Don’t Let the Tail Wag the Dog

I enjoy coaching business owners, helping them determine where they can increase efficiency and dial in their focus running the business – as opposed to the business running them. Over the years I’ve found some very common themes – “not enough time” and “too much to do”; both of which can be addressed by stepping outside the business and looking at it as a perspective buyer, rather than the owner. Buyers look for opportunities and weaknesses (so they can bid the price down), they’re not emotionally invested in the company and won’t make excuses about why something is happening.

Unfortunately, many of us get so wrapped up in the day-to-day operations we lose sight of the bigger picture – where we want our company to be in 5, 10 or 20 years; and what is the core service or product our business provides. If you don’t have a vision for your company, or if you can’t put your finger on the core service/product, then ask yourself why you’re a business owner. Sure, there’s a lot of hype right now encouraging people to be entrepreneurs and chase their passion; but that passion may be met through hobbies or volunteering at much less cost than starting a business.

Same goes for “side hustles”. Unless you’re working part-time for someone else, you should be treating your hustle like a business. If you’re an Uber or Lyft driver, or you rent room(s) on Airbnb, then understand what your expenses are – please don’t delude yourself into thinking what you earn is “all profit”. I would also like to encourage those of you with side hustles to ask yourself “why”. Why do you have the hustle, what is the money going to help you do? Take this answer and make sure you’re taking the steps necessary to follow through.

Perhaps you’re saying “sure, this all sounds like a great idea; but you just don’t understand how busy I am”. Again, I challenge you to think as a buyer. Do you care how busy someone is, do you let them off the hook for a poorly delivered service or product? No, of course you don’t – so why are you treating yourself any different?

Make the time. Set at least one day each month aside for your business. Instead of arguing how much business  you’re going to lose (cost); think of it as an investment which will increase your profits by improving efficiency and honing your focus. Create an agenda for your day, and follow it. It’s going to feel weird at first, and maybe you’re not super productive right away – it’s a new skill and it’s going to take time to get good at it. Don’t give up, push through. If you’re not sure how to start find a mentor or hire a coach.

I need to stay busy, but I don’t like to waste my time. Think back to why you started your business or side-hustle; I’m willing to bet it wasn’t so you filled your every waking moment with work. Be honest with yourself, do you really want to run a business? Be okay with the answer, whatever it is, and take the necessary steps to be successful. Just do something.

Vets – save that pension

This post is for my fellow veterans – those who have already retired, or are considering a military retirement; and are interested in living a life of financial independence as quickly as possible. We’re in a unique position, we’ll have a steady stream of income starting at a relatively early age (some of us are under 40). Depending on where you choose to hang your hat, maybe this will be all you’ll need – but more than likely you’ll want to keep working, if for no other reason than to keep from being bored.

So let’s say you decide you want a second job/career. First, let’s talk about how to determine your income need. Many of those I’ve spoken to were satisfied to have their employer pay them the difference between what they were making on active duty and their pension; without consideration for skills and/or education. Please be real about what your worth is.

When you enter the workforce, I think it’s best to pretend you do not have any other income; but rather take stock of what skills/talents you have and what those are going for in the “real world”. Glassdoor and Salary.com are two resources I’ve found useful over the years to establish a baseline income level for jobs I was interested in. The only exception I would generally make is if you’re starting a business from scratch – because then using your pension (and VA disability if you qualify) can help significantly.

Once you’ve done your homework and established what the job should pay given your skills and experience, that becomes the minimum base salary I recommend you accept. So what if it’s more than you need because you’re getting a pension – does this mean you can buy a bigger house or a more expensive car?! No – not if you’re goal is what I stated in the beginning; financial independence as early as possible. Instead, I’m proposing you save the entire amount, and not all of it in retirement accounts.

Let’s say your after-tax pension check is $2,000/mth ($24k/year), and you’re not receiving any VA disability. The first thing I would do would be max out your 401(k) contribution – which for those under the age of 50 is $18k/year. Here’s why I like this – it’s going to reduce your taxable income, and it’s not going to feel like you’re saving the full $18k because it’s pre-tax dollars. You can’t put your pension into your 401(k), instead  you’re investing the money from your paycheck and using your pension to live. Because you’ll receive your pension on the 1st, and your 401(k) contributions will come out with every paycheck, you’ll want to make sure you’ve set a system in place to pay your bills in the beginning of the month with your pension check.

