Special Section: Fiscal Fitness

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FISCAL FITNESS Building a financial plan from the ground up

By Peter Tonguette

PHOTO: ©2018 THINKSTOCK

FROM ONLINE SHOPPING to self-checkout lanes at the grocery store, a spirit of independence seems to define our times.

Yet most people recognize that, from time to time, professional assistance can be advantageous. After all, when your knee injury from a decade ago acts up, you consult your doctor. Why would it be any different when assessing the health of your wealth?

“In today’s data-driven world, immediate access to information can be a blessing and a curse,” says financial planner Courtney Walls of Bluestone Wealth Partners. “While we have potential for better-informed investors, much of what is reported day-to-day is noise.”

Peggy Ruhlin, principal at Budros Ruhlin & Roe, compares financial planning to preparing a tax return: Both are possible to do without assistance, but self-starters should be aware of the risks involved.

“If you make a mistake on your tax return, the IRS might catch you and might make you pay a penalty for what you did wrong. If you mess up your retirement savings, that is a huge difference in terms of the level of mistake you have made,” Ruhlin says, noting that insufficient retirement savings can leave you unprepared to maintain your lifestyle on a fixed income.

So how best to prepare for a future in which wealth is grown and retirement is properly anticipated? The experts offer a plethora of pointers to those starting off on their financial journey.

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HOW TO PICK A PLANNER

BUILDING A FOUNDATION Among the most potentially fruitful—and largely painless—strategies can be the allocation of money from your paycheck to a 401(k) retirement savings account. Deducting these savings from your pay before it ever hits your bank account is a smart strategy, says financial adviser Ryan Bibler of UBS Financial Services. “If you don’t see it, you typically don’t miss it,” he notes. “If you start out making X, but you automatically contribute to the 401(k), then you’re living on Y anyway, and if you’re only used to Y, then it doesn’t hurt as much” as manually pulling that same savings contribution out of your checking account each month.

And, when it comes to 401(k)s, the experts advise making the most of the money you are choosing to set aside. Ruhlin recommends taking full advantage of employers who match your own contributions.

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“If your company says, ‘We will match you 25 percent on every dollar you put into the plan, up to 8 percent of your compensation,’ if you possibly can, you should try to do the 8 percent,” she explains. “If you don’t, you’re throwing away free money.”

FINE-TUNING FUNDS Once your 401(k) is up and running, you must navigate where to invest your money. Jamie Menges of PDS Planning encourages clients to consider broad-based equity index funds.

“Rather than decide between Coca-Cola and Pepsi, or Microsoft and Apple, why not just buy all of them through an index or buy the S&P 500?” Menges says. “What are the chances that all 500 companies in that index are going to go to zero? You eliminate the concentration risk, and they’re inexpensive.”

Ruhlin says clients who are starting out should make investments “typically through

mutual funds or even ETFs,” she says, referring to exchange-traded funds that are traded on similarly to stocks. “Those are cheap ways to buy diversified portfolios of stocks.”

For those trying to shed student-loan or other debt, Menges suggests first tackling the debt with the least favorable terms. “When that one gets paid off—and it’s typically the highest interest, of course—we take the base payment for that, plus the extra payments [we were making on it], and we apply it to the next-worst loan,” Menges says. “If there’s a consolidation option, we certainly like that.”

However, Menges cautions against paying more than necessary on government loans that could be forgiven. “You want to be sure that you just pay the minimums on those and hope that you end up getting the debt forgiveness from the government,” he says.

Good debt, Menges adds, can include a mortgage on a home—if it’s within your means.

PHOTO: ©2018 THINKSTOCK

You spend time shopping for the right doctor or dentist, so why should a financial planner be any different? Peggy Ruhlin, principal at Budros Ruhlin & Roe, suggests researching planners by examining their website and then conducting an interview about what kind of clients they usually serve and whether you fit their existing client base.

Courtney Walls of Bluestone Wealth Partners identifies personality and trust as key ingredients to look for when interviewing prospective planners. “Personality-wise, you’ll probably know in the first few minutes if it’s a fit,” Walls says, adding that establishing trust is even more important. “What is their reputation, personally and professionally? If you didn’t find them through a referral, ask to speak with an existing client.”

Planners who work as part of teams come with advantages, adds Ryan Bibler of UBS Financial Services. “Working with an individual [planner] is really tough, because basically you have one person who knows your story, your situation and your family,” Bibler says. “If something changes in that individual’s life—illness, if they retire ... then all of a sudden, you’re starting from scratch.”

When working with a team of planners, by contrast, other team members are available and informed, should your lead planner have a conflict.

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Walls adds that it is inadvisable to spend greater than 20 to 25 percent of your monthly income on a mortgage payment.

PLANNING AHEAD Being smart about money also means being realistic about anticipating rough patches. If you want to be prepared for the possibility of losing a job, Ruhlin recommends accumulating an emergency fund that fits your specific situation.

“You just have to think about it—how long do I think I would go until I could get a new job? Would it be three months, six months, 12 months?” Ruhlin says. “And how much can my spouse take over in covering our bills by cutting out some nonessentials?”

Such long-range thinking also applies to clients about to embark on estate planning.

“If you’re married, how do you want your spouse to live in the event of your early death, or even your normal death?” Ruhlin says. “Do you want some bank doling out the money and telling your spouse how much money they can have [through a trust], ... or do you want your spouse to be able to independently

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live the lifestyle that they’re used to and can afford?” A financial planner can work well in tandem with an estate-planning attorney to help you find the answers to those questions.

The idea behind such questions is to plan for the unexpected—even the unlikely. Menges advises clients to consider purchasing an insurance policy that would compensate for income lost during a health crisis or disability. “If you make $100,000, you can buy an individual insurance policy that will likely cover about 60 to 70 percent of that income,” Menges says. “That money is income-tax-free on an individual policy.”

Whether you are seeking the financial equivalent of a check-up or comprehensive preventive care, it makes sense to do it in concert with a pro.

“An advisor can help you filter out the noise and stay the course, whereas an individual may have difficulty fully brushing their emotions [about their own investments] aside,” Walls says. “Remember the age-old saying: It’s not timing the market, it’s time in the market.”

PHOTO: ©2018 THINKSTOCK

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