distribution. Fortunately, we caught it before the 60 days, so we were able to move it back into an IRA vehicle. The funny thing is this guy didn't become a client because he didn't want to pay for any advice, but I literally saved him $100,000 in a tax bill.
Brokamp: Wow. So that's for transferring IRAs and 401(k)s. Stuff like that. With taxable accounts, it used to be that when you transferred from one broker to another, you risked losing cost basis information. They've implemented some rules that basically the information is more likely to come over. But I still think it makes plenty of sense to print out all that information and get all that information before you move those investments.
Strange: I agree, absolutely. And the IRS -- I think it was in 2011 or 2012 -- made it to where brokerage firms are required to report cost basis so that cost basis will track. But this is the fun part of my job -- when I get to play forensic detective -- and try to help people come up with what that basis was.
One thing I will say is whenever you are transferring non-qualified assets -- meaning non-retirement, non-401(k) -- you want to make sure that you do it in kind, if possible and not just liquidate and sell. And a lot of people don't know this. I was really surprised. You can move investments from one firm to another without selling. It seems that would be common knowledge, but it's not. So if you're moving from one platform to another, you can just transfer those assets in kind. You don't have to sell. It's not a taxable event, but if you do sell, it can be problematic on the tax side, so just make sure you know what you're doing there.
And then if you're looking at things like annuities or life insurance, you want to explore the options of 1035 exchange, which is a way to maintain the tax deferral and tax-free nature of those. Tax free on the life insurance side. Tax-deferred on the annuity side.
Brokamp: Let's move on to mistake No. 4 -- having large cash balances while carrying balances on credit cards.
Strange: Yes, this one is a real shocker to me. I never thought people really just kept a lot of money in the bank because from the time I was young, when money gets to a certain level, it gets invested. But I see it all the time. Typically it's because people are too busy to really think about it, or know what to do, or who to do something with as far as helping them decide what to do with it. There's a lot of fear and indecision.
Money will just kind of accumulate because we're busy and we'll say, "Oh, I'll get to that one day." I call it the "the old around to it." I'll get to it when I get around to it. But people will also be overspending on their credit cards and emotionally it doesn't feel good to make a big payment to somebody. So if you're carrying $20,000 on a credit card because maybe you've gotten some vacations or maybe done some work around the house, it doesn't feel good to write that check or transfer that money to the credit card, so you don't do it.
So people will hold these cash balances because they don't want to not have money. Then they have this balance on a credit card. I saw the average interest rate on a credit card, according to U.S. News & World Report, is around 17%, so they're holding a balance on the credit card of 17% so they can keep money in the bank at less than 1%. Even if you could get a decent return on that money you're probably not going to find something that's going to pay 17%. So rip the Band-Aid off, pay off the credit card and if you need money or if an emergency happens, you can always go back to the credit card if you don't have the cash in the bank. At least you're not paying that interest and just holding cash.
Brokamp: What about other types of lower-returning investments like bonds, for example? Would you feel the same way if someone came to your office and they had $20,000 in credit card debt and they also had bonds in their portfolio? Would you have them sell the bonds to pay off the credit cards?
Strange: In 99 out of 100 cases I would say yes, unless there was some extenuating circumstances. Also a caveat is we're assuming that these bonds are in a non-qualified account. If they're in a non-qualified account and you're getting 3-4% on a bond, why would you want to have something that's paying you 3-4% when you're having to pay 17% over here? So it's a way, in my view, to almost generate a risk-free return of a net of like 14% without taking any of the risk of bonds.
Brokamp: One of the reasons why someone might have credit card debt is basically they're just not managing their finances well. They're spending more than they're taking in. As a financial advisor do you find that pretty frequently and do you actually help people with their budgeting?
Strange: Yes, absolutely. When it comes to cash flow, I think back. I grew up in Southern Illinois. Outdoor sports is a big thing. I remember one time my dad and I were going fishing together. I'm backing the boat onto the ramp. He starts flailing his arms going, "Stop! Stop! Stop!" What's going on here? He forgot to put the plug in. So the boat's filling up with water. What does it have to do with money? Absolutely nothing. I just wanted to embarrass my dad. Hi, dad! But in all seriousness, when you have a hole in the boat, the first thing you need to do before you start bailing is identify where that hole is.
So I encourage people to go back and look at what they're spending money on. And then if you're spending more than you're bringing in and you're starting to accumulate credit card debt, you really need to think about what you're willing to give up. It comes back to that infinite wants and limited means. You're going to have to give something up if there's not enough money coming in, or you're going to have to make more money. You have to make a decision and prioritize, but that's absolutely something I help with.
