Most people I know deal with a financial advisor. It makes total sense since we can’t be good at everything and personal finance is probably one of the most important things in your life. If your finances are not in order, you won’t be able to do what you like and financial problems often lead to high levels of stress. This is why we all look for a financial advisor to help us take care of our personal finances. As is the case with any other job, some financial advisors are awesome while others are clowns. Let’s just say that it’s harder to find a good advisor than most people expect!
We are often stuck with very few options when it’s time to find our financial advisor. We either go to the bank we do business with and pick the guy or the gal who’s available or we ask our entourage for a referral. You may have been solicited as well by people who promise that they are better than who you have right now. It might be true (if it’s me calling…lol!) but how can you really tell the difference between a professional and a clown?
The answer is easier than what you think…For each industry, there are some “secret facts” known by those who work in the field and may be ignored by others. If you want to know which car breaks down more often, don’t ask the dealership, ask a trusty mechanic. It’s the same thing in the financial industry; the professional will tell you about his secrets…
The first question you should ask your advisor is how much he earns and what pays him the most. Money drives everything, once you know how your advisor is paid, then you know how he can help you… or waste your time.
If you have money sitting in a cash or money market account and you have an outstanding debt at 6%, sound financial advice would be to use your cash to pay off your debt. Most advisors will ignore this principle since each time you withdraw money from their your account, they lose money.
I don’t believe the best financial advisor is the cheapest one. Your mortgage rate may be higher or your banking fees might be competitive but not the cheapest in town. However, if your financial advisor picks up the phone to advise you about finance without you asking for anything; this guy worth every extra penny you paid. Ask your advisor why he is more expensive – the right answer is “because I am worth it”.
A good financial advisor won’t be afraid to tell you that a part of your portfolio (or even the whole investment) is well invested even if it’s with a competitor. The point is that you ask him to be honest; if you are doing the right things he must be able to tell you.
If you didn’t know yet, one of the best secrets of the industry is that insurance policies sold are incredibly profitable for the advisor (and his firm). Ask him how profitable the insurance you purchased from him is… and wait for his answer.
I’ve ran into too many insurance agents selling insurance based on the clients’ fears. Insurance needs are real, fear isn’t. Therefore, ask for a realistic proposal with numbers that make sense for you. I once saw a permanent life policy of $300K for a client who was sitting on $1M cash in his company…. What are the odds he needs an additional 300K upon his death if the company is already full of cash?
Regardless of which firm your advisor works for, he doesn’t call all the shots. It’s better for him to be upfront and tell you that a credit department or a compliance board will have the final say in your application. It’s better if he’s transparent.
Yes, mutual funds can be seen as expensive and they are if you compare yourself to a DIY investor who picks his own ETFs. However, when we make this analogy, we don’t consider the time and passion invested by a DIY investor to manage his portfolio. If you ask any mechanic about an oil change, they will all tell you it’s stupid to pay for that since you can do it yourself. Well, when you don’t want to take care of something, you might want to pay a professional to do it for you. This is why mutual funds can be good for investors who don’t want to manage their own portfolio.
Some advisors don’t have any penalties attached to their investments or mortgages while others charge a final bill if you ever leave. This is important to know the complete structure of your personal finance and to understand if you are attached to your advisor (and his company) or not. It’s not necessarily a bad thing, but you need to know before your sign-up!
I believe personal finance is more personal than financial. Therefore, the most important thing when you deal with a financial advisor is to be able to trust him and get along with his way of working. A simple question that will tell you a lot about the guy/gal in front of you is “why do you do this job?”.
Here’s my answer:
Because I love the stock market, I love to talk about finance and love even more when I can teach finance to other people.
This will tell you if he will stay in his job or not!
Readers, do you have any good questions you would like to ask your financial advisor? What do you do before you can trust him?Comments: 10 Read More
A few weeks ago, I read a great article from Joe @ Retire at 40 talking about whether retirement planning is a sprint or a marathon. I’ve been giving it some thought lately about how we should approach retirement planning and I really liked the running analogy. There are several ways to retire just as there are several ways to train for a run. Let’s revisit how you can retire depending on your “workout”:
In my opinion, you can’t really sprint your way to retirement. Unless you have the ability to make a lot of money in a very short period of time, the sprinting method will not happen. In order to build a solid nest egg, no matter how good you are at saving, you will need at least ten years to build it.
Unfortunately, we see too many people waiting until they hit their late forty’s before thinking about retirement planning. This is when you wish you make a lot of money and that you have finished paying off most of your debts. If you are not in this situation, the sprint to retirement will be harder than you think.
