The X’s & O’s

Today we discuss what you wish your parents taught you about personal finances. We go back to some of the basic aspects of finances such as debt and what a financial plan actually is.

Listen to the podcast episode…

The Hosts:

Brent Pasqua, Matthew Theal and Joshua Winterswyk




Matthew Theal: Welcome to the retirement plan playbook. I’m Matthew Theal, a financial advisor with RPA Wealth Management. Joining me, as always is Joshua Winterswyk. Josh how you doing today?

Joshua Winterswyk: I’m ready for today’s show, Matthew.

Matthew Theal: Great, great. And back on today’s show after a little break is RPA Wealth Management president Brent Pasqua. Brent, welcome back.

Brent Pasqua: Thanks guys. I’m excited for today’s show and I’m excited to be back with you guys.

Matthew Theal: Yeah, we’re excited to have you back and we’ve got a really good show lined up for our listeners today. So we have a lot of high net worth clients, right? Probably say that they have at least a million to three, four or five million in assets to potentially invest. Is that correct Brent ?

Brent Pasqua: Yeah, that’s a fair assumption on a percentage of the clients. Yes.

Matthew Theal: And a lot of these clients I think we meet with, at least I find when I’m working with them, that they’re missing some of the basic building box of financial planning. Like they’ve done a great job, they’ve saved a ton of money, they’ve worked really hard. Maybe they bought or sold a few businesses and they have a nice nest egg, but those basic building blocks in their financial plan are never put it into place. Do you see that as well Josh?

Joshua Winterswyk: Yeah, and I think that a lot of the questions about just foundational financial planning come up right from the very beginning, meaning any sort of brand prospect referral, right?

Matthew Theal: Yeah, absolutely. And so that’s what the today show is for. It’s the basic building blocks of your financial plan that you probably missed that really should be taught in elementary school, junior high, high school so that everybody gets these fundamentals in place. To start, Josh what’s the difference between an investment plan or a financial plan?

Joshua Winterswyk: That’s a really good question and they are very different when we’re talking about just an investment plan and a financial plan. An investment plan is basically a plan to tell you what to do with your portfolio, how to invest it and the plan basically stops there. Would you agree?

Matthew Theal: Yeah, so I guess an investment plan. Are you saying that like someone hands you a 10 page portfolio proposal with a lot of pie graphs and maybe some mutual funds and you don’t quite understand the name and they call them core equity or global equity.

Joshua Winterswyk: Yeah. And it probably somewhere says morning star in those 30 pages and a star over returns, historical returns, asset allocation and a long pitch.

Matthew Theal: Right. And usually they point to like the year of 2008 or 2009 and be like, “Oh look, this portfolio only lost 10% during the market crash. What a great portfolio this is for you.”

Joshua Winterswyk: I know a lot of advisors try and compare those with their portfolio. They’re presenting a new one versus an old one.

Matthew Theal: Yes, they do. They bash.

Joshua Winterswyk: I’ve heard a lot of that.

Matthew Theal: So yeah, so that’s an investment plan?

Joshua Winterswyk: Yep.

Matthew Theal: What’s a financial plan?

Joshua Winterswyk: A financial plan is everything we’ve discussed on all of these podcasts, which I love, which is actually the complete financial picture. So we’re starting with all of the foundational things that we’re starting with today. We’re not only talking about investments, but we’re talking about taxes and how that intertwines with your investments and retirements and making sure that you’re protected and your net worth is protected and spousal planning and estate planning. So obviously there’s a lot to a financial plan and we’ll discuss some of those foundational topics today too, but a lot more in depth, a lot more tailored than just talking about the actual portfolio, which is just one piece of a financial plan.

Matthew Theal: Absolutely. The investment portion, I guess for us when we we’re doing our financial planning process with clients is usually about one or two meetings.

Joshua Winterswyk: Yeah, and I wanted to mention that too. So the investment plan, when you’re doing full financial planning, the investment plan is built into the financial plan is one aspect of that.

Matthew Theal: Right. Anything else to add, Brian? On financial planning?

