Episode #16 – 10 Smart Questions Millennials Should Ask Their Financial Advisor

Welcome to the Millennial Money Moves Podcast. On this episode, we’re diving into the 10 questions that every millennial should ask their financial advisor. Did you know that 70% of millennials don’t even work with a financial advisor?
And we find that ones that do aren’t sure which questions to ask. So we put this list of the top 10 questions that we think you should be able to answer if you’re not working with a financial advisor.
And if you are, these questions should be communicated between you and your paid professional. We hope you enjoy the episode. This content is purely educational and does not tend to be financial advice or financial planning.
Please consult your professional financial advisor or tax professional to receive tailored advice to your personal situation. Babin Wealth Management is not responsible for action taken by listeners based on educational content provided.
If you would like to receive personal financial advice, please reach out to Babin Wealth Management directly at babinwealth.com. Let’s make moves.
Welcome everybody to another episode of the Millennial Money Moves Podcast, the podcast where we’re breaking down the financial stuff that matters to your real life. I’m your host, Sean Babin, and with me, as always, my guy, Blake Bandani.
Good to see you, buddy.
Good to see you, baby. The one and only.
How’s the week been?
It’s good, man. 110. So that’s always fun in Arizona.
Going through the motions, man. Everybody’s working for the weekend, right?
Yeah. This is our seasonal depression time right now. All the winter folks that sit inside and watch it snow or it’s too cold to go outside.
We’re having fun, and now we’re staring out our window, wondering when we get to go outside. All right, man. Well, this is going to be a fun episode.
You know, Blake and I, we get a lot of questions or comments, and, you know, hey, can you help me out with this? Or what are your thoughts on that from many of the viewers over the last few months?
So we’ve kind of compiled a list of them and then kind of added to them, and we’re going to be doing what I’m calling the 10 questions that you should know for yourself financially and or ask a financial advisor.
So, you know, you could use these 10 questions to just kind of mental checklist if they’re applicable to you. Hey, do I know the answer to these?
And then if not, hey, maybe this is a reason to work with a financial advisor if you’re not working with one already.
And then the second being is I’m working with one and I’ve never asked one, like my financial advisor, these questions, or they’ve never asked me. These are some conversations that I think we need to have, and they certainly need to know about you.
So, that’s where I’m going to go with this conversation today. Blake, you’re going to lead the questions. And yeah, man, just have some interaction with me along the way, too, but I don’t want to do all the talking.
I mean, I love this podcast episode because now I get to just drill you with questions.
As I always say, man, it’s nice to just actually get the lens of a true financial advisor. So I think this will be interesting for the viewers to kind of hear how you would handle it.
I’m not saying we’re necessarily in a mock meeting, but it is important questions you should be asking as you start looking more into your financial goals, your financial standing, et cetera. So super excited, John.
Yeah, and one of the things I find fascinating, too, is like a lot of people don’t think they have enough money to work with a financial advisor.
Totally.
And honestly, caveat there, sometimes that’s true. Some advisors do have minimums. Like, hey, you got to have 250,000 or half a million or whatever the case might be.
And so that puts you down a peg. But there was always someone out there who would love to work with you.
And so if you go interview some firm and they need half a million for you to work with them, well, they’ve just created such a big client base that they have to cut it off at some point. So they’re too big. You’d be that small fish in the big pond.
So go find somebody who is accepting new clients, who’s hungry, ready to take you on, even if you only have 20, 30, 40, $50,000 to for them to work with.
There’s also new lines of work where it doesn’t matter how much money you have for them to invest. It’s all about paying maybe like a monthly fee, that kind of subscription model to get good financial planning and financial advice.
So that’s another reason I wanted to have this conversation day is like, do not think that you don’t have enough to go work with a professional. Will it cost you money? Absolutely.
But you don’t need to have X amount in your bank account to go work with somebody. Some, like I said, will require that, but there’s people out there who want to help you and will help you.
So that’s another reason why I wanted to have this kind of conversation on these questions too.
It’s a great point, Sean. And I always found it like intriguing that, you know, these minimums, let’s say, I don’t really work with anyone less than a million in their portfolio. Right?
Well, I mean, didn’t that advisor have to start somewhere? Are you able to… Are there some advisors out there that, through whatever it may be, just can start with that minimum threshold?
You know, I was always curious about that.
Those are pretty much the tenured people. Yeah. They’re at their capacity.
They’re really… It doesn’t move the needle for them unless somebody has over, you know, a million.
Whatever it is.
Cool. You know, I’m getting to the point personally in my practice where, you know, pretty much 250,000 is kind of my minimum.
Yeah.
People under it, it just… When you’re operating at the capacity that I’m at, then that’s what I need to be… Like, we’re running businesses.
We can’t help every single person. Like, we still need to get paid some, you know, create our business and run our business. But that’s why I love the fee for advice model that I also have too.
So maybe you don’t have 250,000, but you can pay me 200, 300 bucks a month for ongoing advice. And I don’t care about the money under management. You’re just paying me each month to cover all these 10 questions that we’re going to go over.
And then we revisit them every year and put a plan in place for you to check in and see how those are going.
Well said. So well, let’s jump into it, Sean. Always love to get your free game.
I think to your point, we kind of put together like top 10 questions, common questions we hear from viewers and just prospects as well as well for your business. But I think we also kind of segmented these 10 questions.