For example, someone at 45 saving $10,000 per year at 5% will gather only $330K before he retires à 65. At the same rate of investment, the 330K can generate $26.5K per year as a pension and the payment will stop at the age of 85. This calculation doesn’t take in consideration inflation so you can guess that 26.5K in 40 years in not much to live comfortably! If we increase this amount to $20,000 per year, the retirement nest egg grows up to $661K and will generate $53K per year for 20 years. So if you are thinking that sprinting is a good option; you’ll have to save $1,666 per month if you start at the age of 45!
If you ever have the chance to do a Spartan Race, Prison Break or a Tough Mudder race, DO IT! I did one myself this summer and I truly enjoyed this mix of hiking, running and military training. It truly demands all your body’s abilities.
You can take the Spartan Race way to plan your retirement. It will be harder than a regular race. Instead of focusing solely on saving money, you will need to work on all your personal finance abilities. This may include saving more, creating a business, paying off your debts very quickly, etc.
My plan to retire looks like a Spartan Race: I work more hours than a normal job since I work at both my job and online business. By doing both at the same time, I make sure that I have my “normal” retirement plan on line while I try to reach early retirement.
My normal retirement plan includes investing $5,000 per year in my savings account + my pension plan. This plan ensures that I’ll be making roughly $100K per year starting at 65 and ending at 90. This should be enough to cover for both my wife and I.
Now that I’ve secured this option, I can start my Spartan Race and look for early retirement. For example, if my online business generates over $20,000/month in ten years, I might be able to stop working in my early 40’s.
As is the case with real Spartan Race, I’ve faced a few obstacles with my retirement plan. Having three kids has slowed me down since I have more expenses and less time to work on my company. I don’t regret my choices at all, and I just came to the conclusion that the Race was harder than I thought in the first place and that retiring early is quite challenging. I also failed to resist spending more in previous years. This had a big impact on my early retirement plan.
At least, my “marathon” plan is on pace and I know that in the worst case scenario, I will retire at 65 with a solid pension.
I’ve never run a marathon… yet. The biggest race I’ve done was 16.5km and that was this summer. In order to reach that level, I started by running 5km 3-4 times a week this spring and ran 10km once a week. I started slow and increased as I think my body can support it. I expect to be able to do my first half-marathon next year. In fact, I could probably take the step this year but I’m not sure I’ll have enough time ;-).
Retirement planning way ahead is like training for a marathon; there is nothing exciting about it! When you make a habit of saving money on each pay check, you ensure a safe retirement. At the same time, you don’t have to starve for years or stay on your couch for your vacation. Actually, if you save $1,000 per month toward retirement for 35 years, you will be a millionaire (this makes $1,083K at a 5% investment return). Since you don’t need that much money to retire, you can drop your monthly retirement plan to $600 per month and still gather $650K in 35 years.
No matter how you run your race, the end is always a finish line. The only thing that is different is how you feel once you have crossed the line! Are you going to be proud, exhausted or feel ashamed because you haven’t trained enough for your race?Comments: 11 Read More
Has your spending been out of control? Do you want to get things back on track?
I must admit that my spending falls off-track once in a while. Despite writing about saving money for the last 5 years, I still make plenty of mistakes. It’s easy to get distracted in life. It’s also easy to lose track of the basics and the fundamentals that got you to where you are. This is why you always hear people talking about going back to the basics. This is what we will do here. It’s time to go back to the basics and save some money.
Before we can save any money, we have to fix our spending so that we watch where are hard-earned money goes. As I’m sure your parents told you growing up, it doesn’t matter how much money you make, it’s how much you save that counts.
Let’s get started!
How can you fix your spending in 7 days?
This is the most common advice for a reason. It works. If you don’t know where your money or what the problem is, you’ll never be able to fix it. This same logic applies to your eating and other habits in your life.
The good news is that you don’t have to be one of those folks that tracks spending 24/7. I personally could not imagine doing that. However, I want you to track your spending for the next week so that you see where your money goes on an average week. The trick is ensure that it’s a typical week and not an anomaly where you’re away on a trip or have to spend huge money on bills. Just your average week.
How can you track spending?
The whole point of tracking is to see where you’re making mistakes.
What are your problems area?
My problem area for the longest time has been food. Every single time I track my spending I noticed that my spending on food is out of control. I now track only how much I spend on food because I don’t really spend much on anything else.
The trick is to find your problem areas.
It just won’t work if you try to cut back on everything all at once.
Attack your problem areas. Attack one at a time ruthlessly until you have it figured out. Be aggressive Try to cut back. Try to find alternatives. Work on it slowly.
I’ve come to accept that I’ll never be perfect with my eating. The goal isn’t to be perfect. The goal is to be better. A little better every day will go a long way. You can slowly attack one problem area at a time.
The goal is to find out what your problem areas are and to decide which one you’ll go after first.
That’s how you can fix your spending in a week.
