Tag: Financial Planning

Big Hat and No Cattle – 5 Financial Lessons from Cowboys

August 11, 2022
Finances, Financial Lessons, Financial Planning, Wisdom

Those that know me, know that I love horses…I might have always been a bit obsessed with them. Life in western times seems idyllic to me in many ways. There were hard times, but there are financial lessons we can learn from the ponderosa. Here are five financial lessons:

Don’t be afraid to fall

Few things in life are accomplished without taking some risk. If we sit back and coast easy through life, we will miss those moments of thrill with achievement. “Courage is being scared to death and saddling up anyway.” – John Wayne

In investing, I believe this risk should be considered within the context of a solid financial plan. I often refer to the terms “risk capacity” and “risk appetite”.

Risk capacity refers to the range between the minimum amount of risk you must take to have a reasonable chance of meeting your goals and objectives, and the maximum amount of risk you should take to still have that reasonable likelihood of success. Some clients would love to take all of their money and stuff it under their mattress, and others would love to take it all to the casino and bet on black; neither of those is likely a good option, nor is either of those likely to help them accomplish their goals.

Within that range of risk capacity falls a client’s risk appetite. Once the financial plan has been established, it should be stress tested at varying risk levels to evaluate the risk/reward trade-off of varying allocations. How much potential growth are we giving up if we maintain a lower equity allocation? How much sleep are we going to lose if we go after that extra return? There is a place on that spectrum for each individual, and it is part of the advisor’s job to help guide you to finding yours.

Get back on the horse

Unfortunately in life, things do not always go as we plan. We set off in the morning with hopeful expectations of the ride ahead of us…the glow of the sunrise, the breeze in the air, the sounds of the birds. However, as we gallop around the next corner of the trail, we (and our horse) might’ve forgotten about that rain shower from yesterday…and the resulting water puddle showing our reflection back to us. Your noble steed balks…does he run through it, jump it, go around it? As he fast approaches the puddle, he decides to jump around it in a quick maneuver fashion that you were not prepared for…and off you go into the mud. Yes, I’m writing that one from experience. My horse, Apache, actually loves water and would’ve done just fine. However, that day I decided to ride a different horse with a bit more “spunk”. I can say, though, that I did get back on.

In our financial lives, some endeavors will not play out in the manner we intended. That business venture, that career position, or even that stock purchase – not every idea is a winner. However, the important thing is to dust off your boots, learn from your mistakes, and go again…in maybe a more prudent fashion the next time.

Don’t squat with spurs on

Sometimes we can be our own worst enemy. We know our vices and weaknesses, and yet we put ourselves in the same positions. It could be as simple as going to the grocery store while hungry and ending up with loads of junk food and nothing of substance. Or maybe we think we will just go test drive that new truck to see the new features, but not buy one. Or maybe we have had a bad day, and it’s too easy to escape to the shopping mall or Amazon for some retail therapy. In either case, we know better; we just get careless and set ourselves up for failure.

A little self-discipline can go a long way. Take time to know yourself and to create a budget and calendar to help set some guardrails. You will be glad you did.

Big hat and no cattle

Ever seen that “cowboy” that is dressed to impressed…he has the Stetson hat, the pearl snap shirt, the boots, the Wranglers…he is styling. But have you ever seen him even ride a horse? Or is it all just show?

I would liken this to the family with the designer clothes, the newest of luxury cars, that new house on the corner…are they really doing well? Or are their banks and credit card companies doing well off them and their debt? Don’t be so quick to judge the book by its cover and be too easily impressed. That neighbor down the street with the classic chevy may be debt free, have substantial savings for retirement, and fewer concerns. Don’t get me wrong, I appreciate nice things. We just need to make sure we aren’t sacrificing our long-term success for short-term luxuries.

Always drink upstream from the herd

Everyone seems to have ideas about everything. Turn on any news channel, ask any friend, and they likely have at least a few suggestions for you on any given topic. Change the topic, and all the sudden they go from an engineer to a chef to an investment expert to an estate planner. And of course, they have all taken time to consider your values, your goals, your particular assets, and how they all fit into your financial plan, right?