So looking into kind of the first intro segment, getting into the questions, is looking at how you can get your financial house in order, right? What are some questions you should be asking? What are some things you should be thinking about?
So correct me if I’m wrong, but I think this is a very common question you hear a lot, and especially in this industry and with your practice.
But how do I balance paying off debt with saving and investing on top of paying off this debt that I’m worried about, right?
So what are some things you can think of as a consumer, things you can start thinking about as far as getting debt down, but also still looking for your future self?
Yeah, man, this is a tough one. And I think a lot of millennials struggle with it, especially college student loans is the big time I see. So when it comes to debt, there’s a weak categorized good and bad debt.
So good debt mortgages, typically a car unless you have terrible credit and you’ve got a car payment at like nine or 10 percent for 10 years. We might have to we might have to have a conversation about that.
But typically cars and mortgages are good debt, meaning their interest rates are around, you know, four, five, six, seven versus the credit card debt, the student loan debt. You know, credit cards can be in the 20s, high teens for that annual rate.
Student loans could be more in that six, seven, eight percent, but they’re massive numbers. They’re like having a mortgage. So that’s the whole struggle is how do I tackle this while saving for myself?
And honestly, sometimes the cases are you can’t, you know, you have to prioritize.
So we always stack debt from the highest interest rate to the lowest, and we figure out how much, how long it’s going to take to tackle the first one, the next one, and the next one to get you out of the bad debt scenario.
And that starts with the cash flow analysis. So a listener out there, that’s the budgeting. A lot of these basic financial stuff, financial planning techniques is just understanding your cash flow each month.
How much I’m bringing in, where is it going? And you have to recognize you’re going to have to say no to things.
If you’re going out to dinner every single week, maybe multiple times a week, or going on those vacations and putting five, six, seven thousand on a credit card and saying, I’ll get to it later, you are putting yourself in that negative place and
it’s just self-inflicted. And if you got a 200,000 or a $100,000 student loan hanging over your head that you’re just making the minimum payment on, and you’re like, okay for having this for the next 30 years, then that’s the juggling act that you’ve
put yourself in. So quick takeaways, just line them up, good debt to bad debt, worry about the bad debt, the high interest ones, and then do a budget analysis of like, where’s my money going each month?
And if I’m currently paying 400 a month on the student loan, but here’s what could happen if I paid 800 a month, well, where can we cut 400 a month from your spending? Can you eat in a little bit more? Can you say no to a vacation?
Things like that, that you really have to put yourself first. And that sucks. It sucks saying no to fun things, especially sitting in your house in the middle of the summer.
It’s 110. You haven’t seen, you know, breathe fresh air in a while. You want to go out to dinner.
You want to do those things that is like enjoying life versus trying to cut out everything so you can quickly pay off debt. But that’s the position you’re in. And those are some of the sacrifices you have to make if it’s important to you.
No.
And I think just organizing a good debt versus bad debt as well. Right. I don’t know.
My first interaction with an advisor was my parents, specifically my mom. Right. And kudos to her.
It was always about don’t have debt lingering over. Try to get debt down, get debt down. And I think that’s fair advice too.
Right. If you can have no debt, I think that’s kind of an ultimate win, of course.
But a prime example is when I had bought my newer vehicle, I don’t know, two, three years ago now, you know, I started making some commissions at my job and I was talking to my mom about it.
I was like, maybe I should just start putting this money down to lower my car loan. But then she even made this the statement of, well, what’s the interest rate on your car loan? And what would you get in a high-yield savings account?
And I would get more of an interest on a high-yield savings account than I would be paying off with the lower interest and the car note.
So why pay off early when I could get the difference in a high-yield savings account for my money, if that makes sense, right? So again, shout out to mom for knowing that. But I think there is little aspects to that as well.
Like you don’t always have to have zero debt to be in a successful standing.
You know, you set up the car note for a reason, take the additional money that you got through commissions or maybe side hustles, and see, is it worth paying off my debt with this interest rate, or can I get a higher yield on a high yield savings or
even in the market, right? So of course, paying off debt is great, but I think there’s conversations around that, and that’s specifically what you do really well, Sean.
So no, that’s beautiful because that’s money every month. The money, it’s all opportunity costs. If I take this 10 grand and put it at my car note, and it’s at 4% is your annual rate versus I take this 10 grand and go invest it.
And the markets average 10% a year. If you went and paid that car note off, threw it at the car note, well, your opportunity cost was 6% historically to you. So yes, I love that.
Your mom crushed that right off the bat because it’s not always like debt bad, like put it away like the Ramsey, Dave Ramsey strategy of like have zero debt. I’m like, man, that’s crazy.
Like there’s so many other good things you can leverage your money for than like quickly paying off a mortgage of 3% or 4%. Why do that? You break your back trying to do that.
Now, the old days, I think that’s where our parents and their parents, their mindset was is, you know, pay your mortgage off. And they kind of maybe disseminated that down to us because back in the day, mortgage rates were at 10, 11, 12%.
And so it’s very different.
Totally.
And that’s the adage. So yeah, good point there is know what to do with that money and just paying off debt to pay off debt might be putting yourself a step backwards than you might know.
Your money might not be working as hard for you as you think it is if you’re just throwing it out.
Bingo. Moving along to, I think, is kind of along the lines of cost analysis, budgeting. It’s like a lot of people, I’m sure, ask you, and I even hear it in the 401k world, is like, am I on track for a successful retirement or a sound retirement?