Brent Pasqua: I think what’s important that people realize when you’re going through the financial planning processes, you’re determining a lot of your foundational pieces in retirement. Like where your cash flow is going to come from, when you may be starting social security, when you may be triggering others, start with parts of your income, maybe it’s a pension, you’re looking at your expenses, paying things off when your debts are going to reduce. Obviously like Josh said, your taxes become a big part of that. Maybe you’re doing Roth conversions or maybe you’re looking at your requirement and distributions and also some of the risk management that’s involved in your financial planning. But then at the end of the day, you know legacy planning is important to a lot of people and then you start discussing part of the state plan. So there’s a lot of detail that goes into financial planning.

Matthew Theal: Absolutely. And for the listeners who don’t know legacy planning, that’s essentially how you planned. What do you plan to do with your money after you pass? Is that correct?

Brent Pasqua: Yeah. You’re planning either distributions of your state while you’re alive or, and when once you pass away, there’s a lot of planning options that you do have both while you’re alive and for when you pass away that you can start to put in place so those assets can be distributed properly to the kids.

Joshua Winterswyk: I have one more thing to add too before we get into some of these foundational steps of financial planning 101. Who’s financial planning for?

Brent Pasqua: Everyone. Would you agree?

Matthew Theal: Absolutely.

Joshua Winterswyk: No. Well, I have a lot of questions from friends and family that think that financial planning might only be for the ultra wealthy. Is that true?

Brent Pasqua: No, absolutely not. I mean, people of all ages and all stages need different financial planning. Now the level and depth you may get may be different for each person or different stages. But financial planning can and should benefit everybody.

Matthew Theal: It should. And it’s one of those things where it was actually for so long held out for only the wealthy. But, recently we’ve seen a rise in under call it 35 people searching for financial planning.

Joshua Winterswyk: And in doing really good research and finding a financial planner, how to get the right financial advice for that demographic. But I just wanted to acknowledge that because I feel like a lot of people don’t know where to search it out or how to find financial planning. And it is for everybody. It’s not just for the ultra wealthy. There’s just so many ways we can benefit someone’s life at every age with financial planning. Just kind of want to let the audience know that.

Brent Pasqua: And I think as we’ve sort of detailed out what you’re going through in the financial planning, whether it’s cashflow expensive, so on, people also understand what the process is like. And that’s first getting a really good understanding of what the client may have. Then laying out all the strategies and options that they have. Then you begin to implement that plan and then you monitor it. And accountability becomes such a big part because you can tell someone, “Hey, go do these things.” But they need you to hold their hand, they need help implementing it and then they need accountability to make sure that plan is continuing to work. So I think the process is very specific. It’s so helpful for people at all stages of life.

Matthew Theal: I agree. It’s personal financial training. You know you need to do 10 reps of the bicep bar, but your biceps start hurting at rep eight so you stop. When really a personal trainer is going to push you to get those full 10 reps in.

Brent Pasqua: I mean, what’s a more effective hour working out? Is it working out with a trainer, working out by yourself?

Matthew Theal: Yeah a trainer. Working out by yourself is useless. Absolutely agree. You’re basically going there to get away from your wife or your friends or your kids. All right, well let’s start with those bedrocks. So the first thing where I think we see a lot of people not being so good on is budgeting. Joshua, get us started with budgeting.

Joshua Winterswyk: Yeah, we can get it started. One just general rule. We’ve talked about this rule in the past and how to start a budget and before we actually get into the role, I think that creating awareness and tracking your spending is the first step to any budget, any real budget. So if you don’t have anything to track your expenses, whether you’re doing it manually or you’re using software like we’ve talked about on another podcast, and tracking those monthly expenses and income, that’s your first step. Would you guys agree?

Joshua Winterswyk: The next one to find an actual rule or rule of thumb or creating a budget and sitting down and writing that down, one that we like to use is the 50 30 20 rule. And the 50 30 20 rule states that 50% of your expenses should be going towards your needs. And your needs would include obviously housing, you need to drive a car, insurances that you also need and then that 30% of your expenses is going towards your wants. So this is everything extra that you do. So going out to eat, whether it’s entertainment, concerts, and then the 20% should be saved. So, 20% of your income should be saved on a monthly basis. And really I like to start with that percentage. So, working your way backwards of calculating how much you should be saving and setting that as your goal with this 50 30 20 rule. Anything to add to that Mat?