Where are you spending all of your money?Comments: 5 Read More
“You’re wonderful. Tell me more.” — Keith Ferrazzi
Apparently when all else fails, these five words never do. I’ve been looking over my copy of Never Eat Alone recently. It’s one of my favorite books ever and I would recommend it as mandatory reading for all high school seniors. We all need to learn how to get better at interacting with each other. This is especially true for young folks trying to get through their 20s.
I was looking over the section small talk and it really got me thinking.
I must admit that I’ve never been a fan of small talk. Actually, I’ll take it a step further with this…
I used to go out of my way to avoid casual friends when I ran into them in public. I would cross the stress or pretend that I didn’t see them. Why? I didn’t want to go through the torturous small talk. I used to find small talk to be so awkward. I never knew what to talk about. I didn’t know what was taboo and what wasn’t. I was worried that I would say the wrong thing and make a fool out of myself. I also didn’t want that whole fake vibe of pretending to care when you really didn’t. I just wasn’t a fan of small talk.
Did I get better at small talk? I would like to hope so. I’ve gone on probably just under 20 trips and have met all kinds of characters in my life. I had to learn through trial and error (and running away like a coward!). Now I embrace small talk. I look forward to running into friends. I always have a story to tell and am excited to listen to a story.
I wish that Never Eat Alone was available to me when I was a high school senior. The good news is that we can all learn from this book and avoid the trial-and-error process.
What are some tips from this book on mastering small talk?
I decided to look into further tips on nonverbal language.
Now it’s time to put everything together and not make a fool of yourself when it comes to making small talk/conversation in general.
My biggest problem is that I always feel the need to be “on” and full of stories. I need to learn to be more vulnerable. There’s no sense in always trying to be the star of the room or to be full of energy. If you’re tired, it’s okay to admit it. It’s okay to be a little self-deprecating.
Drop the buzzwords.
Hanging out with friends is hanging out with friends. Nothing else. You’re not “networking” or any of that crap.
For example, my cousin always invites these super-weird dudes that he met in school over to our place. He claims that they’re networking. He obviously doesn’t like these guys. They have nothing in common. It’s like a chore to hang out with them for him. I don’t get why he bothers. I personally don’t believe in networking for the sake of networking.
If you want to hang out with your friends, that’s awesome. Don’t spend time with people you don’t like and then convince yourself that you’re networking.
Time to switch gears now.
I really got thinking about this topic with the following post…
Newsflash: You can’t have it all @ Financial Uproar.
My favorite line is:
“We’ve become a society that places so much emphasis on being productive that we have to schedule time to hang out with our friends like it’s a goddamn dentist appointment.”
Very true. I need to get better at this — or maybe those people aren’t my friends? I have buddies that I haven’t seen in months. Maybe we no longer have anything to talk about? Maybe we have gone in different directions?
Anyways, what do you guys think about small talk? Do you have any tips? Perhaps, you avoid small talk like I used to…
Comments: 7 Read More
“The deepest principle in human nature is the craving to be appreciated.” — William James
I have these flashes burning in my mind at times….
A few days ago, I took a day off in the middle of the week to go to the spa with my wife. We had breakfast together, spent the day relaxing and came back at 5pm to pick-up our kids and fall into our family routine. Taking days off like this is one of the most powerful things that could happen to my mind. It’s an amazing time helping to me disconnect from reality.
When I arrived at the restaurant for breakfast, I had this flash again: Why is this not my life each week? Why do I work most of the time when I could be enjoying life fully?
I’m sure you’ve entertained these kinds of thoughts at one point or another in your life. Waiting to hit 65 and to finally retire doesn’t resonate with me. I’m 31, turning 32 towards the end of the year, so waiting another 33 years is way too long to wait before enjoying life fully. I’ve mentioned a few times that I want to become a millionaire quickly in my life. My online company is the main factor that will determine if I will worth over $1M or not. At the moment, it looks like I won’t be able to create the growth I need from my company to be worth that much in 4 years. Does this mean I can’t retire at 35? Let’s find out!
According to my latest net worth statement, I show a total debt of $312,303. The first point to retire early is to kill your debts ASAP. Less debt means less income required to make everything work and then, it’s all that much easier to pull the plug and enjoy life! Here’s my debt situation in detail:
|CREDIT CARD||$6 831||$5 092||-25,5%|
|LINE OF CREDIT||$19 597||$19 918||1,6%|
|HELOC||$263 015||$262 803||-0,1%|
|CAR LOAN||$12 586||$11 284||-10,3%|
|Personal Loan||$8 333||$7 916||-5,0%|
|Pool Loan||$5 370||$5 290||-1,5%|
|TOTAL||$315 732||$312 303||-1,1%|
In the next four years, I’ll pay able to pay off my personal loans in general as well as for the car and pool. At this rate, I think I should be able to clear my personal line of credit as well. Therefore, the only debt that will stand will be my mortgage. I won’t be mortgage free in four years, far from it, but I can concentrate on that debt solely. However, I will consider a car loan payment as I will always have to pay for one car loan at least…
Now that I know that most of my debts will be gone, it’s time to take a look at how much do I need to spend monthly to keep my current lifestyle. If I calculate a $250K mortgage at 5% over the next 25 years, this makes a payment of $1,500.