You know, what should I be doing now? I guess even adding to that is like, how do you decipher if you are on track or if you are setting yourself up for successful retirement? What do you think on that question?
It’s really hard to do without the tools that a financial advisor has.
I mean, you can go online and find some things. It’s basically just future value calculations.
And if I have 100 grand now and I’m putting away 10,000 a year for the next 20, and I want to retire in 20 years, well, what does that grow to at an assumed 8%? But it’s very basic. It’s not very specific to you, your family, and your needs.
I tell everybody, you got to be saving that 12% to 15% of your gross income. So if you’re making 100 grand a year, you need to be saving 12,000 to 15,000 to yourself. That’s going to put you in a good place.
If you’re not doing that, then you’re already behind the curve, and then that retirement goal falls farther and farther behind. Maybe it was, I want to retire at 55 or 60. Well, every year, you’re not doing that 12 to 15%.
It’s probably another half year that you’re falling behind that age goal.
So that’s honestly the biggest reason to hire somebody is just so they can compile all the data, everything about you, what you’re doing now, show you what that trajectory is, and what if we make some tweaks and tinker with this?
Here’s what that could look like for you. And a lot of people just go through their 20s and 30s with their head in the sand, just trying to keep up with the Joneses.
They know they should be saving, so they’re doing the 4% match at their company, and that’s it, and they’re buying the cars, the homes, having the kids, and they fall further and further behind each year that they don’t even just sit down with
Love it.
And I mean, even as far as, am I on track, or I think you’ve got to also have an honest conversation with yourself and your loved ones. What is a retirement picture for you, right?
Do you want a beach house in the Keys, versus kind of living a little bit more humbly? You know, all those variables go into that question as well. It’s like, what do you plan?
What do you see for yourself in retirement? What do you want out of retirement?
Yeah, we’ve touched on it before. Our generation, if you want to retire, and this is like 62 to 65, not retiring at 50, you’re going to need four to six million dollars saved. And that’s assuming too, that a little bit of social security is there.
Not a lot, but that’s basically assuming, hey, if you want to fully retire at 62 to 65, and spend, I don’t know the exact number.
I think we said 120,000, so 10,000 a month in today’s dollars, which will grow 30 years, then you’re going to need about four and a half, five million bucks saved.
And I think that just is mind-blowing to people, because our parents, they needed one to two million, and they did really well for themselves if they had that.
And then for us to do really well for ourselves and live out a retirement that allows us to travel and not worry about income needs, survive different market cycles, we’re going to need five million bucks. Like that’s nuts.
But it sounds like a lot, but with the right planner, the right tools, putting everything into perspective and writing things down and hitting goals, it’s very attainable.
Yeah, and having and yeah, putting it in and having someone, honestly having someone hold you accountable.
Bingo.
It’s really easy to get off track.
I think that gets undervalued for advisor, Sean. It’s similar to like even when you’re like on a weight loss journey. Yeah, could you go to the gym every day?
But if you spend money on a trainer, now you’re wasting money on it, you’re going to probably want to do it even more because you’re spending for it. So it’s a similar concept, right? Yeah, could you do this on your own?
I don’t doubt it, but maybe hiring an advisor kind of puts that button gear, you know?
Yeah, and with finance, it’s fascinating because you can mess it up so much quicker than even like a diet.
Like, hey, if I go and have a huge dinner or eat a huge piece of cake, you know, for a weekend or something, that could set me back a little bit.
But like you could go do something so stupid, like sell your assets at the wrong time, buy a car that’s too expensive or too fancy, and what does that take? A couple hours to do, and then boom, now we’re behind the curve. It sets you up.
Very negative. So yeah, it’s having a coach, it’s having someone to hold you accountable, and just having a guidepost, somebody who’s helped another… What I tell people too is like, I’ve helped hundreds of people get to and through retirement.
You get one opportunity at this. Let me use everything I’ve learned with all these other people to make it the best experience for you.
Because if you’re going to do this alone without any knowledge of it, and this is your retirement, and you only got one shot at it, you could greatly mess this up.
Well said, dude.
Finally, like rolling out and circling back on this first segment about getting your financial house in order and things of that nature, we kind of rounded it out with, spoiler, there is an episode on this, but deciding between Roth and traditional
or pre-tax. I know we did a podcast on it, but maybe just highlight what you typically see or what you would suggest.
Yeah, this can really, if done correctly, it really greatly increases your chance of success, like inability to retire when you want to. If done incorrectly, it just creates a potential huge tax problem for you later on in life.
So what I’ll touch on is, yeah, we did a great episode on Roth first, traditional money, or tax deferred versus Roth. Know what income tax brackets you’re in. Know when it’s a good tax bracket to pay taxes in.
Know when it’s not a good tax bracket to pay, and defer those taxes. And obviously, when you’re pushing over that 24% federal tax bracket, and into the 32, that’s when I believe you should start deferring.
And then when you’re in that 22 and 24% tax bracket, that’s when I think you should be paying taxes now, and doing the Roth. And that’s my book, and that’s what I tell my clients. So understand that for yourself.
And again, a lot of people get that 401k packet, don’t know what the heck a Roth is. They just do the traditional. Some people think that if they do the Roth 401k, their employer won’t even match.
That confuses them right off the jump too. And now for the next 20 years, they’re doing all tax-deferred, and now we’ve got this big problem because they haven’t paid taxes on it in this money.
