Are financial advisors supposed to be upstanding citizens of financial planning? Are we the beacon on the hill that does it all right? Do we budget correctly, live within our means, save for college, and fund our retirements? In theory, I would say yes. We are supposed to be all of those things.
Unfortunately, we are human and are not perfect. Life is not linear and we, like many of our clients, rarely go from point A to point B in a straight line. We encounter curves, dips, and bumps along the way just like everyone else.
Like many of you, the first financial priority my wife and I established was to plan for retirement. There will come a day when we will stop working and we'll have to support ourselves on what we have saved as well as social security. My wife defers the maximum into her company's Thrift Plan and I defer as much as I can into my SEP IRA. We have rolled over the 401k’s from all of our previous employers so we can keep an eye on all of our assets in one place. In terms of retirement planning, I will give myself a check for doing the right thing.
Insofar as estate planning is concerned, I will also give myself a check. Our estate is not much of an estate but we have done the basics: bought life insurance; established wills; and arranged a power of attorney and healthcare proxies.
Saving for our kids' college has proven harder than I previously imagined. As a parent with two kids in college and one in 10th grade, I can safely say that no matter how much you save for your child's higher education it's probably not enough. There is the known quantity of tuition, but housing costs vary and books and course packets are very expensive. There are social dues if your child joins a fraternity or sorority, and grocery and cable bills if they live off campus. There are spring breaks to pay for, as well as plane rides home for the holidays. Have we saved enough for college? No. We did start 529 plans when our children were young - and our kids' grandparents have contributed - but we will still fall short. I will give myself half a check for college savings.
When it comes to budgeting household expenses, we've struggled. As a financial advisor, I preach living within your means. Nothing will get you closer to your financial goal like living within or below your means. One of the great challenges I have is understanding the difference between a need and a want. I want stuff because it makes me temporarily happy, but do I really need it? Wants are like milkshakes. You love them, they taste amazing, but they are not necessarily good for you. How do you eliminate the wants when you only get one life to live? So yes, I get a Starbucks in the morning and own more shoes than I need. Only half a check.
Living within your means is living within your income, but how do you budget for non-reimbursable healthcare costs, a broken furnace, or taking care of an elderly parent? It’s not easy unless you can save more from each pay check.
I am a big fan of the financial writer Carl Richards. One of his greatest columns was in the New York Times a few years ago. It was an honest and personal account of a failed endeavor in which he lost his home http://nyti.ms/1y2qJL0. As a financial writer and advisor it must have been very difficult to come to terms with such a mistake. Carl has recovered and is probably doing better than ever. I am sure that what he learned from this error has made him a better advisor, listener, and colleague.
It’s a challenge every day to improve oneself. But if we are any good at what we do, we must learn from and embrace our mistakes. I should have saved more for college and I shouldn’t carry a balance on my credit card, but I am human.