Top 2 Questions Answered

My name is Brian Scribonia and on this episode of the Common Sense Financial podcast, in my 30 plus years, I've never had anyone say to me that they don't want their money to grow. This question is assumed. And it's not about you watching your money grow, rates of return and thoughts of growing your money is not a goal in and of itself. You really want to understand why you were saving the money in the first place? What problem do you want to solve in your life that money can buy? Or what lifestyle do you want to live that your money will help fund?

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Opportunities are still there. The attempt at passing down wealth from generation to generation. Consider the outcome, not just popular opinion, and the whole teaching there is about preparedness and being ready. There's a difference between what's real and what's true. You're listening to the Common Sense Financial Podcast. I'm your host, Brian Scribonia. Thanks for tuning in and let's get into today's topic. If you've been following me for a while, you know that I create a lot of material, and what comes with having a lot of this material floating around in cyberspace is that I get asked a lot of questions. Some of the feedback I receive from my audience is that what I discuss on my show is not really what they hear addressed in other financial media. And on one hand that's great for me and my business, but on the other hand it is really unfortunate since people aren't hearing what I think they need to be hearing. Which leads me to why I wanted to record this show. I want to answer two of the top questions I receive from people, and I'm hopeful that this will provide some clarification on why that is. Now keep in mind that there are dozens of questions I get asked, but most are related to someone's specific situation. Questions like how do I Move tax deferred assets to tax free? Or how should I take income from my accounts in retirement? How can I balance my estate for my kids? Or how do I lower my taxes? Should I pay off my mortgage? The list goes on and on, but I'm not going to address any of these types of questions. I cover much of this in other shows and articles that I put out there. The questions I'm going to address today are from those who are often working with an advisor already but are searching for a high level of service, or perhaps someone who has been trying to do things on their own but has reached a point of needing help. Now, when someone completes the form for an appointment on my site, we ask if they are working with an advisor and if so, why are they wanting to speak with me. The top response is yes, they do have an advisor and the reason they give for wanting to talk is most often because their current advisor isn't helping with tax planning. They often indicate that their current advisor is only offering options for investing in the stock market. So it makes sense to me why they are looking for help and support outside of what they're currently getting. Because a financial plan is more than just picking a few stocks or bonds and leads to question number one in how I help clients. Now from my perspective, helping clients is the process of bringing a lot of things together and trying to simplify tax planning, cash flow planning, estate planning, niche insurance services, investment management, and of course, financial planning as a whole. But what I have found is that the majority of people I speak with don't really fully understand what all is entailed. There's a lot involved here, but I can understand why this can be difficult to understand. We all only know what we know, and what we know is mostly from our experiences, right? And if someone's experience was working with a financial advisor who positions themselves as a planner when really they're just selling a product, I can see where there could be some confusion. Now don't get me wrong, there's a lot of good advisors out there who do a really good job for their clients. But in my experience, there are many situations where products are being sold in place of plans being developed. For instance, I hear from people who say that their advisor is managing a portfolio of stocks, ETFs or mutual funds and they're under some illusion that by the advisor offering this recommendation for an allocation that they have a plan. I also hear a lot of people say they speak with their tax person and the tax preparer is telling them to fund an IRA or a 401k to lower their current tax bill. And they suggest that that is a tax plan. Another big one I hear about frequently is about the annuity salesperson who sells an annuity to somebody and then suggests that this product is the retirement plan. Now, all these things are possibly spokes in a wheel, but they are not the complete wheel. A financial plan brings all this and much more together. So what does a plan actually look like? Of course, it can vary from person to person, but I'm going to try to break this down into steps to highlight the differences. First of all, a plan begins with defining what success looks like. Now, I will say this, that the wrong answer here is to say that you want your money to grow. That's the most common response people will give is, hey, what does success look like? Well, I want my money to grow. Well, of course, everybody wants their money to grow. In my 30 plus years, I've never had anyone say to me that they don't want their money to grow. This question is assumed. And it's not about you watching your money grow, rates of return, and thoughts of growing. Your money is not a goal in and of itself. You really want to understand and clearly identify in your mind why you were saving the money in the first place. What problem do you want to solve in your life that money can buy? Or what lifestyle do you want to live that your money will help fund? If you can solve for those things, then that would be considered a success and has really nothing to do with rates of return. Second is what are your cash flow needs? I hear people routinely provide a number that they feel like they need to retire. But when I press about what all that includes, it seldom includes things like taxes, insurance, travel and other things. If the expense is not a routine monthly expense, then it's often left out of the conversation. Here's the deal. If you're going to create a retirement plan, you cannot leave these details out. Any and all expenses that are spent within a calendar year is part of the income need. We have to solve for that. And when you're thinking through this step, never think about the method for paying the expense. At this stage, that doesn't matter. What matters is what you are spending money on, not how you are paying for it. This is one of the most challenging steps for people because they go into it assuming they know what cash flow planning is, when in reality they're confusing it with a monthly budget. They are not the same thing. Next, what passive income sources do you have in place and how much are you generating? I got to tell you, this is a real doozy because there is rarely anyone who really understands passive income