And now they’re in a big tax bracket in retirement, or maybe tax rates just go up, and they just never knew. They never asked.
Which, spoiler, tax rates usually don’t go down. Usually. You never know.
Yeah, we got to, I mean that the tax cut and job act in 2017 was pretty great.
I mean, it was only a couple of percentage, but it was still kind of interesting to see. And now that it’s permanent in law, this is a great time to continue to pay taxes at these lower rates. Like it’s in law.
So somebody has to come in and up evil all of it and get it all changed up again, which could happen. And I don’t know how long, but it could absolutely happen. So again, taxes now are lower for longer, a lot longer.
Keep paying it in those brackets that I just mentioned.
Take advantage while you can, right?
But understand why too. And that’s another conversation. Don’t blindly do it.
Like don’t blindly pay taxes just to have Roth money. Understand the variables that come with that and what the future earning potential for you is.
If you’re in, I tell people, if you’re in this trajectory where you know, you’re going to be making more and more and more, then pay the taxes in this lower tax brackets.
And when you get to the bigger ones, defer if you’re in consistently in the 24% tax bracket. Well, and in retirement, you’re going to be in the 22. Well, then we should defer and pay taxes later.
Like, you know, know what that’s going to be for you. It’s not just a blind thing.
Beautiful. And again, please listen to our old podcast. Love to hear what you think.
If you still think pre-tax versus Roth, no, well said, Sean. So going into kind of the second segment of the 10 questions, obviously, we just kind of let off with goals, planning, kind of getting your financial house in order, right?
I like that phrase, but we also know life happens, right? So moving into the next segment around planning for life goals and even life events. So a common question, obviously, we had Slim Jim on a previous podcast as well.
But, you know, looking at buying your first home or just buying property in general, you know, what should you be doing as a consumer if you think you are going to want to buy a home in the next couple of years?
Yeah, boy, has this question come up a lot. And it’s so much harder for me to answer now because of how expensive everything is. So if you’re going to buy a home in the next two years, we need to talk about what that home needs to be for you.
What does it look like? Is that a $500,000 home, an $800,000 home, a $3 million home? What is that to you?
And then then we can start dialing in what kind of down payment makes sense based on your income and your cash flow.
If you go from no mortgage to a mortgage, obviously you’re potentially renting and we can, you know, you’ve you’ve got that baked into your lifestyle.
But if you’re trying to upgrade your lifestyle, can you afford going from $4,000 a month to $7,000 a month? Where are you going to come up with that other $3,000? What are you going to sacrifice?
What’s going to happen? Because your income, you might get some raise. Maybe you work on commission, whatever the case may be.
But your income typically doesn’t pick up like that. Like an expense can quickly pick up. So totally we have those conversations.
And then if you’re down payment, once we come up with that number, well, okay, where are you at and what do we need to get? What do we need to start saving each month to get to that point in one or two years? Maybe it’s just not even feasible.
Maybe you need 150,000 for a down payment and you’ve got 20 grand.
Okay, well, we’re going to need to start saving a lot of money a month for the next couple of years to get you to where you need to go or sell something else, some other asset of some sorts. Yeah, it’s a tough question now, man.
It is not the typical, you know, where you only need 20, 30 grand for a down payment. It’s so different now planning for it.
It’s just frankly scary, man.
It’s off-putting. It’s tough to watch clients try and buy a house where their mortgage is going to be, you know, $7,000, $8,000, $9,000 a month. And it’s just like, how do you do this?
Like, how do you feed your family? And you’re just house poor. And I don’t want that for anybody.
Like, I don’t know if a home is worth. A home is quite worth that. But those are the conversations you got to be having and know what you can afford versus just pulling the trigger on it.
Love it.
And then also kind of leading into like what we talked about as far as maybe looking and trying to take advantage of Roth. But another life goal or getting preparing for is reducing your taxes for your future years, right?
Because if you’ve been very heavy on saving, but it’s been a lot of tax deferred monies, what are some strategies as far as reducing your taxes down the road?
Yeah, I think working with somebody who does tax planning, a lot of times your CPA or your tax preparer, they’re more like a return factory, meaning they’re just taking all your info, generating your return, spitting it out, telling you you either
owe or getting a refund, and then see you next year. There’s no sitting down and saying, you need to be taking advantage of this, or you should be taking advantage of this, or hey, you’re right on this income threshold.
You just moved over from the 24 to the 32% tax bracket. If you deferred 20K in your 401K, well, then we can get you back down into the 24. They’re not really tinkering with it.
So, that’s why I started offering tax planning as a part of my offering to clients that have a certain threshold of assets or doing that fee for advice planning, because it’s a huge value add-in. It can save people.
I’ve done Roth conversion analysis through tax planning that it will save people six, seven, $800,000 in their life if done correctly. And so, those are huge moments to, again, the worth of working with somebody who offers that tax planning.
Yeah, it’s understanding the trajectory of your income, and are you taking advantage of things to help lower your taxes now?
You don’t know what you don’t know, so understanding, sitting down with somebody who can pro forma or put a trajectory together for you and tell you where you’re missing out on certain credits or tax deductions.
Or even, when’s the last time someone talked to you about a Roth conversion kind of thing too, right? So maybe you can convert some of that pre-tax traditional monies into Roth ahead of time too.
So there are strategies, and that’s where I think you can really stress how important it is to sit down with you.
