Tara Unverzagt February 8, 2019 No Comments

3 Spending Best Practices to Help You Feel Less Uncomfortable with Your Financial Situation

“How am I doing financially? Am I ok?” I hear these questions frequently. And there are other frequently asked questions. “Do I have enough money for emergencies?” “How will I pay for college for my kids?” “Can I afford to spend money for [fill in name of your dream money sink hole] now?” Whether they want to buy a new car or remodel their kitchen or they get a sinking feeling when the stock market drops, most people are uncomfortable regarding their finances. Frankly, being a little nervous about your finances is a sign that you’re paying attention which is good.

“If I buy this car now, will that impact my vacation plans?” Maybe. It’s not a simple question to answer. If you have read past articles, you’ll know that I’m a big proponent of “spend less than you make,” a concept that’s easy to understand and, oh, so difficult to execute. If you spend less than you make, you should have a stash of cash to use for things like buying a car — without needing to take out a car loan. Okay, so far?

Three concepts to consider when spending money

1. Money in the bank is for spending, right?

“If I have enough cash in the bank to pay for the car, I can afford it, right?” I used to run the numbers for people to see how reducing their net worth by $XX,XXX will impact their goals. Even that seemingly simple question may not have a simple answer. Sometimes, it’s easier to reach long term goals if you move the money for it out of your bank account and into a long-term saving account.

2. Don’t just consider THIS purchase.

Sharon and Steve like to cook. They spend all their free time in the kitchen. A big part of their budget is spent on food and pots & pans. They spend less than they make and have a budget that works for them. They asked me whether they can afford to remodel their kitchen to make it a really wonderful place to cook in. I looked at their lifestyles and how that expenditure might impact their overall objectives. The numbers said yes, they have been saving money and have no debt; they should be able to afford the new kitchen and still meet their other goals.

I also knew that, if they remodeled the kitchen, there was a good chance they’d go out for dinner and entertainment less because they’d be enjoying their new kitchen. I knew they wouldn’t be back next year asking whether they could afford to buy a fancy car or go on a luxury trip. Cooking is their passion, and the remodeled kitchen will help make their lives more enjoyable for years. Sharon and Steve aren’t spending to make themselves happy. They are already happy, and their new kitchen can help them enjoy their hobby even more.

Zach and Kimberly asked me whether they could afford to buy an expensive car. I looked at the numbers and, yes, they could afford to buy that car. It wouldn’t impact their long-term objectives much. But they always struggle to spend less than they earn. They often turned to debt to pay for things they want. Given their spending habits, they will likely be back next year wanting to take their family to Asia. The year after they will want to remodel the basement. Their list will go on and on.

The new car will make Zach and Kimberly happy right now, but they probably won’t really be satisfied or happy in the long run. They need to reflect on the “need” they are trying to satisfy and address that first. Are they just bored, looking to impress their friends, or in some other way not happy with their current car? Until they know the answers to those questions, they shouldn’t buy that expensive car.

When making any important decision about spending, you need to stop and think about your values and your long-term goals. Think about a major purchase you made five years ago. Do you even remember any? If you do, is it important today? Is there something you’d like to buy today that is more important than that was? What might you want to buy five or ten years in the future? Is that more important than what you’re thinking about buying today? Money spent today is money that you don’t have tomorrow for something that may be more important to you.

3. Money Doesn’t Buy You Happiness

Money enables you to have choices, but there’s no guarantee that it will make you happy. Much research has been done on people who received a windfall of money and spent it within a few years, buying everything they thought would make them happy. In the end none of those purchases increased their level of happiness at all, and they often ended up as poor as or poorer than they were before. (As a matter of fact, a study showed that even the neighbors of a lottery winner often ended up poorer in the long run, too!) What went wrong?

Someone recently said, “The people I know who ‘made it’ and are wealthy are the only people that know what money can’t do for you.” If you’re thinking “if I only had more money than…, I’d be” – happy, respected, secure; know that those feelings can’t be purchased by money. You have to find happiness yourself. And it could be as simple as changing the stories you tell yourself.

Your Budget Tells Your Story

Spending less than you make is the goal. If you find it difficult to achieve this consider what’s important in your life and make sure that every dollar is used to enrich your life and bring you satisfaction. We find that apps like YNAB can help you get organized, see where your money is going, and make sure you get the most out of every dollar. Take control of your spending and don’t let marketing, your friends, or your family make you feel badly about how you live your life and spend your money. Let your budget tell your story and be proud of it.

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This program allows us to easily serve as your financial coaches and help steer you in the right direction. We’ll accomplish this through a series of meetings in which we establish tangible goals to work towards, and discover your emotional drivers behind all of the decisions you make. By coupling your goals and your “Why?”, we’re able to help keep you on track by channeling your core values rather than just throwing numbers at you.

Once we’ve established your goals and your “Why?” we take a deep dive into your current financial life.

