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Tag: Organization

What’s the Best Way to Manage an Inheritance or Other Lump Sum of Money?

Written by support@seostats.com on . Posted in Financial Planning, Investing, Saving.

It’s never easy to lose a family member or loved one. The emotional toll this can take on you is significant. If that person left you an inheritance, the situation can become even more difficult to deal with.

Having someone you love pass away and leave you a lump sum of money is not quite the same as stumbling upon a twenty-dollar bill on the ground. You may have a lot of grief, confusion, or even anger that you feel about your loss — and you also have a lot of financial decisions to make now.

The problem? You should never make financial decisions based on emotion, and this is where a lot of people who receive an inheritance go wrong and squander this gifted wealth.

Even if you receive some sort of lump sum payout under happier circumstances, you run the same risks. After all, excitement and joy are still emotions that can sway you from making rational financial choices.

So what should you do — or not do — if you find yourself in this situation? How do you sort out your newly inherited assets?

 

Don’t Rush to Take Action

You might feel a sense of urgency if you receive an inheritance or a lump sum of money. It can burn a hole in your pocket! But this sense of urgency is probably unfounded. Very rarely do you need to do anything immediately.

So don’t rush to any decisions — especially when it comes to using up your newfound wealth. I have unfortunately seen people run out to buy a new car or a new house in cash because they can, or they hurry to pay off an existing loan or mortgage because they want to be debt free.

But this could be a huge, irreversible mistake. Acting on impulse is almost never a good idea when it comes to money. So take a big breath, take a step back, and let yourself feel whatever you’re feeling… but don’t act on those feelings.

Give yourself time and space to process things. Once you’re feeling more grounded, you can look at what to do next.

 

Do Get Professional Support

There’s a reason successful people are not loners; they have teams of mentors, workers, advisors, coaches, and staff that surround them.

Smart people know they need support, expert guidance, and independent, objective perspectives to help them reach the best decisions. You should do the same if you want to enjoy the same success.

If you find yourself with an unexpected lump sum of money, consider sitting down with a financial planner who can help you sort through all the must-do actions (like transferring assets officially into your name) and help you figure out what you’d most like to do next (based on your needs, goals, and priorities).

But don’t just hire any person who calls themselves an advisor! Get educated so you can ensure you hire the right professional who will put your best interests ahead of everything else. That means you’re looking for a fee-only, fiduciary, CFP.

You can learn more about finding the right financial advisor for you here.

 

Don’t Leave Cash Sitting in a Bank Account

Letting cash sit around means racking up big opportunity costs, because it could be earning money elsewhere. Not only will you not earn interest or a return on your cash in a checking account, but you’ll also be more apt to spend it.

It’s just sitting there, ready and waiting — and it probably feels different from money you earned through your paycheck. So remove the temptation and at the very least put this sum into a high-yield savings account.

If the total amount is over $250,000, you need to split the total sum up at different accounts with different banks to ensure you have complete FDIC insurance protection on your money. You can read my article here on how to choose the best savings account for you

 

Do Think About the Future

Once you actually have inherited assets or a lump sum payout in your possession and have given yourself time to process your emotions, you need to make a plan for that money and give it a job.

What is this money for? Do you have immediate pressing needs you need to address? Do you have big goals to fund? Are you looking to secure your own financial freedom — or create an even bigger legacy so this money can continue to support future generations of your family?

There aren’t really any wrong answers here, so long as you focus on your values and what you want your life to look like. It’s probably not a wise long-term move to seek immediate gratification and run out to buy that sports car you always wanted.

(But hey, it could make sense in some situations! This is why it’s important to work with a planner who can help you sort your goals and priorities)

Talk about your goals. Get clear on what’s important to you. Take the time to consider the impact of your choices with this money, and how big purchases now may impact you in the long run so you can make the best possible financial choices with this new wealth you received.

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

Why Entrepreneurs and Small Business Owners Need to Put Profit First

Written by support@seostats.com on . Posted in Business Owners, Cash Flow.

A friend of mine recently recommended I read the book Profit First: A Simple System to Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz.

The timing of his recommendation couldn’t have been any better. My business was evolving and was facing a cash flow crisis that I had never expected. Reading Profit First has been a game changer.

 

Who Should Consider Reading Profit First

Before I explain my experience, let me first clarify who this book might be best for. I highly recommend Profit First to any small business owner, aspiring entrepreneur, or even freelancer or contractor.

The book lays out a process for better accounting and financial management for your business (or freelance income), and gives a simple method for prioritizing the right factors.