Yeah, and sometimes, you know, it’s not the most, and we’ll be frank with people, sometimes the WT, it is what it is, and there’s not much more, but the FK is a huge tool to be able to potentially get you below, like, if you’ve just crept over into a
new tax bracket, and, you know, you’re sitting in front of your tax person, and you’re going, why the heck do I owe so much taxes this year? Well, it’s because your payroll didn’t keep up with going into this new tax bracket.
Right.
And so if we were having conversations throughout the year, tracking your withholdings, tracking your FK contributions, we could have done a good job of preparing for this, so that tax bill might be in around zero, or maybe you owed, you know, a
grand versus eight grand, something like that. I’ve seen that happen to many people.
Totally.
They start making really good money, and they push into these higher tax brackets that they don’t even know, and they don’t withhold the proper amount.
And now at the end of the year, they owe $10,000 to the Fed and another four to the state, and they’re going, where am I going to get $14,000 from? I spent all that money. It’s all gone.
Yeah, exactly.
Well, again, just stressing the importance of why an advisor can help you through all this, right? A good advisor, I should say. So rounding off that second, I’ll go ahead, unless you had another comment.
No, I just liked how you said a good advisor, because not a lot of advisors dip into this world.
Totally.
So it’s definitely becoming more prevalent.
But yeah, make sure if that’s important to you, if you’re a high earner or you have incentive stock options and stuff like that, you know, even just RSUs, these are things that are tax sensitive and done incorrectly at the wrong times can cost you a
lot in taxes that could have saved you otherwise. Make sure you’re working with either a badass CPA that understands this world and understands you and how to put a plan together or a financial advisor that does that tax planning prep for you each
year and kind of puts you on a trajectory and understands what’s going on with you in regards to this income range. Just because yeah, man, there’s people who have all kinds of stock options.
All kinds of crazy stuff comes up and it’s mind blowing for them.
And if they don’t have a plan and they just blindly do some things, like they could be paying thousands and hundreds of thousands and more in taxes than they should have been if they waited just a year or two.
Absolutely.
Well, cool.
So rounding off like planning for life goals and that kind of segment of this is just the idea.
And I think this is huge to remember is when you have these life events or life goals that you’re planning for even retirement, you know, investment strategy and risk tolerances, right? Don’t get me wrong.
Setting and forgetting is a great concept, right? It’s only going to help you. But that doesn’t mean that that’s the only answer.
So I’m sure you get asked a lot about investment strategies and does that fit my goals? What should I do for risk tolerance? So how would someone listening to that think of investment strategies, risk tolerances to their benefit?
Yeah, it’s understanding what the purpose of that money is for, when you think you’re going to need it, and then honestly what you’re comfortable with too.
It’s like for our millennial generation, people in their 30s and 40s, typically retirement should be a ways out. We’re talking 20, 30 years. So we’ve got a lot of time on our side.
This money doesn’t really need to be thought about too much in regards to tinkering with. So for me, it’s pedal to the metal.
We want this to grow the most that it can because we can be resilient if a stock market goes down for a year or two, but then bounces back. We have plenty of time on our side.
So it’s more aggressive in that sense of we’re going to own a lot more stocks, probably all stocks and not as many bonds, which are the kind of that volatility offset.
And then the inverse is true for like I want to buy a house in three to five years.
Exactly.
We’re not going to invest your money like we’re planning for the next 30 years. So maybe we do like a 50-50 account or 60-40 or 70-30, just something that you’re comfortable with.
Because my worst fear is we’ve gotten to that 100 grand number that you needed. And then three months before you tell me we need that money, the market goes down or something like that. So that’s the communication.
And as those goals get closer to, you reduce the risk of your investments. It’s the same with retirement. And once we get a client to retirement, where you don’t keep them in a 100% stock portfolio, we dial back that amount.
Yes, we need your money to continue to grow, because now once retirement starts, it doesn’t mean you’re dead. We still got 30 years for this money to work for you. But I don’t want you taking the same risk that you did when you were 65.
Right.
And if you’re doing this on your own, like how well-versed are you as a retail investor yourself to really be able to do this properly, right? It’s not an easy task. Otherwise, everyone would do it, and we wouldn’t need financial advisors, right?
So I always ask that, do it yourself, is do you know the type of risk that you’re taking?
Do you know the potential? We call it downside volatility or your potential max drawdown. Do you know that your account could potentially be down 60% in a year where mine’s max drawdown was maybe 25 or 30?
So like, can you stomach that? And a lot of people don’t know that. They just buy the top 10 stocks, and they go, they’re going to be great.
And they potentially can be, but at a point, those could be way down, and you could be sitting there on your phone or in your office or in bed next to your wife going, Oh my God, I got to sell these things. Like, this is insane.
Like, I can’t believe how much money I lost. And you just become a puddle of just sweat and your just stomachs and knots. And that’s when you do the wrong thing at the wrong time.
Bingo.
Well, good. So, you know, we’ve kind of talked through just getting organized, budgeting, cost analysis, diving more into now, OK, what’s the plan, planning for future life decisions, life goals?
And then to round off the top 10 questions you see from prospects and clients, which I think is just as important as kind of protecting and continuing to build on this wealth. Right.
So now maybe you’re 10, 15 years into your financial journey, your retirement success. I’m sure you get and we put these questions together because you hear it all the time.
But to start off, how do I know if I’m properly insured as far as the aspect of protecting my wealth and continuing to build as well though?
