How Managing Your Money Can Make You Happy

Does managing your finances bring you and your family happiness?

You are probably thinking: Josh are you insane? I do my best NOT to think about my finances. Discussing finances brings on stress and tension with my partner, not happiness.

Josh, what is your definition of happiness?

Defining Happiness

Happiness is the joy felt while pursuing one’s full potential.

Let’s break it down a bit, starting from the end of the sentence.

You can’t reach your full potential, if you haven’t defined your goals.

“One’s full potential” is something that we all want to achieve, to be our best self. We want to be engaged in doing things that makes us shine our brightest. It is what all of our short/mid/long term goals should add up to.

“Pursuing” happiness is not something that is given to you. You have to pursue it. You have to work for it. In the U.S. Declaration of Independence it says “life, liberty and the pursuit of happiness”. There is “work” involved and work is not easy. Often people don’t achieve it, it’s ephemeral in their minds.

“Joy” is something that we all want to experience… a big smile from our child, a loving embrace from our partners, shared laughter with friends.

a common pitfall I see with henry’s

Many of the HENRY’s I meet are not intentional with their money. Being financially comfortable, lulls them into a false sense of financial security.

a “henry” Is

a High Earner Not Rich Yet

As a result, they aren’t making progress towards their goals. Often they haven’t even defined their goals. And if you haven’t defined your goals, you can’t reach your full potential.

HENRY’s often feel confused and let down when they take stock of their lives. They don’t understand how despite their high income, their growing investments and net worth, they still feel something lacking. At work they keep taking on more responsibility, growing their income and yet, they have nothing to show for it at the end of the year, except for a few fancy vacation memories on their Facebook and Instagram accounts.

Being intentional with your finances, will, in fact, lead to happiness. If you work towards investing your money thoughtfully in a personal set of goals, you will be working towards your full potential. Think of those vacations in the context of the fun you will spend with family. Rather than the context of “escaping” work. It is a subtle mindset adjustment, but one of those is actually working towards a greater goal.

are you ready to be happy?

Are you ready to pursue your full potential? I help HENRY’s define their personal goals, create a plan to get to achieve those goals and intentionally manage their money. Contact me for a free consultation to discuss your game plan.

The Financial Pitfall of Making Six Figures

My Partner And I Make 6 Figures, Where the Hell Does It All Go?!

There’s a common refrain I’ve come across with many of the families I meet with in Decatur and surrounding neighborhoods: We make a good living, our family is thriving, but we don’t have any money at the end of the month? After I review their spending accounts, I see big pay checks coming in. I see nice sized chunks of cash going out for nice cars and houses. And then 75-ish seemingly “insignificant charges” of between $50 and $250 throughout the month. This is the beginnings of an archetype, I am starting to call “We make enough money, that we don’t have to worry about our spending”.

You may fit into this category if:

• Your family income is greater than $175k/year

• You have 2 to 3 kids that have expensive extracurriculars and/or tutoring

• You go on a week long vacations 4 to 5 times/year

• You may have a stay at home partner

• When you see something interesting, you just buy it

• You emphasize convenience over cost

• You contribute money to your kid’s school and class all year long

• You don’t really check your bank/credit card statements

• You are well respected in your professional career

This is an interesting group, and something that seems to happen much, around Decatur and other in town neighborhoods. The amount of income you make, lulls you into thinking you don’t need to be intentional with your finances. That is, until something happens that causes you to reevaluate your situation: A friend gets laid off, you decide you hate your job and want to make less money and contribute more, a major housing renovation or project, a friends kid heads off to college, you want a pool in your backyard, etc.

Which inevitably leads to a quick analysis of the family’s current situation, and you realize:

“Dang!! Where does it all go?” or “I am too busy to deal with this, I am going to punt for some time in the future when I have more time”.

If you are in this situation, with just a little bit of work, you can make a big difference in your family’s long term outcomes. Let me help you:

• Consolidate your credit cards

• Set up automated bill pay

• Set up automated investments

• Pre-plan and budget for your family vacations

• Check out your car/home owners insurance for the best price and coverage

• Prioritize and fix the things in the house that need to be addressed

• Get the kids set up for college savings

• Land a new job that matters to you

• Sell your RSU’s

• Minimize your tax bill

A good financial planner does so much more for your family, than just manage your investments. They are an advocate and partner, working in lock step, to make sure that you are living your best life, NOW and IN THE FUTURE. **But you can’t afford to wait. Guess what? You will never have “enough time” to get this work done. It is all about prioritizing the work, and getting started.

