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Tannery Toolkit for Financial Independence–Tool #12

Insure! by Michael Tannery

“There are worse things in life than death. Have you ever spent an evening with an insurance salesman?”  Woody Allen

 We take issue with Woody’s comment as we’ve personally witnessed how important insurance can become the first time you suffer a loss.  Are you one of those people who’d rather have a root canal than spend quality time with your insurance professional? The checklist below will help prepare you for a more productive meeting.  And do meet at least once a year to review coverage!

1.  Many people assume fire is the biggest risk of loss when it comes to your home, but water damage due to interior and exterior sources actually tops the list. Too many people are unaware that standard homeowner policies don’t offer much, if any, coverage for water or moisture damage. Make sure you go over specifics about water damage coverage with your insurance carrier.
2. Did you know most insurance companies offer discounts for security systems and also if your home is inspected by your local police department for safety? Be sure to ask!
3. Are your high-dollar items adequately covered? Jewelry, furs, antiques, silver & china, collectibles, guns, office equipment, musical instruments, and high-priced electronics often need to be appraised and included on a rider.  Otherwise, you are up for a bitter disappointment if you ever lose them due to fire, theft, or loss. A rider is like a mini-policy added to your basic home owners insurance policy that gives added protection to certain items that may be excluded or have low limits on your homeowner insurance policy.
4. Do you have an inventory of your household goods in a safe place? We recommend www.knowyourstuff.org, a free on-line inventory sponsored by the Insurance Information Institute and endorsed by police departments across the country. Otherwise, it can be difficult to track stolen goods or establish losses when it comes to insurance settlement time.
5. Do you have adequate liability protection in your homeowner’s policy? High-net-worth individuals, especially with a complex business and personal financial situation, need to consider adding an umbrella insurance policy to adequately protect their assets.
6. If you have children under 21 in your household, we strongly encourage BOTH spouses to carry adequate life insurance policies.  Many underestimate the costs of raising children alone, or simply prefer to stick their heads in the sand on this issue. What’s adequate? That needs to be evaluated in the context of your life goals and investment objectives. Call us for an assessment.

Insurance issues can be complex and challenging.  Just like going to see a doctor, many people are reluctant to ask probing questions during an insurance review, as they are concerned it may only lead to unpleasant answers or higher costs. We would be happy to meet with you to discuss how insurance fits into a comprehensive wealth management plan.  NOTE:  Tannery & Company Wealth Management does not offer property or casualty insurance.

Tannery Toolkit for Financial Independence Tool #11

Eliminate Your Mortgage! by Michael Tannery

Owning a home has always been the cornerstone of the American Dream, yet for too many people in the last decade, that dream has turned into a nightmare. The old adage of “your house is your best investment” has been turned on its head since the nationwide real estate downturn began in 2006.

Want to buy a house? We salute you!  Yet a cornerstone of our Tannery Toolkit for Financial Independence has ALWAYS been—do NOT treat your home as an investment. Treat it like any other purchase and pay for it as quickly as possible. Don’t be suckered into the conventional wisdom of a low-down, 30-year mortgage on your primary residence! For those tempted by the bargains in the vacation/retirement home market, this principle is even more important.

If you are truly interested in working toward financial independence, sign up for a 10- or 15-year mortgage. Interest rates are still low yet predicted to rise. So, if you currently carry a 30-year mortgage, call your mortgage banker NOW and investigate 10- and 15-year terms. Over the life of the loan, you’ll save thousands of dollars in interest that are better off invested in something more stable for retirement. See our 2010 blog on that topic.

I feel strongly that easy credit has gotten the entire world into the financial morass we are currently experiencing. Our stock markets tanked in April when S&P downgraded our U.S. debt to a negative rating. Across the pond, the PIGS (Portugal, Ireland, Greece and Spain) are all facing a debt showdown with other Euro partners.

Every one of us needs to take some personal responsibility toward paying down debt or draconian measures may be forced upon all of us. In many ways, they already have through changes in credit card laws, disappearance of the sub-prime lending market, and continuing softness in our stock markets.

What are YOU doing to lower your debt? We’d love to hear your comment (below).

