#2020Plan Archives - DESMO Wealth Advisors, LLC

A Course Correction for 2020

The purpose of financial planning is not to remove uncertainty or to predict your future financial situation with accuracy. The purpose of a plan is to help you maximize the value of your resources to achieve your goals. Setbacks are part of the game. They are an opportunity to revise your plan, reevaluate your goals and priorities, and push forward. No one expected a “2020,” but that’s what we got. The key to our success is what we do next. Let’s make what we are going through an opportunity to evaluate what we really care about, our values, goals, and priorities, and adjust our plan accordingly. Here is a selection of our blog posts to help you do that.

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How to Build a Safety Net for Your Plan

You don’t have a sound plan for your desired goals in life until you plan for emergencies and setbacks. In financial planning, this means planning for and building the right ‘safety net’, an amount of savings you set aside and only touch in case of an emergency. How should we evaluate the amount of savings required in a safety net? The answer varies by individual and household, but here are some general guidelines.

What are your needs?

The first step is to figure out what your needs might be. One of the main things we plan for is the loss of a job. If you lost your job, how much do you think you will need on a monthly basis to maintain a comfortable standard of living? It helps to have a budget, but getting a rough idea should not be too hard. Keep in mind that if you had to, you’d probably be able to cut some expenses, like eating out or expensive vacations. For example, say you make $100,000. If you lost your job and had to live on your safety net, your taxes will be minimal and you can probably postpone saving for other goals until you find another job. So you might only need to generate about 50% of your initial income to live relatively comfortably, or about $4,200 a month. One factor you may want to consider is your health condition. If you have recurring health expenses or there is a likelihood you may need additional funds for health expenses, you should plan for those separately in your safety net.

For How Long?

According to the Bureau of Labor Statistics, the median duration of unemployment is about 10 weeks. So a starting point can be to plan for about three months of expenses. But here is where individual circumstances can change quite a bit. The data shows that for about ⅓ of the population, unemployment can last longer than 15 weeks. If you are married and have only one source of income, it may make sense to increase the safety net up to 24 weeks, in case your unemployment lasts longer.

Your profession can help you determine how long you should plan for. Some professions are in demand, so a shorter time frame may make sense for those. Other, highly skilled workers in specialized fields may need a longer time to land the desired job, and so they may need to plan for a longer period. Continuing our example, if you are single and comfortable with the median estimate, your safety net estimate could be about $12,600 ($4,200 x 3). If you are married and your need is $6,000 for 6 months, your estimate would be $36,000.

Are you flexible?

Being flexible is always helpful. If you think you can get partial employment and income to cover part or all of your basic needs while you look for a better option, that income can help you lower the size of your safety net. But you have to be realistic, and consider that you may lose your job when there are few opportunities available. Having flexible needs can certainly help too. If you are renting, you could look for a cheaper option, or decide to have roommates. The more room you have to decrease your spending, the lower your safety net can be. Having some form of budget, even a simple one, can help you figure this out.

Do you have any flexibility with other goals? The goal of your safety net is so that you are prepared for an emergency, and you don’t need to give up on other important goals in case of an emergency. But perhaps you can use some flexibility with other goals. If you have been saving for a new car, you may decide to delay the purchase or to choose a less expensive model. Being flexible gives you more room to play across your savings.

Add a buffer

We don’t really know how much we might need when we actually need it, so it may be a good idea to add a buffer. The idea is to go through the steps outlined above, get a good idea of the size of your safety net, then add a buffer of 10-15% to it. One reason is to be on the safe side, in case you underestimated your needs. The buffer can also help you account for unexpected cost of living adjustments. With a buffer of 15%, the estimate in our example of a single individual goes up to about $15,000, while our married couple example goes up to over $41,000.

How to invest your safety net

By definition, the safety net should be invested in safe assets. High yield savings accounts work well, but you may also consider short-duration bond funds and Treasury inflation-protected securities or “TIPS.” The inflation protection can help you reduce the risk of unexpected inflation. If you use a buffer as we described above, you can invest your buffer more aggressively. It could even be completely invested in stocks. In our example of the single individual, you could invest $12,600 in a high yield savings account, and $2,400 in a stock market index fund. If the stocks increase in value, say to $3,000, move the additional $600 to the high yield account. If they drop in value, do not replenish it with the $12,600 you have in the high yield savings, as that is your core safety net. With this dynamic strategy, your buffer helps you increase the value of your safety net over time while protecting your essential safety net ($12,600) in down markets.

