Retirement Plans for Small Businesses

retirement-plan

Retirement Plans for Small Businesses

As a business owner, you should carefully consider the advantages of establishing an employer-sponsored retirement plan. Generally, you’re allowed a deduction for contributions you make to an employer-sponsored retirement plan. In return, however, you’re required to include certain employees in the plan, and to give a portion of the contributions you make to those participating employees. Nevertheless, a retirement plan can provide you with a tax-advantaged method to save funds for your own retirement, while providing your employees with a powerful and appreciated benefit.

Types of plans

There are several types of retirement plans to choose from, and each type of plan has advantages and disadvantages. This discussion covers the most popular plans. You should also know that the law may permit you to have more than one retirement plan, and with sophisticated planning, a combination of plans might best suit your business’s needs.

Profit-sharing plans

Profit-sharing plans are among the most popular employer-sponsored retirement plans. These straightforward plans allow you, as an employer, to make a contribution that is spread among the plan participants. You are not required to make an annual contribution in any given year. However, contributions must be made on a regular basis. With a profit-sharing plan, a separate account is established for each plan participant, and contributions are allocated to each participant based on the plan’s formula (this formula can be amended from time to time). As with all retirement plans, the contributions must be prudently invested. Each participant’s account must also be credited with his or her share of investment income (or loss). For 2017, no individual is allowed to receive contributions for his or her account that exceed the lesser of 100% of his or her earnings for that year or $54,000 ($53,000 in 2016). Your total deductible contributions to a profit-sharing plan may not exceed 25% of the total compensation of all the plan participants in that year. So, if there were four plan participants each earning $50,000, your total deductible contribution to the plan could not exceed $50,000 ($50,000 x 4 = $200,000; $200,000 x 25% = $50,000). When calculating your deductible contribution, you can only count compensation up to $270,000 in 2017 ($265,000 in 2016) for any individual employee.

401(k) plans

A type of deferred compensation plan, and now the most popular type of plan by far, the 401(k) plan allows contributions to be funded by the participants themselves, rather than by the employer. Employees elect to forgo a portion of their salary and have it put in the plan instead. These plans can be expensive to administer, but the employer’s contribution cost is generally very small (employers often offer to match employee deferrals as an incentive for employees to participate). Thus, in the long run, 401(k) plans tend to be relatively inexpensive for the employer.
The requirements for 401(k) plans are complicated, and several tests must be met for the plan to remain in force. For example, the higher-paid employees’ deferral percentage cannot be disproportionate to the rank-and-file’s percentage of compensation deferred. However, you don’t have to perform discrimination testing if you adopt a “safe harbor” 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees’ contributions (100% of employee deferrals up to 3% of compensation, and 50% of deferrals between 3% and 5% of compensation), or make a fixed contribution of 3% of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested immediately. You can also avoid discrimination testing by adopting a qualified automatic contribution arrangement, or QACA. Under a QACA, an employee who fails to make an affirmative deferral election is automatically enrolled in the plan. An employee’s automatic contribution must be at least 3% for the first two calendar years of participation and then increase 1% each year until it reaches 6%. You can require an automatic contribution of as much as 10%. Employees can change their contribution rate, or stop contributing, at any time (and get a refund of their automatic contributions if they elect out within 90 days). As with safe harbor plans, you’re required to make an employer contribution: either 3% of pay to each eligible employee, or a matching contribution, but the match is a little different–dollar for dollar up to 1% of pay, and 50% on additional contributions up to 6% of pay. You can also require two years of service before your contributions vest (compared to immediate vesting in a safe harbor plan). Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs (see below), but can also allow loans and Roth contributions. Because they’re still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven’t become a popular option. If you don’t have any employees (or your spouse is your only employee) an “individual” or “solo” 401(k) plan may be especially attractive. Because you have no employees, you won’t need to perform discrimination testing, and your plan will be exempt from the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). You can make pretax contributions of up to $18,000 in 2017, plus an additional $6,000 of pre-tax catch-up contributions if you’re age 50 or older (unchanged from 2016). You can also make profit-sharing contributions; however, total annual additions to your account in 2017 can’t exceed $54,000 (plus any age-50 catch-up contributions). A 401(k) plan can let employees designate all or part of their elective deferrals as Roth 401(k) contributions. Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. Unlike pretax contributions to a 401(k) plan, there’s no up-front tax benefit-contributions are deducted from pay and transferred to the plan after taxes are calculated. Because taxes have already been paid on these amounts, a distribution of Roth 401(k) contributions is always free from federal income tax. And all earnings on Roth 401(k) contributions are free from federal income tax if received in a “qualified distribution.” 401(k) plans are generally established as part of a profit-sharing plan.

