Category Archives: Financial Health

The 5 Steps You Aren’t Taking to Prepare for a Hurricane

Living on the Gulf Coast, everyone is aware when hurricane season rolls around. Each year, you begin sorting through your garage, shed, or storage bins to make sure you have all of your storm-prepping essentials. Things like batteries, bottled water, plywood, fuel, and food are often at the top of the list. However, what often gets overlooked, and what is arguably just as important, is making sure your home-related financial affairs are in order.

view of hurricane from space
Photo by NASA on Unsplash

Here are five essential steps to make sure you are ready for that next hurricane.

  1. Review your homeowner’s insurance policy.

Does your homeowner’s policy contain a rider for wind, hail, and named storms? If not, do you have a separate wind and hail policy? Have you made any improvements to your home or have construction costs risen in your area? If so, it’s important to make sure you’ve updated your policy to cover the value of the improvements and that your policy provides Replacement Cost Value (RCV) coverage rather than Actual Cost Value (ACV). Without RCV coverage, you may not have adequate coverage to rebuild your home.

  1. Set aside an emergency fund to cover unexpected expenses. 

It’s important to know how much your deductible is for a named storm. Often times, the deductible for a named storm is higher than your typical wind and hail deductible. Just as you would have an emergency fund for unexpected events such as a disability, you may want to set aside enough funds to cover your insurance deductible, especially if it is more than you can cover through your normal cash flow.

Your homeowner’s policy may cover some of your expenses if you are displaced from your home, but there is usually a daily, weekly, or monthly limit. Make sure you’re aware of these limits so you aren’t adding additional financial stress to an already stressful situation.

  1. Maintain a good inventory of everything in your home.

Should the unthinkable happen and your home is ravaged by a storm, will you have the documentation you need to replace all of your belongings that were destroyed, or will you be trying to remember how many socks were in your drawer, how many pictures were hanging on the wall, and how many towels were in the linen closet? You should read your insurance policy and understand what documentation is needed to verify your lost possessions. Without a detailed inventory, you might not receive the insurance payout you were expecting to replace your belongings.

Bonus Tip: use your smartphone to take short video walk-throughs of each room in your home. Then, upload those videos to cloud-based storage for easy access from anywhere you have an internet connection.

  1. Take steps to protect your home from damage.

You’ve probably heard someone say they are waiting on a hurricane to hit so they can have their deferred home maintenance taken care of while only paying a deductible. It might sound logical, in theory; however, the truth is that it is much more costly (and stressful) to go through a claims process than it would be to protect and maintain your home over time. After a severe storm where thousands of homes have been damaged, it may be weeks or months before the insurance company is able to settle your claim. It may be even longer before you are able to have the repairs made as the skilled labor force is likely to be overwhelmed by the volume of work to be done.

Take action now, in advance of the storm. Invest in storm shutters, cut weak branches and trees that could fall on your home, secure outdoor furniture, and move your valuables away from windows and to higher points in your home.

  1. Compare your insurance coverage against other providers.

Your insurance company may be the best for your needs, but there’s a chance they may not be. Speak with your agent about your current policy to make sure you understand your coverage. Then, check around with other carriers to see how your policy compares. You may find some substantial differences between the policies. If these differences are important to you, you may ask your current agent whether or not these items can be added to your policy. If not, it may be worth switching carriers.

Don’t, however, base your decision solely on price. Even though a policy may be less expensive and appear to have the same coverage, they may not have the best customer service. Customer service may not seem like an issue now, when nothing is going wrong, but when you are going through a claims process, it will make all the difference in the world knowing you have someone who understands your situation and is going to do their best to serve you well.

By taking these five steps, you can feel confident your financial stress due to a storm will be minimal. Be prepared! Don’t wait until you hear a hurricane is in the Gulf. When that time comes, it will be too late.

If you’re not planning for your financial future, it’s about like waiting on the hurricane to hit. Why not begin planning now so you’re ready when the storm comes your way? Give us a call and schedule your no-cost introductory meeting today.

Planning With Purpose

“Discover a purpose that gives you passion. Develop a plan that makes you persistent…” -Israelmore, Ayivor

Are you living the life you intended or is life happening to you?

Time and again clients come into our office looking for financial guidance, which is understandable. Most people spend more time planning a vacation than they spend on their finances in a year. They are usually seeking answers to legitimate questions regarding their money.

  • Am I saving enough for retirement?
  • Should I be contributing to my Roth IRA?
  • What investments should I choose for my 401(k)?
  • Will my family be taken care of if something were to happen to me?
  • Should I start a 529 plan for my kids’ college?
  • Which retirement plan should I implement in my business? A Simple IRA, a SEP IRA, or a 401(k)?