Safety net and Total assets

You may have been saving for a number of goals and have accumulated some savings. But unless your total assets are one or two orders of magnitude greater than your safety net needs, you should have a dedicated safety net, and only dip into it in an emergency. For many people, as they start saving, the safety net should be the first goal they fund. After that is taken care of, additional savings can be dedicated to other goals. The safety net is part of your basic risk management strategy that helps you grow your assets over time while giving you peace of mind that you and your family are taken care of in case of a financial emergency.

Your safety net should not feel like a waste of capital that could be used to get higher returns. On the contrary, It is the first step to achieving financial independence, as we are learning in this period of crisis. If you have a safety net, you can focus your portfolio on other goals and can take more risk with these investments, because you won’t need to dip into your investment portfolio in case of unforeseen expenses.

Until Next Time!
Massi De Santis is an Austin, TX fee-only financial planner. DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives. As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.

#2020Plan

Coronavirus Uncertainty And Market Returns

With everyone talking about the coronavirus, you may wonder what to do, if anything, with your portfolio. There has definitely been a lot of action in financial markets this past week, with no lack of dire predictions and recommendations for your investments. You can expect more of this in the coming weeks. So how should we interpret all the information thrown at us? As we discussed recently, do it like a scientist. While it is impossible to make any reliable prediction about market performance, over 90 years of data on stock market returns can help us put last week’s volatility in the right perspective.

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Night Guy Meets Morning Guy: The Power of Visualization in Financial Planning

Goal visualization is a powerful tool. Formula one drivers visualize every turn of a track before a practice or a race. They even visualize wheel-to-wheel racing with their fiercest opponents. Most elite athletes use visualization. From downhill skiers to runners. Marathoner Meb Keflezheigi visualizes his races in difficult conditions to help get the most out of himself. The same concept applies to life. Arnold Schwartzenegger says the first rule of success is to have a vision for where you are going.

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For 2022 Make a Financial Plan!

For 2020 Make a Plan! | Goal Plan | DESMO Wealth Advisors, LLC

Forget new year or new decade resolutions. In 2020 make yourself the gift of a financial plan. If you think financial planning is boring and by the numbers, we are here to change that. A financial plan is much more than that. Keep reading and you will realize that financial planning is about making the connection between the tangible things in life, like money, and the intangible things that bring us life satisfaction, like watching your kids learn how to swim or helping someone in need. Life and money questions are connected.

Start simple

We are not talking about a 60 pages plan full of pie-charts, simulations, or accurate budgeting over the next 25 years. No, we are simply advocating for a simple plan that contains a few, carefully selected elements. This simple plan is a single page, written with a sharpie, and it may have no numbers. Take a piece of stock paper, divide it into three areas, and write as headers, from left to right: Values, Goals, Actions, like this.

The idea of the simple plan is to change your mindset, from just “going through” life to “having a strategy” to make the most out of your resources, including time, energy, passion, and money. Going through the process of filling this out will bring you awareness of what’s important to you and what’s not, so you can focus on the former.

Discover your values

The first benefit of financial planning is discovering your values. At DESMO, we use the word values to summarize anything important that you are trying to achieve in life. Money is important to you only to the extent it helps you achieve life satisfaction. You can’t start a financial plan without first thinking why money is important to you. So, the first step in planning is discovering, through deep thinking or a conversation with a trusted friend or advisor, of the really important things in your life. Examples are more time with your family, starting a business, spending time cycling with friends, and traveling to a new country every year. Having clear values is not just a step in creating a personal plan. Your values are the why of your plan. Values act as motivators, can help us acquire and stick with good financial habits and can get us out of negative thinking when things get tough on the way to our goals. Learn how to discover your values here, and write them down in the Value column. Use sticky notes to add color if you like.

Set life goals

“If you don’t know where you are going, you may not get there,” says Yogi Berra.

If values are the why of your plan, goals are the what. Use your values to set measurable goals that require planning to achieve. Determining goals is crucial in determining the actions you are going to take to maximize the likelihood of achieving them. Examples of goals are “save $X in 5-10 years to follow my passion and start my own business,” or “retire at age 60 with $Y per year available to travel.” Your goals have to be consistent with your values, so one way to set goals is to ask “what measurable result(s) will help me live up to my values?” Read our blog on how to set meaningful goals to get you started and write down a few, important goals that are consistent with your values. We have written a few blogs on retirement or education planning, which are common goals, so browse our blog page. If we haven’t covered your goal in our blog posts, let us know about it, and maybe we will. Write your goals under the Goals column.

What’s next?

Start with this simple question: “What can I do, starting today, that will get me closer to my goal?” And write down the answer. Repeat the question and answer as long as you want. Here are a couple of ideas, to get you started.

Get a clear picture of where you are

Knowing where you want to go isn’t helpful if you don’t know where you are. Do this by getting financially organized. Make an inventory of all the things you own and the things you owe. No need to get this down to the penny. Consider the things you own first. Your bank account, your 401(k) or similar account, any savings or investment accounts, your house, your cars, and other investment properties, like any real estate you may own besides your primary home. List them along with their values. Next, go through everything you owe. Your credit card balance, any bills or payments that are due in the next month or so, student loans, mortgage, car loans, etc. List them and add them all up. The difference between everything you own and everything you owe is your financial net worth.

The other key tool to help you get a good picture of where you are is budgeting. Budgeting is simply being aware of your income, expenses, and the difference between the two, which determines your saving capacity. We have written a few posts about budgeting, including a recent one on the XY Planning Network. To get started, read about our budgeting challenge.

It’s simple. Your goals tell you where you want to be. Your net worth tells you where you are. Your budget tells you about the path you are taking to get to your goal. There has to be alignment between these three, or chances are you won’t reach your goals. Read our blog to help you get financially organized and sign up for our complimentary tool.

Review your investments, talk to a Fee Only Financial Advisor in Austin TX

Think of your investments as tools to help you reach your financial goals. Wouldn’t it be great if your investments were working in sync with your goals? Unfortunately, that’s not how most people build their investments. So it’s always a good idea, as we review a plan, to think about this question: “are my investment aligned with my goals?” Go through our most important investment questions, and build investment guidelines that work for you. You may also want to think about managing your key risks. Do you have adequate insurance coverage? Think about life, auto, liability, disability, or potentially long term care needs. When was the last time you reviewed your insurance policies?

Conquer your fears

Many of us are afraid to go through this exercise because of fear of what we may find. But it’s well worth it. Many times our clients are nicely surprised by what they find. All their properties and investments are scattered through different accounts, so putting them together makes them realize they own more than they thought. And if that’s not the case, now you have information and a plan. You just started to make life changes, for the better.

Put it together

Here is what an investment plan may look like at the end of the process.

Yours may look completely different. You may need to review your insurance coverage, make a will or other estate planning documents, buy a boat to travel the world. All these are OK as long as there is consistency between values, goals, and actions. That’s it, you have your first financial plan!

Decide if you want to talk to a Fee Only Fiduciary in Austin Texas, Desmo Wealth Advisors can help

Go through this simple plan, get inspired, start working towards your goals on your own, then determine if you would benefit from talking to an advisor. Most fee-only advisors, like us, offer complimentary consultations, so talk to us. Don’t assume comprehensive financial planning with an expert is expensive and for rich people only. It’s much more affordable than you think, and the cost of not planning with an expert can be much higher.

Get started and commit to the process

You can be proud of what you have accomplished. Going through the process of putting together your plan is going to save you time and energy down the road. Think about the time and energy we normally spend just thinking and worrying about our finances. Having your values, goals, and actions clearly stated on a piece of paper brings awareness and focus. This focus can help you direct your time, energy, and money away from distractions and towards things that really matter to you.

Build momentum on what you just did. Go through the action list you just created. When you are done, review your values and goals, and update them as you go through life. Planning is a process, just like life. That is also why long financial plans and analyses don’t work. The key to a financial plan is to narrow your focus to what matters, and make small, consistent changes through time. So start with our simple plan and use it to build momentum.

Until next time!

Massi De Santis is an Austin, TX fee-only financial planner. DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives. As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.

#2020Plan

The Importance Of Goals In Financial Planning

Football Game | DESMO Wealth Advisors, LLC

Financial planning helps you achieve your most meaningful goals in life. This post helps you set your own goals and discusses how to use your goals to drive the design of your financial plan and your investment allocation.

The Why, What, and How of Financial Planning

At DESMO, we start the financial planning process by discovering your values. We make a distinction between values and goals. Values represent what’s important to us. They are the why of our plan, like time with family, experiences, sense of purpose.

Goals are measurable objectives that require planning to achieve. If values are the why of the plan, goals are the what of the plan. Determining goals is also crucial in determining the actions you are going to take to maximize the likelihood of achieving them. Designing a set of actions (a strategy) that works for you is the art and science of financial planning.

We have this equivalence

Values → Goals → Actions

Why → What → How

The how in financial planning typically requires a long term view, a change in behavior, and perseverance. Planning is a process, not a one-shot deal. The only way to engage in the process is knowing that you are working towards goals (the what) that are meaningful to you. Goals are meaningful only if they are aligned with your values (the why).

What are goals?

A goal is a pair, consisting of a dollar amount and the timing of when the amount is expected. It is important to have both elements or the goal is not meaningful. Examples of goals are: make a down payment on a house in 4 years or buy a new car or a new bike in 5 years. The goal can be a simple lump sum, or it can be a recurring payment, like $40,000 a year in income when I retire in 10 years, or a new $30,000 car every 5 years.

The power of clarity

Writing down goals this way is important for two main reasons: Clarity and risk management. Goals make it clear what you are working towards. Once you set goals this way, financial software can make it relatively effortless to find the cost of each goal, and how much we have to work to achieve each of them. This clarity can be crucial in affecting our behavior. First, you can see how your hard-earned money is helping you achieve your goals. While a 20% return may not mean much to you, knowing that you are 80% done towards your kid’s college fund will make you feel pretty good about your progress. Similarly, going through a rough patch in the stock market may be scary, but you may find that it is not meaningfully impacting your retirement goal. This clarity can help you make better decisions. Saving half of your bonus can be easier if you know the impact it will make towards important goals. Clarity can also help us to prioritize our goals. When we set multiple goals, say college, retirement, and a home purchase, we may struggle to decide how much to allocate to each. Knowing how we are doing relative to each goal may help us decide, for example, to dedicate more of our tax refund to the college savings goal this year, since it is fast approaching.

Risk Management

How much risk you can take in your investments should depend on your goals. If you have a down payment a year from now, you probably don’t want to take any risk with your savings. But you can take much more risk with your retirement savings if you plan to retire in 20 years or more. Many advisors may ask you to go through a risk questionnaire to determine the mix of stocks and bonds that is appropriate for you. That may be helpful, but asset allocation should start from clearly defining your goals. Here are some examples of goals in a plan.

Cash reserve Cash reserves are used for payments that more or less predictable, including planned expenses over the next few months to a year. While you may be able to earn some interest on your cash reserves, they are typically not invested in securities like stocks and bonds.

Safety net This typically refers to a buffer for unexpected expenses, like the loss of a job, over the next two to five years. Part or all of the safety net can be invested in liquid securities, typically in a conservative allocation, with equities at less than 20%.

A big purchase Things like a new car for your 16-year-old or new bike to celebrate your 40/50/60..or Nth birthday. Once you set the goal, you can estimate the amount you need to devote to it over time, and you can assess how much risk you are willing to take for the goal. Taking more risk can lower the amount you need to set aside for the goal each month, but it increases the risk of not achieving the goal. If you have some flexibility, either with the goal (a slightly less expensive model) or with making corrections to your savings down the road, you can take more risk.

Start a business This is similar to a big purchase. Again, the time horizon and the flexibility you have can help you decide how much risk to take for the goal. In this case, you may be flexible about timing, how much you may need to start the business, and how to come up with the funds.

College education This is similar to a big purchase, but you probably don’t have a lot of flexibility and the risk you are willing to take may not be that high, particularly closer to college enrollment. The duration of the goal, like 2, 4, or more years, should be part of your investment horizon.

Retirement The retirement goal can subsume multiple goals. One goal is retirement income to replace the income we earn during our working years. This goal is a stream of dollar amounts throughout retirement. For example, $50,000 a year from age 65 to age 90. Other goals can be lifestyle-related, like traveling once a year to a different country ($5,000 per trip) for the first 5 years in retirement.

Bequest This is also similar to a big purchase. You can decide to set a goal for how much you want to leave to your loved ones or your favorite charity at some point in the future.

Isn’t it all coming from the same pot?

Yes and no. Your savings across all your goals are part of your total net worth. But if you just set a broad asset allocation, you lose both the clarity and risk management elements we discussed. Put another way, you should think of any piece in your asset allocation as serving a purpose for your goals. If you simply set an overall asset allocation, you cannot see how each individual piece in your investment portfolio is working towards your goals.

For example, the risk you are taking towards each goal may be changing without you realizing it. Consider this scenario. You have to make some unexpected expenses for which you use cash in your checking account and sell some liquid bonds. Do you realize the risk in your portfolio has just gone up? Which goal is being affected the most? Assume right after you make the expenses the stock market takes a nosedive. Are you selling investments at a loss to readjust your asset allocation to the desired level? Which goals are realizing the loss? And by how much?

When properly set, goals are a reflection of your values and represent measurable objectives for you to work on. Your plan should be designed around your goals. They should define the actions you need to take to achieve them, how to properly allocate your savings across them, how to manage your risks, and how you monitor and celebrate progress.