Matthew Theal: I’m betting on the happiness budgeting, right? Ryan said he talks about it, but spending it on the experiences you love and that are actually going to bring joy and then cutting expenses elsewhere that don’t bring joy. Great example is going out to eat if you’re a big foodie. You know go spend $200 at a meal. If you like going to sporting events, splurge for the better seats. Your TV’s better than sitting in the nosebleeds, right? Brent, do you have anything on budgeting?

Brent Pasqua: I think the big thing with budgeting to me is if people just spent the extra few hours, whether it’s a month or every other month or every couple of weeks doing it, they could actually work a little bit less doing things they don’t want to do by saving the money they can by just budgeting. So many people go work extra hours at work or they have to put in overtime or they do these extra jobs to make extra money, but if you actually spend a little bit of time doing your budgeting can save so much money that way.

Matthew Theal: Yeah and I think that when you do start creating the expense awareness, what will happen is you’ll start looking at your monthly expenses. You know that, “Man, how did I spend $8,000 this year at Like what on earth did I buy?” Then you’d go back through and you look through your Amazon order history. Like, “Man, I guess I really didn’t need that.”

Brent Pasqua: Yeah. And I guess my question would be is, is it harder to budget now than it was 50 years ago or is it actually easier? Because I know it’s more complicated in terms of, there’s people that have more accounts. It’s not white. You’re not saving money in just an envelope. But you have all these budgeting apps and tools and things that you can do that makes it so much easier.

Matthew Theal: It’s easier to track it, but it’s probably also easier to spend your money nowadays. You go online in two clicks and you’re getting your package in two days.

Joshua Winterswyk: Right. But I also think tracking expenses, you have to be willing to use the tools because look at how many useless apps you probably have on your phone. How many apps do you really use? And is that tool just another app that you’re not using? So yes, the tools are better, but in today’s world, we don’t get a statement that actually showed us what we spent each month. I mean the old statements that were sent to your home when you had to open them up, you look at the bottom of the expense sheet, you could see everything that you spent that month.

Brent Pasqua: Or you balance your checkbook.

Joshua Winterswyk: And you had to look at it almost, like as it came in the mail. Right. You wanted to make sure. Now you can go months potentially without looking at your expenses and seeing the total of what you spent monthly. If you’re not using those tools. I think that makes it kind of livable. You have to commit to tracking your expenses and creating that word to yourself. That’s very, very important.

Brent Pasqua: Yeah, and if you’re working extra hours to make more money, why not spend the extra hours to budget and save yourself money?

Matthew Theal: Right. Absolutely. Anything else on budgeting? All right, well let’s move on to the next one and you know we always are hammering this home, but an emergency fund. Brent talk to us about an emergency fund.

Brent Pasqua: Emergency fund is a great way for you to put money aside every single month to build up this side full of money that’s there for you in of case emergency. I mean if you have to fix your roof or you have car problems or you have any issues that come up, cause we all know we have financial issues that come up, we need money at some point in days. It always seems that the worst time you have these big expenses that just randomly pop up, you’re not putting that money on a credit card and you haven’t that six months or three months savings and you’re putting that cash aside into a savings account and you’re building that six months out.

Matthew Theal: I think it’s important. And when we do say an emergency fund, all we really mean is it’s your savings account and you should have, three to six months of your net income saved up. Josh, anything to add?

Joshua Winterswyk: No, and I think it’s extremely important. I think this is one area that we see a lot of clients, that we have to work on them with because they don’t know what they should have in that emergency savings or in cash. But I just think there’s just so many reasons why you should have that three to six month bumper. I mean, even short term disability needs, just time off, you don’t know what’s coming, you don’t know what life’s going to bring. And so being properly prepared is going to make sure your financial plan is well prepared for the future.

Brent Pasqua: So if you don’t have three to six months saved right now, what would be your suggestion on saving that money?

Matthew Theal: Figure out how much it is. So, if it’s $50,000 and then autosave that over the next two to five years. It does take a while to build a savings account. I mean, this is the state of California expenses are high. So maybe it’s 500 a month, maybe it’s 250, maybe it’s $1,000 a month that you auto save in the account.

Brent Pasqua: And part of that comes back in to budgeting. Right. Cause you got to see what you can auto save. Just cause you put it in doesn’t mean it’s not going to come right back out.

Matthew Theal: There’s nothing worse than that, right? Putting a thousand in a month. Oh look, I’m pulling 970 out. Yep.

