Ep 201: High Net Worth Financial Fundamentals

Hey, everybody, and welcome to this week's episode of the weekly wealth podcast.

This is episode number 201, and we're starting a series.

Today's portion of the series, we are going to talk about some of the basics.

We're going back to basics on financial activities for the high net worth and for the mass affluent.

And these are the.

The simple things that we all need to be doing.

And then next week, we're going to talk about some more advanced strategies, maybe some hacks, maybe some things that you haven't heard before.

And these might be a little bit more exciting.

But I think it's really important to nail down the basics.

So I hope that you enjoy this episode.

And here we go.

Welcome to the weekly wealth podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

All right, well, here we go, episode number 201.

We're talking about some basics.

We're talking about some fundamentals that we all can be adding into our financial planning and into our financial activities.

And sometimes we look at the fundamentals as maybe being boring, maybe it's not quite as sexy.

But I wanted to give you some examples in the world of sports because I love sports and I know a lot of our listeners love sports and may currently or be past athletes.

And let's talk about how some athletes who have truly achieved greatness, how they relied on fundamentals and making sure that the basics were done right.

So let's look at Tim Duncan.

Tim Duncan, he earned his nickname the Big Fundamental because of his flawless execution of basketball basics.

He did bank shots, rebounding, defense, and quite frankly, he was not one of the most flashiest guys.

But he wanted to not rely on athleticism, and he wanted to win based on doing all the little things right.

And this approach led to five, five NBA championships, two MVP awards, and a hall of Fame career.

All right, let's talk about the goat of basketball.

We can have the goat debate.

And I'm going to win because mj, Michael Jordan is the goat.

You know, he's regarded as being the greatest basketball player or one of the greatest basketball players of all time.

And he was obsessive about mastering fundamental skills like footwork, ball handling, shooting.

He spent hours in the gym perfecting simple moves like the jump shots, the fade aways, the layups.

The free throws, those kind of things.

Now we all know what happened with Jordan.

Six NBA championships, five MVP awards, and the reputation as one of the most clutch performers in sports history.

But you know when he made that game winning free throw or the game winning jump shot, do you think that was the only time he had practiced or shot a free throw that week?

No, he did hundreds of them.

So he, or probably thousands, he made sure that he had almost no chance of missing when it was important.

So Peyton Manning, he was obsessed with preparation.

He focused on fundamentals, including throwing mechanics, timing with receivers, understanding defensive schemes, and again doing the things that are not fun, but they're fundamental.

He spent hours on film study and meticulous preparation.

He would even script practices to maximize time spent on fundamentals.

And he became a two time super bowl winning quarterback and a five time MVP vp and one of the greatest quarterbacks in NFL history.

So though there are some players and you could find many, many examples of the great ones who were obsessed with the fundamentals, now let's look at some coaches.

So John Wooden, he was known as the wizard of Westwood.

His teams won 10 NCAA championships in 12 years, including seven in a row.

So imagine winning seven NCAA championships in a row.

And obviously college players don't stay in the league for seven years.

So he was winning every year with different players.

On his first day of practice each season, he taught his players how to properly put their socks on and lace up their shoes.

And what was his reasoning like?

That seems crazy.

Why not go out and do some flashy dunks or anything like that?

But no, his reasoning was preventing blisters and ensuring comfort was essential to peak performance.

So if you take care of the little things, the big things will take care of themselves.

And let's look at Bill Belichick.

Do your job.

So he's a legendary coach of the New England Patriots.

Built his team success on the mantra of do youo Job.

So the Patriots won six super bowl titles.

And his philosophy emphasized that players should master their individual responsibilities and execute basic techniques flawlessly.

Achieving those basics, to the flawless fundamentals, to the flawless standard, is what created greatness within the organization.

So those are, I think, just some fun examples.

You can find many, many, many more.

But the ones who are great, they master the fundamentals, they master the basics.

And quite frankly, mastering the basics isn't even all that fun.

But today I want to talk about some basics in our financial lives that we can look to master.

Are you a longtime listener of the weekly Wealth Podcast?

If you've learned anything.

And if you've enjoyed the podcast, do me a favor.

Will you tell a few of your friends, your families, your colleagues, or your co workers about the show?

As I always say, I believe that how we handle our money should positively impact our lives in the lives of those around us.

And I hope that this podcast can be a small piece of that puzzle for all of our listeners.

All right, so we gave some pretty cool sports analogies on how the really great players focused on the basics and focused on the fundamentals.

Now, you don't need to be mj, you don't need to be Bill Belichick, you don't to be John Wooden in order to benefit from having strong foundations in your financial life.

So let's talk about some things that you can do.

Let's talk about some ways that you can control what you can control and that will lead to positive long term outcomes.

So one of the first things that I like to talk about with my clients are let's refine your money philosophy, right?