Seek wise, qualified, and appropriate guidance. I wouldn’t want my financial advisor diagnosing my medical needs, and I wouldn’t look to my physician for financial lessons and direction on my investments.

Most of us don’t wear spurs on a daily basis, or maybe ever. However, these are timeless financial lessons that apply to everyone. If these premises generate any thoughts for you about your personal situation and you would like to discuss further, please reach out to a CapSouth advisor.

By: Scott McDowall, CFP®/Wealth Advisor

To learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or https://capsouthwm.com/what-we-do/financial-planning/ or call 800.929.1001 Click to Schedule a Discovery Call.

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice.

Reverse Budgeting

March 10, 2022
Uncategorized

How Much Do I Spend in Retirement? Does it Really Matter? What if I could budget without…budgeting?

At CapSouth, it is our mission to help clients define and live their One Best Financial Life™. We challenge clients to consider their values and what is important to them, and then to develop actionable goals that we endeavor to help them achieve. This leads to the need to have a sound financial plan in place that considers a client’s assets and resources, and projects their probability of meeting those stated goals. We want clients to live with confidence in peace of mind, knowing that they are on track to live the life they want to live. Sometimes the focus of planning needs to be encouraging a client to scale back and pace their spending to allow for a more secure retirement. Other times that planning focus should be to urge a client to spend more, to travel, to take the family with them on vacations and make memories…to live their life more fully. In all cases, we are looking for the client’s confidence zone in their plan to serve as guard rails, so that they are not worried about running out of money, and on the other end, they are not leaving significant assets behind that are unplanned for.

More often than not, it seems, we meet with clients who do not have a clear idea of how much they spend. Particularly when a couple nearing retirement comes to us as a new prospect, a common answer is that they have just always lived within their means, or spent less than they made. How much you spend in retirement is very important in planning. Depending on your age at retirement and your assets, a seemingly small change in your annual spending can make a significant difference in the success of your plan. Many people plan for thirty years or more in retirement – a long time for inflation and market fluctuations to catch up with you and to affect your probability of meeting all your goals and objectives. We have invested in sophisticated software to factor in these variables for you, to allow you to simply think of how much you will need for retirement in today’s dollars. That does require us, though, to have an accurate number for that element. Whether we are planning for annual living expenses of $50,000 or $500,000, we need some assurance that this number is reliable.

But who wants to budget? You should see some of the facial expressions we get when we mention that “B word”! And if you are newly in, or approaching, retirement, how do you really know what your retirement lifestyle will be and what it will cost you? Further, trying to look at past or future spending can be even more difficult when you have varying sources of income throughout the year. Fear not, we have a solution. Reverse Budgeting. I believe in giving credit where it is due, so I will tell you this is not my concept; I learned it from CapSouth’s founder, Donald Bolden, years ago, and I have been recommending it to clients in retirement ever since.

Here’s how it works:

As best you can, come up with an idea of what you expect your basic living expenses to be in retirement. This should not include other specified goals in your plan such as travel, new cars, etc., but your basic living expenses of utilities, groceries, fuel, clothing, dining out, and the like. For illustration purposes, let’s say that number comes out to $5,000 per month.
Now, figure up what regular income sources you have such as Social Security, pensions, rental income, etc. For this number, let’s assume $3,000 per month.
Set up an “operating account” for your household and start it with a cushion balance of your comfort level. Let’s use $25,000. (Note: You and your spouse may decide to have two operating accounts; the concept still works.)
We would then work with you to establish a conservative Cash Management Account (CMA) among your accounts at Schwab, from which we would establish a recurring monthly transfer of the $2,000 per month to supplement your income and meet your expected expenses of $5,000 per month. We typically recommend this transfer being set up to occur on the 5^th of each month rather than the 1^st, to help track which deposit was for which month and to not allow weekends or holidays to confuse things.
What about those random sources of income throughout the year? Still employed and have a varying income? Receive additional bonuses? It is so easy to allow yourself to quickly spend that seemingly “extra” income without realizing it, giving yourself (and us) an inaccurate picture of the cost of your lifestyle. Under the Reverse Budgeting model, all variable income is deposited into the cash management account at Schwab, adding to the funds available to provide for your monthly transfers to your operating account.
It is likely no surprise to you that some months will cost more than others. You may have family visiting and spend more on groceries. You might have an anniversary and treat yourself to a nice dinner and some gifts to celebrate. Your refrigerator might need to be repaired or replaced. However, if we look back at this operating account in six months, a year, or more, we can get an idea of what you were really spending.