Money purchase pension plans

Money purchase pension plans are similar to profit-sharing plans, but employers are required to make an annual contribution. Participants receive their respective share according to the plan document’s formula.
As with profit-sharing plans, money purchase pension plans cap individual contributions at 100% of earnings or $54,000 annually (in 2017; $53,000 in 2016), while employers are allowed to make deductible contributions up to 25% of the total compensation of all plan participants. (To go back to the previous example, the total deductible contribution would again be $50,000: ($50,000 x 4) x 25% = $50,000.) Like profit-sharing plans, money purchase pension plans are relatively straightforward and inexpensive to maintain. However, they are less popular than profit-sharing or 401(k) plans because of the annual contribution requirement.

Defined benefit plans

By far the most sophisticated type of retirement plan, a defined benefit program sets out a formula that defines how much each participant will receive annually after retirement if he or she works until retirement age. This is generally stated as a percentage of pay, and can be as much as 100% of final average pay at retirement. An actuary certifies how much will be required each year to fund the projected retirement payments for all employees. The employer then must make the contribution based on the actuarial determination. In 2017, the maximum annual retirement benefit an individual may receive is $215,000 ($210,000 in 2016) or 100% of final average pay at retirement. Unlike defined contribution plans, there is no limit on the contribution. The employer’s total contribution is based on the projected benefits. Therefore, defined benefit plans potentially offer the largest contribution deduction and the highest retirement benefits to business owners.

SIMPLE IRA retirement plans

Actually a sophisticated type of individual retirement account (IRA), the SIMPLE (Savings Incentive Match Plan for Employees) IRA plan allows employees to defer up to $12,500 for 2017 (same limit as 2016) of annual compensation by contributing it to an IRA. In addition, employees age 50 and over may make an extra “catch-up” contribution of $3,000 for 2017 (same limit as 2016). Employers are required to match deferrals, up to 3% of the contributing employee’s wages (or make a fixed contribution of 2% to the accounts of all participating employees whether or not they defer to the SIMPLE plan). SIMPLE plans work much like 401(k) plans, but do not have all the testing requirements. So, they’re cheaper to maintain. There are several drawbacks, however. First, all contributions are immediately vested, meaning any money contributed by the employer immediately belongs to the employee (employer contributions are usually “earned” over a period of years in other retirement plans). Second, the amount of contributions the highly paid employees (usually the owners) can receive is severely limited compared to other plans. Finally, the employer cannot maintain any other retirement plans. SIMPLE plans cannot be utilized by employers with more than 100 employees. Other plans The above sections are not exhaustive, but represent the most popular plans in use today. Current tax laws give retirement plan professionals new and creative ways to write plan formulas and combine different types of plans, in order to maximize contributions and benefits for higher paid employees.

Finding a plan that’s right for you

If you are considering a retirement plan for your business, ask us to help you determine what works best for you and your business needs. The rules regarding employer-sponsored retirement plans are very complex and easy to misinterpret. In addition, even after you’ve decided on a specific type of plan, you will often have a number of options in terms of how the plan is designed and operated. These options can have a significant and direct impact on the number of employees that have to be covered, the amount of contributions that have to be made, and the way those contributions are allocated (for example, the amount that is allocated to you, as an owner).