All of these questions are important and should absolutely be addressed. However, what is often overlooked is WHY these things are important. It’s not typically because you love trying to figure out whether U.S. Large Cap Value will outperform Large Cap Growth over the next 10 years or because you aren’t sure if you’ll have enough tax-free income during retirement. No, most of the time, the reason why these things are important isn’t related to money at all. Rather, the purpose stems from our desire to feel a sense of well-being, comfort, and assurance that we and our loved ones will be okay. We want to know we have the ability to do the things we most enjoy in life without hindering our ability to meet our basic needs.

planning checklist
Photo by Glenn Carstens-Peters on Unsplash

So, do you have a plan that ensures your comfort, well-being, and security? Are you making it a point to do the things you most enjoy? Or, are you like most everyone else…letting life happen to you? You go from one day to the next, putting out fires and always hoping tomorrow will give you that much needed breakthrough. You have so many places you would like to see, people you would like to spend time with, and things you would like to do, but there’s never enough time—and resources are always less than you would hope. You think, “one day I’ll have a chance to make these things happen.”

A successful plan isn’t about having a fixed path

Instead of staying in this cycle of waiting on tomorrow, why not make a change? Discover what you are passionate about and what you want most out of life. Then, build a plan that you feel confident will help you fulfill those goals. A successful plan isn’t about having a fixed path to your goals. It’s about going through the planning process over and over as your circumstances change. Each time, you make the necessary adjustments to point you back towards your goals. There’s always going to be the unexpected setback. If there wasn’t, there would be no need for planning.

Make a decision to live with purpose

Don’t let life happen to you. Make a decision to live with purpose. Set your focus on what is most important to you. Then, as you are faced with decisions about how much life insurance you need, how much money to save for your kids’ college, which investments to choose, or which account type would be the most tax-efficient, you can consider each one of those questions in light of your goals. Maybe you need to buy more life insurance, maybe not. Your goals will help you determine the steps to take.

If you’ve discovered “…a passion that gives you purpose,” but you you’re still trying to “develop a plan that makes you persistent,” maybe it’s time to consider working with a financial planner. Let us show you potential strategies for reaching your goals so that you can find the plan you are passionate about and can be persistent in your efforts.

6 Financial Planning Mistakes Small Business Owners Make (and How to Avoid Them)

According to the Bureau of Labor Statistics, for the 10 years ending March 2018 21% of businesses failed in their first year, 49% failed in their first 5 years, and 66% failed in their first 10 years.1 This means that only 34% of small business owners prepared well enough to survive over the long term.

So let’s suppose you are one of the few that have made it beyond 5 years. At this point your business is profitable, you have a better outlook on your fixed costs, you’ve likely hired a few employees, and you’re (finally) starting to pay yourself a decent income. Now that you feel all of your ducks are in a row and you aren’t running scared, you start mapping out a plan to maintain your customer base as you expand. Here’s the question…

During these first five years, did you ever focus on your personal financial well-being, or were you like most small business owners—you never felt like you had enough money, let alone time, to even think about it?

If you answered like most small business owners, you’re not alone. This is a common theme among many small business owners, even those who have been extraordinarily successful. Too often their time and talent is focused so intently on growing their business that they neglect their own personal financial planning. As a result, they experience success within the business but become prone to making mistakes that hinder their financial future.

Here are some of the most common mistakes small business owners make and what you can do to address them.

  • They do not establish a business disruption plan.

    Unfortunately, many small business owners are the sole “key” to the success of the business. If something were to happen that keeps the owner from working for an extended period of time, there is nothing in place to help cover overhead expenses such as utilities, rents, employee salaries, equipment, insurance premiums, or hiring additional help during this time.

This is where having Business Overhead Expense insurance and Key Person Disability insurance can prevent your business from failing. These types of insurance policies pay benefits to your business to keep things running while you are unable to work. It’s also important to consider who you would like to step in to temporarily fill your role.

  • They do not provide protection for their families should an unexpected disability or death occur.

    Have you considered how long your personal savings would carry you if you became disabled? Your personal expenses won’t stop just because you’re unable to work. Having a disability insurance policy in place makes sure you and your family are cared for while you’re out of the workforce.

What happens if you pass away unexpectedly? Is your thought that your family would be able to sell your business to successfully provide for their future? Many business owners feel this way. However, have you considered that your business may be worth far less without you there? It’s important to have the right type and amount of life insurance to provide the best outcome for your family.

photo of desk with notes and plans
Photo by Helloquence on Unsplash
  • They do not consider the value of adding benefits plans.

