Michael and Sarah are a young married couple who have been together for eight years. He’s a talent agent and she’s a child therapist. During our first meeting, Sarah said she wanted to work less and spend more time with their three children, but it was obvious that they had no way to make this happen because they had no clear financial plan.
As a married couple, they had never developed a spending and savings plan that worked for both of them. So they were living from paycheck to paycheck. For two years, they’d been trying to save for a family vacation in Hawaii but when it came time to book the trip, they discovered the money was already spent. Sarah was worried that they would not have enough money to retire, and Michael was frustrated because there was never enough money to do the day-to-day things they enjoyed. Both felt financially stuck.
There were other problems, too. They didn’t trust their insurance agent and had no idea how much or what type of life insurance to buy. They had little communication with their current financial advisor and felt that he didn’t “get” them. As a result, Michael and Sarah had no clear long-term goals, didn’t understand what investments they owned, and had no idea why they were even investing. They didn’t know which mutual funds to buy in their 401ks, and hadn’t updated their beneficiaries when the children were born. They knew they had to start planning to pay for their kids’ college education, but they had no idea where the money would come from. In short, they were afraid to make any financial decision because they felt it would be the wrong one. To make matters worse, they were using Michael’s parents’ accountant, who never proactively called them with tax planning and tax saving strategies.
After taking Sarah and Michael through the Krane Financial Life Planning Program ™, I saw how important it was to Sarah to work part-time so that she could spend more time with her children. She wanted to reach this goal in five years. In fact, spending time with family, friends and each other were both Michael and Sarah’s priorities − it’s what they wanted more than anything else, and it had driven them to seek a good financial advisor.
I showed Michael how much money he would have to make if Sarah worked part- time. We broke this down into two possible plans, each with a specific dollar amount that would maintain the couple’s current lifestyle. One plan was based on the children attending public school; the other allowed them to attend a private academy. Next, I created a comprehensive financial plan for Michael and Sarah that addressed both their immediate and long-range financial needs. I mapped out a saving and spending plan for each of them, so that they knew exactly how much money they were putting aside each month for retirement, and I built in a set amount for vacations. This plan showed Sarah that they could live a comfortable life in retirement, and Michael was relieved that they could allocate money for family vacations, home improvements, and even a guys’ trip to Las Vegas, so that planning for the future did not limit enjoyment today.
I also created a spreadsheet that showed Michael and Sarah what their net worth and liquid assets would be worth over the next 3-5 years. I based it on a projection of key factors, such as rates of return, inflation expectations, and their savings plan. Now, for the first time, Michael and Sarah had a clearer idea of what their finances would look like in the intermediate term.
Both Sarah and Michael thought they were risk takers and aggressive investors, but when I took them through my risk profiling process, they learned that they weren’t as comfortable as they thought with risk-taking. As a result, we developed an investment plan and portfolio that felt emotionally safe to them and would achieve their goal of giving Sarah the option to work part-time. I also advised them on which mutual funds to invest in inside their 401ks, and showed them which college savings strategies would benefit them most.
After an analysis of their insurance needs, I suggested they each buy a $2 million, 30-year term insurance policy and referred them to an insurance broker who shopped the policies to get the best pricing. I discovered that both Michael and Sarah were underinsured with their auto policies − their liability limits were much too low. I met with their insurance agent and reviewed both policies so that we could match their coverage with their needs. And finally, I referred them to an accountant who would be proactive and call them three times a year with tax planning ideas.
Michael and Sarah now have financial peace of mind. They are finally in control of their finances because they are making decisions aligned with their values and the things that really matter to them.