NOTE: Tannery Wealth does not provide mortgage or lending services.

Tannery Toolkit for Financial Independence–Tool #10

Strategize! by Michael Tannery

Is “buy, hold and hope” your current investment strategy? Way too many do-it-yourself investors operate in that mode, and like the hopeful little piggy (left), they may not see the noose lowering over their nest egg until it’s too late.

Ask yourself these questions:

1. In the past, have you ridden pet investments all the way down to worthless?
2. Are you so busy with your job that you check your portfolio returns at the end of the year and wonder what happened?
3. Are you fully appreciating the pain of the June market meltdown?
4. Are you so mesmerized with the financial pornography spewing out of CNBC and Fox News that you are suffering from paralysis by analysis?
5. With the thought of retirement looming, are you always chasing after the highest returns and paying the price too often for risky investment decisions? Remember, pigs get fed but hogs get slaughtered.

Sadly, I meet with a number of prospective clients AFTER they’ve made one or more of the mistakes listed above. At Tannery and Company Wealth Management, we use a disciplined Five-Step Investment Process that incorporates a strategic and systematic approach to investing. If worrying about your nest egg is keeping you awake at night, click on the link below for a consultation.

SCHEDULE A CONSULTATION

Father DOES Know Best!

Photo courtesy of pdwroswell

Don’t forget Father’s Day this Sunday, on June 19. We are suspending our Tannery Toolkit for Financial Independence series this week to take time out to honor our dads.

As you might suspect, our U. S. Father’s Day observance was signed into law in 1966, fifty-two years after Mother’s Day was established. The credit for inventing the celebration is usually given to Sonora Smart Dodd of Spokane, Washington. While listening to a Mother’s Day sermon in 1909, she felt that fathers needed to be equally recognized for raising children. Her own father raised six children alone after Sonora’s mother died in childbirth.

In honor of fathers everywhere, Tannery & Company took a brief survey of clients and friends to find out what the best advice they had ever received from their fathers: 

Steve Bruneman,  Attorney:  I often talked with my dad about what I was going to do with my life. He didn’t say, “go to school” or “get a job.” He distinctly told me to find a profession. And I did!

Zack Tannery, President, Business Brokers Network (and my dad):  My dad mostly led by example. He did not offer much direct advice, but in his own way he was a good teacher. However, he did make the following comments sometimes as I learned to drive. He was my primary driving teacher.
1.  When we stopped at a STOP sign at a time when more cars than usually were passing by, it seemed like a very long wait for an opportunity to cross the street. At such times, my dad frequently stated, “Son, be patient! If you wait long enough, the traffic will all be past. If the traffic is not all past, then you did not wait long enough.”
2.  When my dad observed another vehicle going faster than the speed limit, he often commented in a very calm voice: “That guy needed to leave home sooner.”        

Steve Fuqua, CPA: I can hear him now! “When in doubt, always tell the truth. This is the best way to run your life.”

Lisa Zahn, Attorney: Wear tennis shoes (not flip-flops) when mowing the yard. Another piece of advice – let my clients make the decisions on the offers presented – it is their responsibility, not mine.

John Bitter, Veterinarian: Most of people’s worst problems are self induced—learn to work hard and make good decisions and your life will be all the better for it!

Joe Hockaday, CPA: A man is only as good as his word. 

Matt Patchin, Director at Experian: If you think you can, you can. If you think you can’t, you’re right.

Chuck Riehm, SGI Corp: The harder you work, the luckier you get.

Got any great advice from your father you’d like to share this Father’s Day week?

Photo courtesy of pdwroswell

Tannery Toolkit for Financial Independence Tool #9

PROTECT! by Michael Tannery

A medieval knight would never dream of entering the arena without protection. Yet I see too many knuckleheads in the financial arena, overly cocky with their big pile of assets, knocked off their horse by unforeseen foes.

Even more important to the knight entering the arena was his support team—the yeoman, squire and page. Do you have a support team protecting your assets from unexpected villains? At Tannery & Company, we work with a trusted set of advisors to help armor-plate our clients’ net worth.  