Joshua Winterswyk: That’s the same idea. We have a lot of people ask, should I be investing that extra $500 I saved, but they don’t have the appropriate emergency savings. No. We should build the emergency savings first because the last thing we want to do is go dip into the investment when you don’t have the emergency savings adequately funded.

Brent Pasqua: Absolutely. That could just end up costing you way more.

Joshua Winterswyk: And costing you money and taken away from return which that’s what your hopes were.

Matthew Theal: All right, let’s move on. Let’s start talking about reducing debt. And Josh, I always joke that you are kind of the debt slayer of the office you’re our go to for helping people get out of debt. You want to kick this one off?

Joshua Winterswyk: Yeah, I think we should just start with finding out or explaining the different types of debt. So there’s bad debt.

Matthew Theal: What would bad debt be considered?

Joshua Winterswyk: Bad debt is going to be for an example, credit card debt. Unsecured debt that we’ve charged for just living over our means.

Matthew Theal: Yeah, credit card debt is really bad. And what are some characteristics that make it bad? Is it the interest rates?

Joshua Winterswyk: Interest rates, late payment fees, penalties. There’s really no help either. So, financing on credit cards, the interest rate is also variable. So, coming up with a strategy that makes it even more difficult. They’re typically going to have the highest interest rates out of the other two deaths that we’re going to talk about in just a second. So, just credit card debt as I’m sure you guys have seen, can just be so detrimental to a plan.

Brent Pasqua: I feel like having credit card debt is like driving down the street with your window down and just throwing cash out of the window. You might as well just keep throwing money out because those credit cards have such high interest rates that you’re just giving money away.

Matthew Theal: Yeah, absolutely. Joshua I know you watch Narco’s, remember Narco’s, I don’t know if it’s season two or season three when Pablo starts burning the cash to keep his kids warm because it’s cold and he’s on the run.

Joshua Winterswyk: Yeah, I think it’s season two. That was a good scene.

Matthew Theal: Yeah. Did you see that Brent?

Brent Pasqua: Uh no.

Matthew Theal: So, yeah, that’s exactly what you’re saying, you’re just burning your cash.

Joshua Winterswyk: Yeah. I think credit cards are more of a tool for the short term. It’s not a long term financing solution. So avoid the bad debt.

Matthew Theal: Yeah, I actually put all my spending on my credit card per month. I just pay it off at the end of the month, which is the difference with a lot of people for sure.

Joshua Winterswyk: And again, it comes back to the budgeting and awareness. Like you want to know how much you’re spending. So your credit card bill, isn’t more than you can actually pay back each month.

Matthew Theal: Yeah, totally. What’s a good debt?

Joshua Winterswyk: A good debt is your home. Let’s, take mortgage for an example, a good debt. So, too many people are too quick to pay off the good debts. And just to kind of talk about that point, when you pay off your home, you’re also making a large investment into that house. And when you owe money on your home, you’re making a leveraged bet on your own, right? Like the home is actually going to go up and home mortgages are typically your lowest interest rates, right? Or right now we can talk about interest rates anywhere from three and a half percent, four and a half percent, 5% depending on when you’re listening to this. So definitely when we’re talking about good debt and paying down good debt, let’s take a bigger look at the whole debt situation before we make the assumption that we just to always pay down good debt first.

Matthew Theal: Yeah, I see this all the time and Brent, I know you see this too when you’re working with clients, but let’s say they’ve saved up, they have 250,000 in the bank. They probably have retirement portfolios at one to $2 million and for some reason, maybe they have a 100,000, 150 left on a mortgage. They have that itch to pay their mortgage off. And what you’re actually doing when you are doing that is you’re taking good money, your 250,000 and you’re essentially throwing it at bad, right? Cause there’s an opportunity cost. You’re now making an investment in that home, which probably isn’t that good of an investment anymore.

Brent Pasqua: Right. I think a lot of people have different opinions about that, but I think at the end of the day, one of the challenges too is if you were ever need that $150,000 again, you can’t really get it out of your house. Yes, there’s ways you can take obviously a line of credit, but now you’re borrowing money from the bank, so it’s not that easy to get back if you need 150,000 again.

Matthew Theal: Yeah, absolutely. It’s an opportunity cost.

Joshua Winterswyk: Yeah and an asset isn’t it? Completely liquid. You’re not going to sell your home if you need $100,000 for an emergency.