If you want to get a feel for what the book covers, Michalowicz shares a helpful summary and overview of his Profit First Formula and explains some of the major concepts in this downloadable PDF you can review.

And if you’re thinking you do a good job managing your personal finances, so you’re all set when it comes to the business finances… you might be falling for the same trap I found myself in, and hurting your ability to grow and become more profitable in the process.

 

The Money Management Mistake I Made as a New Business Owner

As a Certified Financial Planner and someone with an MBA, I thought managing the cash (and profitability) for my business would be easy. Why wouldn’t it? After all, I thought, how different could personal cash flow and business cash flow really be?

The fact is business cash is different than personal cash, and remarkably so.

When I founded my business and first launched, cash flow was something that was easy to figure out… because I had no cash coming in! I was extremely conservative with the business’ finances and spent only what I had to spend to keep the operation running.

This works when you are in the planning and launching stages for a small business. Things change once you start to bring on customers and develop steady income; in other words, things change when you start adding income to your cash flow.

Initially, I though cash management would be easier when cash actually started coming into the business — and I couldn’t have been more wrong.

 

The Negative — and Positive — Impacts of Parkinson’s Law

I quickly learned that having cash to spend was its own new problem. Little did I know that I would keep getting stuck as a victim of Parkinson’s Law, and that the excess cash would disappear without any tangible progress — in other words, profit — to show for it.

Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet the supply of it. That’s why when we have two weeks to do a project, it takes two weeks. When we are given eight weeks to do the project, even if it’s the exact same, it takes us eight weeks to complete it.

The same idea can apply to how we manage our money for our businesses. When given $1,000 to complete our work, we can get what needs to be done with $1,000. But when we suddenly have $10,000 available to spend to complete the same work, it takes $10,000.

This can be a major trap for business owners — unless you learn how to work with this law instead of against it. Part of what Profit First explains is how entrepreneurs can make Parkinson’s Law an asset.

Here’s how: you take profit first, which lessens the money available for expenses. Entrepreneurs are forced to find ways to get the same things done for less money.

 

Setting Up a System for Better Business Cash Flow Management

I had no strategic approach of how much to spend on each part of my business. If I had funds available, I would use them to spend on marketing, or technology, or any other need that appeared immediate and urgent — but I didn’t have a method to manage and plan for the business going forward.

I wasn’t sure how much I should be making. I wasn’t sure how much my profit should be. And I didn’t know how much I could really spend on each area of my business.

Profit First provided a good solution: TAPS, or Target Allocation Percentages. These provide the guardrails, or a framework, for what you should be spending. They are different for all businesses (and the author provides these for most businesses), but like anything, if you don’t have a plan or structure in place you will never get ahead.

Here’s a quick rundown of what the TAPs system provides to help entrepreneurs better manage cash in their businesses:

  • Allocations for your cash management (it buckets your spending and uses set percentages to allocate your cash)

  • Rules for setting up separate accounts to help you keep track of what’s going where

  • Guidelines to keep you disciplined with regular cash flow movements between the accounts

Profit First really changed the way I looked at the financial side of my business. Even as a financial planner and an expert in personal financial management, I recognize managing money for a business you hope to grow and make successful is a completely different arena.

If you are a business owner, I highly recommend you read this book — and in the meantime, you can learn more by checking out Mike Michalowicz’s website and the free resources available there.

What Does a Financial Planner Do?

Written by support@seostats.com on . Posted in Financial Planning.

When I tell people I am a financial planner, I often get a friendly head nod with not much else.  On a few occasions people will ask ok, but what do you actually do?

A recent Northwestern Mutual survey revealed that while 68% of people do not have a professional adviser, 45% do not even know where to get the help they need as they move through life’s stages and need different financial solutions. And who can blame people when the financial service industry is riddled with jargon and three-letter acronyms that can make access to financial advice complicated and confusing.

I think then the real question that needs to be answered is – what can a financial planner do for you?

 

1.      Get Financially Organized

It might not sound exciting, but in order to know where you stand financially it’s important to organize and access your entire financial picture. A financial planner is either going to give you the tools to get financially organized or they will literally sit with you to sort through your financial life and create an organizational system that will work for you. From there, a financial planner can clearly see your entire financial picture – all your assets, debts, savings, investments, and anything else.

 

2.      Build a Financial Plan Around Your Goals and Values

Once a financial planner has a clear window into your financial reality, the conversation shifts from where you are today to what’s possible. A financial planner can help you better understand why money is important to you and help you align your wealth with your values. The financial plan created with you is more than numbers and recommendations, it is a series of thoughtful conversations that ultimately translates into a plan that details what is important to you and how your wealth is going to support your life.

