LEAD Cincinnati: What are some questions everyone should be asking when starting to plan their finances?
Ben Beshear: I think the most important question to start with is what are my most important life goals and financial goals, and what am I willing to sacrifice to achieve those goals. One thing most people want to ignore is that most good things in life come with a sacrifice, so part of financial planning is always about delaying gratification. I know this is an unpopular message, but it is an important truth in financial planning.
LC: If you were going to teach a course called “Your Finances 101,” what would be the top five things you cover?
BB: 1) Invest in yourself. Our best investment is always in our personal growth and who we are as people. Ultimately, an investment in yourself is an investment in your earning potential or investment in the business you run or the people you manage, and ultimately that is the investment that will always pay off.
2) Pay yourself first. I think as soon as you can in your life, you should start having 20 percent of your income either automatically deducted from your paycheck or your checking account and put into investment accounts that you don’t touch. I think of this as reverse budgeting. If you pay yourself first and live on what’s left, you will significantly reduce your chance of running into financial troubles.
3) Plan for the worst-case scenario. It does make sense to have a risk management plan. This risk management plan typically involves a few things: making sure you have an emergency of three to six months in cash in the event you lose your job or have expected expenses; secondly, that you have appropriate insurance, and the two main areas we see people underinsured is what they have in their life and disability insurance. Disability insurance is insurance on your income, and most things in financial planning are dependent on income, so having a risk management plan to make sure this income is insured is very important. The same goes for life insurance, if you have people that depend on you.
4) Make sure that whenever available you take free money. This may involve making sure you’re getting your 401(k) match. This may involve making sure you have an up-to-date mortgage with the lowest possible interest rate. This may mean getting rid of things in your life that you pay for that you don’t use. But it is important to take an inventory in your life of things that you’re paying for that you don’t need or things that are free money that you’re not taking advantage of.
5) Hire a pro. The pro’s job is to make sure you do things one through four. We all have a problem managing our own behavior, and I think hiring a professional advisor to make sure you stay on track and do what you’re supposed to do is a big thing. An advisor can make sure you manage your behavior in a way that you may not be able to do on your own without the accountability. An advisor can also make sure that you think long term and stick to your strategy. This advisor will also teach you important things, like being a long-term investor and not trying to get greedy or time the market.
LC: How should an individual go about finding the financial planner and company that is right for them?
BB: I think the CFP certification is the gold standard for financial professionals. I also think that a company’s financial strength ratings are immensely important. To me, if you’re developing a long-term financial plan, you want to work with a company that’s just as passionate and confident about its own long-term financial plan. When you’re developing a financial plan that spans 20, 30, or 40 years into the future, you want to work with a company that’s financially strong and well-positioned to stand the test of time with you. Agencies like Fitch, Standard & Poor’s, AM Best and Moody’s assign financial strength ratings to companies so people can see how well-positioned they are.
LC: Hindsight is 20/20. Looking back over their financial histories, what do your clients wish they had known at the beginning?
BB: Almost all clients wish they had started earlier. The earlier you start, the easier planning is and the more control you have over your ultimate destiny.
LC: What services should individuals beginning their financial process be aware of?
BB: I think ultimately you want to deal with somebody that is comprehensive, someone that can talk through with you the complexities of your budget, the complexities of the relationships in your life that may affect your finances, the complexities of your current investments, your cur- rent tax situation, and ultimately the complexities of what goals you have and what motivates you for your future. This person should be able to put together a comprehensive plan that addresses these needs. I also think it’s important to know how the person you’re working with is paid. I don’t believe there is a “one size fits all” model. There are typically three ways financial professionals get paid: commission, fee-based on assets man- aged, or fee for a plan. At our firm, we have all of the above available to meet clients’ needs, depending on what’s best for them.
LC: Why is financial planning crucial to families and individuals?
BB: Obviously, there are more important things in life than money, but what I have found with clients is when they are under financial stress, it is less likely that they get to enjoy those other things in life that are more important. So I think ultimately having a financial plan is about having your money organized and structured in a way where you don’t have to worry about it and you can focus on the other things in life that are more important than money.
Northwestern Mutual is located at 3805 Edwards Road, Cincinnati, OH 45209. You can reach Ben Beshear at 513.366.3664 or visit at www.benbeshear.com.