The remaining $6k I would put into a taxable brokerage account, I like Vanguard and Fidelity because they have low fees, but anywhere it can grow for the next 7 – 10 years taking advantage of the stock market is fine. How and where you invest will depend on your individual risk tolerance. If possible, I recommend making this an automatic withdrawal from your paycheck just like the retirement withdrawals; it’ll help avoid temptation to spend it elsewhere.

If you’re receiving VA disability, I would explore a different option – because it’s coming to you tax-free already. This money I would want to set aside in a Roth, either IRA or 401(k). If you’re income is too high for a Roth IRA and your employer doesn’t offer the Roth option, then talk to your advisor about using a taxable IRA and Roth conversions. My goal is helping you keep this money tax free. This strategy works just as well if you’re active duty and deployed in a combat zone receiving tax free pay – move your contribution to the Roth TSP option and increase it to the highest threshold you can stomach; but nothing less than an additional 2%.

These strategies will build your account values quickly, and the lower you can keep your living expenses the sooner you’ll become financially independent. I’m not against working, quite the opposite – I think I’ll work as long as I’m able to. But I believe we should work on our terms. Speaking for myself, after 10+ deployments and 5 years as a geographical bachelor, I’m done working on any terms other than my own – so it’s critical I do what I need to, to afford myself this freedom (and the same goes for you).

 

How “High-Functioning” Are You?!

Full disclosure – this is a rant. I’m not a fan of being asked “is your son high-functioning”, or words to that effect; regardless of how well meaning someone is. In the research I’ve done the best definition of “high-functioning” I’ve been able to find is from Autism-Help.org, and it states: “High-functioning autism (HFA) is an informal term applied to individuals with autism, an IQ of 80 or above, and the ability to speak, read, and write.”

Given this definition, why does it matter in “normal” conversation? I don’t think I’ve ever asked the parent of a neuro-typical child if their son/daughter was an honor student, or if they had an IQ over 80, within the first ten minutes of meeting them. Sure, I can hear people replying “well what are we supposed to say?” Or, “we’re not trying to be rude, we just don’t know what to say”.

Why do you feel you need to say anything? If you’re not familiar with the diagnosis, be it autism or other disability, why not just admit that and let the person you’re having the conversation with decide how to proceed?

Here’s the reality. There are going to be circumstances in all of our lives where we will be at a loss for words or feel extremely uncomfortable. In my opinion, the best thing you can do is lean into it. Either choose silence, or explain why you’re uncomfortable – I think you’ll find most people will be very accommodating and will really value your honesty.

Speaking as a parent, I don’t expect you to understand if you aren’t familiar with it. And frankly, most of the time I don’t want to talk about it; especially in casual conversation. Make no mistake, I’m very proud of everything my son has accomplished, but I’m a very private person. Other parents may choose to be more open, and perhaps the high-functioning question doesn’t strike a nerve with them as it does with me. All I ask is think before you speak. If you are going to ask a question like this, where are you hoping the conversation goes?

How to Transition to a Monthly Paycheck

For most of our working years I think it’s safe to say just about all of us receive our checks weekly or every other week; and plan to pay our bills accordingly. Speaking for myself, while on Active Duty my wife and I designated the 1st’s paycheck to the mortgage and the 15th’s to our living expenses. Simple and easy to repeat; and I’d wager many others do something very similar.

I never considered what would happen if I was only paid once per month – and although I “knew” it’s what would happen when I retired from the Navy I wasn’t ready for it. It’s a different dynamic, even if you’re being paid the same or making more; because if it’s something you’re not used to it’s easy to spend like you have another check coming at the halfway point – and if you’re used to weekly paychecks it can be even worse.

To add insult to injury, it’s likely there is going to be a gap of at least (1) month between your last regular paycheck and your monthly check when transitioning to a military pension or social security. It could be even longer if you’ve filed a VA claim, I believe the current wait for fully developed claims is (6) months – a fully developed claim is one in which all supporting documentation has been provided and the VA forms have been completed correctly.

So what can you do to help yourself?

At least six months, a year would be ideal, start gradually transitioning to paying your bills within the first week of the month.