Brent Pasqua: I think what most people see value in though is not having to make that monthly mortgage payment. And once you get on a fixed income like, “Hey, well I don’t have to pay $2,000 more a month.” But what they don’t know is you could take that 150,000 aside and have that helping you make your mortgage. There’s lots of ways to structure it, but it’s like you always say mass mental accounting, but there’s a right way to do it and there’s a way that makes sense and there’s a number of part to it. I think that’s what people lack, is being able to calculate or knowing how to calculate it out.

Matthew Theal: Yeah, well that’s short term thinking I guess.

Joshua Winterswyk: Well there’s a lot of analytics that need to go into that decision of understanding what the growth rates are with your home, what’s your expectation of your home is going to grow at, what your interest rate on your home is currently as well. And I think just analyzing that data is going to open up a lot of different options for you. Whether if it’s for retirement planning or just short term planning. So yeah, just making sure we’re spending the time analyzing that good data before we make a decision.

Brent Pasqua: I don’t know how many times in the last couple of months, whether it being in client meetings with the client or being with you guys with clients that I’ve heard, “Oh I didn’t think of that,” or “I didn’t think of it that way,” or “I didn’t see that being an option” or “I didn’t know that was an option.” And then you create these strategies that are so much more beneficial that they wouldn’t never thought of and then you start implementing them and those are life changing events.

Joshua Winterswyk: Yeah, absolutely. It seems like a lot of those conversations, and probably because the home is one of the biggest assets that our clients and people that inquire with us have. But a lot of those situations where clients, it opens their eyes around the home, right? Like should I be paying it off? Should I be moving? Should I be refinancing? It just opens a whole lot of doors for them.

Brent Pasqua: And I think once we’ve built our client’s financial plan, even when they’re clients and we’re doing ongoing reviews with them and we’re doing updates with them, the strategies don’t stop. The strategies are always ongoing. People’s lives are always changing. I think that’s what’s so critical is that even though we’re meeting with them every quarter, there’s always new things happening and new strategies coming out and those are always life changing too.

Matthew Theal: Yeah, absolutely. So what would be considered a neutral debt?

Joshua Winterswyk: And then the student loans.

Matthew Theal: Oh, controversial debt.

Joshua Winterswyk: Yeah, you have a lot of mixed feelings about student loans. Matt actually this is, I was just going to topic it. You’re really good at talking about the student loan topic of again using that word opportunity costs of taking on student loan debt and you know, projecting your future.

Brent Pasqua: Is this going to get you fired up?

Matthew Theal: Maybe. So here’s the thing, if you’re over the age of 50 you probably really didn’t have to take out that large of a student loan. But if you are under the age of 50 and especially under the age of 45 you did have to take out a student loan most likely to go to school cause the costs in college has been increasing so much.

Matthew Theal: And the jury’s really out on if taking debt to go to school is a good idea. And I think it has them, in my opinion, what I’ve seen working with clients is it matters based on what the job is that you’re actually going to go do and are you going to be a teacher? The answer is yes. It probably doesn’t make a lot of sense to take down more than six figures of debt going in an expensive school to becoming high school, elementary, even a private school teacher, the pay is just not there to support it. On the flip side, if you’re thinking of becoming a surgeon, that probably makes sense, right? You’re going to come out of school probably about 500,000 in debt your first year out of school you’ll probably make five, 600,000 a year, so that makes a ton of sense. On the legal side, another big professional where people take down lots of debt. Does it make sense? Yes. But probably below a hundred thousand dollars. For every new successful lawyer, there’s 10 unsuccessful ones.

Joshua Winterswyk: Yeah. I think you’re making great points and what I hear from it as well, we’ve talked about this a few times just entering the office and again is requiring us to do more research. Yes, I’d love to go to this prestigious school that’s going to be $100,000 and I know I want it to be a teacher, doctor, lawyer doesn’t matter, but doing more research of what am I expected to pay, right? Because I’m not planning just to call myself an attorney, a doctor, or teacher, but planning and projecting what I’m going to be paid after that, how much debt I’m leaving or going to be exiting school with, and then continuing to build that financial plan before we even start at school. I know that’s a lot to ask maybe for someone who’s just getting out of high school or going back to school. But you could see how important it is, because you can set yourself back for years by making the wrong decision with education and see the loans. We’re seeing it now.

