How I work with clients

Here are three fictitious examples of client situations
and the associated cost and services.

from 30 Rock

When Jonathan contacted me he was making good money and loved working at NBC. He had some credit card debt, student loans and knew he should be saving but didn’t know how to get started. He wanted to start investing. He also knew he would like to get married some day but didn’t feel he was on the right track for that with his finances. He wanted to figure out what he needed to do to get started. He saw value in working with a professional so that he could feel confident about his actions as well as have much needed accountability.
More facts about Jonathan.

Age: 27 years old

Income: $92,000 per year plus a variable bonus

Assets: $5,000

Debt: $25,000 in student loans and $6,000 in credit cards

Question & Answer Sessions:

So far, we’ve met for three Question & Answer Sessions. Each cost $950.

Over the course of our meetings here are the planning topics Jonathan and I covered:

Emergency Fund Establishment - I recommended Jonathan open an account dedicated to emergencies. To start, this was a small amount and once he paid off his credit card debt he would increase it.

I recommended he open a high yield savings account for this purpose. It wouldn’t be much in dollar terms but the yield would be more than eight times what he was currently receiving in his savings account. As he grew the account I estimated he would receive a couple additional hundred dollars per year.

Credit Card and Student Loan Repayment Plan – We discussed the importance of paying off Jonathan’s credit card debt and we made this a priority. I gave him resources to see if he qualified for a lower interest card so that we could reduce the interest he was paying. We ran the numbers for potential payment scenarios. He saw that he might be able to pay off this debt sooner than he originally thought. Jonathan agreed to make payments twice a month after receiving his paycheck. Then we examined his spending to see how he would do this.

He increased his payments by $1,000 per month. This took considerable effort and saved him about $1,000 in interest. It also had him on track to pay off his credit card debt in about 6 months.

We decided to wait until Jonathan’s credit cards were paid off until we tackled his student loans. His interest rate was reasonable for his student loans, he could make the monthly payment and wasn’t incurring any interest.

Spending and Savings Plan – We talked about Jonathan’s spending and realized he spent money without giving it much thought. I explained it would take diligence and he needed to create new habits to make a change. We came up with three strategies he would try after our first meeting and at our second meeting we discussed what worked and what didn’t. We looked at his habits and there were high fixed expenses because of the price of rent in New York.

Defining the amount he had for “fun money” after his credit card and fixed expenses were paid, was a helpful figure for him to see but he wished it were higher. We discussed the possibility of bringing in more income and that is something he has started to look into. I encouraged Jonathan to dedicate raises and bonuses to paying down debt, which he committed to do. This last suggestion resonated with Jonathan because he could capture savings without much effort.

Jonathan was happy to know that with his new commitment to credit card debt payoff he could start to grow his net worth. Although it meant changes and adjustments, he no longer worried he would be perpetually under-saving. He now understood what he needed to do, to create sustainable spending habits. He was motivated to bring in extra income, which would allow him to save more rapidly, as well as afford some fun indulgences from time to time.

Employee Benefits – Jonathan had access to a tax advantaged account that often gets overlooked for retirement savings and I recommended he wait to take advantage of this account until his credit cards were paid off.

He was glad to know it was an option for him because he wanted to receive the tax advantages. I estimated that contributing an average of $85 per month over the next 5 years will save him over $1,200 in taxes.

Investment Recommendations – Jonathan really wanted to start investing and had just started contributing to his 401(k). I reviewed the investment options offered to him and made recommendations for how to invest existing money and future contributions. The investment options offered to Jonathan in his 401(k) varied widely in the types of investment funds as well as fund fees. The default options he was invested in had fees that were several times more than other funds. The savings, from choosing lower cost funds, would only be a little more than $100 per year but over the next 30 years I estimated that it could add up to well over $10,000.

I encouraged him to focus on debt reduction and he agreed to do so but thought he would be more motivated if he were investing at the same time. Therefore, I also recommended that he open an additional retirement account that is taxed differently than his 401(k). He could fund it with the minimum amount and make small monthly contributions with the goal of increasing contributions once he had a better handle on his debt. I also recommended a specific investment for that account, which complemented the investments in his 401(k).

Renters Insurance and Miscellaneous Questions

I recommended putting renters insurance in place. We discussed the balance of having important protections and incurring another expense. Jonathan hoped he never has to use this coverage but was relieved to know he now has over $50,000 in protection if his apartment became uninhabitable.

Jonathan also had some questions about his parent’s financial situation. I gave him some feedback as well as resources for him to pass along.