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com
http://www.wisdominvestments.com

 

In Response To President Trump’s Latest Executive Orders

 

executive-order

In Response To President Trump’s Latest Executive Orders: 

Today, President Trump signed two executive orders that will significantly impact the current state of financial regulation in our country. Due to the financial crisis that took place between 2008 and 2010, massive regulations contained within the Dodd-Frank Act were imposed on the financial system. These regulations were designed to help protect the public from potential abuse by financial institutions. While we believe some measures of the regulations were well intended, we believe there have been some unintended negative consequences.  The financial industry was already a heavily regulated industry prior to Dodd-Frank.  

The second executive order President Trump signed is in response to the Department of Labor’s Fiduciary rule, that was scheduled to be effective in April of 2017.  The rule states that retirement advisors must act in the best interest of their clients. This is an enhancement to the  suitability rule currently in place.  Under suitability, advisors are obligated to recommend investments that are suitable, or appropriate for clients, based on the client’s income, investment knowledge and risk tolerance.Under the Fiduciary rules, financial professionals are legally obligated to put their client’s best interest’s first rather than simply finding “suitable” investments.The Fiduciary rule would have resulted in many advisors no longer being able to receive commissions on the sale of retirement products as such commissions would have been deemed to be a conflict of interest.   

At Wisdom Investments, we believe in fiduciary responsibilities and many of you already know we act in a Fiduciary capacity for our clients. This executive order will delay the fiduciary rule until the current administration has the opportunity to review and amend the rule. Clearly these two executive orders send the signal that the Trump administration feels the current regulatory state is unnecessarily burdensome.  These moves by President Trump are another indication that he intends to follow through on his campaign promises. While loosening regulations will ultimately help benefit business, the executive orders will face backlash from the Democrats arguing the decrease in regulation will negatively affect middle class investors.   

In summary, the status quo for investors remains the same. At Wisdom, we believe the Fiduciary standard will eventually be passed and we are supporters of the standard. We currently do business under that standard because we believe the fiduciary standard is beneficial for clients. The fiduciary proposal did have many ambiguous provisions and we are hopeful the postponement and review will provide clarity.   

In the meantime, if you know someone who is upset about the postponement or just know someone who is interested in working with a firm that always puts their clients’ interests first, in a fiduciary manner, have them call us or send us their name and we will contact them.  We place great value in the confidence you show in us and will do our very best to earn that continued confidence.   

Bill Kmiecik & Jose Cuevas 
Wisdom Investments
www.wisdominvestments.com
847-290-0753

Professionally Managed Mutual Funds or Index Funds? What if that’s not the question?

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CONVENTIONAL INVESTING & INDEX INVESTING VS. EVIDENCE BASED INVESTING
Should you utilize actively managed funds (conventional investing) or use index funds (passive strategy)? This has been a debate for quite some time. For decades, conventional investing is all we knew. Indexes on the other hand weren’t supposed to be the investment. Indexes were designed to be the measurement for conventional investing. After the indexes were created, it was discovered that most of the professionally managed funds couldn’t beat the index. What we’ve learned through years of history and study is that only about 15% of the actively managed mutual funds available have beaten the indexes. So, as an investor if you knew you had an 85% chance of making less money than your designated index, what would you choose? Yes, 15% of those mutual funds did beat the index. The problem is you had no idea before hand what mutual fund was going to beat the index and how much risk they were going to take to do that.

From this explanation, you might say “Great. Thanks. I’ll go buy that index fund now”. And, you might be ok if you did that on your own. Chances are you would be better off if you bought the index fund and held onto it than if you had invested conventionally. However index funds have their own set of problems. These are problems you don’t hear advertised due to the massive amount of inflows into index funds right now. Plus, you have billionaire investor extraordinaire Warren Buffet telling you to buy index funds. A downside of utilizing index funds are the Hidden Costs. One of the hidden costs of owning an index fund is something called “Reconstitution day”. An index fund must follow an index or else it’s not an index. If a stock is no longer part of an index, what happens? The stock is moved out of the index. What happens when a stock is performing well and has increased in size? It moves into the index. The problem is this all happens on the same day. Everyone knows it’s coming. So, what happens? The stocks being sold decrease further in value and the stocks added to the index increase in value. By the time this happens, you have lost money on both ends.

