Financial planners see it all.
Not only do they get an inside look into their clients’ spending, saving, earnings, and investments, but they can see past the numbers to the people behind them: their clients’ ambitions, fears, priorities … and decisions.
Below, six certified financial planners answer the question,”What’s the smartest decision you’ve ever seen a client make with his or her money, and why was it so smart?”
Investing in themselves.
‘The best thing a client can do is to invest money in themselves. That might mean going back to college, getting an MBA, a high level certification in their career field, starting a business, or a range of other possibilities. Ultimately, investing in yourself will likely provide the highest return on investment (ROI) that you will find.
‘Investing in starting a business is certainly risky, but it is something that can help secure a person’s financial future.
‘That being said, I think starting a business is a lot less risky than having a job. When you work for someone else, they hold the keys to 100% of your income. When you work for yourself, a client or customer can fire you, and it is only a small percentage of your income.’
— Alan Moore, CFP, Serenity Financial Consulting”
source=”Jens Schott Knudsen”
caption=”Investing in yourself can pay off.”
Creating multiple streams of income.
‘Investing in yourself today while simultaneously saving for the future.
‘Chris and his wife Suzie, long-time clients, have always had a very diligent approach to saving and investing. Five years ago, Chris and Suzie left behind their steady paychecks, as executives in the entertainment business, to take the leap and start their own production company. In starting the business, they both agreed to live frugally and to consistently save the majority of their income towards two purposes:
• Reinvesting in the growth of their company.
• Building up their retirement savings.
‘They agreed to split their savings in half. One half was invested into tax advantaged retirement accounts, which included creating their own defined benefit pension plan as well as a 401(k) profit sharing plan for the production company. The other half was reinvested directly into the business to build infrastructure, create content, and increase marketing to drive revenues. Doing so allowed them to scale the business faster than expected, yet, at the same time, they felt secure knowing they had reserves set aside with their retirement holdings. The rationale was that if the business did not work out for whatever reason, that they would still be able to grow their net worth via their well diversified retirement portfolio.
‘Chris and Suzie’s strategy was the smartest financial decision they could make as they bet on themselves while at the same time prudently saving and giving themselves a back up plan. I’m pleased to share that the production company is prospering and as the business grew, Chris and Suzie’s savings grew along with it. They worked to hand over the management and day-to-day operations of the business to junior partners by offering them equity (ownership) in the company. Ultimately, the growth of their corporation coupled with the substantial income generated from their retirement portfolio allowed Chris and Suzie to achieve their goal of an early retirement.
‘The result: They now have sustainable streams of income being generated from both the business and their retirement holdings. As Suzie says, ‘passive income is liberating. It feels so good to have free time knowing that we earned it.”
— Joe O’Boyle, CFP, Voya Financial Planning”
caption=”Once you set up passive income, you can sit back and relax.”
Leaving money in a retirement account instead of investing in a risky venture.
‘The father of one of my clients needed $US25,000 for a risky business venture and my client wanted to cash out his 401(k) in order to invest in this, which he was sure was a ‘sure bet.’
‘I ended up convincing him that I didn’t think it sounded like a good plan for a variety of reasons, but especially because of the penalties and taxes he’d owe on the retirement account distribution. He worked so hard to save this money and he was going to sacrifice his nest egg to help his dad when he needed this money to secure his own family’s retirement.
‘This person ended up getting the money from someone else and going through with the business venture. I got an email from my client a month later thanking me for convincing him not to go through with it because the project was a big mess and his dad was going to lose a ton of money on it.
‘Sometimes the biggest value a financial planner provides is helping our clients avoid making bad financial decisions that could seriously affect their overall financial health.’
— Sophia Bera, CFP, Gen Y Planning”
source=”Flickr / Mads Bødker”
caption=”Just because you love your family doesn’t mean you should give them money you can’t afford to share.”
Hiring a spouse into the family business.
‘One of the smartest decisions I ever saw a client make with his or her money was when a married couple decided it would be advantages to hire the spouse for the family business.
‘Here is what happened: The couple was married and under the age of 50. The net earnings of self-employment (NESE) to the husband was $US100,000. He was able to set up a SIMPLE deferral retirement plan and tuck away $US12,500 plus an additional $US3,000 in a SIMPLE match for a total of $US15,500.
‘He then hired his wife to join his team and paid a wage of $US15,000 to her for her work. Now his NESE was reduced to $US83,350 after payroll tax and employment retirement match of $US1,650. She was now able to set aside $US12,500 of her own retirement plus an additional $US450 in SIMPLE match.
‘So, for an additional $US1,200 in added payroll tax cost, the household increased their retirement accounts by $US12,450 by hiring the wife ($US27,950-$US15,500).
‘This was a smart move and made sense, although every case is different and rules apply. The added benefit in some cases may be worth the cost of funding. In others, the hiring of the spouse may be justified in terms of other benefits.’
— Jordan Niefeld, CPA, CFP, Raymond James Financial”
caption=”A husband who hired his wife was able to bulk up both of their retirement accounts.”
Paying themselves first.
‘One of my oldest clients used to take $US20 out of every paycheck and buy savings bonds with them (this was way before 401k’s). He then used that money to buy stocks and mutual funds over the years.
‘Even though he worked on a production line at a large manufacturing plant and his wife was an elementary teacher, they both retired millionaires. Their story is truly a testament that paying yourself first, even a small amount, can grow to a large sum of money over the years.’
— Jeff Rose, CFP, Alliance Wealth Management”
source=”Flickr / Wonderlane”
caption=”A couple who never earned very much retired with millions from investments.”
Trusting in the plan.
‘The smartest decisions I have seen a client make with their money is to trust in their plan. Out of all the scenarios I have been through with clients, this is the one that has created the best results for them financially as well as providing them peace of mind.
‘The example I have experienced involves the large fluctuations to the downside of the market that started in 2008. I recall the hours and days spent on the phone and in person with my clients communicating to them their long term strategy to reach their specific goals and why selling in such a drastically down market would affect their plan more negatively than staying the course.
‘The emotional pain most experienced cannot be underestimated and the trust they placed in me and the plan we had created together was exactly what was needed to assure they continued their path, allowing the investments to return, eventually exceed, their values before the downturn.
‘It was trust that allowed them to stay in such an uncomfortable place and this trust is what they now look back on and are thankful for in that they are still on course or have successfully achieved their financial goals.’
— Holly Hanson, CFP, Harmony Financial”
source=”Flickr / Beshef”
caption=”A plan is meant to weather ups and downs — however drastic they might be.”