At first Jonathan found it hard to shift his spending but he was dedicated and after a few weeks he started to have success. We tried several strategies until he settled on some that worked for him. He also received a tax refund that helped him speed up the process of paying off his credit card debt. We decided to meet for a 3rd Question & Answer Session after his credit cards were paid off. At that point we focused on his student loans but also made some decisions about building his emergency fund and contributing to retirement accounts. It was exciting to see Jonathan’s net worth go from negative to positive. Jonathan will receive a bonus in about eight months so he scheduled another Question & Answer Session at that time. He knows he can schedule a time to connect when questions arise and that I’ll help keep him on track and avoid making detrimental decisions.

This example is meant to give you an idea of my approach, my general process and the value of a holistic planning prospective.

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from the X-Files

When Scully and I started working together she was concerned about saving enough for the future and did not want to have to depend on her government pension, from the FBI, for her retirement. She also thought a lot about the high housing prices in Washington DC, where she was renting. She didn’t know if she could buy or should buy, but it was something that weighed on her mind. She recently received a large raise and figured she should get serious about sorting these things out. She had some savings but didn’t know where she should invest her money. She also had two 401(k)s from previous employers that she didn’t know what to do with. Over all she wanted more peace of mind about her financial decisions and didn’t want to worry there was something she was missing.

Age: 32 years old

Income: $208,000 per year

Assets: $107,000

Debt: $6,000 student loan

Financial Plan:

I estimated it would take 12 to 18 hours for 4 meetings: $4,680 to $7,020 with an hourly rate of $390 or monthly payments of $1,160 for 6 months. She chose to pay hourly.

Over the course of our meetings here are the planning topics Scully and I covered:

Emergency Fund Establishment – I recommended a savings account that gave Scully a better return on her cash. I estimated it would grow by a few hundred dollars per year more than her current account. We decided upon a specific amount of money, to set aside, that gave her peace of mind so she would be better able to handle an emergency.

Spending and Savings Plan – Scully had always been a consistent saver so she hadn’t paid a lot of attention to her savings because it came naturally to her.

I recommended she set up automatic transfers from her checking account to an investment account so that she could capture much of her recent raise in savings. This way she didn’t have to worry about where to put the money that was accumulating in her checking account.

She realized she could afford the travel she wants but would have to make adjustments to do so, so that she was still on track with retirement savings. This gave Scully clarity about how much she could spend on vacations and travel and not feel guilty she wasn’t saving for retirement.

Student Loan Repayment Plan – We discussed the pros and cons of paying off her student loans. She decided she would pay some off now and the rest monthly. She committed to increasing her retirement savings by the amount she was paying toward this debt, once it was paid off.

This didn’t amount to a large cost savings. However, paying off some of the debt ahead of schedule would save her a few $100 in interest payments. Additionally, Scully was happy to finally simplify and shift monthly payments to be invested and have, most of her, loans behind her.

Employee Benefits Review – I reviewed the employee benefits information Scully provided. She was already taking advantage of some benefits but I noticed she was offered an account that has tax advantages. We discussed the benefits and limitations of this kind of account and we decided on an appropriate contribution amount. I estimated this would save her about $500 per year in taxes.

I was also concerned that the disability insurance offered to her would not adequately cover her current income if she were unable to work. Therefore, I recommended requesting quotes for additional coverage.

Disability Insurance

In our third meeting we discussed the quotes Scully requested. I reviewed the features offered on the policy and I made recommendations for which ones are most appropriate for her. She was relieved to know that a larger portion of her income would be protected if she couldn’t work because of an illness.

She had seen family members struggle because of this and, because she is single, felt it was all on her shoulders. The annual premium is expensive but she feels the coverage is worth it to have additional protection in place. Of course, a disability would mean a lot of adjustments and difficulties but, If there was a need this coverage could allow her some independence, more choices and could potentially pay over $700,000.

Home Purchase / Real Estate Analysis

I showed Scully potential costs involved with home ownership given two scenarios. I recommended she practice this expense, to see how owning a home would affect her savings and spending plan. By doing so she could also create additional savings she could use for her down payment. She thought that might be a challenge but was curious to try increasing her savings to test if this was a goal she really wanted to pursue.

Cash Flow Projection / Financial Independence

My analysis found that given Scully’s current savings rates she is on track to be financially independent in her late sixties. Much will change between now and then but it was a comfort to Scully to know she is reasonably on track at this point. I recommended she open an investment account and set up automatic transfers each month to this account. That way she wouldn’t have to constantly monitor her long-term savings amounts.

In order to increase her savings and reduce her tax burden, she also needed to max out the contributions to her employer sponsored retirement account, potentially reducing her taxes by over $1,000 each year.