There’s a third approach. This third approach was designed by noble prize winners from the University of Chicago and is implemented through Dimensional Fund Advisors. Unfortunately, the average investor can’t walk into Dimensional funds and use this approach. But, we will gladly help you incorporate this strategy! We believe this third approach is a better option. Actually, it’s been proven to be a better investment. Rather than trying to predict what’s going to happen in the market, we embrace the market pricing. We say, “You know, most of those guys on Wall Street are pretty smart and they have way more information than we do”. So deciding that most of the analysts have it right, we move to consider expected return. We know that not all stocks are going to have the same return. The same is true in the real estate market. The value of a Beverly Hills  home is going to grow faster than homes in Cleveland. Even though you know the Beverly Hills home is going to appreciate faster, you might still want that Cleveland home because it’s also going to appreciate. We may not want to own every home in Cleveland, but we know we want some of them. Translate this to stocks and you have an idea of why we think certain stocks should and shouldn’t be in our portfolio. As fund managers at DFA pick these stocks they start to discern, “is the stock too expensive?”, “is it right for the portfolio?”, “can we get the stock cheaper tomorrow”?  Then by eliminating stocks that are too expensive or have appreciated too much, a basket of stocks is created for clients to invest. In addition, it’s been proven over time that value stocks outperform growth stocks with less risk. Knowing this, portfolios are created with a tilt towards Value. A quick note: 82% of Dimensional Funds have beaten their index.

This is just one of the many reasons you should choose to work with our firm. We’d love to introduce you to evidence-based investing. Email me today to learn more about how this approach can help you with your goals.

Best,

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com
847-290-0753

 

 

Investment advice or sales pitch? New rule will make it clear

THIS POST WAS WRITTEN BY GAIL MARKSJARVIS OF THE CHICAGO TRIBUNE
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Investment advice or sales pitch? New rule will make it clear

Gail MarksJarvis

On Money

 

Should you trust the adviser who’s telling you what to do with your money?

Unfortunately, many should not. The sad story is that if you are like most Americans, you are easy prey for the money advice business that’s involved with over $14 trillion of Americans’ retirement savings.

Typically, people seek out professional advice about their money because they don’t have a clue about how to proceed. But investing properly is a mystery, the fine print that goes with products like annuities is overwhelming, and finding the right person to help can be just as perplexing.

Too often, Americans end up in the arms of advisers who aren’t really there to protect and help them. They are salesmen or saleswomen, not true advisers who put clients’ needs first. These brokers aren’t rewarded by their employers for steering you into top-quality investments or insurance at the lowest price. They are hired to sell, just like the guy on the car lot. And that means many will sell what’s most lucrative to them and the firms that keep them on the job — not necessarily what’s best for you.

These so-called “advisers” may have titles like “financial consultant.” They may devote time to little league, community organizations or religious institutions. They may have clients who are rich or famous. But what they often won’t tell you — unless you probe for it — is that they aren’t paid to give you the best advice. And amid the naivete of some clients, their sales behavior can be like taking candy from babies. Americans are wasting about $17 billion a year on unnecessary fees in connection with investment advice that isn’t aimed at their best interests, according to the government.

Faced with the prospect that millions of Americans will run out of money in retirement and become a burden on government, the U.S. government took action last year to try to take some confusion out of the advice business. The Department of Labor is imposing what’s known as the “fiduciary rule” to improve the chances that when an adviser gives money advice it’s actually untainted advice — best for you, and not a disguised sales pitch. Numerous investment and insurance firms, plus business organizations ranging from the U.S. Chamber of Commerce to the Insured Retirement Institute and the Securities Industry and Financial Markets Association, sued to stop the new rule.