and mostly confuses it with having money in hand that came from their investments. That's not what passive income is. Passive income is income that is generated from an asset. It is not cash in hand from selling an asset. There's a difference. When you sell a share of one of your investments to have money in your hand to spend, that's not passive income. You sold the asset to get the cash. Passive income is the result of the asset generating income for you to spend. The easiest way for me to explain this is to think of a house. The house is worth something, right? But you can't spend it. To get cash from a house, you must sell it. Once you sell it, the asset's gone. But if you have a house, let's say with a renter in it, the rent is the passive income, you still own the home while collecting income from it. And yes, there are investment opportunities out there that, that are designed to work similar to this. But a retirement income plan doesn't exist, in my opinion, without passive income. Next is knowing how much future tax liability you have. Most assets people have are trapped in their retirement account. If you have a large IRA or 401k, the biggest issue you are facing is an ever increasing tax liability. So you need to determine how much tax has been deferred and how much more tax liability will you have in the future. Then you will want to work out a strategy for dealing with both the current and future tax liabilities. The most common thought here is to ignore it and deal with it as it evolves. A close second is to use a Roth conversion, which can make sense, but that also will trigger tax liabilities. The question here is what are you going to do to mitigate those taxes? What strategy do you have in place right now to reduce what taxes you owe right now? That needs to be clear and written out in your plan. The next step in this process is to identify the dangers you face now and into the future. Because life doesn't run in a positive straight line, we have to consider health challenges, maybe an unforeseen death, market declines, and other scenarios that can disrupt your plans. You need to identify all the scenarios and have a contingency for dealing with those issues. These should be itemized in your plan and include details for how they will be dealt with. Now we are right here in step number five into the process and I want you to notice that we haven't talked about products or investments. We haven't talked about rates of return or asset allocation, which is where I find many advisors begin their process. They'll say things like none of my clients have ever lost money. Or they'll say that they have a proprietary method for managing downside market movement. If this was really true and it worked, they would be highlighted on the front of every financial publication touting their genius. The approach at my firm takes a little bit of different stance in that we are interested in knowing what clients want in life and then following a process to try to flush out the problems that could potentially disrupt those plans and help to find solutions to satisfy those things. It's a focus on things that we can control, not things that are outside of our control. It isn't until we know all this that we can begin discussing an action plan for deploying products and strategies. It is at that time we can bring in CPAs, attorneys, insurance agents, investment advisors, bankers to begin implementing a plan. And once the plan is finalized and implemented and it's in place, the plan must be monitored and measured to help keep track and make sure that things continue to unfold as we plan it into the future. A plan has little to do with products and has everything to do with what you want and how we can make that happen. An advisor should be really viewed as your co pilot, not just someone you run to when there is a problem and you need an investment to be changed onto. The second question that I get is what I charge for my services. Now I own several companies that integrate together to deliver the services needed to do everything we are discussing here. I own a tax consulting company, an insurance company, a consulting company, and a wealth management company. And within these entities there are fees for service management, fees that are customized to deliver the combinations of services a client needs. We charge a developing a plan fee. We charge for implementing the plan. We charge to service the plan. And that really shouldn't be a surprise. I mean, doctors, attorneys, dentists, and all other professionals charge for what they do. They wouldn't be in business to offer these things if they didn't. That is the definition of a professional, right? They get paid for their knowledge and ability to help you. And what's interesting is if someone is working for free, you really have to ask what value is being delivered? What is their motivation for free service? What are they doing exactly? Most clients understand we don't work for free and they view our relationship as an investment into our network. And on occasion, when speaking with a prospective client, some will try to tell me that they pay less fees where they are. And my question is always the same is why then are you talking with me? If you're getting everything you want at the fee level they are currently paying, why are you looking to change? Here's the deal. Cost is only an issue when there's an absence of value and any fee without value is too high. I personally have many professionals who I pay a fee for their knowledge and their ability. Many of them charge pretty high fees and more than others in their space for what they do. But after years of experience, I've learned that when there is value, a fee is really an investment if you're getting the result that you're looking for. My philosophy about this is that if you need heart surgery, how much of that surgery do you want to do on your own to save money? Does someone shop for the cheapest surgeon to perform their surgery? I've spent over three decades building my knowledge, building my network, and developing relationship with companies and vendors. When someone hires me in my firm, they're not just buying an investment, they are tapping into a lifetime of information and resources that they cannot get through an online broker or just a Google search. I'm candid about this because we want to work with clients who are serious about making well thought out decisions and who want a team of professionals working on their behalf to help make the most of their assets. If you want a plan, you have to work with a professional who has the knowledge and the resources to develop that for you. So to learn more about our services, you can visit scriboniafinancialgroup.com that concludes today's podcast. I am Brian Scribonia. Thank you for listening to today's Common Sense Financial Podcast.

Thanks for listening to today's show. If you liked what you heard, be sure to subscribe on YouTube and Spotify so that you can can receive notifications when we release new episodes. I'm Brian Scribonia and this is the Common Sense Financial Podcast.

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