Yeah. Insurance is a very customizable thing. It’s not a blanket statement for anybody.
It’s up to what you’re trying to accomplish for you and your family and who you’re trying to protect.
So I think a huge miss with insurance is a lot of people will have some type of group policy, group term policy through their work and they go, I’m covered. I’ve got term. I’m great.
I’ve got insurance. It’s typically nowhere near the amount that you need. And if you ever leave that job, that term does not come with you.
It stays there and now you’re out and maybe your next job doesn’t have insurance. And so now you’ve got to go get it.
So what we do with younger families, you know, starting a family, you got a kid, maybe two kids, is we do some needs analysis for their insurance and say, hey, you know, here’s how much you’re really going to need to be properly protected.
And then we talk about how much can you afford. Can you just do a hundred bucks a month for each of you? And that’s what we’ll start.
Well, that coverage gives you X on top of what you have at work. Now we’re great. But it’s really having like a comprehensive approach.
And some people, insurance just isn’t important to them. And, and that’s the tough thing with insurance is it’s like every year that you live, you put off insurance.
You just kick it the can down the road, because it’s like it’s such a doomsday thing.
And it’s such a tough thing to think about that until maybe a friend or family goes through it, or maybe your grand, you know, your parents get on your ass about it or somebody closer to you than maybe a financial advisor who’s telling you to get it
suggested to you. It’s kind of when you get your butt in gear for it. But yeah, just understanding where your blind spots are. What happened if you didn’t wake up this morning and income stops rolling in?
What does that do to your family? Are they going to be okay? Is the assets that you save sufficient enough for your family to live off of?
Is it all retirement money? Well, then they would draw that money. Now it’s taxable to them.
Right.
These are the conversations that we have when we’re talking about insurance is the what ifs, then this kind of scenarios.
And if you haven’t done that with your spouse or if you haven’t, you’re completely comfortable with everything you got going on, great.
If you haven’t done it, then you need to do it, and you need to figure out what you need to make each other sleep comfortable at night. God forbid the worst happens.
Right. And I think even on the flip side, maybe, you know, God forbid something did happen to your loved one and you did come into some type of benefit. Do you understand the next steps with that money, right?
Tax implications, what you can do with it. So even from the other side of it is just making sure you have a plan for it if you were to ever to receive that benefit. God forbid something happened.
So it works both ways.
Well, Sykes, that’s what’s interesting. Like obviously life insurance is tax free to you, but if you’re saying, hey, my K is going to be enough for him, and then you pass away and your wife and you are only in your 40s.
Well, now that money really can’t be withdrawn. I mean, it can be, but it’s going to be taxed and it’s going to be penalized. Even though you pass, like it’s still not what it’s there for.
And then let’s say that 300 grand, that term policy that you had at work, like is that going to cover?
That’s probably one or two years of your income that is going to get your family through for the next 10 years until your kids are out of the house? Unlikely, absolutely unlikely.
Right, so it’s just an important thing in both aspects, I would say.
Exactly.
Great question here, moving along, as far as protecting wealth, but I want to caveat it, if you are participating in your 401k plan, round of applause, nothing bad about it, but you’d probably hear it a lot, Sean, is like, what are some other things
I love this question, because this typically means we were maxing out your 401k.
So you’re already doing something good.
Yeah, so if you’re maxing out your 401k every year, doing the 23.5, and you’ve got more money to save, and easy ways are just, you know, we can do backdoor Roth contributions for you.
That’s a $7,000 a year into a Roth that, and then when you’re over 50, you can do eight grand currently. So we can easily do that. I know that’s not a lot of money, but that’s helpful.
And then anything over that, you can do brokerage accounts or taxable accounts, like with your name or your spouse’s name. So you could do joint investment accounts. Those have no minimums or no maximums.
So you can put as much money as you want into those. And it gets invested just like your 401k.
Now it is taxable each year to you, meaning the dividends, the interests, any capital gains that are made, you’ll get a 1099 and have to attack that onto your income.
But those are a sweet bucket of money just to continually to build liquid wealth for yourself. A lot of people want to dive head first into real estate.
If you have the gumption, meaning you’re up to manage properties, be a property, run the game of monopoly kind of thing, go for it if that fits in, where you feel like you have the know-how.
Sure, that’s another way to accumulate some wealth is in the real estate market. But on the investment sides, there’s plenty of avenues to continue to put money away for yourself.
And every dollar that you do is just another step closer to those goals.
And the key is that there are things you can do outside of your 401k when you sit down with someone like you, right? So just keep that in mind.
Obviously, super impressive if you can max out your company’s plan, and you’re getting taking advantage of the IRS limits. But that doesn’t mean that that’s it, that that’s all you can do.
There are creative ways to continue to set yourself up for success.
Yeah, that’s a good point. And there’s ways to invest exactly like your 401k. So that’s a lot of things people tell me is like, well, my 401k is doing really good.
I’m like, well, yeah, so are my client’s accounts. Like we’re doing almost not the exact same thing, but we’re investing in the stock market, which if your 401k is doing well, then the investments with me should be doing the same, doing well as well.
Exactly. Well, you know, I’m interested in moving into the ninth question, if you’ve been tallying us.
But because I think you probably hear it a lot, but even if you’re doing a great job, you’ve developed your game plan, you’ve continued to save, and now you’re looking more into like protecting it and really getting yourself ready for retirement.