Those fighting the fiduciary standard claim that tightening rules around advice will lead firms to stop helping clients, especially people with little money in individual retirement accounts and workplace plans such as 401(k)s. The stakes are huge for the industry: There is about $25 trillion in U.S. retirement assets, including about $14.4 trillion in IRAs and plans such as 401(k)s, that would be subject to the fiduciary standard.

The industry’s fight continues, with U.S. Chamber President and CEO Tom Donohue noting in a recent blog post, “we are urging immediate action to undo the Department of Labor’s Fiduciary Rule.” With the Obama administration leaving office, and new Republican leadership promising less government regulation, the fight against the fiduciary rule goes into a new phase.

Fearing an overturn of the fiduciary standard, the Consumer Federation of America in the last days of the Obama administration circulated a report that takes aim at investment business lobbying efforts.

Barbara Roper and Micah Hauptman of the federation examined the websites of over a dozen brokerage firms and found that they emphasize “advice” and help “planning” for retirement. Yet the report said the lobbyists for those same firms have been fighting the fiduciary rule by claiming that they don’t promise advice and that clients know the consultant sitting across the desk from them is only a salesperson.

“Their marketing is grossly deceptive and securities and insurance regulators have an obligation to step in and bring a halt to the misrepresentation,” the report said.

As it now stands, when April arrives the new fiduciary rule will start being phased in with investment professionals having to live under tougher controls if they want to give advice on IRAs and 401(k)-type plans.

Under the fiduciary rule, brokers will have to make it clear that they are salespeople. People who give advice will have to declare themselves “fiduciaries” on paper.

But don’t take comfort in these new protections yet. First, know they aren’t in place now. So if you want to determine if you can trust an adviser now, you must ask if he or she is a fiduciary and examine their two government-required forms: ADV Forms I and II. Certain credentials — such as a certified financial planner or registered investment adviser designation — will help you spot fiduciaries. But also check out the person on BrokerCheck (www.brokercheck.finra.org) to see if your adviser or the firm has been in trouble with regulators. On the ADV form, also examine whether the person gets commissions — a business arrangement that could mean the adviser collects a fee based on what he or she sells you.

To see if your adviser has been picking solid or weak mutual funds for you, type in the name of your fund at http://www.finance.yahoo.com. Then go to “performance” for that fund and scroll to “trailing returns benchmark.” See one year, five year and 10-year performance. You want a fund that consistently has had a return at least as strong as the “category” return for more than a year.

If your adviser is picking stocks for you, ask the adviser to show you how your stock portfolio has performed compared with a benchmark like the Standard & Poor’s 500 index for large company stocks or the Russell 2000 index for smaller companies.

gmarksjarvis@chicagotribune.com

Twitter @gailmarksjarvis

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What exactly does financial planning entail?

financial-plan

 

wisdom-logo

For many, the idea of financial planning is simply investing.  While investing is a large part of financial planning, it is just one of the many services we provide to help our clients.  Financial planning can best be described as an all encompassing approach to managing your finances.  While many advisors call themselves financial planners, many are not.  This is one of the reasons why some people believe financial planning is only about investing.

For us, we take a comprehensive approach to financial planning. That means we look at your investments, debt, taxes, insurance, wills, trusts, & physical assets to determine your likelihood to attain your goals and to determine what your future cash flows could look like. We serve our clients as their life advisor, with a belief that financial planning is an ongoing process in which we help and coach clients to reach their personal financial objectives, including, financial independence, estate preservation, and a legacy of wealth, significance, and values.

The financial planning process itself involves multiple steps. First we gather all of the pertinent information to see your entire financial picture. We then draft a financial plan.  Our financial plan will tell us how your investments should be allocated and what types of investments are best for you. The plan will also address your current insurance needs. Do you need long term care? Do you have enough life insurance? Next, we’ll address your estate planning needs and help you find an attorney you can work with whom you’ll trust. We then look at your taxes to ensure you are not paying Uncle Sam more money than is necessary. During this time, we’ll also address any other goals you might have in mind.