3.      Help You Make Smart Choices with Your Money

A financial planner’s job is ongoing. Beyond helping you get financially organized and clear about what you want your money to accomplish in your life, a financial planner champions smart financial choices by working with you on an ongoing basis and keeping you on course. Creating a budget or a cash flow system is just one way that a financial planner helps you to get into good financial habits so that you spend less time worrying about money and more time simply enjoying life.

 

4.      Manage Investments

A financial planner can go beyond recommendations and manage your investment accounts. From setting up accounts to monitoring performance, rebalancing and sharing quarterly reports, a financial planner is on your team to keep an eye on your investments and alert you to any adjustments or opportunities that may make sense to help you reach your goals.

 

5.      Maintain Accountability

A financial planner helps to hold you accountable, as well as himself. Through close monitoring of your financial accounts, a financial planner makes sure that you remain on track financially. A good financial planner will always be working behind the scenes to maintain your financial plan. A financial planner will have a close and open relationship with you so that he can adjust your plan according to any new life circumstances that may impact your plan’s effectiveness. By monitoring your progress, a financial planner can help you manage any financial issues that may arise – planned or unplanned, whether it’s personal life circumstances or market conditions and the economy.

 

These are a few examples of what financial planners do for their clients. I guess you could summarize all this by simply saying that they try to help people live the best life possible.

To read more about how to select the right financial professional for you, check out this article by Wall Street Journal Reporter Jason Zweig.

If you would rather watch a short video, check out Episode 4 of The Build to learn how Financial Planners can help you!

How To Achieve Your Goals

Written by support@seostats.com on . Posted in Goals.

At Lake Road Advisors our business is built on helping our clients achieve their financial goals. This is no easy task as these goals can be extremely long term and very difficult to quantify.

So how do we do it?  By following these 4 steps whenever possible:

 

#1 Encourage Our Clients To Have SMART Goals

The SMART acronym first appeared in the November 1981 issue of Management Review in an article written by George Doran, Arthur Miller, and James Cunningham. It served as a framework to use when developing your goals:

·        Specific

o   The goal shouldn’t be “Save enough to pay for your child’s college”, but instead “I want to save $175,000 towards my sons college education so we can pay 100% of the tuition”

·        Measurable

o   Is the goal trackable, can you tell if you are on target?

·        Achievable

o   Is saving $175,000 realistic? Can you afford it?

·        Relevant

o   Does this fit with my overall goals? Is paying for my son’s education a priority for me?

·        Time Bound

o   Does the goal have a defined end date?

Incorporating these points will provide a solid foundation for developing your goals.

 

#2 Emphasize “Baby Steps”

Financial Planning industry expert Michael Kitces wrote a great article titled “The Importance Of Creating Small Financial Planning Goals” where he described how a Fitbit breaks down walking goals into manageable segments. Instead of trying to walk 1,825 miles in a year, try and walk 10,000 steps a day.

Here we apply this idea to the equally daunting task of saving for your child’s college education:

Can you save $175,000? Something that seems impossible to fathom now can becomes more attainable if we back into the goal and break it down into small pieces.  Having 18 years to invest and assuming a 5% return per year we would need to invest $6,221 annually. Breaking that down further, we would need to save $518 a month or $17 a day to achieve our goal. Saving $17 a day is reasonable for most people. Not to mention your child could go to a less expensive school, receive grants, scholarships, or other types of aid. Your once overwhelming goal has quickly become realistic.

In a recent Forbes article titled “How To Actually Reach The Goals You Set” Brett Steenbarger talks about how “the achievement of a goal tells us that our inspiring vision is indeed attainable, fueling the next set of actions. The bottom line is that we can actually achieve the goals we set by thinking big and acting small. Large aims can inspire us and keep us on a challenging path. Small, achievable goals can reward us and help us sustain the energy to traverse that path.”

 

#3 Start Now

The worst thing you can do with these large, almost inconceivable goals is nothing. The only thing that will guarantee you don’t meet your goals is to do nothing with them. There will be bumps along the road to achieving your goals that you will have no control over. You can control when you start, which should be now.

 

#4 Focus On The Process, Not The Short Term Outcome

Tony Van Dinther, President at Executive Fundamentals, Inc., is fond of saying “focus on the process, not the outcome” in his training classes.

This couldn’t be truer when it comes to long term investing. By nature, investing in the stock market is a roller coaster ride. There will be ups and downs. Taking a disciplined approach to investing by diligently rebalancing & reinvesting dividends and income are some of the core actions that will pay off in the long run.

Effective financial planning begins with goal setting. Well thought out goals will improve your chances of success.