If that $25,000 cushion is down to $5,000, then we have a problem and need to make adjustments. We would review to see if there were a number of non-recurring, unexpected expenses during that period, or if life just cost more than you thought. We could increase the goal for living expenses in the plan to see if the new amount is still successful or what trade-offs need to be considered. If your regular monthly expenses are $6,000 or $7,000, then maybe you need to consider reducing those big trips each year from three down to two.

If that cushion is up to $50,000, we also have an inaccurate plan and need to make adjustments. We might encourage you to consider what goals you had for retirement spending that you haven’t been doing and challenge you to do what you said that you valued. It could also open the door for more travel, giving to charity or your family, upgrading your vehicle, buying a second home…whatever that looks like for you. If you are doing everything you want to, then we need to acknowledge that you are going to likely leave more behind than you might have thought, and we may need to review your estate plan to make sure it aligns with your wishes.

This is a simplified example, and we recognize that yours may be more complex. Life certainly will happen, and circumstances will change. Planning is never complete, and we continue to monitor, review, and update assumptions over time. Reverse Budgeting is a tool that can help to provide more confidence and reliability to your financial planning process, without having to focus on the “B word” of budgeting. We may not be able to tell where the money is going, but we (and you) can tell how much is needed to maintain your lifestyle.

To discuss this article further or to learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or call 800.929.1001 to schedule an appointment to speak with an advisor.

By: Scott McDowall, CFP®

The Nuts & Bolts of Wealth Accumulation

January 11, 2022
Uncategorized

Wealth accumulation is the act of increasing your net worth over time.

The modern approach to Wealth accumulation relies on increasing accumulation during the earning years and the draw-down of accumulated wealth during the retirement years.

The accumulation phase tends to take place during our 30’s, 40’s, and 50’s. The preservation stage begins once we begin approaching retirement age. This will lead us to entering the distribution or draw-down phase during retirement.

Wealth Accumulation Strategies:

Lower Expenses

One of the first steps in a successful Wealth accumulation strategy is lowering expenses. Lowering expenses may be easy enough to say but following through can be the hardest part. Creating a budget can be one of the best ways to start lowering your expenses.

You could begin the process by identifying your total monthly expenses. Figure out how much you’re spending each month vs the amount of income you are receiving. Once you have the expenses nailed down, you can proceed with creating trade-offs. These trade-offs may come in the form of cooking meals instead of dining out or pouring that cup of coffee before your leave home vs. stopping at Starbucks. According to the U.S Bureau of Labor Statics, pre-pandemic housing, transportation and food costs make up more than 60% of U.S. Consumer spending. (Consumer expenditures report 2019, 2020)

These tradeoffs may seem small, but small is where most of us need to start. This small start can help us use excess income to pay down high interest debt, which will ultimately lead to the accumulation of wealth.

Increase Income

We have already discussed lowering expenses. Now we can talk a little bit about increasing your income. You may be thinking, “If I knew how to increase my income, I wouldn’t need to read this article”. In some ways this thought may be accurate, however increasing your income will not help with the accumulation of wealth if your expenses continue to inflate at the same rate.

People tend to earn higher wages by means of a promotion or career change. The area of concern we face revolves around the inherent nature of humans to buy the big new house or brand-new car. I’m not saying that buying a bigger house or brand-new car is bad, but I will put caution around this action until your budget can support the increased debt while continuing to accumulate wealth. This means that you may need to focus on eliminating other debt before embarking on the new lifestyle.