    As your business is getting started, you are often running lean and adding benefits for you and your employees may be cost-prohibitive. However, as your business grows, it is important to add benefits such as health insurance, disability insurance, life insurance, and retirement plans early on. These benefits will not only help you retain employees, but they will often allow you to save on costs and reduce your tax liability.

Flex spending accounts (FSAs) and Health Savings Accounts (HSAs) allow you to pay for medical expenses more efficiently, and implementing the right retirement plan allows you to maximize your retirement savings while accounting for variations in cash flow. Not only can you maximize your savings with the right retirement plan, but you can also drastically reduce your income tax liability.

  • They do not set aside savings outside of their business for future goals.

    As you are pouring money into your business so it can grow and prosper, are you neglecting to save for your own financial future? Many business owners enjoy a very comfortable lifestyle while the business is successful and assume that once they are ready to retire they can sell the business and live on the proceeds. They use this as motivation to continue to put money back into the business. However, doing so may lead to heartache should the business suffer a setback or fail altogether.

It’s important to balance personal savings with capital reinvestment. By considering your personal goals alongside the goals of the company, you can be proactive in drawing funds from the business when it’s profitable and directing those funds towards your personal goals. 

  • They do not consider their business as part of a diversified investment portfolio.

    Similar to the previous mistake, looking at your business as your sole means of wealth is dangerous. As the adage goes, “don’t put all of your eggs in one basket.” You should consider your business an investment just as you would an investment in stocks, bonds, mutual funds, and other investment vehicles.

While you may have more control over your business, you cannot control outside events that might have a significant impact on it any more than the next business. By diversifying your portfolio, you greatly reduce the risk of losing everything and not being able to retire. 

  • They do not develop an exit strategy or succession plan.

    As many business owners get close to retirement, they begin to think about what they are going to do with their business. They have spent much of their lives building their business into a successful enterprise. They have nurtured it, pruned it, and poured their blood, sweat, and tears into it. Now, they are not sure how to let it go. Many times, this realization comes at a time when they “need to” retire rather than being something they’ve planned for. At that point, there is often less control over the outcome which could result in not being able to provide the retirement income they were counting on.

Instead of waiting until there is an urgency to figure out how to part from the company, you should put a plan in place now. Decide whether you want to sell to a child, employee, competitor, or someone outside the industry. Develop a plan you feel comfortable with and make sure you have a clear vision for your life beyond the business. You’ll be glad you did.

business owner working with team
Photo by Helloquence on Unsplash

If you find yourself neglecting your own personal financial planning, like many business owners do, stop for a moment and decide you are going to be successful—not just in your business, but with your personal finances as well.

Consider partnering with a fiduciary financial planner to help you evaluate your options. A knowledgeable planner will help you choose appropriate workplace benefits and analyze retirement plan options that align with both your personal savings goal and your business’s cash flow. He will also work with you to create a 360° view of your finances so you always know where you stand. 

If your life currently revolves around your business and you want to alleviate some of the chaos, contact us today. When your circumstances are most chaotic, that’s when good guidance can have the most impact.

Source: 1 https://www.bls.gov/bdm/us_age_naics_00_table7.txt

Medicare Features Often Overlooked

Although Medicare is America’s largest payer for healthcare, participants are often unaware of the features and limitations of the program. It is a costly mistake to sign up for coverage, choose a supplement and drug plan and then never revisit the coverage. Want to save thousands? Here are some simple things to know about your coverage:

• Medicare does not cover medical care in a foreign country. Only Medigap plans C through G and M and N cover part of the cost of emergency care abroad during the first two months of a trip.

• You are paying too much for your prescriptions (probably). Choosing the right Part D prescription plan can save you thousands of dollars each year but a 2012 study showed that only 5.2% of beneficiaries picked the cheapest Part D coverage. And while you may have the least expensive policy this year, the coverage is rarely the least expensive two years in a row.

• Not all pharmacies charge the same price. Drug plans often offer “preferred retail cost sharing” to their members, meaning the pharmacy has contracted with the insurance company to provide lower-cost drugs than other pharmacies.

• You cannot buy a Medigap Policy to go with a Medicare Advantage plan. Medigap policies are only applicable when you are enrolled in Original Medicare.

• Cost of Medicare Part B goes up if your Modified Adjusted Gross Income is above $85,000 for a single and $170,000 for a couple. Your monthly premiums could be as much as $4,432 per year more for the same coverage!