The next step is ongoing portfolio management. We work with well known companies like Fidelity, VanGuard & Dimensional funds to help you manage your assets. Constructing your portfolio is just the first part of the process. We must continuously analyze your portfolio to ensure you are positioned appropriately for current market conditions as well as ensure you are invested according to your current risk tolerance.  Portfolio rebalancing is crucial to ensuring your investment allocation is appropriate.

From there we’ll meet with you periodically to review your investment performance and monitor your financial plan. As humans, we typically have at least 2 life events per year that could affect our financial plan.  Think about your last year.  Did you start a new job? Get promoted? Experience family loss? Have a baby? Buy a home? Get Married? Get Divorced?  Have a family member get sick? Send a kid to college? These are all examples of life events that would arouse a need for change with your financial plan.  Once we’ve met to determine what changes have happened in the last year, we update your plan to outline the necessary changes to stay on course.

A little bit about Wisdom Investments: We have a FIDUCIARY responsibility to act in the best interests of our clients. What matters most to us during the financial planning process is that we focus on what matters most to you. We help you align your desires with your goals to accomplish your financial objectives and stay true to your values. You can expect our highest level of commitment to this approach as when it comes to your money there is nothing more important than your goals and your values.

Do you know someone who needs our services? Please email us!

We provide financial planning & investment management advice for a fee.  We use the most technologically advanced financial planning software available.  We use Fidelity as your custodian to hold your assets. Wisdom Investments is a privately owned, independent financial planning company. We are not a broker. We are not compensated by third party companies to provide Investment advice. We have been serving Arlington Heights and the Northwest suburbs since 1999. We have a reputation built on helping successful individuals achieve their financial planning goals. In addition to providing Comprehensive Financial Planning advice, we provide a full range of services including, but not limited to, Retirement Planning, Investment Planning, College Planning, Estate Planning, Insurance Planning, and Tax Planning. Our Founder and President, Bill Kmiecik leads the organization with more than 30 years of financial services experience. Mr. Kmiecik is a resident of Arlington Heights and belongs to several organizations, some of which include, The American Institute of Certified Public Accountants, The Illinois CPA Society, The Arlington Heights Historical Society, The Arlington Heights Chamber of Commerce (member of Financial Review Committee), Rotary Club of Arlington Heights (Past President).

We would love the opportunity to show you how we are different than most financial companies. In this business, trust is important.  Trust is not automatically given. Trust is earned.  Come see why clients have been working with Wisdom Investments since 1999.

Blessings,

Jose Cuevas
847-290-0753

josecuevas_2016-8

Jose Cuevas                    VP Financial Planning Wisdom Investments

 

 

 

 

“And, the survey said….That was a lie”.

resolution

The worst part about New Year’s resolutions is I continuously lie to myself.  I’ve found that over the years most of my New Year’s resolutions end up being a three to seven day fad that disappear more elusively than the time I spent conjuring the resolution in the first place.  So, why should I have a New Year’s resolution?  The answer is I probably shouldn’t.  But, resolutions are easy.  “I want to lose weight this year”.  “I want to manage money better this year“. “I want to be a better person”.  None of these “resolutions” has any real substance to them. So, it’s easy for me to flippantly say I want to do them. But, it doesn’t work.  Choosing to forego resolutions, in recent years I’ve decided to set goals instead.

None of us wants to talk about goal-setting.  Talking about a resolution is so much easier.  The reason why is because no one is holding you accountable for your resolution, not even yourself.  With a goal you are holding yourself accountable. You are saying and putting in writing, I’m going to lose 15 lbs by March 31st.  You are declaring, I will pay off $7,000 in debt by June 30th.  That’s the difficult and great part about setting goals.  The greatness is you are now setting your goal in stone (or on your hard drive) so you can work towards the goal.  The difficulty is when we write a goal down, we tend to feel like a failure when we don’t accomplish it.  Or, we feel there is no point to set a goal as goals are really unattainable wishes that strangle our opportunity to seek anything outside of our goal.  And, if we fail to reach our goal then why did we set it in the first place? Tell me, how do you feel when you don’t reach a goal? Post below.