Let’s set up some time to get your family moving intentionally towards your goals.

Financial Planning for Young Professionals

Not long ago, a young couple set up a meeting with me to discuss some of their finances. I called to learn more about what problem they were trying to solve, and learned that they wanted to make sure that their investment portfolio was appropriately diversified. As we were setting up time for the meeting, I asked how they were doing with debt, credit cards and if they had extra spending money at the end of the month. There was a pause. Then she said “You work with clients on that sort of thing?”

“Of course I do. In fact, it’s what I spend a lot of my initial client time working through.”

In our first meeting we spent ten minutes reviewing their stock allocation, and then the next 70 minutes working on an approach to better manage their monthly spending and consolidating their credit cards.

I have a fundamental belief that everyone needs a financial advisor. Millennials have a huge advantage over their elders when it comes to investing, but they have to take advantage of it now:

1. Time is on your side - Money grows over time and it makes a profound difference over a long period of time. As an example, if you invest $2k from 19 years old to 26 (8 years) when you retire, you will have $1MM. If you wait until you are 27 to start saving, you would have to put away $2k each year until you are 65 (39 years), and still only have $900k. So start early!

2. Setting up good habits - It is always easier to start with a strong and thoughtful foundation, rather than reseting in the future, due to bad behavior. Lets set up good habits now so that you will benefit in the long term.

Whether it is helping to budget/monthly spending, set goals, mediate differences between partners, set up investments, talk taxes or buying a car, a financial planner can be a steady hand to help.

If you are a young professional, you may think a financial advisor doesn’t make sense for you because you likely

• Don’t have much of an investment nest egg

• Don’t own a house, and are very likely renting

• Live paycheck to paycheck

• Have debt due to student loans and/or credit cards

• Don’t have kids and thus have fewer variables in your life equation

• Have long time before retirement

• You use an online tools/service for budgeting or saving

If some subset of that list resonates with you, here are some things to be thinking about:

• Am I successfully balancing my short/mid/long term goals?

• Am I saving enough?

• Am I spending too much?

• Do I love what I do at my job?

• Do I have disability, term life and health insurance?

• Am I accessing all of the amazing array of benefits my company offers (ESPP, anyone?)

• Does my partner see eye to eye with me on spending and saving?

• Is there harmony between my spending and my values and goals?

• Should I be consolidating your debt?

Too often it seems that young professionals make their decisions in isolation, without seeking advice from someone with more experience. Perhaps there is information around the internet that could be gleaned from a quick google search. A financial advisor, who gets to know your background and experiences, can provide much of the needed support to help get your financial house in order for the long run. Helping you set up much of the foundation, so that you can answer the questions above, with certainty and confidence.

You don’t need a small fortune to start this process and to get competent help, Chamberlain Financial Advisors is here to help! I spend the time getting to know you. I understand your context, so that the advice I give you, meets your specific needs. Lets create a plan that will help you build to that fortune, so that your future self is delighted to meet you. And don’t worry, I get that you are busy, I work to make your life easy. We can meet for lunch, after work for a drink, or I can come by your house for consultations.

The Difference between RSU's and Stock Options

If you work in today’s big technology industry, it is very likely that you are getting some form of stock based incentive, as part of your compensation. The two most common forms of compensation are restricted stock units (RSUs) and stock options. These two programs both offer very nice incentives for employees, but they are slightly different, and should potentially be treated differently. Also, any time that you hold some form of company stock, you should view your exposure to the company from a holistic perspective, to your overall portfolio.

What is an RSU?

RSUs, are awarded to employees at some date, and typically have a vesting period at some point in the future. Often the vesting will be 25% at the current date, and 25% in one year, 25% in 2 years … etc. At the time of vesting, the company buys a share, and gives it to you. In this way, it is much like a cash bonus. And like cash bonuses, the company will withhold taxes at that time of vesting (commonly, they will just keep shares from your award).

For example, you just received 100 RSU’s that have vested. The company stock is $1. You will received 100 shares of your company at $1 = $100 of compensation. Assuming you are in a 25% tax bracket, the company will hold 25 of your shares. Which means you net out 75 shares.

What do you do with an RSU?

You have 2 options with RSU’s … you can either sell them immediately or hold them. If you sell them immediately, since you just paid the taxes on them, and they likely have not appreciated much, you will not have to pay any capital gains taxes, and you will just receive the cash. if you decide to hold them, and they appreciate, then you will have to pay the capital gains on them.

One major advantage of RSUs

They almost always have value, even if the price of the stock has dropped. For the certainty of that value, RSU are commonly deemed more valuable than stock options. Which brings us to …

What is a stock option?

A stock option, gives the holder the right to purchase a stock in the future at a predetermined price. Like RSUs, options are given out as performance incentives, and typically have a vesting period.

For example, you have the option to purchase your company stock in 1 year’s time at $1. If the stock goes up $1.50, then it would make sense for you to purchase the option at $1, because you would have a built in .50 return. If the stock dropped to $.90, you would not exercise the option, b/c you would be better off to buy it on the market for $.90 than through your options at $1.

**Note that exercising the option is a purchase, but not a sale. Which means that you will not pay any taxes at the point of the exercise. You will only pay taxes upon your sale of the stock.

What do you do with an option?

You should have no more than 5% of your portfolio in single stock.

You can either sell it immediately and pay the capital gains equal to difference b/w the current price and the price at exercise. Or you can hold it. There are advantages to holding it for greater than a year, since you will pay the long term capital gains tax (as opposed to short term capital gains, assessed at your ordinary tax rate).

Advantages of options

You have greater control over taxes with options, since you decide when to sell them (and thus when to pay taxes on them). And since they are riskier, companies typically give you more options.

How do options and RSUs play into your overall portfolio?

Most people just let both their RSU’s and options sit and collect over time. They don’t manage them, they don’t sell them, they don’t really think about them until they move to another company, or they grow big enough to force a conversation. This is a BIG problem. From a simple portfolio diversification perspective, you should have no more than 5% in single stock. And your vested options/RSUs are part of your portfolio. If you have 100k sitting in RSU’s or options from your company, you are very likely way over-allocated. Second, you already have plenty of exposure to the results of the company. Just check your bank account every other week, who is making auto deposits?

If you have “new” RSUs just sell them, you won’t (likely) have to deal with any major tax consequences. If you have older RSUs then you will need to check for capital gains exposure, and make sure you factor that into your savings for next year. Since you had to exercise your options, that means, that very likely you have some major capital gains exposure. So beware, when you sell them.

After selling them, increment into a low cost ETF, rinse and repeat next year.

How and When to Invest in an IPO

2019 is primed to be a very compelling year for initial public offerings (IPOs) for interesting companies. We are about to have a whole cast of new unicorns entering the prime grazing ground of the US markets. There are plenty of opportunities to get involved, as well as pitfalls you should be aware of. You have likely heard of recent newcomers including:

• Lyft (LYFT), the new age transportation (taxi?) company

• Pinterest (PINS), a next generation sales and marketing platform

• ZOOM (ZM), a new comer to video conferencing world, with a killer application

• BEYONDMEAT (BYND), pushing the boundaries, providing a better way to feed the planet

As well as a few big ones, yet to come:

In complete transparency

I own a number of stocks discussed in this article: LYFT, PINS, AMZN, and FB.

• Uber, the ride hailing company, looking to push into autonomous driving, food delivery, smart cities and more.

• Slack, the future of business communication: beyond email

Here is the thing, about IPOs:

IPOs are RISKY!

1. If you buy on the opening day, you only “think” you are getting in early. Most of the “early” shares are allocated to big players.

2. You may think that you understand the business model, and the goals of the company. But often the long term strategy has not been fully vetted (think Amazon coming out as an online book store, Google as a hopped up search engine and Facebook as a way for college students to connect). Or the long term strategy has not been fully broadcast and understood.

3. The real numbers behind the business, while private, have not been fully vetted by the market at large.

4. There are just as many examples of short term flame outs, after IPOs, as there are successes. Recent examples include:

   1. lyft - down from high $80’s to low $60’s in the first month;

   2. Spotify - launched in May 2018 at around $160 and is now at $136;

   3. Remember Facebook’s bumpy first year? It launched in May 2012 at $38 and closed one year later $27.50.

But there are wonderful opportunities in buying stocks of companies at an early point and then holding them for the long term.

Nobody, still holding FB, from the beginning, is fretting about the first year decline, given the current price of $195. Nor are people worried about Amazon starting at $18, now worth $1,900.