We have a tool through LPL (Financial) called WealthVision. You can actually aggregate your credit card information and your banking information so we can see where the money goes. Clients can share that with me and then I can work with them to say, "OK, here's what your spending history is. Let's see where the problem is if there is a problem."
I really hate the idea of budgeting. It's like when I decided I'm going to start working out again. Oh, I'm going to hit the gym four days a week. Well, I'm not hitting the gym four days a week. If I get there twice it's a good week. So you can make these goals that set yourself up for failure. Like if you're spending $1,000 a month going out to eat, you're probably not taking that down to nothing. You could maybe take it down to $750, but you're not going to completely change your behavior. So it's important to understand what your actual past behavior has been.
Brokamp: Gotcha. The last one. Mistake No. 5. Waiting until they have it all figured out to develop a financial plan.
Strange: Yeah, I see that, too. People are like, "Well, I don't have enough money. I need to better understand investing before I work with an advisor." Then it comes down to, "When are you going to take the time to really understand investing?" Or they're embarrassed to admit the mistakes that they've made. Sometimes you might say, "Gosh, I had $2,000 in a Roth IRA that I forgot about." I don't want to admit that to my advisor or on a national podcast. Just kidding, Bro!
Brokamp: It's all right. I can take it.
Strange: In all seriousness, it's important to realize I'm where I'm at, so I can either try to figure this out on my own or I can go get help. If you're having health issues, we go to the doctor and we just do whatever they say unquestioned, because that's something where it's hit us in the face.
A lot of times finances don't hit you in the face until it's too late to really do anything about it. So I think it's important to say, "Look. I'm where I'm at. I'm going to figure this out on my own or I'm going to find somebody to help me," and go from there.
Brokamp: So there's the development of the plan, which can involve all kinds of things. It can be an actual written plan or it could be calculations for people's saving goals. There are all kinds of things that can be part of a plan. You can come up with it but then there's actually putting it into action. From many financial advisors I've heard that's actually one of the hardest things to get people to do. People come in and they pay for the advice, and then they meet them a year later and they say, "Oh, yeah, I never got around to doing that." Is that something you've experienced, as well?
Strange: I've seen that, absolutely. What I've realized is a lot of my job as an advisor is to help lead people to reach the goals that they want to do. That involves some accountability. So you want to get your estate plan developed. When do we want to have that done? And then me following up to make sure that they've actually taken the actions to do it. It's holding people's hand along that journey and saying, "Look, you're not alone in this."
I think a year is too long, especially when you're in the beginning of developing a plan. I have a process I call the NGPS process. It's where we identify where you're at now, today, and figure out what your goals are. So what do you want to do? You want to get your estate plan in place. You want to make sure you've got long-term care covered. You want to consolidate those investment accounts.
We can look at what the problems are toward accomplishing those goals and then strategize. And then we revisit that NGPS, like a road map, but we revisit it with check points. So if you said, "Yeah, I want to get my estate plan done," we're either going to get an appointment with an attorney or we're going to have a deadline where you're going to have gone out and found somebody to help you with that.
Brokamp: And you'll actually go to those appointments with people, as well, if I remember that correctly?
Strange: Yes, I do. Because it can be overwhelming and sometimes it helps to have somebody translate lawyer-speak into people-speak. There are certainly great attorneys that are good at communicating these concepts to people, but sometimes it just helps, especially in a difficult concept like, "Hey, what happens if I die?" It's not the most fun to think about, but it's really important. And it's not just documents. It's an understanding of what your estate plan is. And estate plans aren't just for the wealthy. That's another show.
Southwick: It's remarkable how much being a financial planner is like being a personal trainer.
Brokamp: It really is.
Southwick: There's people like, "I know. I know I should exercise." Then you hire someone to solve all your problems and it turns out you're still the problem you need to solve.
Strange: That's it. A personal trainer can tell you here's what you need to eat -- here's what your workout regimen should look like -- but it's up to you to take the action and do the exercise and change your diet. And if you're not going to change, you can't expect anything to be different.
Brokamp: Well, this has been great, Josh.
Strange: Well, thank you. It's been a real pleasure. I appreciate you having me on the show.
Brokamp: Where should people go if they want to learn more from or about you?
Strange: You can go to www.goodlifefinancialnova.com or on Facebook @goodlifefinancialnova.
Brokamp: Outstanding. Thanks!
Strange: Thank you!
Southwick: Well, Bro, that's the show. Thanks to Heather for working the booth for us. Is that what we call it? Rick's somewhere in Canada right now, I guess.
Brokamp: I'm not sure if he's actually decided yet.
Southwick: So, yes, the show was taped by Heather. It will still be edited by Rick Engdahl. Our email is answers@Fool.com. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!