Ask yourself these questions:

1. Have you reviewed your coverage with your insurance professional in the last twelve months to make sure your key assets are protected from theft, fire, or legal vandalism?
2. If you are one part of a power couple, do BOTH of you have adequate life insurance? Couples often ignore the extra cost of raising children alone.
3. If you are a high-net-worth individual, you should at least take a look at an umbrella liability policy to shield your wealth from lawsuits. Nobody wants to spend money on insurance. Until it’s too late.
4. Is your will up-to-date and do you know where it is? What about other key estate documents, such as a power of attorney and medical power of attorney? Don’t leave your damsel in distress! Too many people ignore simple steps that could mean the difference between comfort or calamity for a remaining spouse.
5. Do you have short and long-term disability insurance to cover your income in case you can’t work? Consider buying it today! Disability insurance can be one of the cheapest forms of insurance you can buy.
6. Do you own a business? Do you have a buy-sell agreement or succession plan in place? If you don’t know what those terms mean, find yourself a good business attorney.
7. Are your assets suitably diversified? How many people do you know who had to start over when the tech stock bubble burst? Or the housing market?

No one can shield their assets 100% from every conceivable scenario. Yet if you are losing sleep over preserving your nest egg, call me at (214) 239-4700. If you want to live in Camelot, you’ve got to invest in the armor.

Tannery Toolkit for Financial Independence

Tool #8–Simplify! by Michael Tannery

Henry David Thoreau cautioned, “Our lives are frittered away by detail. Simplify, simplify, simplify.” Words to live by! Yet 150 years later, most Americans are constantly stressed out by the increasing complexity of managing household paperwork. Disorganization is a significant drain on the economy through lost productivity and a daily source of anxiety for most people. “The average American burns 55 minutes a day–roughly 12 weeks a year–looking for things they know they own but can’t find,” according to a study published in Newsweek magazine.*

Where are you on the stress-o-meter? How long did it take you to pull together your records for your last tax prep? Do bills go overdue because you lose them in your In Basket? Can you put your fingers on key documents such as passport, will, power of attorney, mortgage, tax returns, brokerage statements and/or insurance within two minutes?

When we ask new clients, “What keeps you awake at night?” we often hear that financial disorganization is a big source of stress. In our holistic approach to wealth management, a big part of our job is to provide tools to conquer the paper chaos. For example, one of our first tasks for a new client is to load up all their valuable documents into our secure on-line Wealth Manager system. Then, these documents can be accessed or downloaded from anywhere! Take a test drive of our Wealth Manager tool today to see if it might be a better tool for you in the war on clutter.

Do you have a great idea to conquer paper clutter? Please leave a comment!

*June 7, 2004

Tannery Toolkit for Financial Independence–Tool #7

Optimize Portfolio Risk by Michael Tannery

Sure, everyone knows they need to save and invest for the future. But how do you know how much is enough? And what level of risk vs. return do you need in your portfolio so you can achieve your life goals? Unless you have good answers to those questions, you’ll always be in financial freefall, never knowing when to release your parachute. Is it now? Seeing retirement closing in—IS IT NOW?? Or have you already done a faceplant on the ground?

I’ve actually seen clients who have oversaved, not realizing they had amassed enough savings to support their goals. Not long ago I counseled a couple whose jaws both dropped to the floor when I told them, “Go ahead, you can buy that house you’ve been dreaming about.” Don’t worry, they had plenty left for living a good life and a well-planned retirement.

Then there are those financial thrill seekers who dive after silly high returns in their investment portfolio, not realizing they could achieve their goals with a much safer level of risk. We’ve all witnessed friends who’ve had their plans hijacked when that high-risk portfolio ripcord failed to open their retirement parachute.

So, how DO you know? At Tannery & Company Wealth Management, we put together a Tannery (substitute YOUR name here) Family Index as a guideline for investing and spending. Based on a client’s key life goals (education, retirement, starting a business, a wedding, luxury travel), we construct a recommended risk/return portfolio model. If you’d like to see what YOUR FAMILY INDEX might look like, click here to schedule a complimentary consultation. Please note: The consultation is not contingent on becoming a client or the purchase of any securities.