Matthew Theal: Well in some of the parents. The parents actually need to help the kids make the decision because the kids aren’t capable of making the decision. So it’s on them, which is why I think it’s important we talked about it on this retirement based show, because I’m sure a lot of people who are listening to this are helping their kids do this or maybe they’re going to experience it with their grandkids shortly. And it’s something you really have to think hard about. The state schools are fine.

Joshua Winterswyk: And just setting the right expectation, helping your children or grandchildren or, even if it’s a spouse, understand and setting the right expectations for student loan debt.

Matthew Theal: Yeah, I know I’ve seen this and Brent, I’m sure you’ve seen this, but you get the client who’s in their early fifties and for some reason they’re burned out of their career and they’re going back to the school and they’re taking out a hundred, 150,000 in debt.

Brent Pasqua: Right and then their expectations of what they’re going to make in the future is a little bit higher than what there probably is practical.

Matthew Theal: Right? So it’s like, you still want to retire at 65 but you’re going to have an extra 100,000 student loan debt. Yeah, I don’t know. I mean, you can’t discharge it. There’s no way to get rid of it.

Brent Pasqua: The thing that I’ll say about all debt, whether it’s good debt, bad debt, neutral debt, it’s not a good idea of what your credit score is. Because if you’re going to go get a loan, whether it’s a home loan or car loan, your interest rate is so impactful on how much interest you’re going to pay over the life of your house. Do your homework and spend a little time as you’re learning to budget and do spending time budgeting, to know what your credit score is cause you’re, again, just throwing money out the window if you’re not paying attention to your credit score.

Joshua Winterswyk: Yeah, great point. And there’s so many tools that we talked about. There’s so many tools for tracking expenses, but there’s so many tools for tracking your credit now too. Credit karma as one that comes to mind. I think that’s free so, flip that. But you know, I agree with you 100% it’s so important for overall financial success to understand and have a good credit score.

Brent Pasqua: Yeah. You and I worked on one we were helping a client get a loan and the difference between loan A and loan B that the client was looking at was a difference of hundreds of thousands of dollars. That they’d be paying in interest over the life of the mortgage. It’s so critical just to know what you’re looking at when you’re dealing with an home loan or any type of loan nowadays.

Joshua Winterswyk: Yeah. And it keeps your options open. You’re not stuck to one option because you’re limited by your credit score. So you can get creative with financing because the better your credit score, the more willing everyone’s going to lend you money. So, the more you can shop, the more you have better options. So, great point. And very important.

Matthew Theal: Yeah, great point of focusing on the credit score. All right so, so far we’ve discussed budgeting, emergency fund and paying down debt or keeping debt to a minimum. After you have those three in place, we could start talking about saving for retirement. And really the rule of thumb or we say if you’re a high earner and you’re earning over, call it 200,000 a year, you need to be maxing out all the potential retirement savings vehicles that you have available to you. So that’ll be a Roth IRA, a 401k, an IRA or 403B, whatever your employer offers, you need to be maxing it out. And if you’re a business owner you need to be maxing out some kind of solo 401k, there’s other plans we can put in place for business owners. More on the defined contribution side. If you’re making over 200,000, you need to be maxing out your plans, end of story. Josh.

Joshua Winterswyk: Yeah, I think that’s a great point and I also think that to go along with maxing out your retirement benefits, also taking advantage of all of the other benefits that let’s say your employers offering, right? And doing a complete benefits review, not only maxing out retirement benefits, but if it’s also on the insurance side, medical, life, disability, like making sure you’re reviewing all of those. I think they just go hand in hand because when you get your packet through open enrollment, it has it all in there. Take advantage of all of it. Right?

Matthew Theal: Yeah, totally. And then to go back on the retirement savings, Brent, why is retirement for this generation coming up going to be so different than that previous generation that may have retired in the 1980s early 1990s?

Brent Pasqua: That’s a great question. I think the biggest problem is, is that this generation retiring is going to have so much less fixed guaranteed income that they’re going to have to fill the gap between their income and their expenses and that gap is widening tremendously. Most people that are going to retire over the next 35, 40 years are no longer going to have pensions obviously, and it’s going to be either just social security and then everything you’ve saved. So you better start early and you better save a lot because that’s going to be what you’re going to live off of when you get to that last chapter, those last chapters of life.

Matthew Theal: You know there’s corporations that still offer pensions. I mean, it seems like I get a client with a new pension buyout at least once a month. And they’re buying them out and getting rid of them.

Brent Pasqua: Yep. And they make it look so attractive to take that lump sum. And most people are attracted to it so they just jump on it. But you know, obviously state and government plays, they have pensions and that’s sort of a different planning style and strategy that we go through with those clients. But if you don’t have that five or six $7,000 guarantee a month, Oh you better start saving. Cause that’s the only way you’re going to receive that or have that as by your retirement accounts.

Matthew Theal: Yeah. Probably the projection today for the average boomer I’d say is you’re going to need somewhere between one to 1.5 million and then for actual millennials for their kids. Right. So people under 40 are probably going to want to have at least $3 million put away.

Brent Pasqua: Right. And it could seem so much to so many people if you’re just listening like, “Wow, how am I ever going to do that?” But actually it’s very attainable. You can do it, just started saving understanding investment picks that you’re going to have in your options and then do some financial planning. You will get there.

Matthew Theal: Yeah, absolutely. Josh, anything else to add?

Joshua Winterswyk: No, I think you guys wrapped it up well and I think just to kind of explain the difference between the two styles, if we’re talking about that employer pension or that defined benefits style of retirement that the older generation has had. The employer took on all the risks, they took on all the planning behind it and that’s why there wasn’t much planning for that older generation. Right? All of that’s falling on the employee now. They’re the contributions to 401ks and IRAs. So do your research, commit to financial planning because no one’s going to do it for you. And before it was kind of done for you. Now it’s not anymore. So it’s just kind of my public service announcement. Do your own research, plan for your future because no one else is going to do for you.

Matthew Theal: Yeah, absolutely. Well put Joshua. All right, so those are the four bedrock staples of a person’s financial plan. I do want to spend some time though talking about the kind of advanced strategies that I see a lot of people try and do before they do the four retirement debt emergency fund and budgeting. Brent you want to kick that off with some mistakes or things you see on the advanced strategy side that people try and do too early or too soon?

Brent Pasqua: The most common mistake that I see that people make is on rental properties. Most people will either take out a mortgage on their house or they have some money on the side, so they go buy a rental property and they think their rental property is doing great. But once you start calculating what they’re receiving, rental income, what some of the expenses are, next thing you know, you’re either rate of return is extremely low or you’re actually losing money and all it takes is you having one bad renter to ruin that whole investment. And you shouldn’t even have been in a position the first place to be buying a rental property because obviously you should hold off until you do full financial planning to buy a rental property. Ensure it makes sense. So I think that’s the most common strategy mistake that I see most people make.

Matthew Theal: Yeah, I would agree. Rental properties, it’s one of those things where they hear, “Oh my neighbor, he’s a multimillionaire. He has 15 rentals. I could do that. He’s not that smart.” But one, he’s probably leveraged through the roof. And two, you don’t know how much money he’s truly making on each rental.

Brent Pasqua: At the end of the day there’s a rate of return.

Matthew Theal: Yeah. And there’s people who try and rent single family homes. And there’s people who are renting multifamily units or big office complexes. They’re two different things. So just know which one you are. Josh, what mistakes do you see?

Joshua Winterswyk: I also see not defining an investment philosophy and this goes hand in hand with the common stock picker day trader. “I’m going to invest money finally and I’m going to pick stocks, pick common stocks and I’m going to pick the winners to really try to make a lot of money.” And I see that as being one big mistake with investors. They’re not tracking their real rate of return amongst their common stocks. There’s no real defined philosophy behind picking the common stocks and it’s leading to a negative outcome and very expensive. So if you want to avoid the headache, do your research on looking up an investment philosophy that fits your financial plan and stay away from the socracy.

Matthew Theal: Totally. And for those common stock pickers, usually, and I don’t want this to come off rude, but usually you’re coming a little bit late to the party. So right now, really for the last year, it’s been people calling in, “Hey, can you help me buy pot stocks? We want to invest in marijuana.” Or you know, two, three years ago it was Bitcoin.

Joshua Winterswyk: Oh yeah, Bitcoin.