Talk to us about our goals-based investing approach to learn more about how to align your investments and your financial planning to your goals.

Until Next Time!

Massi De Santis is an Austin, TX fee-only financial planner. DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives. As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.

#2020Plan

The Power Of Budgeting

Budgeting is the heart of financial planning. Achieving your goals starts by being aware of how you use your money, so you can make changes that align your money choices with your goals. Learn how you can create a budget and how to make it a central piece of your financial planning process.

Last month we proposed our 30-day spending challenge. We suggested, as a way to get most of the benefits of a budget without actually doing one, to track your spending for thirty days. I know some people did it and told me about the benefits of going through the challenge. Tracking your spending really goes to the heart of financial planning, which is making the best use of the resources available to you to achieve your life goals. Monitoring your spending for a while creates awareness of how you are using your resources now, and what you can do going forward.

So if you haven’t started it yet, there is no better time than the Holiday Season to track your spending. Whether you have done it or not, what are the benefits of the challenge, and what comes next?

Why do it?

You need to know where your resources are going to be able to make the best of them. After paying taxes, some of our money is used to cover basic needs, including shelter, food, and basic social interactions. After that we have what is called discretionary spending, which is spending on our wants rather than needs. What’s left after spending on today’s needs and wants can be saved towards future goals. By tracking our spending, we can create awareness about the relationship between our resources and our goals.

Night guy, morning guy

For most of us, there is a tension between our discretionary spending today and the savings required to achieve our long term goals. It’s what economists call a tradeoff. Many times, the way we make this tradeoff is exemplified by Jerry Seinfeld in his night guy, morning guy piece. We spend on things that yield instant gratification and we don’t think about our future selves. When you track your spending, even for just 30 days, you will start to make the connection between the two.

Small spending adds up

Ever go to the Home Depot, Ikea, Target, Pottery Barns, [you name it] wanting to get one thing? What happens next? You find ten other items on sale and all of a sudden you need a cart to carry them. We think we saved on great deals, but did we really? How much did we spend on things that don’t really make a dent in increasing our overall life satisfaction? If you write it down, you will see how much.

It’s quite likely that a few days after your excursion to one of the above places, you need to go to another one in the list. Do you remember what you did the previous time? Not really. If you tried our challenge you know this. As you write it down, you see that you have done it a few times in the past month. Small spending here, small spending there. And it adds up to an amount larger than you expected. Tracking helps you remember what you spent on and how much. After a while, you may realize that a sales sign does not necessarily means saving.

How does it feel?

We often desire shiny new things like jewelry, new clothes, expensive bikes, big SUVs, etc. Sometimes we even reason how the purchase will be valuable to us for years to come. How does it feel when we get the new thing? Remember that one of the things we suggested writing down along with the purchase was your feelings about it. Usually, we feel pretty happy right off the bat. Then what happens? That good feeling of happiness does not last very long. We get used to it, and move on to the next thing we desire. Why is that? Unless a purchase is aligned to our values and long term goals, happiness does not last. Go back to your notes. How many of the purchases are truly aligned to your goals? Be honest. I like to spend on cycling gear. I do ride a fair amount, and spending time outdoors riding is one of my values. But do I need the lightest, carbon-made bottle holders available?

Awareness, not judgment

Don’t get me wrong, tracking isn’t about judging or feeling bad about your spending habits. It’s just about creating awareness of your habits. If you see a pattern that is not fully consistent with your values, you have just found an opportunity to make a change that will make you feel better.

Your spending habits may also reveal something about your values. How we spend our money, and our time, may reveal what we really care about. If I consistently spend on cycling, maybe I should direct my efforts to cycling more, reaping greater benefits from my purchases, and at the same time reduce my spending on wines or movies.

Take it to the next level

If you haven’t started our challenge, the best time to do it is now! But whether or not you have been tracking your spending, here are some of the things you can do to make the most of your resources.

Work on your values

Read our blog on identifying your own values. Values are the why of our plan; they act as a motivator to work on your life goals. Combined with our spending records, values can help us identify areas that we can work on to save more or to get more value out of our money. Clear values will come to mind the next time you are flirting with bad habits, like overspending on something you don’t need just because it’s on sale. Reviewing something we believe in during tough times can appeal to our aspirational nature, and help us find the strength to overcome setbacks. Research in behavioral economics and psychology backs this up.