Tannery Toolkit for Financial Independence–Tool #6

Maximize tax-advantaged savings by Michael Tannery 

Don’t leave money on the table when it comes to saving for your retirement! I see way too many people hijacking their own retirement security by ignoring tax-sheltered retirement savings opportunities.

Before I take a nickel of a new client’s investment money, I make sure they are fully invested in their employer’s 401(k) or 403(b) retirement plan. For 2011, the current maximum for 401(k) contributions is $16,500; if you are over age 50, you can contribute up to $22,000. If you don’t have a company-sponsored plan, then you MUST fund your own personal IRA. It simply makes no financial sense to put long-term investment savings anywhere else until you do. The contribution limits for an IRA for 2011 are $5,000 and $6,000 for those over 50. The beauty of these plans is that your earnings accrue tax-free—you don’t pay taxes until you withdraw funds in retirement, typically at a lower tax rate than during your earning years.

For the self-employed, retirement savings plan options are much greater, and maximum annual contributions differ. At Tannery & Company, we love to sit down with business owners to evaluate what retirement plan works best for owners and employees, in the context of their personal and professional goals.

Here’s where most people leave money on the table. Even if you have a 401(k) through an employer or have set up a plan through your own business, you can STILL contribute the maximum toward a “nondeductible” IRA in addition. You can’t deduct the contribution from your income on your 1040 Tax Return—but here’s what most people don’t realize! Earnings still accrue tax-free on that nondeductible IRA! So, I recommend that my clients take full advantage of every available tax-advantaged retirement savings plan open to them.

Bottom line: if everyone set aside the annual max on their tax-advantaged retirement savings from Day 1 of employment, you simply wouldn’t find many people age 60 crying in their beer about not being able to retire! Here’s an example. Joe College starts working today at age 25 with his newly minted MBA. He earns $80K per year. A smart kid, Joe funds his 401(k) at the $16.5K max annually. Assuming a 6% rate of return, Joe will amass almost FOUR MILLION DOLLARS by the time he hits 65! Try it yourself—visit the handy savings calculator at http://apps.finra.org/Calcs/1/Savings to see how much YOU could save.  (NOTE: this is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of returns used do not reflect the deduction of fees and charges inherent to investing.)

Tannery Toolkit for Financial Independence—Tool #5

Prepare for the Unexpected by Michael Tannery

I often speak with people eager to pursue exotic investments so they can run with the “big dogs.” Way too often, they aren’t ready to run with a pack of dachshunds!

I say, “Show me your stash of cash!” All they show me is their paycheck and credit cards.  Sadly, most people don’t have a solid emergency fund stashed away, which is MANDATORY, RULE #1  before you even begin to even dream about developing an investment portfolio.

Do we all have selective memory or suffer from short-term memory loss? With an economy just starting to climb out of the toilet, most have already forgotten the mass layoffs and portfolio meltdowns of 2008.

I urge my clients that they MUST set aside at least six month of living expenses in cash; nine months is better. If your job depends upon commissions, twelve months is more appropriate. 

Piling up this much cash can be intimidating, especially for young couples. Here are some tips:

1. Pay yourself first. Route at least 10% of your paycheck automatically to a savings account.
2. Develop a budget.  If you don’t have your emergency stockpile of cash yet, develop a budget and stick to it religiously.
3. When budgeting, analyze your spending and divide into two piles: discretionary and mandatory.
4. Most people delude themselves when they think certain expenses are “mandatory.” Often, the biggest opportunity to save is in scaling back NOW so you can build a safety net in case your job or health craters.
5. When people are having trouble saving, the next place we look is at the “mandatory” grocery, dining  and entertainment categories. Do you really need all 4,000 channels on the cable TV platinum package?  Almost everyone could easily shave 15-20% out of these spending categories.

Tannery Toolkit Tip for creating a “Cash Stash” – Trade in that daily drive-through latte and croissant for a healthy bowl of oatmeal at home. By pocketing the difference, you could save over $15,000 in five years through the magic of compound interest (assuming an $8 breakfast bill and a 3% interest rate, compounded monthly). If you want to see how compound interest could work for you, check out this site: