Episode 3: Spoke Conversations

Episode 3: Spoke Conversations

In this episode, I'll tell you about an experience I had being overwhelmed at and investment expo. Because of this experience, I learned about the 4 most common mistakes people make when thinking about savings plans, cash flow management, tax management, insurance, estate planning and any of the many other Spoke conversations. You will learn about the 1 key questions that will help you cut through all the hype and self-serving financial advice.

Hi I'm Thom Allison. Welcome to the Financial Wheel Podcast. In our first episode we talked about the idea of the financial wheel having three parts. There's the hub the spokes and the tire. Today what we want to do is talk about the spoke conversations that you're going to want to have with your financial advisor with your spouse with your partner with the people who are important to you in managing your personal finances. So first of all what our spokes I mean what what are we talking about when we mentioned spokes. Well spokes are the things that you most likely think about. Spokes are things like your cash flow management, balance sheet management. How do you use debt when is it appropriate to use debt. How should you be using debt. What are the various savings plans that you have for their savings for retirement or savings for your kids education or grand kids education savings for special events that you want to have maybe savings for the experiences for the memories that you want to create for your kids or for your grand kids. Spokes are conversations about your generosity planning. What are the organizations that are important to you what are they doing what are the causes that are important to you. Do you want to be giving money to these people do you want to be given your time do you want to be given your talent your skills to these people these types of spoke conversations that you want to have. Spoke conversations deal with your estate plan. What do you want to have happen to your assets if you pass away.

Who is going to benefit from them. And even more importantly how do you want them to benefit from them. So spoke conversations involve the estate plan and they involve your record keeping. How do you keep track of what you have and in the event that you estate plan goes into effect. How are people going to find out what you have because that's the first thing they have to do. Spoke conversations deal with risk management and they help you have conversations about the risk that we can eliminate because there's something here that's not important to us but it's presenting a potential financial risk. They give you conversations about what risk can you mitigate and then what risk you're gonna pass on to somebody else in the form of insurance and how much of that are you going to pass on and how much you're going to keep yourself. And if you're going to keep it yourself how are you going to handle that if that risk becomes a reality. And of course spoke conversations deal with your portfolio management how much should you have in various asset types who should manage it. Should you have an active manager not an active manager a whole bunch of questions around that. As we go forward in these financial will podcasts, we're going to be having a lot of conversations around spoke so we're going to be bringing in a lot of people who have expertise in specific areas in here so that you can learn important factors about spokes.

You can learn about skills around managing those spokes. But today what I want to do is focus on common mistakes that people make when it comes to spokes and the first one is failing to ask a very simple question Is this right for me.

This point was driven home to me almost 30 years ago now when I went to an investors expo in Seattle at The Seattle conference center. It was an expo that was aimed at the consumer not at the financial advisor. And there were a lot of breakout sessions where people were talking about various things but what really struck me was the exhibition hall by itself. Rows and rows and rows of people who had various financial products that they had manufactured and they were selling and that they were pitching. So I started walking down one of these rows and I went to the first booth and I heard this guy tell me all about why I should be investing in his mutual fund that invested in large company dividend paying stocks. I learned about how stable and steady large companies are. Their stock doesn't fluctuate a lot.

I learned about the value of having dividends in this steady income stream and I thought wow this makes an awful lot of sense. And so I gathered up all of his literature and put it a bag and I walked over to the next booth and at the next booth I learned all about the value of investing in gold.

Gold is a great hedge against inflation. If the whole world blows up gold is what's important to you. Somehow I kept thinking well gold might not be the most important thing if the world blows up. But that's OK. It's gotta best be important.

So I took some of his literature and I put that in my bag. Then I walked over to the next booth and here I learned about small company stocks. Small companies are the heartbeat of the U.S. financial system. They employ more people than anybody else innovations come out of small companies great growth opportunities come from spot you have to invest in small companies. Wow that sounds great of course my arms about breaking from all the literature I've collected I've only gone to three booths so far and what occurred to me is. This is my profession. This is what I do for a living and I'm confused. How am I going to make sense of all of this conflicting information. And if I can't get it. How are all these people in here who don't do this for a living every day who don't study this stuff in depth. How are they going to make sense. And it occurred to me that you can make sense out of it by asking a simple question Is this right for me. Now in order to answer that question you have to have a strong financial hub. You have to know what it is you want to accomplish. You have to know what life you want to build and how all of these products may help you to do that. A good financial advisor is someone who can kind of help you think that all through but you have to ask that question is it right for me. Because the reality is that there is an element of truth to every single one of those sales pitches that I heard that every one of those products probably serves a good function for the right people in the right stage of life who are trying to accomplish something where that will help them do it.

But it's not right for everybody. So you have to look at yourself and ask Is this right for me. Too often it seems like people listen to various pundits on the radio they'll read newspaper articles or magazine articles and they go Wow that sounds great. And try to apply that strategy or that financial product to their life and it bombs on them because it's not right for them. So ask that question. That's the first mistake that I see people make is they don't ask is this right for me. Second mistake that I see people make is that they look at their spokes in isolation. They tend to compartmentalize so they'll say things like I'm contributing to my 401k check. Got that done did my taxes check got that done. Bought some insurance check got that done. What they're not looking at is the way that these things interact with each other. They're not seeing the whole picture. So let's say for example that you decide that you want to increase the deductible on your homeowner's insurance from a thousand dollars to five thousand dollars because it gives you a significant decrease in the premiums that you're going to pay. That might be a great decision but what that means is that now you potentially have a five thousand dollar risk that you didn't have before you've increased it by four thousand dollars.

Where's that four thousand dollars going to come from. Well what it means is that you probably need to increase your emergency savings by five thousand dollars. So that has an impact there. Now if you increase your emergency savings by four thousand dollars that means that you have less money that you can put into the savings fund for the vacation that you want to take your family on which means that you may have to change your vacation from a week at Disney World to a week camping at Yosemite just in order to save some money. So you start to see how one small little change in one of the spokes actually affects all the spokes all the way through. And if you fail to take that into consideration you're going to end up with a wobbly wheel. And that's the third mistake that we see people make. They fail to keep their wheel in balance. What I want you to picture in your mind right now is a bicycle wheel. And in fact if you go to our Web site financialwheel.net you'll see a picture of a bicycle wheel so that you can actually visualize this when you get a chance or for that matter if you happen to be over at the club working out right now and you're on one of those little bicycle things you got this nailed down you know exactly what we're talking about. So think about a bicycle wheel. OK. Now the thing about a bicycle wheel is every one of those 36 spokes and a standard bicycle wheel is adjustable and you can increase and decrease the tension on those.

And if you get one a little tighter than another the wheel gets out of balance. And when it gets out of balance it starts to wobble. And if it wobbles it's going to take you off course. In fact if it wobbles bad enough it's going to throw you off the bike completely. Well the same thing happens with your finances if you don't continually keep all of these financial spokes in balance then your financial wheels going to get out of whack. It's going to start to wobble and it's going to throw you off course or if it's bad enough it can just throw your finances into total turmoil. So the next big mistake that I see people make is that they don't keep their financial spokes in balance and therefore their whole wheel gets out of balance. Of course the question that you want to ask yourself is do you want to keep your financial spokes in balance yourself or do you want the help of a professional. So let's think about that bicycle wheel again. One of the ways that you can keep your bicycle wheel in balance is to simply turn your bicycle upside down and get it in a stationary spot and then slowly turn that wheel around and keep an eye on where the brake pads are and in the areas where it moves a little bit closer to the brake pad that means that you're out of alignment and you need to make an adjustment there.

Course if you've ever tried that what you discover is that when you make it a little adjustment on one to move that over somehow it moves the other side out of alignment. And now you've got to kind of move that way and then you do this the next day. Remember there's 36 of these things that you've got to get them all lined up just right. Professionals have a balancing wheel and it's a special tool that they can set that wheel on. And it tells them exactly which one needs to be tightened and exactly how much needs to be tightened so that they can actually get that wheel in balance. This is critical. The faster you're going the more important that that has to be that that wheel is in balance. So that's why the advantage of having a professional balance that wheel is that you can get it accurately done much more quickly in the same way when you're trying to balance out your financial wheel if you have first of all a stable hub a clear vision. And if you're talking to a financial professional who genuinely has your best interest in mind and is ready and willing to put your interests ahead of their own then you can get that wheel in alignment much more quickly. Now ask yourself how do you feel about your own finances right now. How about your own financial wheel. Does it feel like it's in balance. Does it feel like it's a little bit out of balance. Remember we talked about the advantage of working with an advisor in that first episode when there are the intangibles that the Canadian study told us about that people felt better felt more in control felt like their financial wheel was more in balance when they were working with a professional. If you want to see that study go to our website financialwheel.net. We have it posted there and you can learn more about that. So the key points to remember about spokes.