Try budgeting

We used the 30-day spending idea to get the most out of budgeting without actually doing it. Realizing how valuable this awareness can be, why not give budgeting a try? Here are a couple of ways to get started. Continue for another 30 days, or even 60. This will give you a total of 90 days if you have done our 30-day challenge. Three months is a good amount of time to be representative of what your spending looks like on average. Then group your expenses into

Fixed necessities (rent, loan payments, health insurance premiums, etc.)
Variable necessities (utilities, taxes, food, home or car repairs)
Fixed discretionary (club dues, various subscription services)
Variable discretionary (entertainment, vacations, eating out, most wants purchased as lump sum)

Why these groups? Necessities cover your needs, so there isn’t much you can do to reduce them in the short term. Knowing how much of your spending is variable can help you understand how much your needs may vary month over month. Discretionary items are ones you can work on to reduce or control your spending. Discretionary isn’t just an expense that you don’t necessarily need. It also includes spending on a good or service more than what is strictly necessary. Everything in the fixed category is a financial commitment. It may take longer to change those spending items than changing variable discretionary spending. Consider this the next time you make a purchase that requires a long commitment.

Budgeting as a guide

Once you have divided your spending and identified your values and goals, you have great information to take the next steps. What do you need to change? What are you willing to change? Plan to make the changes for the next 30 to 90 days. Use an app, like our complimentary budgeting tool, to monitor your spending and stay within your goals. The budget will give you a yardstick to measure your progress towards your long term goals. Stay within your budget and celebrate progress at the end of your 30 days!

Life and Money, the two sides of planning

At DESMO, we emphasize the importance of planning, and not the plan itself. You can create the most detailed plan, only to put it in a drawer and never follow it. Planning is a dynamic process where we link your money choices with your life choices over time (Desmo is a Greek word that means link). The process we offered through our challenge is an example of that.

Start by setting your values and goals. Monitor your spending. Review your goals, and revise if needed based on your spending habits. Review your spending, categorize expenses. Set spending goals. Follow your budget guidelines. Celebrate progress, you are getting closer to what really matters for you. Set goals, monitor, review, revise, and repeat!

Happy Thanksgiving from all of us at DESMO Wealth Advisors, LLC!

Until next time!

#2020Plan

What Is Budgeting Anyway?

If I told you there was a tool that can help you reduce unnecessary spending, solve your money problems, and achieve your financial goals, would that get your attention? Probably. If I told you that tool was budgeting though, your reaction would be more like, “what else you got?” There is just something about the word budgeting that makes it uninviting. And it maybe even more off putting if you actually know what budgeting is. Carl Richards of the Behavior Gap compares budgeting to flossing. We know flossing is great for you dental health, but most of us do regularly only around dental visits, about two weeks a year. With budgeting, we may get started along with all our New Year’s resolutions, but we how long do we keep up?

Our Challenge

So, as I was thinking about a budgeting post, I asked myself. What if there was a way to get most of the benefits of budgeting, without actually doing it like a financial planner? I thought about it, I asked Carl Richards, and I came up with a fun way to start. And I challenge you to try it, starting today! Post about the challenge on our facebook page! At the end of it, you may want to pick up budgeting. If not, I am sure you will learn something valuable about yourself. Now, if you already do budgeting, just like flossing, keep doing what you are doing, you are doing great! But join us anyway, you may learn new things about yourself.

Awareness without a budget

Here is the big idea. If you want to get good at anything, where do you start? The answer is awareness. You need to know your strengths and weaknesses. Only then can you hope to improve your game at anything, from sports to enlightenment. Budgeting is so crucial to financial planning because it brings awareness about your financial strengths and weaknesses, and you can use this awareness to achieve your life goals. I am happy to tell you more about budgeting and how we do it with our financial planning clients any time. But is there a way to increase financial awareness without setting up an actual budget?

Just track your spending

So here is the challenge. Give it a shot. Track your spending for the next 30 days. Yes, that’s it. Don’t worry about what app to use. The best way for the purpose of awareness is writing down each purchase. Just carry around a pen and a little notebook, and each time you make a purchase, write down what you spent and how it made you feel. This is a no questions asked, no judgment exercise. Just behave as you normally would, and simply track spending. If you think tracking your spending affects your behavior, write down how it does so. At the end of the 30 days, go back through your notebook and just notice. Become aware. That’s it.

You can use apps and your phone or tablet if you want. Use Notes or Keep, or your favorite note tracking app. You can use Mint if you like. But I suggest simpler is better for this exercise, so find a little notebook and start writing. Make this fun, challenge your significant other or best friends to do it. Remember when you walked around the office with the step pod or fitbit to measure your steps? A spend-tracking notebook is way cooler.