The best long term strategy for building wealth is

to invest in a few widely diversified, low cost ETFs.

So how do you approach this delicate situation?

First Know this: The best long term strategy for building wealth, is to invest in a few widely diversified, low cost ETFs. Then continue to buy through the short term, ups and downs of the market.

If your risk tolerance is low, stay away.

Wait until things shake out over the course of the first year or so. This will give analysts the opportunity to dig through the numbers, the business strategy and company leadership. These stocks will also end up in your broad based ETFs. So don’t worry, you will gain exposure.

If your risk tolerance is high,

meaning you can deal with wild swings, you can afford to risk a total collapse in the company and you have some money not currently allocated to your long term goals. I believe there is a way to tip toe into the situation.

How to determine if you should invest in an IPO

1. You need to have a strong conviction in the company’s business strategy. For example, you believe that meat production, on a world wide scale, is going to lead to a long term detrimental impact to the Earth. And you believe over time, that people will become more open to alternative sources of protein, then BYND may tick this box for you.

2. You need to have a long time horizon, for the market to completely factor in all of the unknown variables into your company. In the short term, these stocks are going to trade wildly. And are actually a perfect example of how irrational the market is SHORT TERM. For example, it is inexplicable why lyft traded between $58 and $62 last week … there has been NO real new data, at all.

3. You need to determine how much of your portfolio you are willing to BET on this strategy. You should be thinking < 1%.

4. You need to have an entry and exit strategy for buying/selling the stock.

   How I Invest in IPOs

   1. I buy 1/3 of my allocation, based on #3 above, at the end of the first trading day. NOT at the beginning. The bid/ask will be too wide early, with all of the jockeying. By the end of the day, the day traders looking to cash in on the first day volatility, will be ready to sell. So around 3:30pm, put in a buy order.

   2. Sit tight for, either some set time frame (2 - 5 months), or until there is a major slide in the stock. Many times, reality will set in, people will come to understand that they need to gather some additional information on the company. At that point, the stock will take a breather and potentially drop 10-25%. If that happens, buy 1/3. If the stock goes up or trades side ways, just plan to buy at a set future date.

   3. Set a third time frame, well into the future, like 1 or 2 years. This will have allowed all of the institutional/inside money to exit after the lock up period has expired. And there will have been several quarters of legit reports, that can be used to determine just how serious the company is. Buy your final 1/3 at that date.

   4. Buy and hold. If you believe that the company has a good strategy, and is in a growing market, and has good leadership, your holding period should be indefinite.

   5. When to Sell

      Each year, when evaluating your asset allocations, it is a good time to consider how this investment is playing out. Sell if the stock has appreciated and is now a much higher percentage of your overall portfolio, than makes sense.

      Sell if the company has taken a strategic direction that is different than your original understanding.

      Sell if the company leadership proves unable to keep up with the challenge.

      Sell at some set date into the future.

      Sell if the stock reaches some percentage of gain/loss, that you are happy/unhappy to have achieved.

If you have a plan, your outcomes will be set and understood, and you will have an opportunity to take the emotion out of this investment.

*** Please, Please PLEASE, don’t check this stock on a daily or weekly basis. The more you check it out, the more likely you will be to get emotional and make a decision counter to your above strategy.

Questions? If you want to talk more, drop me a line, I am happy to provide further clarifications.

Do You Need A Budget? Take Josh's 13 Question Assessment To Find Out

BUDGETING 101: for people who hate budgeting PART 1/ 3

When working with my clients, the first thing I have them do is forget about money and DREAM BIG! I know it sounds weird but stay with me for a moment. Next, we take those dreams and organize them into short/mid/long term goals. Then money and finances comes in. My approach to personal finance is that your money should fund your dreams and goals. And the way we do that is through… BUDGETING.

Do you really need to budget?

Yes.

Don’t believe me? If you answer yes to any/all/many of these, keep reading.

1. Is your income bucket dry at the end of the month?

2. Do you use credit cards to fund your lifestyle?

3. Are you lacking in long term savings for retirement?

4. Would you like to go on more vacations?

5. Do you ever fight or stress about money?

6. At the end of the month do you wonder where all your money went?

7. Will your kids need to take out loans to go to college?

8. If you needed a new roof on your rental place (I do!), you would need to pay for it with credit cards or loans

9. Does your retirement plan include working forever?

If you answer False to any of these, you need a budget.