You know, what are some strong habits that a retail consumer can do or that they can focus on today to continue to build and protect that wealth?
The strongest habit is continue to pay yourself first.
I love it.
Continue to keep the budgeting alive. Continue to know where your money is going. Once you create that budgeting, that monthly budgeting, it kind of becomes like a game you play with yourself.
Like I do it every month for our family. You know, last month we saved $1,000. This month I want to save $1,500.
So good.
You kind of, once you know where your money is headed and like where you can cut or where you can say no to, you have control of your money.
It’s when you’re spending money each month, paying the credit cards off, but have no concept of if you’re running a surplus or a deficit. So understand your numbers. I think that’s the biggest one is how much what’s your savings rate?
What’s your cash flow? And where is that a sufficient amount? What you’re doing to help meet some goals?
Like, and do you need to divert money from your 401k contributions to start saving for a down payment on a home?
These are all the things that you kind of have to think about as you move through forming good habits and knowing what to do with that money. Because I’ve said it before, I’ll say it again. Every month we get paid, you know, that fixed amount.
It’s the same pretty much for most W-2 people. That money’s come, the same amount’s coming in every month, and it’s what are we doing with that amount?
And if the goals get bigger, we want a bigger house, we want a better car, we want the second house, we want that vacation. Well, now that 10 grand a month that you’re getting, you need to, instead of saving 2 grand, we need to save 3.
Okay, well, what are we doing within that month to forego that other thousand that was maybe going to other, I don’t know, even just fun stuff.
So yeah, it’s whatever you have to get into is basically know your numbers, know where things are going and what your savings for yourself.
And I would add to Sean, tell me what you feel about it. But even from a physical perspective, right, as you start getting older, obviously in your 20s, no one thinks about it.
But when you start getting into the 30s and 40s, you should be getting an annual physical, right? Because bad news doesn’t get better over time. If you can catch whatever may be earlier, the better.
I think it’s similar to your financial setting, right? Like, take the time. Give yourself an annual review at minimum.
Maybe you are doing the strong behaviors and you’re doing everything you’ve set out yourself to do with the goals, but it doesn’t hurt to just continue to do that annual review.
And I know most advisors probably even recommend a minimum once a year check-in, right?
Yeah, I know. At a minimum, we have to meet with anybody paying us a fee once a year.
So yeah, take that meeting, sit down with your person, bring some of these questions to them if they haven’t answered them for you, and know what you’re on track for.
The whole point of working with a financial advisor is one, leveraging them to be able to make you money while you’re doing what you’re focused on.
Bingo.
And then they should be answering these questions of, hey, Mr. and Mrs.
Babin, you can retire or you’re on pace to retire at your goal of 65 or not, or you’re on pace to be able to buy that house in five years, or at this rate, if you want to travel every year in retirement and spend X or buy a second home, well, we’re
going to need to bump up this, we’re going to need to do that. And those are, now you’re not flying blind, now you don’t have your head in the sand, just saving what you can.
Because I think the people who have their head in the sand, they’re the ones who quickly do the lifestyle creep. They’re the ones who go like, hey, I just got a huge raise, go buy that new car, we can upgrade the home, or we can go on that trip.
And they’re still doing 4% to their 401k, barely saving anything else. There’s nothing on autopilot. That’s another financial habit I want people to get into.
Go in and set up an automatic contribution on the 15th of every month to your savings for 200 or 300 bucks. Just do it. And it’s just out of sight, out of mind.
And now you’re building that emergency fund if you don’t have one. There’s little things like that you just have to do for yourself that most people will choose to go have a nice dinner versus doing that.
And then the utility of it, again, it’s that lifestyle creep. Then they don’t know the benefit of putting that money away for them over time.
And then when that AC goes out and they need 8,000, 10,000 bucks and they’ve only got 1,000 in their savings, well, then the rest is going on the credit card. Well, now we got a problem. We got to figure out how to pay that credit card off.
Right.
And I think out of all that, too, what I really heard, too, was you probably, if you have an advisor today, you probably already pay them to at least sit down with them once a year.
So if you’re just assuming everything’s autopilot and you don’t check in or maybe do every couple of years, I mean, you’re paying a fee. Might as well take advantage of it. Right.
So at least an annual check in.
Yeah, man, there’s clients that pay me 40, $50,000 a year. And that is a lot of money. And for me to feel like I’m giving them $40,000 to $50,000 of advice a year is something I have to deliver on.
And I will tell you, it’s fascinating to see clients with a lot of wealth or not a lot of wealth who don’t even care to check in with their financial advisor.
Oh, my savings account looks good. My 401k looks good. No, that doesn’t mean you shouldn’t check in.
Right.
And we don’t just talk about investments. I guess I think that’s another thing is they’ll come in. We just sit down and go, Hey, you’ve made money.
You’ve lost money. Here’s three reasons why. It’s not that.
But there are, yeah, it’s something that you’re paying these people for and you need if you want. Again, it’s all totally. It’s how ambitious are you trying to be with your finances?
And what does it mean to you to take a meeting with somebody who should be putting you in a better place in the next year than you were in the prime?
Well said. Okay, so rounding it out here for the for the 10th question of kind of the common areas you see and we hear a lot.
It’s just I can imagine you probably hear this more than once is, you know, how does the financial plan adjust during life changes, right? Obviously, you got to have a game plan be ready for the unexpected if you can.