Focus and awareness

Here is why it works. For each expense over the next 30 days, you take an extra moment to reflect on that spending, just by writing it down. That’s why I suggest writing; it increases your focus and awareness. You can learn a lot about your behavior in 30 days.

At the end of the 30 days of tracking, review your spending notes. You will notice certain habits. Maybe you’ll be surprised by how much you spent on cycling gear, those wine bottles you had to try, or the expensive yoga clothing. And that may or may not be bad. If one of your values is to spend time cycling, wine tasting with friends, or doing yoga, at least part of that spending aligns with your values. If you find it is all of the above though, chances are you are overspending.

What’s Next?

First, make a connection between your spending and your income. Categorize your entries by essential and discretionary. A discretionary expense is something you could do without, or that is more expensive than necessary. Be careful what you determine as necessary, cable or frappuccinos aren’t (what is a frappuccino, anyway?). How large are your essential and discretionary expenses as a fraction of your income? If you find you have a lot of discretionary expenses, there is good news: you have room to improve!

Review the values we have worked on here. Does your spending align with your values? If not you have to consider whether to change your habits or your goals and values. There is no right or wrong answer, and now you have the information to make the change. It may be OK to spend on wine if time with friends is one of your values and you like to share your passion for wine with them. You may just have to consider how this value ranks with others in your life.

Just do it

There are two main reasons why you may want to avoid my challenge. One is that you already know where your money is going. You think you got it under control. I hate to break it to you, but you don’t. When it comes to spending, there is our spending self, great at rationalizing all our spending, and then there is the truth. We don’t know the truth unless we see it in front of us. So I challenge you to take our challenge. The second reason may be that you are not sure you really want to know. But this exercise isn’t about making us feel bad. There is no judgment. It’s really simply about observing our behavior. The behavior may reveal something about our values, and can help us prioritize our goals going forward. So it is just as much about finding what matters to us than it is about changing behavior.

Start our 30 days awareness challenge today! Then read our post 30 days from now to learn what to do next!

Until next time!

Massi De Santis is an Austin, TX fee-only financial planner. DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives. As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.

#2020Plan

Values-Based Financial Planning

Last week one of my friends achieved a dream of a few years in the making. He finished Ironman Taiwan in less than 10 hours. Knowing how important the goal was to him and the whole family, his wife made Sub 10 t-shirts and hats for them and their two daughters to celebrate the occasion — in 2016! For almost four years, he kept the outfits ready at every race, secretly hoping he and his family would get to wear them. He finally did it last week! How did he do it? He worked hard, had a plan, and kept his eyes on the prize by having his goal printed on t-shirts and hats.

Achieving anything important in life requires a sound strategy. If something is important, we can’t just wing it, we want to give it our best shot. Ironman athletes don’t just show up for a 140.6 miles of swimming, biking, and riding. They have a strategy, they follow a plan. They have a strategy for each race, a strategy for the season, and a vision for their longer term career goals, like Sub 10. It’s the same in any career, or business, and even relationships.

Start with Values

At DESMO, we use the word values to summarize anything important that you are trying to achieve in life. A lot of advisors and columnists talk about setting goals for yourself, like a retirement goal, a nest egg goal, etc. There is a difference between goals and values. Values are deeper. They are the why of your plan, what makes your pursuits worthwhile. Goals are measurable objectives, like retiring in 10 years with $2 million dollars in the bank, etc. A successful strategy always starts with a clearly defined set of values. There has to be a why behind Sub 10. That’s the personal set of values that make you identify Sub 10 as a goal worth pursuing. Two people with the same Sub 10 goal are most likely doing it for different reasons —they have different values.

The Most Important Money Question

The reason why values are important is that achieving any goal requires time and it involves delayed gratification. That is something we aren’t wired to deal with very well, as we know from the Marshmallow Test. So how do you identify your values? You have to work on it. The starting point is to ask the most important money question, your why. Why is money important to you?

In most cases, the answer needs to be refined to be useful. For example, people may answer the why question with: “to have security”, or “freedom”, or “flexibility.” These aren’t very clear yet. Why is security/freedom/flexibility important to you? The process requires a bit of effort and is best done with a trusted friend or a partner, and the help of a trusted financial planner.

At the end of the refining process, most personal values are an expression of core values that include relationships, maximizing potential, life experiences, self expression, and more. An example of values could be spending time with my family, experiencing life together, and giving back to my community (relationships, experiences). Or start a business that lets me fully express my creativity one day, and travel to a different country every year. You don’t have to cover your whole lifespan; focus on what’s important to you now. We have our own DESMO discovery process, so you can talk to us to clearly identify your values. Or, if you want to do it yourself, I suggest books like the One Page Financial Plan by Carl Richards, Off Balance, by Matthew Kelly, or Values-based Financial Planning by Bill Bachrach. They all have a set of questions outlining a similar discovery process.