Medicare Action Steps:

1. Purchase travel insurance before leaving the country. There are multiple companies that offer coverage that will provide you medically equipped transportation back to a hospital in your home country.

2. Go to www.Medicare.gov/find-a-plan/ to reprice your prescriptions each year. This handy tool allows you to input your regular prescriptions and compare plans to see which ones cover the prescriptions.

3. Shop the pharmacies with your coverage to ensure you receive the lowest price. Speak with the pharmacy to find out which insurance companies they have partnered with for lower costs or go directly to the insurance company to see if there is a pharmacy in your area they partner with.

4. Stop your Medigap policy while enrolled in a Medicare Advantage plan. If you’re switching from original Medicare to an Advantage plan, your Medigap policy becomes unusable. You have a short window to determine whether or not to keep your Advantage plan. If you decide you don’t like the Advantage plan, you can go back. However, if you keep the plan past the deadline, in most every case you cannot go back.

5. Manage your income to stay below the income thresholds. If your income falls below this threshold after paying the higher premiums, file a Medicare Income Life Changing Event form to reduce your payments.

6. Always review your coverage during annual open enrollment, from October 15th to December 7th. Don’t miss your opportunity to review your coverage. There may be some real savings to be found, but you won’t know unless you check.

How to Find a Fiduciary Financial Advisor

 

In 2016, the Department of Labor shocked the investment world by starting the process of requiring investment advisors who provide services to retirement plans (like IRAs and 401(k)s) to act in a “fiduciary” capacity. The term fiduciary, as defined by Merriam-Webster’s is “held or founded in trust or confidence”.1 In other words, the DOL submitted a set of rules to require advisors to be legally bound to act in the best interest of their clients. While the implementation of the rules has been stalled by Congress, the idea has thrown the world of investment advisors into a tailspin.

If you are like most, the idea that it is legal in the United States for financial advisors to act in any capacity OTHER than a fiduciary capacity is surprising. Unfortunately, it is true. You, like most, may believe that every advisor is required to place your interests above his or her interests at all times. Unfortunately, they are not. Even worse, the definitions are so convoluted that it is difficult for the average consumer to identify a fiduciary from a non-fiduciary. I hope this post helps.

Not All Advisors Are Created Equal

When it comes to narrowing the field to advisors who truly have your best interest at heart, there are essentially three different types of advisors and advisory firms in the U.S.:

  Investment Advisor Representatives (IAR): IARs are employees of independent, Registered Investment Advisor firms that are regulated by the SEC or state securities commissions. These advisors must always act as fiduciaries and must prove compliance to their regulating bodies. These advisors are generally compensated by a fee paid directly from the client (not commissions or compensation that comes from their affiliated company) and are often known as “Fee-Only” firms. IARs generally offer full pricing transparency and full disclosure of any conflicts of interest. This is easily the smallest segment of the investment advisory profession, accounting for fewer than 20% of the advisors in the U.S.

•  Registered Representatives: Registered “Reps” are employees of brokerage firms and are regulated by FINRA. Registered Reps are held only to a “suitability” standard which simply requires the advisor to determine whether the investment is suitable for the client; not necessarily the best for the client, not necessarily the least expensive and without the disclosure of any conflicts of interest. These advisors are generally compensated by a commission that is charged on the sale of the products they sell. This is the largest segment of the advisory profession.

•  Dually Registered Advisors: Dual registration means that the advisor may be registered with the SEC or the state securities commission as well as with FINRA. This allows the advisor to claim the standard of fiduciary at one moment and then, when the time is right, sell products on a suitability standard and charge a commission without full disclosure. Yes, amazingly, it is legal in the U.S. to call yourself a fiduciary while only serving in that capacity part of the time. It seems that most of the IARs in the U.S., who should be trusted as fiduciaries, are dually registered, making them non-fiduciaries when it is expedient.

How Can I Find a Fiduciary Financial Advisor?

As you can probably already guess, finding a true fiduciary financial advisor can be difficult, especially with the specter of dual registration. It is possible to identify the true fiduciaries by looking at their registration documents with the SEC or state securities commissions but the documents can be hard to understand and you must know exactly what to look for. Alternatively, you can conduct your own investigation by asking a few, very simple questions to eliminate the non-fiduciary advisors:

“How are you and your company compensated?”

•  A flat fee, hourly fee or a fee as a percentage of assets ONLY = fiduciary

•  Commissions or “I am paid by the company, you don’t pay me anything” = non-fiduciary

•  Fees and Commissions, Fee-based, Hybrid fee and Fee Offset = dually registered

“Do you receive ongoing income from any of the products you recommend in the form of 12(b)1 fees or trailing commissions?”