Investment Review and Recommendations

I reviewed Scully’s retirement accounts from her old employers. I made recommendations for consolidation. Not only did this simplify her accounts but also, it reduced the cost of the fund fees she was paying. This will save her about $400 this year. Over the lifetime of her investments, which is multiple decades, this has the potential to be thousands and thousands of dollars in savings. Even if we assumed her investments stay stagnant, it will be, approximately, an additional $4,000 over the next 10 years, without any ongoing effort on her part.

I also coordinated the investment options offered to her through her current employer sponsored plan with her other accounts. Four accounts felt like a lot to coordinate for her, but I gave Scully the specific funds and dollar amounts for each account with instructions, in her Investment Worksheet so she knew exactly what to do.

We discussed my investment philosophy as it applied to her situation. Scully was relieved to know there was a strategy she could stick to in strong economic times as well as a recession. She was curious to learn more so I recommended one of my favorite books on investing.

It is challenging to determine the value added by choosing appropriate investments, maintaining that mix, making tax effective decisions related to investments and sticking to a long term strategy. According to Michael Kitces from The Kitces Report Volume 3, 2015 it is between .35% to 2.69%. For Scully, in dollar terms, this is $280 to $2,150 per year, given she has about $80,000 currently invested. These numbers will grow as Scully continues to save.

We’ll monitor her investments annually and make adjustments according to Investment Parameters I created for her.

Tax Guidance

Scully has always done her own taxes and that has worked well for her. I let her know I can recommend an accountant in the future if things get more confusing. We didn’t have much to cover in this area but we were able to reduce her taxes by increasing contributions to tax advantaged accounts; an estimated $1,500 per year, in total.

Estate Planning

We discussed estate planning briefly. I pointed out a few things for her to consider and recommended attorneys for her to contact.

Additional Questions

Scully also had questions about her credit card rewards. I recommended a resource to help her search for and compare competitive cards as well as thoughts on the effectiveness of rewards.

Another thing that is very important to Scully are the non-profit organizations she volunteers with. She would like to continue to give and we discussed some ways she might consider doing this.

Scully is diligent about putting action items in place. She updates me on each action item before every meeting, which helps us make the best use of our time. When she has a question she emails. Although some of the paperwork was frustrating, she made a lot of progress.

She felt like our work together has taken her from being “just a saver, to an investor.” Now that most of her Action Items are in place we put a meeting on the calendar in six months time so that we can continue to track her progress, make adjustments and build on the work we’ve done. She is excited to test the cost of home ownership in her budget and re-examine that goal once she has done so.

This example is meant to give you an idea of my approach to financial planning, the types of topics I address with clients and the value of a holistic planning prospective.

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Jim and Pam
from The Office

Jim and Pam have a lot going on; they both work and have young children. They are busy and don’t have time to do all the research to make informed financial decisions, although they know they need to.

They have been good savers but feel disorganized. They have several retirement accounts but funds were chosen in a rush and they don’t know if they are invested in the right things. They also have an insurance policy that they bought a few years ago for Jim, but they don’t know if it is a good fit for them and want to know their options.

They inherited some stock a while back from Pam’s grandmother and sold some of it to help with their down payment but don’t know what to do with the rest of it. They also want to know about college savings for their young kids. They know they could be doing things better but don’t have the bandwidth to figure it all out on their own. That is why they reached out to me.

More Facts about Jim and Pam.

Age: 35 / 34 years old

Income: $280,000

Assets: $183,000 plus their home estimated to be worth $790,000

Debt: $558,000 mortgage

I estimated it would take 20 to 25 hours for 5 meetings: $7,800 to $9,750 with an hourly rate of $390 or monthly payments of $1,620 for 6 months. They chose to pay monthly.

Over the course of our meetings here is what Jim, Pam and I covered:

Emergency Fund Establishment - Pam and Jim already had a high yield savings account. However, they had a lot of cash on hand. We agreed upon an amount that would work for their emergency fund, given some risks that were specific to them. We decided the rest could be invested for retirement. I detailed those recommendations in their Investment Worksheet.

I estimated that investing excess cash would earn them over $10,000 over the next 10 years. Of course, there are no guarantees. Those investments are exposed to risk and in a down market the account value could drop to an amount that is much lower than if they kept their money in cash. They were relieved to have parameters so that they knew how much to keep in their emergency fund and how much went toward retirement savings.

Savings and Spending Plan – Pam had their accounts linked to an online budgeting app but she hadn’t paid much attention to it and we realized they needed to re-categorize expenses. I recommended setting up automatic savings to better manage near term cash flow. This took some trial and error. We started with preliminary automatic savings figures and increased those numbers after our third meeting because cash was building in their checking account. They loved having a dedicated account for travel so that they didn’t have to feel guilty about taking vacations.