Write them down on sticky notes

Having clear values is not just a step in creating a personal plan. Clearly formulated values act as motivators, can help us acquire and stick with good financial habits, and get us out of negative thinking when things get tough on the way to success. It’s like having a Sub 10 t-shirt waiting for us. That’s why I recommend writing the values down. The best way to do it is with colored sticky notes. As a public speaker, I learned the sticky note method to create presentations. Each slide is represented by one sticky note. Each slide should contain one idea or concept, no more. To make sure you are crystal clear about the concept on each slide, you use a sharpie to write down the concept you want on each sticky note. If you use 3×3 sticky notes, there is not much you can write, so that gives you a good frame to be clear and concise. If it does not fit in one sticky note, it’s too much for a slide. It’s the same with values. Use a sharpie and one sticky note per value, like this.

The emotional payoff

Now your intentions are clear. Stick them to a nice board and keep them handy. Just having your values (and later goals) written down is empowering. It is a good motivator to work on your life goals. Clear values will come to mind the next time you are flirting with bad habits, like overspending on something you don’t need. Reviewing something we believe in during tough times can appeal to our aspirational nature, and help us find the strength to overcome setbacks. Research in behavioral economics and psychology backs this up. If you don’t like the idea of using sticky notes, print your values on a t-shirt or a hat!

You may have noticed something missing from this discussion. A lot of people go to a financial advisor to know WHAT to do with their money. That may be important, but you can’t start with that. Starting with WHAT does not work. The WHY is the foundation of a successful plan. To learn more about the power of why, read Start With WHY by Simon Sinek or talk to us.

Until next time!

#2020Plan

Find Your Focus

It’s simple, what you focus on determines where you go. Consider the following tips about focus. Are you a downhill skier? Never look at the tips of your skis. Always look ahead and anticipate your next turn. Do you ride a mountain bike downhill? Don’t look at your front wheel. Visualize the trajectory ahead of you. You ride a road bike through a set of hairpin turns? Don’t worry about turning the handlebar. Focus instead on visualizing your trajectory through each hairpin.

In essence, don’t just look where you are going, focus on where you want to go. Failing to do this can get you into trouble. The sitcom Frasier has a perfect example of this process at work in an episode where Frasier learns to ride a bicycle. If you haven’t seen it, I highly recommend you watch it on youtube. Fraser is afraid of hitting a sycamore on his path. But precisely because he focuses on the sycamore, he panics and keeps crashing into it. When he finally learns to avoid the sycamore, his colleague Julia warns him about a big mailbox, and you can guess what happens next.

While we may laugh at Fraser’s misadventures, we all know how that feels. When it comes to investing, we are all subject to the same psychology. We tend to focus too much on short term performance, like monthly or quarterly market returns, while our goals may be 10 or more years from now. The anxiety brought about by this focus on short term performance leads to bad decisions. And we hit the mailbox.

Financial commentators often act like Julia in Fraser’s, they play on our worries. Take the recent talks about renewed market volatility because of trade negotiations. Should we get out of stocks now that prices have dropped? And buy stocks again when the market goes back up? That does not sound like a good recipe for investment returns. Do we even know the effect that trade negotiations will have for our goals? Unlikely. Acting on this type of beliefs is speculation, not investing.

The reality is that volatility has been part of the stock market since we have recorded data. And why not? Markets rewards risk taking.

So should we do nothing? For most investors the answer is YES. If the recent volatility is giving you anxiety, go back to principles. Why do you hold the portfolio that you hold? Go back to your investment policy statement. Are your objectives still current or has something changed? Do your investment guidelines still apply?

Oh wait, do you know what an investment policy statement is? If not, that’s your real problem. Many investors hold a hodgepodge of investments based on suggestions from coworkers, relatives, neighbors, or a self-professed financial guru. They never really stopped to seriously think about WHY they hold such an allocation. Start with why, identify your goals and build a set of investment guidelines around them, taking into account your ability to take risk. Your values, goals, and risk tolerance are the foundations of your investment guidelines, or the investment policy statement. Write it down. If your portfolio is aligned to your investment policy statement, you are directing your focus to what really matters, your long term goals. Short term performance is just part of the process, not necessarily a reason for change.

Find your focus, start working your own investment guidelines today! Download our guide to investing to learn more about our approach.

Until next time.

#2020Plan