•  Yes = non-fiduciary

•  No = maybe a fiduciary

“Is your firm registered as an Investment Advisor and do you have an ADV Part II disclosure you can provide?”

•  Yes = fiduciary (but may be dually registered)

•  No = non-fiduciary

“Are you willing to sign a Fiduciary Oath?”

•  Yes = fiduciary

•  No = watch your wallet

For a more comprehensive tool to compare advisors, click here to access the National Association of Personal Financial Advisors Financial Advisor Comparison Tool. This is a free checklist and answer key to help you know the right questions to ask.

Feel free to present this questionnaire to Brown Financial Advisory. We have always been an independent, SEC registered, Fee-Only, fiduciary company. And since it is the right thing to do, we plan to keep it that way.

Source: 1https://www.merriam-webster.com/dictionary/fiduciary

Financial Pornography – What is to fear?

While certainly the title is an “attention-getter,” the problem, dare I say addiction, with Financial Pornography is more prevalent now than ever before. The 24 hour television news cycle, the ability to capture rousing financial information with the touch of a smart phone and the propensity of social media to disseminate enormous amounts of un-scrutinized information to the unsuspecting have created a minefield for investors.

So what is Financial Pornography? The term has been around for many years and Investopedia says Financial Porn is “A slang term used to describe sensationalist reports of financial news and products causing irrational buying that can be detrimental to investors’ financial health.” In 1964, Supreme Court Justice, Potter Stewart, gave a characterization of pornography that epitomizes something quite difficult to quantify by saying, “I know it when I see it…” While that may describe pornography in its most traditional sense, Financial Pornography is far more difficult to identify, especially for the lay person. Highly educated economists, world renowned writers, famous television personalities and even Ivy League educators contribute to the melee by publishing, loudly and with immense conviction, the next move of the market. Often, their predictions outline in intimate detail the rationale for buying the next stock, sector, industry, market, etc. or, even equally as damaging, selling the next stock, sector, industry, market, etc. So convincing are their arguments that many are compelled to take immediate action to take advantage of their foresight.

So what are the risks? Unfortunately, all too often it doesn’t work out as the experts had predicted. There are many logical explanations for the misinformation: 1) The markets are complex, global and constantly changing. By the time an expert releases an opinion, there is a good chance the data set has changed. 2) The expert may have little to lose, because by guessing often enough (educated guessing is still guessing) surely they will get it right the next time. Here is the rub; corrections and/or market declines are “easy” to “predict.” Think about it, the market declines every few years, always has. What has a media hungry analyst to fear from predicting a crash? Nothing, of course, since if the market doesn’t decline, everyone is happy and the analyst is “early.” If the market does decline, the analyst is a genius. He has nothing to lose. 3) Market timing, trying to find the right time to be in or out of the market, doesn’t work. Investors want to do all they can to avoid losses and/or maximize gains. But by trying to time the market, the average investor ultimately loses and many times is unable to recover.

Consider the following statistics from Morningstar1: “In 2009, money flew out of stock funds, but that proved to be the bottom of the market and a great spot to get in. Some investors were also leaning the wrong way in 2012 and 2013. The 10-year gap (in returns) between the average investor and the average fund ballooned to 2.49% by the end of 2013 from 0.95% at the end of 2012. In sum, the typical investor gained 4.8% annualized over the 10 years ended December 2013 versus 7.3% for the typical fund.” Now, 2.5% per year in annualized return doesn’t sound like much, but it is a 34% reduction in the annualized portfolio performance. In this 10-year period a $100,000 investment would have grown to either $159,813 (average investor) or $202,300 (average fund) a $42,487 difference…you choose. The guys from Morningstar get it right when they say, “The data tell a tale of poor timing, and it seems to be getting worse. I suspect the 24-hour news cycle inundates us with news and opinions leading to investing based on anxiety rather than logic. Don’t spend too much time watching TV news or checking your accounts. It only leads to bad behavior. Who cares if a talking head predicts gold will surge and stocks will tank? Focus on your needs and goals. As the data show, timing markets is too difficult, so have faith in your plan and carry on regardless…”

In short, avoid the porn.

1https://news.morningstar.com/articlenet/article.aspx?id=637022

Brown Financial Advisory is a Financial Life Planning firm dedicated to strategies that are designed to help people meet their personal financial planning goals and gain peace of mind. If you would like to learn more, please send us a message through the “Contact Us” button on the home page. We look forward to talking with you.