Life Insurance – We had a number of changes to make regarding life insurance. Jim’s insurance had features that were not cost effective. I reviewed the policy and recommended they put a different type of coverage in place. I recommended coverage amounts and we discussed the timing of making the policy switch. The new policy provided more coverage for a slightly lower premium. They felt frustrated they had been paying into a policy that hadn’t been saving them as much as they thought, however, they were glad to be on the right track now.

Pam didn’t have any life insurance, which was a missing piece of their plan. I explained why I think it is important they both have insurance and they agreed. I gave them resources so that they could request competitive quotes and put the right kind of coverage in place. I suggested particulars about a policy that would be right for Pam. They asked a few questions and began moving forward to put coverage in place.

They are relieved to know that if something happens to either of them they’ll have money to cover their mortgage, college for their children and some living expenses. They know they would still have a non-financial hardship and financial adjustments to make but at least this coverage will ease their financial burden if a tragedy were to occur.

Employee Benefits Review – I reviewed the employee benefits offered through Dunder Mifflin. A match was offered in the 401(k) which Jim was taking advantage of but it turns out Pam wasn’t. I recommended she contribute enough to get the full match immediately. This increased her compensation by over $1,000.

They were also offered an account that would help them pay for childcare expenses in a tax advantage way. I recommended they max this out, which I estimated would save them over $500 in taxes each year.

Disability Insurance – Jim earns quite a bit more than Pam, so it was important to focus on his disability coverage first. The quotes for coverage were expensive and we discussed different aspects of the policy. We decided on coverage that struck a balance between the cost of coverage and having protection. They bought a policy that we felt was appropriate for them. Jim started moving forward with underwriting to put coverage in place.

Investment Review and Recommendations – I reviewed Jim and Pam’s accounts and noticed they had quite a bit of cash on hand as well as a meaningful amount of money all in one stock, inherited from Pam’s grandmother. The rest was in two current 401(k)s at Dunder Mifflin, an IRA which Jim couldn’t remember the details about because he had contributed to it a while back and two Roth IRAs at different institutions that they both contributed to, in the past, but didn’t know if the investments were any good.

I made recommendations for where to transfer these accounts to better organize them. We also discussed my investment philosophy as it applied to their situation. I coordinated the investment options offered to them through their current employer with their other accounts. Six accounts was a lot to coordinate but I gave them specific funds and dollar amounts for each account, in their Investment Worksheet so they knew exactly what to do. I let them know I would be happy to help them implement these instructions and they decided to give it a try on their own first. Transferring the accounts was a pain but once everything was in one place it wasn’t as hard as they thought to execute my instructions and make the trades.

They are relieved to have a coordinated investment strategy across all their accounts that are invested appropriately for the long run. We’ll make adjustments annually to make sure they maintain their portfolio to keep it in line with the Investment Parameters I created for them.

Education Planning – We discussed the potential cost of college and strategies that might help them cover such a large expense. I recommended 529 Pennsylvania College Savings Plans for both their children and the investments within those accounts. With retirement savings and other demands they didn’t have a lot to contribute at this time. However, they decided to make consistent monthly contributions, even if they are small.

Cash Flow Projection / Financial Independence – I created a long term projection and found that at their current savings rates Jim and Pam are on track to be financially independent in their sixties. We discussed that a lot can change between now and then and that it would be prudent to revisit these figures periodically. In addition to their current savings, I also encouraged them to continue to save raises and bonuses as they have been doing. They understood they will need to continue saving and were comforted to know they were on track. This also made them feel less guilty about their current expenses.

Tax Guidance and Additional Items – I took taxes into consideration when making investment recommendations. Particularly, with the sale of the stock they inherited from Pam’s grandmother. I also recommended account types that gave them a tax advantage.

They asked me about potential tax advantages of Pam starting a side business selling arts and crafts online. We discussed how that could work, from both a small business perspective and a tax perspective. I shared some ideas and recommended some resources that they found helpful.

After reviewing information about their mortgage I thought they could save money by refinancing and still be on track to pay off their loan by the time they retired. They confirmed they would indeed be eligible for such a loan and started the refinancing process. Lower monthly payments allowed them to increase savings to their 529 accounts without making any changes to their spending.

Estate Planning Guidance

I emphasized the importance of estate planning because they have young children. I gave them referrals so that they could work with an estate planning attorney to put needed documents in place.

Per my suggestion, Pam and Jim set up a weekly time to make progress with action items. They didn’t make it every week but still were able to make meaningful progress. I reminded them to update me between meetings and they always do. They know its ok if not everything is complete because we are moving things forward. They feel they are being responsible adults now that they have an understanding of what they need to do as well as written action items to help them do it.

This example is meant to give you an idea of my approach to financial planning, my general process and the value of a holistic planning prospective.

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