But I think we’ve kind of touched on it a little bit. But I mean, your plan, your financial plan is not going to be the same. It was 10, 15, 20 years ago, right?
You know, how does that adjust? How do you work with the clients to adjust it? And is it just, again, being on pace for what we’re trying to accomplish?
Dude, the financial plan is dead as soon as they leave that meeting.
It’s over because as soon as they walk out, you know, maybe they got a raise, maybe somebody gets sick, like anything can happen. So that’s the dance. It’s the communication that you have with the advisor and the advisor has with you.
If you’re not hearing from a paid professional at least once a year, you need to move on. You need to find somebody who will put the time and effort into your family.
Or inverse, if you’re the client that is deleting those emails or not answering those phone calls, well, now you’re not having that meeting a year and the communication is dead.
And so that financial plan just goes stale and there’s nothing that they or you can do. It’s all about communicating back and forth and what’s going on in your life, what changes are happening.
And is there anything new to this kind of, you know, this painting that we’re starting to make a portrait of?
So I love it.
It’s forever changing, man. Every month it changes, every day it changes. And those are things that, you know, I love it when a client calls me and says, hey, we’re pregnant or hey, I got a new job and they do it on their own.
And it’s not a meeting I had to have. They just like call me and they’re happy to tell me.
And that those are the people that I know are going to be successful because they keep me in the loop and they keep, they’ll ask, what does this do to my financial plan? Like what’s having a kid going to look like?
Like what is now making 150 versus 120 grand? What should I do with this extra 30,000? Where’s the best place to put it?
Those are the people who are in tune, and they’re the ones who I know will be successful just because they’re showing the ability to care and wonder, just wonder, just wonder how this, that was my, how I got in this business was just always
wondering, how does money work? How do you make it work for you? How did the rich get rich? And how do I become that person?
How do I leverage the best use of my money to make me more money and to get to that, to that pinnacle that is comfortable for me, is the life I want to lead? And you have to wonder and you have to be curious.
And that’s why I wanted to put the 10 questions together is, maybe these equip you to bring these to your financial advisor or interview somebody. And I’ll do a selfless plug here.
If you’re out there and you don’t work with somebody and you like what you’re listening to, call me. Go to my website, babinwealth.com. Check it out.
You can book a meeting on there or just reach out to us. I’d love to take an intro meeting with you and just see where you’re at in life and what you’re trying to accomplish.
And let’s put a plan together to kind of help you hit some of these goals that you have for you financially.
It’s just well put, Sean. And they can call me as well, but I’m just going to send them to you. But no, man, I think that’s the key, right?
Is everything we’ve touched on on this episode is there’s a lot of moving parts, right? There’s no perfect retirement route to retirement. There’s no perfect, successful financial plan.
What is successful is working with the right people so we can plan ahead and plan accordingly, right? And that’s what you bring to the table, and I’ve always been appreciative of.
So kind of rounding it out to the episode, though, you know, obviously, we segmented into getting everything in order, right? Budgeting, cost analysis, to start planning for some of your life goals.
And that second segment, things you can ask, things you can think about. It’s also the final segment of protecting and continuing to build on that success. But before we end off, you know, what would be the number one thing?
And maybe there’s more than one. Maybe it’s a 1A, 1B. But what would you want a viewer to get out of today’s episode?
Just know that you’re not alone, that there’s people out there that can help answer these financial questions that you have.
Don’t be the person with your head in the sand for a decade or two decades, and then get to being 45, 55, 60 and going, maybe now I should talk to somebody. Because I think people get single track minded. They go, look, I’ve mapped my job.
I love my job. I’m just contributing to my 401k. There’s nothing that this Sean guy can do for me because, you know, I’m doing 10%.
I’m great. I’m getting a 4% match. So that’s 14%.
I’m going to be fine. But what if your retirement requires you to only do 8% or you need to do 15% because you’ve got this big pic? Like you mentioned, there is no set number of like, hey, save $5,000 a month and you’re going to be great.
Like you’re going to be, it’s not that.
So that’s the one thing I want a listener take away is, if you’re not working with somebody, just interview a couple, especially if you’re making decent money or ask your parents what a good starting points might be.
And if they’re not a good sounding board for financially, then just start listening to these episodes and these will give you some contents or good starting places to start making adjustments to your finances.
And if you’re out there listening and you have a financial advisor who’s not bringing this stuff up with you, then shop for a new one.
And if you have one that is bringing this stuff up with you, then you’re working with someone great and continue to develop that relationship.
But do not go a decade or two thinking that you know what you’re doing and not having the easiest question answered of, what is this trajectory that I’m on? What does this look like in 20 years?
Because that’s what we get paid to answer, and that’s the most basic of it. That is the literal starting point.
Couldn’t say it any better. I would just end it. You know, if you’re not a mechanic and you hear something wrong with your car, or something’s up with your car, you’re not trying to fix it on yourself, right?
You’re going to the local mechanic. You’re going to the dealership. It’s no difference with your financial stance, right?
Not saying you can’t do it on your own. And I’m proud of you as a listener, if you’re maxing out 401Ks and you’re doing great stuff. But, you know, Sean, this is his profession, right?
It’s no different than when you hear something wrong with your car and you’re not a mechanic. It applies to your financial standing as well. So, always appreciate the free game, Sean, and always great to see you, buddy.
You too, man.
This was a good one. Yeah, we’ll see you guys. We’ll get back at it again.
So, thanks.
Let’s get it. You too.