Number one you have to be asking is this right for me. There's a lot of information out there a lot of conflicting information some of it's good some of it not so good. But if you ask that question is it right for me then you can use information that's valuable to you. Second you need to make sure that you look at all of the spokes in some of these or spokes that you maybe never have thought of looking forward. When we have future podcasts when we bring guests in we're going to talk about the wide range of spokes. There's 36 and a bicycle wheel there's a lot more than 36 in your financial wheel as you will find out. Third you need to make sure you keep all of these things in balance.

So next podcast we're going to talk about the tires what they are why they're important to you. And then we will have the entire wheel put together and then we can get into these serious conversations about hubs about spokes and about tires as we go forward from there. So until then keep your conversations supportive and constructive.

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Financial Satisfaction Survey

 


Directions: The statements below will help you to think about and assess how satisfied you are with many aspects of your financial life. Indicate your level of satisfaction for each statement with stars.
(1 star = "Not Satisfied", 3 stars = "Moderately Satisfied", 5 stars = "Very Satisfied")

I am satisfied with...

1. ...with my ability to meet my financial obligations

2. ...with the income my current job or career provides me.

3. ...with my spending habits.

4. ...with the level of debt I carry.

5. ...with the “extras” that I am able to buy for myself and/or loved ones.

6. ...with the level and quality of insurance protection I currently have.

7. ...with the amount of money that I save and invest on a regular basis.

8. ...with my current investment choices.

9. ...that I am on track to build a sufficient retirement nest egg.

10. ...with the level of employee benefits I receive.

11. ...with my style of personal bookkeeping and financial record management.

12. ...with my ability to provide financial help to family members.

13. ...with my estate plan.

14. ...with my level of charitable giving.

15. ...with the level of financial education I have attained.

16. ...with how I respond emotionally to my personal finance issues.

17. ...with my ability to communicate about my financial matters.

18. ...with the feelings I have about my money life.

19. ...that financial issues do not cause stress or strain in the relationships that are important to me.

20. ...with the working relationships I have with my financial service providers (i.e., insurance agent, banker, broker, financial planner, accountant).


© 2002 - 2018 Money Quotient, Inc. All Rights Reserved. This document is available via licensing arrangements with Money Quotient and is protected by federal copyright law. No unauthorized copying, adaptation, distribution, or display is permitted - moneyquotient.org.

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Life Transition Survey

 


Directions: In each section, select the transitions that you are currently experiencing and those you are likely to experience in the future. In addition, check transitions in the short to mid-term and long-term columns that you either hope to experience or anticipate with concern.

Work Life Transitions

1. Change in career path:

2. New Job:

3. Promotion

4. Job loss

5. Job restructure

6. Education / retraining

7. Sell or close business

8. Transfer family business

9. Gain a business partner:

10. Lose a business partner:

11. Downshift / simplify work life

12. Sabbatical / leave of absence

13. Start or purchase a business

14. Retire:

15. Phase into retirement

16. Other


Financial Life Transitions

1. Purchase a home:

2. Sell a home:

3. Relocate:

4. Purchase a vacation home / timeshare:

5. Re-evaluate investment philosophy:

6. Experience investment gain:

7. Experience investment loss:

8. Debt concerns:

9. Consider investment opportunity:

10. Receive inheritance or financial windfall:

11. Sell assets:

12. Other:


Family Life Transitions

1. Change in marital status (marriage):

2. Change in marital status (divorce):

3. Change in marital status (widowhood):

4. Expecting or adopting a child:

5. Hire child care:

6. Child entering adolescence:

7. Child with special needs:

8. Child w/pre-college expenses:

9. Child going to college:

10. Child getting married:

11. Empty nest:

12. Family special event (Bat/Bar Mitzvah, anniversary party, trip):

13. Helping and/or gifting grandchildren

14. Concern about aging parent

15. Concern about health of spouse/partner or child:


Legacy Life Transitions

1. Increase charitable giving:

2. Give special financial gifts to children/grandchildren:

3. Give parental pension (monthly stipend):


© 2002 - 2018 Money Quotient, Inc. All Rights Reserved. This document is available via licensing arrangements with Money Quotient and is protected by federal copyright law. No unauthorized copying, adaptation, distribution, or display is permitted - moneyquotient.org.

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