What if you can’t seem to get that promotion or land that new career? You may want to consider working more hours. Working additional hours may help increase temporary wages long enough to pay down debt. Once this debt reduction has taken place, you may be able to reduce working hours while still accumulating wealth.

Keep in mind, we would want to create that emergency fund, based off budgetary needs. This Emergency fund should be in place before trying to advance to the last strategy that I have listed in this article.

The Entrepreneurial Spirit

We have now arrived. Our journey started by lowering expenses and creating a budget. We have also increased our income, which led us to accumulating excess cash and creating our emergency fund. Now, the fun begins. We are ready to invest our accumulated cash in a variety of ways. Let’s talk for a moment about growing our accumulated wealth. There are many ways to grow wealth, but we will focus on the following three: investment accounts, entrepreneurship, and real-estate.

Investment accounts can include a tax advantaged IRA, 401k, 403b, Roth IRA (to name a few) or retail non-tax advantaged investment accounts. Tax deferred investment accounts can be a great way to grow wealth without the growth being hindered by taxes today. Sure, you will have to pay taxes on this growth eventually, however the tax advantage today can help that wealth grow faster. The Roth IRA can help you guarantee the taxes paid, at today’s rates, without hindering the future growth. You may be asking yourself, which one of these accounts should I use? The answer to that question would be, “It Depends”. It depends on the growth strategy that you may currently be using, your current position within the wealth accumulation process, or the need for current tax relief. The best way to decide an answer may be to make an appointment with a Certified Financial Planner or other fiduciary planner.

Entrepreneurship can be defined several different ways. The Entrepreneurial spirit is full of endless opportunities, but what does it really mean? Entrepreneurial is defined as “taking financial risks in the hope of profit, enterprising.” This can be done by starting a business, investing in an established business, or buying a business. It is important to do your homework on this strategy, as it can be a risky but rewarding endeavor.

Real-Estate

The last strategy that I will mention in this article revolves around real-estate. Real-estate can create several avenues for growing wealth. You could be looking to buy commercial buildings in hope of creating a fixed income stream while also allowing for property appreciation. Alternately, you may be looking to buy a piece of property with the intent of improving it to sell. Which option is for me you may ask? Well, it depends on the goal you are trying to achieve. This goal could be limiting taxable income by creating a passive income stream, or it could be rapid capital appreciation achieved from buying and selling properties. Either way, real-estate investments can help a person grow their accumulated wealth with an entrepreneurial spirit.

Conclusion.

We have discussed several great strategies for accumulating and growing wealth. All previously mentioned strategies tend to build on one another while developing an over-arching portfolio of growth assets. We all need a starting point; whether this means creating a budget to lower expenses or increasing income to accumulate excess cash. Everyone has an opportunity to build wealth, and sometimes building wealth can come with trade-offs. Our responsibility revolves around deciding on a solid path and understanding the trade-off’s required to achieve our goals. Many people measure wealth by the amount of money you have, or the cars in your garage, however accurately measuring wealth goes much deeper than a bank account balance.

I will leave you with this thought. What is the difference between being Rich and being Wealthy?

Anyone can have a large income, or hefty bank account to support a windfall of debt. Wealth on the other hand, is about learning how to make your money grow for you and sustain your future. Identifying and defining what type of life you want to live is one of the most important aspects of truly being wealthy. Our goal at CapSouth Wealth Management it to help you identify, define, and live your One Best Financial Life.

To learn more about CapSouth Wealth Management visit our website at www.CapSouthWM.com

If you would like to further discuss wealth accumulation strategies, request an appointment at www.CapSouthWM.com/conta ct or contact our office at 800.929.1001.

Article by: Wes Hayes, CapSouth Wealth Manager

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. This material has been prepared for planning purposes only and is not intended as specific advice. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

Tag: Financial Planning

Big Hat and No Cattle – 5 Financial Lessons from Cowboys

Reverse Budgeting

The Nuts & Bolts of Wealth Accumulation

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