First, figure out your living expenses. Start with tracking all your spending, Mint.com is a useful tool; but many banks will include a similar tool. This will tell you how much you need to earn, and if you’re not interested in transitioning to another job/career; it will help you determine if, and where, you need to cut back. For those who are Active Duty and are being paid BAH cut your expected earnings by almost 2/3 – because you will receive ~50% of your base pay only (whatever percentage you’re entitled to, it’s calculated off your base pay). If your expenses are more than your new income you have two choices – find another income source (not credit cards or other debt instruments) or dial back your expenses.

After you’ve calculated your living expenses and your monthly income, train yourself to live off one pay period.  For most of us this is going to take some coordination, because we don’t have sufficient savings to serve as a buffer. Start small, with a bill or two that are fairly consistent – like phone and/or cable. You know how much you need to set aside, and can plan for it by dialing back accordingly.

When you’re ready to start, set aside 1.5x’s the amount of the bill(s) you’re adding to the first of the month; and I recommend putting this somewhere other than your everyday savings/checking. You’re saving more than you “need” to build the habit and get you used to having less money available from your other checks. This also gives you the extra money you’re going to need to have available on the first of the month. If you cannot afford to save the full amount, then start by setting aside at least an extra $25. The less you can afford to set aside the more time you will need to give yourself for the transition, because we want the habit firmly anchored before the transition occurs.

The goal is a complete transition to paying all your bills on the first of the month before you leave the work force. This isn’t the only way to do this, and if it doesn’t appeal to you my hope is it has at least got you thinking about when you’re only going to have a monthly check. Don’t hesitate to get help if you need it, in this particular case I would recommend a fee only (hourly) planner – Garrett Planning Network, NAPFA, and the CFP Board all have “Find an Advisor” tool; to name a few organizations.

 

 

Do You Have/Need an Exit Strategy?

Recently I’ve been receiving not so subtle reminders of how finite our lives are, and how much of a difference having a plan can make. I think we can all agree it’s impossible to plan for every eventuality, but I also think we can all agree there is at least one exit we are all going to make – to the best of my knowledge nobody has found the secret to immortality in our present state (this is not meant as a religious or philosophical post).

I remember how torn I was, weighing whether to reenlist or not. I retired with over 20 years, but if I’m completely honest with myself it’s not because I loved the Navy. The biggest reason I stayed was fear – I wasn’t sure what I would do about health insurance for my son – having received the Autism diagnosis in the early 2000’s and there not being much information available (that we were aware of). This had negative consequences – I was not someone anyone would want to be around; I felt trapped and took it out on everyone around me.

I think many, if not all, of us can relate to feeling trapped at some point in our lives – be it in a marriage, or a job or some other contract. And because this can be so overwhelming it’s easy for us to lose sight of options, convincing ourselves there is absolutely nothing we can do to make our situation better – regardless of what those around us may be proposing.

If you have kids, do you let them go through high school without talking to you about what their plan is after graduation? If the answer is “no”, then why are you treating yourself any different? This leads me to having an exit strategy – begin with the end in mind. Sounds trite, perhaps; but it will make a significant difference.

For example, no-one marries with the intent to divorce; but even if you don’t divorce the odds are one of you will outlive the other – even if it’s 50+ years down the road. Have a discussion of what you want, how you want to be remembered and where you want to be laid to rest – and put it in writing. Yes, this is an Estate plan; but it’s not meant to be set in stone – review it at major milestones, or at least every 5 years if you have nothing going on.

Another example I come across is similar to what I experienced in the Navy – people are afraid to leave their jobs (not just the military) because of uncertainty; will they make enough money, what else would they do, etc. In this case, my advice is to build yourself a “freedom fund”. Save money into an account with the strict purpose of giving you a buffer. How much is up to you, but I would suggest at least 6 months of income. I would also recommend you make a list of what is non-negotiable. What do you absolutely have to have – could be a minimum salary, specific benefit(s), etc; and also what you are completely unwilling to have in your life – could be too much autonomy, a micro-managing boss, specific working hours or days of the week, etc.

If you take nothing else away from reading this, please take the time to understand what’s most important to you. Don’t be upset or feel like you’re doing something wrong if your internal values don’t match your coworkers or friends – these are your values. When you are considering a change, especially a major one, take a moment to consider possible consequences. I’m doing this with my clients all the time, as I’d wager most Advisers are. Take it for what it’s meant to be, a glimpse of other possibilities; not finding fault with your ideas.