Are You Complicating Your Finances?

Professor Max Planck: “When You Change the Way You Look at Things, The Things You Look at Change.”

I was talking with a networking partner recently who works with wealthy clients. He noted that busy executives were interested in purchasing rental properties. Why would a wealthy executive be interested in complicating his/her life even more with rental properties when he/she already has a healthy salary? I will say that my conversations with prospects is heavily weighted on passive income in retirement, and real estate is the first thing that comes to mind for them even though there are simpler ways to obtain passive income. Bear in mind when making financial decisions, there is a huge trade-off between complicating your life, living a healthy lifestyle, and enjoying quality of life, both now and in retirement….

Let’s look at some of the ways you may be complicating your finances and therefore your plans for retirement.

Short-Term Trading in the Stock Market:

Yes, you will hear many of success stories from people who do short term trading in the market. There are also many algorithms that can be used to assist with capturing gains from stocks, but it will cost you to obtain access to those algorithms. I am not just talking about money. Algorithm or not, you are glued to a computer screen for hours, just waiting to make a move, whether buying or selling stocks. And consider the stress of waiting and worrying about missing an opportunity to capture a gain…

Let’s face it, there is a simpler way to accumulate wealth for retirement. It’s called compound growth by investing, let’s say, in low-cost funds such as Exchange Traded Funds (ETF) and Index Funds or even stocks of stable companies who pay out dividends consistently. But you must start investing early to reap the rewards from compound growth!

And, if you are late to the game of reaping the benefits of compound growth, it is never a good idea to be banking your retirement on a potential home run. This is not the time to be risky with your retirement savings. That only creates more anxiety, sleepless nights, and complexity in your finances.

Something to keep in mind – nearly 70% of small businesses fail within the first 10 years of operations, no matter how successful their start up is. Whereas the average annualized return for the stock market is 7% when accounting for inflation, as reported by the Securities and Exchange Commission. Not bad for a more simplified way of investing if you invest early!

Wealth is built over the long term by staying in the market, investing in quality stocks and bonds (individually or via funds), and investing additional capital over time.

Credit Card Debt:

I have said it before, and it is worth repeating. There are times when credit card debt is necessary. Unexpected things happen in our lives all the time. Despite the level of preparedness, it can happen to anyone. But if credit card debt is the answer, have an action plan to pay the debt down in an expedited way. Credit card debt compounds in a way that makes it so complicated that it may seem impossible to pay down.

Now if you are using credit cards to purchase items you cannot afford, don’t purchase them. Have an action plan in place to save money to purchase those items you cannot afford. Or better yet, do you really need those items? Technology is changing at a rapid pace and keeping up with technological changes can lead to financial ruin, especially for your retirement. This includes personal loans used to purchase the latest and greatest automobile, for example. If you don’t need those items, use excess income to save more money for retirement. As you will need money in retirement to afford your daily living expenses. Just saying.

Try to keep bad debt, such as credit card debt, to a minimum. Why complicate your finances, especially if there is not a need to complicate them. And who wants complicated debt lingering into retirement. Look at the financial issues we are dealing with in 2022 – high interest rates, volatile market, high inflation, and a looming recession. Why add an insurmountable amount of credit card debt at the time of retirement? You never know what economic factors you will be dealing with at the time of your retirement. Mitigate as much risk as you can prior to retirement, including paying off all of your credit card debt.

Overspending:

I see it all the time. Easy come, easy go. But when it comes to money, not a good concept. I understand, you are making more money than you could ever imagine! But does that mean you need to spend it? There needs to be a balance of how much to spend today and how much to save for retirement. I truly believe that you should not sacrifice living life today for retirement, but let’s be reasonable here. Both objectives can be met. That’s where financial planning is instrumental, whether you prepare it yourself or have someone prepare it for you.

There is a quote from Steve Jobs which says, “You can’t connect the dots looking forward; you can only connect them looking backward. So, you have to trust that the dots will somehow connect in your future.” I agree with this statement from the perspective that history repeats itself, even today. Why aren’t we learning from the lessons in the past? Okay, not a topic to even touch on, especially in this post. And from a business perspective, I agree with this statement. To grow your business, you must look at the mistakes you have made in the past or even the trends of your business to enable your business exponential growth in the future. But from a retirement standpoint, I disagree. There is no looking back in financial planning; no regrets about past financial decisions made. Only looking forward! Take the lessons learned, move forward, and figure out a strategy to achieve your retirement goals while still enjoying life today.

Investments:

I have heard many reasons for the use of multiple investment accounts. But is it necessary to have several Roth IRA, Traditional IRA, brokerage accounts or even checking and savings accounts? Having money scattered between many accounts makes the monitoring and maintenance of all the accounts complicated. If you are using two different financial advisors, are you carefully reviewing the performance of both advisors to see who is investing your cash better? I am experienced in calculating performance/returns, and I cannot decipher on broker statements whether the returns are year-to-date or annualized, gross or net returns. And if the account has been open for more than one year, it is important to understand how returns reported on statements are calculated, especially if you are comparing multiple investment accounts.

And what is the right number of investments for each account? I have seen so many of my clients with different investments that have the same strategy. Just to be clear, index funds track a market index. No need to have multiple index funds that track the same market index. Now ETFs are getting more creative, but typically they all have the same ‘core’ investments and then mix it up with the remainder of the investments between different ETFs. Ah, mutual funds which tend to be more costly than ETFs, claim to outperform the market. That has not been the case historically speaking. If you look at the list of their top investments in mutual funds, you will see that many of them invest in the same companies. In some ways, that’s good! But in other ways, there is no need to have many mutual funds that target a similar strategy. Pick a select few investments that meet your risk tolerance and investment goals and check their performance at least once per year. Keep it simple!

Are you getting a better idea of ways to simplify your finances? Your retirement savings and your estate planning will benefit from the simplicity of your current finances. Don’t forget – I am a firm supporter of living life today. But within means. There is a balance between living life today and feeling secure in your retirement.

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All information provided by Hartmann CFO, LLC and Healthy in Retirement is intended for informational purposes only. The views expressed are personal opinions and should not be construed as financial or tax advice for your specific situation. Please make sure to do your own research or find a trusted financial professional, tax adviser or attorney before making any financial decision on your own.

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