Decisions: Get It Right The First Time By Having Someone You Can Trust In Your Corner
I'm a firm believer in being proactive (Dictionary: "creating or controlling a situation by causing something to happen rather than responding to it after it has happened"). I strive for it in all areas of my life....Health & fitness. Relationships. Faith. Finances.
While some see being proactive as way more work and requiring more discipline, I'd argue that it actually requires less. The amount of time it takes to do something right the first time (although it may take a bit longer initially), is way more efficient in terms of time, stress, and headaches than course correcting (undoing a previous action and proceeding with another).
I've seen this countless times (especially recently) in people's finances. Life insurance contracts. Annuities. Student Loan Debt Repayment Plans. Putting too much or too little into retirement accounts and/or the wrong type of retirement account. Health Insurance Plans even. For your parents/grandparents, electing Social Security. And the list goes on.
I'm not sure the "multiple", but without a doubt I can confidently say it takes many, many multiples more time to try and "undo" bad financial decisions and implement the right things than it is to just take the necessary time, energy, and effort up front to get it right.
Now I'm not oblivious to the fact that there are numerous barriers that stand in the way of getting things right financially the first time. Let's talk about a few of the barriers:
Don't know who you can trust: We want to trust everybody. Unfortunately, that's just not the reality we live in. People are selfish. Monetary motivation outweighs your best interest as a client for many financial services professionals (herein referred to as "FSP").
A good, simple way to start the vetting process is to look at the FSP's fee structure -- meaning how are they compensated? If you buy what they are selling, are they going to receive a commission? The same goes for referrals. If FSP1 recommends you to FSP2 to help you with another line of service in your finances, are either of them receiving referral fees from the other?
At Financially Forgotten, we wholeheartedly believe in the flat-fee structure (such as hourly or a monthly flat amount). You pay the same no matter what. We see this is the most conflict-of-interest-free fee structure, and is the first step in a mutual, trusting relationship.
Always ask a potential FSP about their credentials and experience. I get that some people aren't good test takers or are "more street smart than book smart", but it's something to look out for. A good FSP needs to be understanding, trusting, AND competent from a technical perspective! Ask what their credentials and experience are when you are interviewing any prospect FSP. If you don't know what their credential(s) means, look it up -- see what the education and experience requirements are to obtain that credential. Some are way easier than others!
Another point I'll make is to notice how they approach your situation. Are they asking you about your holistic life goals FIRST?! Taking the first meeting at least just to get to know you? Learning about your motivations, what's important to you and why, and getting a comprehensive picture of your financial life? If not, that is a HUGE RED FLAG. It most likely means they are going to try and sell you a "financial product" -- they are not offering you a SERVICE. Buy a service, not a product when seeking out a FSP.
The last thing I'll say on this is ALWAYS take time to think it over. Take at least a few hours. Maybe a night. Take the time to reflect before you sign anything! Research the FSP individually, what they believe in, what their company stands for, how they are paid, how your gut feels, pray about it.
A huge step in becoming financially successful is finding someone you can trust and who is qualified to help you. Which brings me to my next point.
Google and free information: With the amount of free information out there (including this blog), there is a built up sense of false arrogance in my opinion. Reading this blog (or any number of blogs) will not give you the proper education you need to see the greater financial picture and make objective, technically sound financial decisions. It had to be said. Google and free information have a place -- but should not be the end of the journey.
As a millennial (or young adult), you are going to need to make a lot of financial decisions, some of which are a NIGHTMARE to try and undo. Let me give an example:
Buying a house. As I've written about before here and here, I am all for home ownership....at the right time. I see way too many millennials jump into home buying because "interest rates are low", "the mortgage is the same as my rent would be", "home prices in this area are undervalued". None of those matter if buying a house doesn't fit it with your holistic financial picture and goals. Do you know how much it costs to "undo" buying a home? From a purely financial perspective you'll lose out on at least a portion of the closing costs when you bought the house and when you sell it (which is multiple thousand dollars). Not to mention the time and stress "cost" to go through the home purchasing and selling processes. Also if you decide going through all that would be too much loss and disappointment, you may just end up being "house poor", and have hardly any cash leftover to spend on other things in your life you enjoy (traveling, entertainment, giving, etc.). There's also the anxiety that comes from feeling like you're drowning.
To be candid, most home buying "failures" aren't because the person bought A house, it's because they bought a house they couldn't actually afford, given their other life goals, cash flow, and life circumstances.
I promise I'm not trying to scare you away from buying a house, I just genuinely believe many people don't consider all the factors before making this big life decision. All they hear are the benefits and never hear the other side.
I don't know how to say this without sounding like a _______ (fill in the negative word of your choice). But people are afraid of paying to invest in themselves, and getting burned in the process. Service is hard to measure the value of from a tangible perspective in our minds -- and so we see paying for a service as a risk.
"How can I afford to pay $320 for financial coaching when I only make $50,000 a year?"
Like I said, I know I'm sounding like a __________ but can I show you how investing a small amount in yourself up front saves you so much money, time, and stress in the long run?
You realize (through coaching) that your health insurance plan through your work is 'HSA eligible. All along, you've been paying for your prescriptions and medical expenses (including vision, dental, all of it) from your normal bank account / credit card. Instead,you put money into your HSA and pay for medical expenses using the HSA account. After you've incurred ~$930 in expenses and paid using your HSA account, you've already saved $320 (because of the tax-savings from using HSA's). Now imagine you pay your medical expenses out of your HSA for the next THIRTY years -- you're saving yourself thousands of dollars! All off that one adjustment.
Or through coaching you identify that you're paying 4.5% every time you contribute money towards the annuity that a product salesman sold you, and you decide to redirect your retirement savings to no-load funds (no 4.5% fee). Once you contribute ~$7,000 to your retirement savings (which is not that much -- probably takes 1-2 years), you've already saved $320 in fees.
There are plenty more examples I could give -- but I'll spare you.
My point is: having a trusted, qualified FSP is equipping yourself with tools that you can use for LIFE. Behaviors, knowledge, and resources.
My hope with this post is to expose what many financial bloggers shy away from talking about. I've seen too many people experience so much hurt, regret, and financial distress as a result of lack of education about how the financial services industry works. Thinking every FSP is the same is like thinking all doctors are the same (picture an Orthodontist doing your shoulder surgery). Ask questions. Find somebody you trust.
I hope everybody has a safe and memorable Memorial Day weekend!