So what does money mean to you?

What do you want to have happen with your money?

How do you want your money to serve you?

How do you want your money to serve the world?

And just decide, like purposefully, what are some of my values around money?

Now these are great conversations to have with the people around you that you love, with your spouse, with your kids at an age appropriate level, maybe with some charitable organizations and maybe even with some friends.

So the first thing is let's decide, like, what role money should play in our lives.

And you see, if we don't do this, then our values can't really direct our decisions and then our results will just be all over the place.

But Walt Disney's brother said, when your values are clear, your decisions are easy.

So let's decide what our values are with relation to money, and then let's commit to letting those values dictate our decisions and our actions.

I always like talking about mindset, and we got the mindset piece out of the way first.

And now let's talk about some actual concrete things that you can do.

These are the basics.

These are not fun, these are not sexy, these are not the hacks.

These are probably not even the things that you're seeing the influencers put out on social media.

But these are super, super important.

So let's first establish a strong financial foundation.

Let's work towards, or let's have, let's say, six to 12 months worth of living expenses into some sort of a liquid account.

This can be a money Market, it can be a savings account, it can be a checking account, but let's not put this money in your expense account.

So if you're like my family, you have one or two accounts that pay most of your expenses, your electric bill, your grocery bill, things like that.

Let's keep your emergency fund separate and let's make like a mental barrier between your emergency fund and your operating fund.

And what you'll probably find is that when you have six to 12 months worth of living expenses put aside, then you have less stress.

If you have a job, many people have gotten to work and gotten an email saying, thank you for your service, today's your last day.

Or if you have a business, many business owners have had periods of down sales and down revenue.

So that emergency fund is super, super important now if you're retired.

And we can also almost call that a buffer asset.

So if the stock markets, your portfolios, take a significant downturn, then we can take some of our living expenses out of that emergency fund or buffer asset and give our investments time to recover.

So let's make sure we have an emergency fund.

And then also let's make that we are either not accumulating bad debt, and if we have some bad debt, we're paying it down.

Now, there are many philosophies on debt.

I believe that a reasonable mortgage is fine.

I believe that potentially some debt on rental properties, things like that is fine.

But obviously credit card debt, consumer debt, we either need to not accumulate to begin with, or if we have it, we need to have a plan for getting it knocked out.

Now, if you need any help with some debt management, maybe some strategies, feel free to email me davidarallelfinancial.com so step one is let's get the foundation done right.

Let's get some cash in the bank, and let's keep that separate from our other monies.

So we just kind of have it mentally treated as an emergency fund.

And then let's work on either not accumulating debt or paying down our debt.

Now, the next thing is your investment strategies.

Your investment philosophies has started off a little bit up and down in the markets.

The last month or so, the markets have actually not been up.

So we need to decide what our process is going to be that will pick our investments.

Now, you can work with a financial advisor like myself and we can help with that, or you can do this on your own.

So some things to think about are how much risk am I comfortable taking?

Now, if you are very close to retirement, it may not make sense to take much risk at all because you can't handle the ups and downs of the markets and you don't have time to recover losses.

Now, if you're 25 years old, it might make sense to have a relatively risky portfolio because you have time to recover losses in the event of a market downturn.

Then you want to make sure that your investments are in line with your risk tolerance.

So when I'm working with clients, we go through a program and we give them a risk number and then we try to match their investments to their risk number.

So if your risk number comes back at a 30, which would be pretty low, and your current investments are a 90, that probably does not suit you.

So you want to make sure that your investments are risk align with the risk that you actually have.

You also want to make sure that you have the right amount of diversification.

So you want to have a balanced portfolio against several asset classes.

Don't own all one stock.

Any great stock can also go down in value.

So if you have too much of your eggs in the proverbial one basket, you're putting yourself a little bit at risk.

Let's make sure that you're rebalancing periodically and let's make sure that you just have a SOU for building your portfolios.

It sounds simple, but I'll talk to a lot of people and they'll tell me, well, I have a 401k or I have an IRA and I'll say, well, great, well, what is that IRA invested in?

What is that Roth IRA invested in?

What is that 401k invested in?

And they don't know what the underlying holdings are.

They don't know if they hold Apple stock or if they're holding a large cap fund or a bond fund or a money market, or sometimes these accounts are even simply in cash and they didn't even know.

So we have to have a process and we have to know that our investments are invested properly for us.

Now, where my money should be invested is likely different than where your money may need to be invested.

So these are complicated scenarios.

And if it's something that you'd ever like, help with, you can email me davidarallelfinancial.com or schedule an appointment with me.

Let's move on to one of the most neglected financial basics, financial fundamentals, and that's risk management, or we can call it insurance.

So at its core, insurance really just protects your money.

Nothing more, nothing less.