Accountability and follow through are keys to the success of this program, and are why we firmly believe that, together, we will be successful in reaching your goals.

With the South Bay Financial Partners Financial Coaching Program you can expect to live a less stressful and more fulfilling life by changing the way that you manage your finances.

Interested? Schedule a call with us HERE to learn more!

Tara Unverzagt February 1, 2019 No Comments

What’s Holding You Back? – A Reflection on Financial Success

Let’s take a moment to reflect today. What are your financial goals? What are your life goals? Almost always, there is overlap between them, and that overlap usually is happiness. What is happiness for you?

A partner whom you love and who loves you? Children who are happy and healthy, who are able to pursue their goals in life, and who love and are loved?

Enough money to buy and do what you want whenever you want it?

A debt-free life?

Whatever goals you’ve identified for yourself, do you have a realistic action plan to achieve your goals?

(As tempting as they are to imagine, winning the lottery, inheriting money from unknown sources, inventing some unidentified do-hickey that everyone will buy, being discovered somewhere unexpectedly and becoming a movie star probably don’t fit the criteria for a “realistic” action plan.)

Previous articles have offered realistic roadmaps for your success. Have you been able to stick to a plan for budgeting, spending, and saving? Investing, compounding, harvesting your rewards? “Spend less that you make.” “Have a regular savings plan.” “Buy low, sell high.”

On paper, at least, financial planning sounds easy, right? Why are so many people unable to get their financial house in order? There are more answers to that question than can be answered here, but if you still struggle with finances, you may need to start with looking at yourself and identifying some of the bumps on your road to success.

Are you telling yourself money stories that aren’t helping you?

They may involve buying rewards for yourself because “you deserve it” or spending too much money going out on the weekend because “life is short” or “spending time with friends is important.” Both sayings are, no doubt, true, but are there ways to do them honor without spending too much money? Maybe you tell yourself that buying a big, beautiful house is always a good investment. Guess what? Even a house can be just another consumer good that’s draining your bank account.

Sometimes you can’t tell your family and friends that you can’t afford to do what they’re doing. I’ll let you in on a secret: there’s a good chance they can’t afford those things either. They may be going into debt living the life “they deserve” or “they expected.” Don’t follow them down the path.

Take a hard look at what’s important to you.

Does your budget reflect your values and your goals? Or do they reflect the values of the “friends you keep.” Sarah Newcombe, a senior behavioral scientist at Morningstar, Inc., says that comparing ourselves to others is hardwired into our brains. She recommends choosing carefully whom you compare yourself with. If it’s Kim Kardashian and you realize she doesn’t really represent who you want to be, you might want to choose a new role model. A better model might be the quiet, unassuming millionaire next door who doesn’t drive a fancy car but was able to pay his kids’ college tuition without going into debt.

Decide what’s important to you, find a healthy role model who has achieved what you want to achieve, and then compare away. Newcombe says that your odds of being satisfied with your finances and life will increase with a healthy financial role model.

If you need help figuring out what you want from life and your money, contact us at South Bay Financial Partners. We can help you put the pieces of your personal puzzle together to make a beautiful picture that we call our lives. Schedule a FREE consultation with us here >> https://calendly.com/SBFP-Call

Tara Unverzagt January 18, 2019 No Comments

Are You Ready to Start Saving Money?

Saving money doesn’t happen by accident. It doesn’t happen because you want it to happen. Saving money takes some thought, planning, and action on your part. As they say: the definition of insanity is doing the same thing over and over again and expecting a different result. If aren’t saving and would like to, you need to find a new approach.

Bubble Gum Money vs Savings

Raising my kids, I gave them an allowance at a young age so they could learn about money. You can read more about teaching children financial skills in our article Saving Your Bubble Gum Money. In my house, bubble gum money was money the kids could spend immediately on anything they wanted. (My youngest used it mostly for buying bubble gum when she was under 5 years old.) But they also saved some of their allowances. They couldn’t touch “savings” unless there was something they were “saving” for. In a four-year old’s world “saving for the future” meant they had to wait at least a week before they were allowed to make the planned purchase.

If you see something and buy it, you should be using your bubble gum money. Otherwise, you should put money aside to save up to make important, large purchases that you’ve thought through carefully.

If all your money is bubble gum money, you’ll never accumulate assets that are needed for things like taking a year off work, buying a house, having kids, retiring.

You may not even have enough to pay for a simple vacation. Once you have learned the difference between bubble gum money purchases and planned expenses and transitions, you’ve taken your first step toward financial success.

Never fall in the trap of borrowing in order to “spend less than you make.” Any consumer purchase (furniture, a phone, a car, anything that does not increase in value) should be purchased with money from your savings. Borrowing (payment plans, leasing, etc.) to consume allows you to feel like you’re spending less than you’re making, but you aren’t. The credit card companies, banks, and stores love to convince you that “you can afford this low monthly payment.” Those “low monthly payments” can add up to big debt very quickly. Don’t fall for their trap.