When I add all my expenses together, I need $5,787 per month to keep my lifestyle as is. This includes all my expenses + $325/month for my childrens’ tuition (RESP contributions). I won’t consider any RRSP contributions at this point since I will already be retired. I just need to generate $5,787 per month. Let’s put it at $6,000 to make sure we are safe.
I’m well aware that $72,000 per year (after taxes!) is a lot of money to generate in order to keep my lifestyle. Am I exaggerating? I don’t think so as we spend $1,200 in groceries (a family of 5 requires a lot of food!). Since we eat a lot of vegetables and fish, it’s getting expensive… I have also considered vacations, car maintenance and home improvement/maintenance in the budget. Basically, everything is covered ;-).
There are a few things that can be done in order to make this dream happen. The first one is the level of bonus I can get from my day job for the next four years. Technically, this amount varies greatly from roughly $15,000 to…. $100,000! I don’t expect to make $100K in bonus as this would be an exceptional year. However, if I can maintain an average of $25K to $30K per year over the next four years, this would greatly boost my debt repayment. On top of my regular monthly payment, if I add an additional 10K per year (‘cause there are a lot of taxes applied to the bonus!), I could drop my mortgage to 200K or maybe lower in four years. This is definitely something I have to work on…
Cutting down on my budget could be another thing I could do… but you and I both know this ain’t gonna happen. If early retirement means not drinking wine, not eating great food, not going on vacation and not keeping my big house, it’s not gonna happen. There are things I’m ready to sacrifice to retire early, but not my lifestyle.
The next big factor will be the amount of cash my company can generate in the future. I’ve previously wrote that I could draw $3,000 monthly from my online company tomorrow morning without firing anyone. Note that in that post, I wrote I need $5,000 per month to live but I think that $6,000 would be more realistic over the long run ;-). I think I could definitely grow my online company a lot faster if I was working 40 hours per week on it instead of 10! But would it be considered retirement?
I guess it all depends on your definition of early retirement! Two of my university buddies took that route a while ago and they are living freely without being fully rich per se. The difference is that they work hard sometimes and take long vacation throughout the years as well.
I don’t see myself doing nothing to going to restaurants and spas 😉 I think will need challenges to make my life worth it. However, building your own empire is something truly exciting. If I have to work 40 hours a week on my computer and have the opportunity to take 2-3 months off per year, I think that’s early retirement. If I can take my 40 hours per week at the moment I want to do it throughout the day, I think this is early retirement.
Basically, for me, early retirement is simply doing what you love to make money when you want to do it.
After looking at my situation, I think the worst would be to retire at the age of 40 or 45… seriously. Each year working at the bank means at least 10K in debts paid off + 10K in additional savings (considering my employer stocks, pension plan and RRSP contribution). So If I wait until I’m 45, my mortgage will probably stand at 150K or maybe lower where my RRSP + pension plan will be sitting at over $250K.
I truly start to believe that at worst, I’ll be retiring at 45… I can’t technically not imagine waiting at the age of 58 where I would reach full pension at my day job… that’s quite interesting already, isn’t?
Throughout the years, I’ve had the opportunity to meet with a lot of people who had accomplished early retirement as per my definition. Some of them are doing it the extreme way (cutting down their expenses and live frugally), I’m not this kind of guy 😉 Some others are making a lot of money and enjoy every moment of life too. I guess it’s all in the balance of life!
Here’s a short list of people I’ve met and inspire me to live freely and work for my own pockets…
This guy made over $400K in one year from one if his website a few years ago. He is now living freely and keep working on his online empire.
Pat is continuously working on blog and other web projects. He is definitely not retired per se, but he can truly do whatever he wants with the amount of money he is making right now.
Sam has taken the hard way of working hard in a very demanding field and save most of his income to achieve early retirement. I’m not willing to make those sacrifices but man, this guy is inspiring!
Once a successful engineer, I’ve meet Mr. Money Mustache at FinCon12 in Denver. This guy applies the true meaning of early retirement extreme by living frugally.
Joe recently stopped working and now takes care of his family. This is another great example of someone who had worked hard to save money aside.
My friend Adam is living from one project to another without really worrying about the future. His life is quite inspiring while I’m not sure I would be willing to be on the edge all the time as he is!
Martin (MD!) did exactly what I should have done after my bachelor degree: never get a day job! I’ve been stuck in the golden pay check dilemma for years now while he enjoys freedom by working on his own websites and other gigs.
Readers, do you have other inspiring people pushing you toward financial freedom and early retirement?
Comments: 10 Read More
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