So if you're driving your car and if you Run a stop sign.

Or if you're doing the unthinkable and you're texting and driving and if you hit my vehicle and my wife and my three children are with me and you cause us to have injuries, either your insurance company is going to pay for the damages or you are going to pay for the damages or part of the damages.

So we won't go into too many details about insurance, but make sure that you are reviewing your insurance coverages.

Make sure that you have a really good local insurance agent.

I think it's always a bad idea or almost always a bad idea to have an 800 number because you need to have a relationship with a good local person who can answer your questions.

And ask your insurance agent where you have gaps.

Ask your insurance agent where might you have to pay out a lot of money if something happens.

So liability is important.

You have disability coverage to consider, you have long term care, you have life insurance, you have health insurance.

But make sure that your understanding where your risks are and you're making sure that you're understanding when it makes sense to transfer that risk to an insurance company and when it makes sense to retain that risk yourself.

Now, again, these are complicated questions.

There's no right answer, there's no wrong answer.

But we need to know these answers.

So another fundamental is risk management or insurance.

Another fundamental or one of the really basic areas of life that we all need to do is we need to work with our financial advisor and we need to work with an attorney to determine which of the estate planning documents are appropriate for us.

So these include wills, they include trusts, they include powers of attorney, and they have to be in line with your current estate planning goals.

We also, and this is hugely important, and I've seen this within my own practice become an issue, is we have to make sure that our beneficiary designations are how we want them.

So on your life insurances, on your IRAs, on your annuities, on your 401ks, it is crucial to make sure that the people or the entities that you desire to be the beneficiary of those funds are listed on the document.

So if you learn almost nothing else from this podcast episode, make sure to check your beneficiary designations, on your insurance policies, your retirement plans, your IRAs, your annuities, things like that.

And finally, estate and legacy planning.

What about business succession planning?

So if you own a business, what would happen if you passed?

If you have a partner, what would happen if you passed?

So look at these things.

This could be an Entire podcast episode on business succession planning.

But make sure that you have a plan in place in the event that something happens to you and your business.

And the last thing we're going to talk about today is tax planning.

But we're going to talk about the simple parts of it.

We're going to talk about.

First of all, let's understand the difference between effective tax rate and marginal tax rates.

Let's understand which bracket you fall within and how close you are to the next tax bracket.

Now this could affect if you decide to take some Roth conversions or make contributions to Roth iras.

But first of all, let's know our effective tax rates, which tax bracket we're in, and our marginal tax rate.

Let's also think about gifting and charitable contributions.

These again are things that need to be purposeful and if we don't make a conscious decision to do them, sometimes they don't happen.

And then if we are in the distribution portion of our life, let's look at tax efficiency of income.

What that means is which accounts should we take monies out of in order to pay for our lifestyle?

Because most accounts will be taxed in a different way.

And these are things that if you don't know these answers, you can work with your accountant or you can work with a financial advisor like myself to determine a tax efficient structure to withdraw monies from your accounts.

All right, so what do you think about some of these things?

Do you have most of these basics covered?

Do you have most of these fundamentals mastered?

Or are these some areas where you might have some opportunity to for improvement?

Now if you're like me or almost any of my clients when they first become my clients, you can't possibly have all of these areas down 100%.

So if any of these are keeping you up at night and you just want to nail them down, you want to make sure that you are covering your own financial basics.

You can work with yourself, you can work with your spouse, you can work with friends or family or hey, email me davidarallelfinancial.com I'd be glad to chat with you, be glad to point you in the right direction and maybe we would work together on a long term basis.

Maybe we wouldn't, but we could certainly have that conversation.

So like always, I appreciate that you take the time out of your week to listen to the weekly wealth podcast.

I put this content out because I want for the world to have the ability to as much as possible reduce self caused financial issues.

I've seen financial problems with high earners with low earners with high net worth with low net worth.

And I know that many financial problems simply are preventable.

So let me know if you have any questions and if there are any financial problems in your life that you just need to solve, go to my website, www.weeklywealthpodcast.com and click on the microphone icon and you can leave me a voicemail or simply email davidarallelfinancial.com all right everybody, so that about wraps up this episode.

Be on the lookout for the advanced financial planning strategies.

We're going to look at some some stuff that may be a little bit more fun, more sexy in the next episode, but I wanted to make sure that we are nailing down the basics.

Let's control the controllables.

Let's do the easy things before we move on to the things that might seem like they are a little bit more fun.

Until next episode, I wish everybody a blessed week.

Thanks everybody.

Investment advice offered through Parallel Financial and SEC Registered investment advisor able to conduct advisory business in states where it had registered or exempt or excluded from registration contents contained herein or for informational purposes only and should not be construed as an offer or solicitation for investment advice or for the purchase or sale of any security, insurance or other investment product.