As “The Christian Financial Planner”, I’d like to offer a couple of things I believe are God’s take on goal setting. Proverbs 21:5 says “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty”.   So, if I want “abundance” in my life, I need to plan for it?  And, if I don’t make plans, then that leads to being without?  Interesting thought.  The next one, “Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, ‘This fellow began to build and was not able to finish.’ Or suppose a king is about to go to war against another king. Will he not first sit down and consider whether he is able with ten thousand men to oppose the one coming against him with twenty thousand?” I really think this one hits home for why some people won’t even attempt to set a goal. The idea that we will be scoffed at and people around us would say, “Well, it looks like Jose couldn’t hack it”  “He set a goal and didn’t make it” “It looks like we can’t trust him for anything” is paralyzing for some of us.  That’s the dialogue we tell ourselves, but it’s just simply not true.  Alfred Tennyson wrote “Tis better to have loved and lost, than never to have loved at all.”  Just replace the words loved with “set goals” and you have a powerful statement to combat almost any excuse we have for not setting a goal.  One last Bible verse…”The heart of man plans his way, but the Lord establishes his steps”.  This verse could quite easily be manipulated to say “what’s the point?”, “even if I set a goal, God’s going to do what He wants”.  But, I don’t think this verse says that at all.  I think this verse says “You need to have a vision, a thought, a goal, a desire.  And, once you do, God will help you”.  The Lord will establish your steps!  Think about that for a moment.

goal

This New Year you can make a resolution because it’s easy and there is no real commitment to that resolution.  Or, you can take some time over the next couple of days and think about what you’d really like to accomplish over the next twelve months.  You can choose to have a goal and start to make your first steps towards that goal and I believe God will help you accomplish it.  And, once you do, celebrate.  I remember some friends shared with my wife and I that they paid off all of their debt and they were taking a weekend trip downtown to celebrate the win.  Celebrate.  Jump for joy at the fact that you accomplished something you set out to do.  What is a goal you’ve recently attained that you’d like to share with the world? Post it below.

Let’s have a better year striving towards things that matter in 2017.  Let’s set some goals that are going to help us become better people, to manage our money better and to be healthy.  But, let’s have some substance to those goals. Let’s have a target.  I’ll share one goal with you that I have for 2017.  I will sit for the CFP examination by Nov 14th, 2017.  What is one goal you are willing to write down and accomplish for 2017? Share below.

Many Blessings,

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com

P.S. If one of your goals revolves around money management, give me a call at 847-290-0753.

 

 

 

 

7 Ways To Teach Your Kids About Money

7-ways-child

A couple of weeks ago, I had the rare opportunity to spend some one on one time with my oldest son. He is 8. You would think that me being in the financial services industry, I would talk to my kids constantly about money. Well, I don’t. We have some conceptual conversations here and there, but we don’t really talk about money the way we should. Well, that all changed two weeks ago.

As my son and I sat in the car talking, he asked “Dad, how much money do you have?” I paused for a moment and then replied with the approximate dollar amount of my portfolio. My son’s eyes lit up and he said “Wow, that’s a lot of money”! Now, you may be saying to yourself, why on Earth would you tell your child how much money you have? The answer to that is I wasn’t completely certain at the time. However, the conversation went further. “Dad, how did you save that much money”? I replied, “Son, I saved that money little by little and I invested in the market, so I could earn a return which would help my money grow”. He says “How”? At that moment, we were sitting in the car outside of Wal-Mart. I had the perfect opportunity to show him. I said, “Son, what is Wal-Mart”? He responds, “A store to buy things”. I said, “Yes, and that store sells items made by other companies”. You can take your money and give it to Wal-Mart, Wal-Mart then takes your money and tries to make more money with it. “Does that make sense, Son”? “Kind-of, How does Wal-Mart make more money”? “Wal-Mart buys products at a discounted price, then they increase the price, sell it to you and basically that’s how they make money”. “So, do you think Wal-Mart would be a good place to invest your money” I asked.  “I don’t know”, said my Son. “Ok, Son. Tell me, do you like watching the Disney channel?” “Yes”. “Do you think the Disney channel will be around for a while”? “Yes”. “And, what about Disney World? Do you think people will continue to want to go to Disney World”? “Oh Yes, definitely”, said Zj. “Well, do you think Disney would be a good company for you to invest some of your money”? “Yes”. Our conversation continued to talk about companies that made toys, food, toilet paper and more. This conversation had me thinking about how people talk to their kids about money. So, I thought I’d share my thoughts.