Make Saving a Habit

How much should you save? There is no one answer to this question. It depends on your expenses, your income, your future plans, what’s going on in your life right now, etc. The rule of thumb is 10%-25% of your income should go to savings (and paying down debt). If you’re a single mom making $30,000 living in Los Angeles, CA, you are not likely to be able to save 10%. But save what you can. Save something. Anything. Even $10 weekly is better than nothing.

Saving is a habit. The first step is to integrate the habit into your life. When you get your pay check, put some into your saving account. It doesn’t matter how much–just do it. You can set it up to have it go automatically into savings without any thought.

When you get non-paycheck money, make it a habit to transfer a certain percentage to savings, such as $10 for every $100 you receive. When you get your tax refund, you’ll be in the habit and will put whatever percentage into savings. When you get a bonus at your job, you automatically save a percentage. Better yet, put is all in saving and give yourself some to splurge. Put the $100 in your saving account and give yourself $10 to blow on whatever you want. You weren’t expecting that money anyway.

A habit is a trigger, an action, and a reward. The trigger is “you receive money.” The action is “you put money into savings.” It’s important to have a reward to make the habit stick. You might check your saving account balance and have a happy feeling. You may see how close you are to reaching your goal. You may invest your cash every time you hit $1,000 (another good habit). A simple act like saying “ka-ching” like a cash register adding up the total, can be a reward. Find what works for you.

As you watch your saving account grow, or not, you should be motivated to save more. When you get to the point where the money comes in and the first thing you think is “put my savings away,” you’ve developed the habit. Congratulations!

Make a Savings Plan

There are three levels of savings: emergencies, opportunities, and asset accumulation. Your emergency fund allows you to have money on hand to take care of unexpected or anticipated, but not planned problems. Your opportunity fund allows you to have fun or take advantage of opportunities that come up. And asset accumulation allows your money to pay yourself at some point in the future.

We all find ourselves in a position that an unexpected expense pops up from time to time. Plan for it. If you want to stay away from the high cost of credit cards and pay day lenders, have an emergency fund to fill that need. If you want to have fun and not feel like you’re living paycheck to paycheck, have an opportunity fund. And if you want to one day have a choice to retire or cut back on working full-time, think about accumulating some wealth so you can pay your own paycheck.

If all of this sounds easier said than done, schedule a FREE 15 minute call with us. We are here to help!

Plan to Win

I spent last weekend bicycle racing, my favorite activity! It was the Master State Championship, so considered a “big race” to some and a stepping stone to the National Championships for others. Thinking about how racers deal with “big races” whether it’s the local weekend race or the World Championship, I realized how similar it is to investing and financial planning.

Everyone approaches both with wishful thoughts of “making it big”. Some are instantly pulled back by fear. Fear and doubt can make even the fastest person a loser. Often, fear prevents a racer from even showing up to the race, which is a guaranteed way to not win. Life is risky. That has to be accepted first. Then you can start looking at ways to limit failure and maximize gains.

Having a plan is a great way to start. But a plan that is ignored will get you nowhere. In bike racing, many people hire a coach to help make and execute a plan. I can’t tell you how many great racers will start to change their plan or equipment as they get closer to the “big race”. Change at the last minute is usually a great way to fail at meeting your goals.

Why do they do it? Fear. They think that if they work harder, longer, or have better equipment, that would guarantee a win. It usually leads to overtraining, poor recovery, bad form, and discomfort in the big race. If they worked their plan that is making them stronger and faster, they would actually be enhancing their chance of success far more. Coaches can be great at helping you stay focused on the plan, if you listen to them.

So how does this relate to investing? Many times people don’t make a plan because they’re afraid to think about that big college bill or if they’ll have enough money to live the way they’d like in retirement. Face it head on with a plan outlining how you’re going to make it happen. If you can’t do everything you want, it’s best to know that up front and get the most you can. Without a plan you are likely to miss out on goals that you could have achieved if you had a plan.

People also often invest emotionally. You want to buy low and sell high to be successful. While people know this intellectually, they often do just the opposite. They get excited as an investment price or the stock market goes up. As the prices go down people get scared and want to get out of the scary situation. Before you consider making a change to your investments first stop and think through whether you are making decisions based on emotions or information.

A solid plan will help you figure out where you are going and how you will get there. A financial advisor can help you build a solid plan and help you relax so you can maximize your plan with periodic reviews. Just like a training schedule, the plan is going to be different during different seasons (diversification targets will need to be updated occasionally). Your advisor can help you adapt your plan for the seasons as well as to address your personal goals in a thoughtful way. With or without an advisor, make a plan. Remember “not showing up” is a guaranteed way to not win. The more you follow and trust your plan, the more likely you are to win.

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