Matthew Theal: Yeah, that turned out well. Right now, I mean, we’re at the end of the year, right? And we’re coming up on the end of the decade. So you’re going to start seeing the list of the best performing stocks of the decade. And all those people are going to see these lists. I know for sure Netflix is on the list. I think it’s up like 2000%. Now they’re going to call in, “Oh, I want to buy Netflix. It was up 2000% over the last 10 years it’s going to do that again.” It doesn’t really work like that.

Joshua Winterswyk: Guess what it’s not going to do next year. You’re just chasing returns. You’re chasing the return.

Matthew Theal: Yeah, and then you know some other ones where we see that are advanced, the people kind of get in over their skis or on the private read side. Again, going back to real estate, just really not a good investment for people who don’t have the basics under control. And then also annuities. Right, right. Brent?

Brent Pasqua: Yeah. Annuities is something that a lot of people are getting kind of trapped into because they do obviously pay a commission to somebody signing up, but these contracts can be very complex. They can be extremely costly in fees. They are longterm, they lack liquidity and it makes it very complicated for someone to plan a proper retirement with some of these annuities where you’re going to get locked up for so long you have low cap rates and most really don’t have a good understanding about how these contracts are going to impact their financial plan long term. I would tell people to be very mindful of getting into any annuity contract unless it’s coming from a free land advisors not getting compensated for that contract because there are field only annuities now that do not pay the advisor commission, which are so much better for the client. You have to be so careful with these annuity contracts.

Matthew Theal: Yeah, and I know we did that whole whole long show on annuities where we went through the basics of how the industry works and it was a really popular show. So if you are interested in learning more about annuities, you’re getting those steak dinner invites. Go back and find that that show in our feed and give it a listen cause we think you’ll really enjoy it. Josh and the other advanced strategies?

Joshua Winterswyk: No, I think we wrapped it up good on a advanced strategies, but I think one thing that’s important is, and the theme of the advanced strategies is just trying to make it too complicated. Like keep it simple, don’t try to make the strategies and reinvent the wheel. When you’re starting out or you’re trying to build these building blocks, the simpler the better instead of trying to make it more complex.

Matthew Theal: I agree. Brent any pardon thoughts?

Brent Pasqua: No, I think we hit a lot of these important 101 tools and at the end of the day, I think what’s important is meeting with the advisor, doing strategy meetings, doing the implementation, doing the monitoring, and it will lead to a valuable outcome.

Matthew Theal: Yeah, I agree. It’s one of those things, get the basics down first, then start graduating yourself to the more advanced strategies, I mean, you’re not going to do algebra or calculus if you can’t add. So start with the basics even though sometimes they might come off as a little boring.

Joshua Winterswyk: You could try but you might not be that successful.

Matthew Theal: That’s true. You could try. All right. Well anything else for today’s show.

Joshua Winterswyk: No, are we doing recommends today?

Matthew Theal: No, there’s no recommend. So our holiday gift guide just just got published. You can go to and check out our holiday gift guide. We have recommendations from the three of us and then our wives as well. Some good gifts that you could get the loved ones in your life.

Joshua Winterswyk: Awesome. How can people send us a message on who their favorite gift recommendations came from?

Matthew Theal: They could email that’s and they can vote for their favorite gift.

Joshua Winterswyk: You can also comment on the blog.

Brent Pasqua: And what about Facebook?

Matthew Theal: Yeah, you can comment on Facebook or the blog as well.

Joshua Winterswyk: We’ll monitor on channels to keep track of all my favorite.

Brent Pasqua: I’m competitive also, so I’m hoping that, cause we got ours, we got our wife since like maybe whose family is the best too.

Matthew Theal: Yeah. Well Hayley actually ended up writing more than all of us put together, so she’s just a little over achiever that one.

Joshua Winterswyk: Go on there and vote for who’s your favorite gift recommender.

Matthew Theal: Wow. All right, well I think this is our last show of 2019 so thank you very much for listening and we wish you a happy holidays and a Merry Christmas.

Brent Pasqua: Looking forward at 2028 and all the new great shows we have coming out next year.

Matthew Theal: Yeah, me too.

Joshua Winterswyk: Me too. And thank you to all of our listeners in 2019 and looking forward to new podcasts out in 2020.

Brent Pasqua: Happy holidays everyone.

Matthew Theal: Merry Christmas and happy new years.

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