Somewhere along the line, we were taught that talking about our money was taboo. We were taught it’s even worse to tell your kids about your money. The other day I had a choice to make. I could be transparent with my son and share how much money I have or I could have skated around the subject. The fact that I shared the truth allowed my son to ask me more questions, which helped me talk about money in a way he could understand. This of course came with a disclaimer to my son that he can’t tell anyone how much money we have, including his little brother who can’t keep a secret to save his life. If you tell the little one something and say “don’t say anything”, he literally looks like he’s going to explode with excitement to tell someone. We can all utilize different means of talking to our children about money. Just because this was a good approach for me, doesn’t mean it is the best one for you. However, there are some universal concepts that we need to begin to embrace with our children.

Without further ado here are the seven ways to teach your children about money

1) Money is a tool:

Money shouldn’t be used to manipulate people or show your success. You have money so that you can Live, Give, & Enjoy. You should balance how you live, with what you give and what you enjoy. If there is a balance in these three areas, then you will be content.

2) Give 10%.

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Teach your children to give 10% of everything they earn before they do anything else with their money. Some people may say “why on Earth would you give 10% before anything else?” The answer is because we are taught to do this in the Bible. We are taught to give of the first fruits of what we receive. Giving before you spend helps you guard your heart against the love of money. Even successful people who aren’t believers of the Bible utilize this concept when giving money.

3) Save 10-20%.

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Kids love to buy things with the money they earn. If you don’t take the time to show them how to save the money, they will spend every dime before you blink. Set up a bank account at your local credit union so your child can experience going to the bank to deposit their funds.

4) Enjoy what you’ve earned.

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After you’ve saved and given, It’s ok to buy something nice for yourself or for someone else. If you save every penny of what you earn you will not be a very happy person and people probably won’t want to be around you.  Getting an ice cream or a Spider-Man action figure is ok if you’ve already set some money aside.

5) Start a business.

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This could be as simple as setting up a lemon-aide stand for a young child or as complex as trading bit-coin on the computer for your teenager. The point is that you should teach your child to learn how to create wealth rather than just getting a job to work for someone else. While it is important to teach kids the value of work, I’d rather teach mine how to work for themselves.

6) Take your kid to sit in a meeting with your financial advisor.

If you prepare your advisor ahead of time, she will know what she can and can’t say in front of your son. Having your child sit and listen in on a conversation about money from the professional shows your child that the advice of a professional is useful. Your child also realizes meeting with a financial advisor is common and normal. You also set the stage that you don’t have all the right answers and even you need to surround yourself with wise counsel to make good decisions.

7) Set a spending budget for your children.

This one comes from me watching a friend give his debit card to his son the other day. His son wanted to buy something from the coffee shop. Dad handed him his debit card and said “your limit is $10”. His son is 11. This one act does so much, but I’ll focus on a couple of things. One, the child knows he can’t spend more than the budget Dad set. This idea naturally implants the idea of limits being put on spending. Dad could have said, here go by what you want, but having a set limit helps his son make good choices while at the store. The #2 thing this example shows is how much trust you can build with your child with this simple act. By giving that debit card, Dad said without using words “I trust you. Make a good choice”. His son will benefit from that for years to come.

I hope you’ve enjoyed these 7 tips.

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If you’d like to learn more about how we help you “Plan with Purpose”. Please visit our website at www.highfivefinancial.com or call us at 847-290-0753.

Jose Cuevas