1. You have 3-6 months of your typical household spending saved and earmarked for emergency funds.

2. You know your monthly household expenditures.

3. You mapped out your short, mid and long term goals and are actively working towards reaching those goals.

4. You know how much you need to retire and have a target date when you will likely reach that number.

Why are you NOT budgeting now?

Now that you understand, you should be budgeting, let’s address why you aren’t already doing it.

• You make too much money, and have plenty at the end of the month

• It sucks the life out of you

• You tried it and quit

• It takes too much time and its boring

• The tools for budgeting stink

• It causes fights at home

• It’s too much work and nobody wants to take the responsibility for driving the conversation

• You are slowly but surely reaching our goals without one

• You’ve tried it before and failed. You just can’t stand to have to fail at it again

That’s just a few reasons (or excuses) I’ve heard over the years. I get it. Budgets aren’t exciting. But it’s a key component to reaching your goals. And goals are exciting. For example budgeting could fund a fabulous vacation all paid for upfront.

From my experience, 99.9% of people would benefit from a budget. Even those of you with plenty of cash at the end of the month!! Hello, retiring*** at 54 instead of 56! Hello buying the turbo instead of just the V6!! Hello, philanthropy.

The Importance of a Budget

watch this short 50 sec Video to see why you need a budget.

Thanks to my wife for sketching out this visual.

1. Income filling a bucket at the top of the process.

2. Out of the income bucket are a set of spigots, that are used to fill expense buckets, first and then goal buckets next.

3. The key is to control your expense spigots so you can fund your goals.

Non-Discretionary Expenses

The biggest monthly expense for most is housing: a mortgage or rent payment. Followed up by a standard set of non-discretionary items: gas, electric, cell phone, internet, insurance, car, student loans, etc.

Discretionary Expenses

Then you have discretionary buckets: groceries, gas, eating out, beers and clothing. This is where a budget is key in getting a handle of your discretionary expenses. Watch out little expenses add up fast…ahem, eating out.

Your goals

After you deal with your general monthly expenditures, you are left with the excess to allocate to your savings for goals like: buying a house, buying a new car, going on a vacation, saving for kids to go to school and retiring. Typically, the savings buckets are filled with little drips from spigots, if there is any excess at all. Sometimes, your top bucket is empty at the end of the month, and you end up needing a credit card to fill some of your expense buckets.

Next: How to get Started

it’s easier than you think

"Tidying Up" Your Financial House

Jenn and I spent last night watching Netflix’s phenomenal, “Tidying Up with Marie Kondo”. We were fascinated, and a bit inspired by it. She takes the mundane task of creating a tidy home, and turns it into an experience where a couple grows closer together, by creating peace where there once was chaos. The process has a profound experience on the couples she works with.

Marie, has a philosophical frame work, Konmari, that she has translated into a specific set of milestones:

1. Clothes

2. Books

3. Papers

4. Komono (Misc items)

5. Sentimental items

After watching a couple of episodes, Jenn and I spent a few minutes, sorting through my vast “treasure trove” of books. Anything that did not “spark joy” in us, was sold or donated this morning to our local used book seller. Not only was it liberating to get rid of some junk, but Jenn and I worked together through the process, and connected with some old books that sparked a conversation … and we got 25 bucks!! for the old books. Overall it was a fun experience.

Much like Bruce Willis and the young boy in “The Sixth Sense”, that said “I see dead people,” I see finances everywhere. I could not help but see the parallels in what Marie and I do with families. I start with a philosophy: we should be living our best lives in the short/mid/long term, and then work through a set of milestones:

1. Create an emergency fund, get your down side covered with insurance

2. Maximize your earning and get your budget under control

3. Funnel money into accounts that fund your long term goals

4. Funnel money into trips/things/charity that suit your short term goals

5. Take care of your friends and family, with wills, 529s and care for your parents

Getting your personal finances in order seems like an overwhelming and impossible chore to many people — just like tidying your home — but when you dig in, you’ll find that it’s not as hard as it seems. You just need a financial planner to coach you along the way to “tidy up” your finances. As a result, you and your spouse will grow closer by removing the financial concerns and fears prohibiting you from reaching peace and sparking joy.

Are you ready to work with your partner on a profound experience? How can we spend some time getting your finances organized?