November 2011 - Posts - Kahler Financial
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Kahler Financial

November 2011 - Posts

  • Are You Potentially Rich?

    by Rick Kahler

    Does everyone have the potential to be rich? Theoretically, yes. Will most people become rich? Unfortunately not.

    Like mastering any profession, building wealth requires focus, passion, and a certain set of skills. It’s not for everyone. Still, in America, more people have the opportunity to build wealth than to become major league sports players, movie stars, or Broadway actors.

    Knowing when you've reached your goal is obvious in sports or acting. It's less clear if your goal is becoming rich.

    I would not consider a retired couple who have saved all their lives and have a net worth of around two million dollars as rich. What I would consider them is wise, hard-working, or frugal. They have built up enough net worth to take care of themselves so they won't be a burden on their children or their fellow taxpayers.

    Others might suggest just having the ability to pay your own way without government assistance qualifies you as rich. They would see financial independence (defined as being able, not just to do what you want, but to easily shoulder the responsibility of taking care of yourself) as being rich.

    Whatever you choose for your definition of rich, achieving financial independence seems to me to be the socially conscious thing to do. While being financially independent is a good thing for the individual, I would suggests it pays even greater rewards to your community and nation as a whole. Every person who is financially self-sufficient is one more person sending revenue to the government rather than depending on government support.

    To become financially independent, there are two skills you will need to master: living on less than you earn and learning how to save, invest, and prudently use the resources you do have.

    What isn't necessary for financial independence (though it can certainly help) is earning a high income. I know one person who has earned $1 million a year for decades and only has a large home with a large mortgage to show for it. Conversely, I know many people who’ve never earned more than $100,000 a year and who have acquired a net worth of two to four million dollars.

    Income, careers, and investment choices have less to do with building wealth than most people realize. Here are a few ways to look at the potentially rich.

    • High earners who are spending more than they earn are "should be rich but aren't."

    • Those with little education or resources, working two low-wage jobs, are "unlikely to be rich" but could potentially be.

    • Those with inherited wealth are "born rich." They aren't necessarily guaranteed to stay that way.

    • Those who have limited financial resources but have ability and education are "potentially rich."

    • Those who own businesses and make a middle-class living, but the business is worth several million dollars if they sell it, are "future rich."

    • Those with middle-class incomes who are saving for retirement are "future financially independent."

    Part of defining wealth is whether it supports your lifestyle. A net worth tied up in a ranch or other business isn't necessarily wealth in terms of supporting a richer lifestyle or increasing your cash flow. Accessing the wealth would require selling the business, which may be your passion. Selling it too early could also result in prematurely killing the goose before it gets a chance to lay enough golden eggs.

    The bottom line is that, individually and as a nation, we would do well to reject attempts by politicians or anyone else to lump "the rich" into one category. Like assuming major league baseball players are interchangeable with Broadway starlets, it just doesn't work.

    Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!

  • Hokey Pokey Investing

    by Rick Kahler

    It's been years since I took dance lessons, but as I remember it, an evening of dancing has an overall rhythm that's separate from each individual song. A good band will vary the tempo of the dance by playing a variety of music. Too many slow songs, and dancers get bored doing one foxtrot or two-step after another. Too many polkas or fast jitterbugs, and half the crowd might end up a bit too literally "on the floor."

    A dance band might play mostly country-western music, have a big band sound, or focus on oldies rock and roll. But no matter what type of music it plays, in order to be successful, it needs to have a diversified repertoire.

    And no band would be invited back if it played nothing but novelty dances like the hokey pokey or the chicken dance. These might be fun for a few minutes, but nobody—except possibly a three-year-old on a sugar high—wants to do them over and over and over.

    Unfortunately, some investors use what we might call the "hokey pokey" method of investing. They follow the latest get-rich-quick guru or the ups and downs of the market just like dancers following the directions of the song. They "put their right foot in," and then the minute the market goes down, they sell and "put their right foot out."

    Those least likely to enjoy this type of dance are the ones who "put their whole self in" by investing everything they have in one company's stock or one asset class. When the value of that investment goes down, as it's bound to do sooner or later, they get scared and pull their "whole self out." Usually this is just at the wrong time, about when the market is starting up again.

    The investment class where most investors go "all in" is U.S. stocks. The majority of portfolios I see are heavily overweighed here. U.S. stocks are just one out of ten different asset classes. If everything you have, or most of it, is in this asset class, you are certainly putting your investment eggs all in one basket.

    If a young person went "all in" just in stocks and never got out, they would probably be okay. Unfortunately, most investors can’t leave well enough alone. The downturns are usually too much to bear emotionally, so they try to time the market by attempting to sell when stocks are high and buy when they are low. That almost never works. By trying to time the U.S. stock market by going all in and then all out, you compound your anxiety and depress your investment returns.

    It's even worse if inexperienced investors fall prey to scam artists and "put their whole self in" by speculating in dubious schemes that are more hocus-pocus than hokey pokey. Some of these scams are multi-level marketing programs, dubious limited partnerships investing in the scam de jour, and even going into what could be good investments like business or real estate. Whenever you go "all in" to an investment, there's a high probability you’ve set yourself up for a nasty fall.

    Diversified investing is like pacing your dancing. When you have a mix of tempos and a variety of steps, you can enjoy the music for the whole evening. Once in a while, a galloping polka might make you a little dizzy, or you might get out of breath doing the twist. But the next slow two-step will give you a chance to recover. With a variety of music, you'll still be having fun at the end of the night.

    Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!

  • Divorce Brings Emotional and Financial Pain

    by Rick Kahler

    Few occasions in life are more joyous than a wedding. It's typically filled with celebration, romance, and the promise of spending a lifetime together.

    Conversely, there are few things as painful as the ending of a marriage that began with such promise. The unfortunate reality is there's a 50-50 chance that what started out in wedded bliss will end bitterly in a court of law.

    If you are heading into a divorce, here are a few tips that may make the transition a little easier financially.

    While I’ve seen many divorces start out "amicably," I’ve seen very few end that way. While your divorce may be the exception, I would suggest you plan for things to get contentious.

    A divorce is more than the termination of a marriage. It’s also a major financial event that can have repercussions for many, many years to come. Think of it as the dissolution of a business. This is not something you want to go about casually or do on a handshake. You need to get competent advice—sooner rather than later.

    The type of advisors you will need depends greatly on your situation. The more assets you have and the longer you’ve been married, the more advisors you may need.

    A young couple married only a short time, with very few assets or liabilities and no children, may very well be able to use one attorney or a mediator to settle things quickly and fairly. A couple married 15 or 20 years, who have children and who have accumulated assets and liabilities, will certainly each need an attorney. They would also do well to each engage a therapist for themselves and their children. They could also benefit from consulting with an accountant, financial planner, and an appraiser if they own real estate.

    If you’ve been a "stay at home" spouse and sacrificed your career to raise children, you would greatly benefit from getting some career counseling. While you may receive child support or some alimony from your former spouse, the chances are it won’t be for as much or as long as you would like. There is also the risk that your former spouse may pay erratically or not pay at all.

    Unless you can live exclusively off the earnings of assets received from the divorce, you will need to become employed. For anyone who has been out of the workforce for a long time, this may mean heading back to school and obtaining several years of education. If you can’t find or afford a career counselor, a great book with a lot of helpful exercises is Career Ownership by Janine Moon.

    There is no greater threat to your net worth than a divorce. Unless you are very wealthy, it’s a financial game changer. The reality is your lifestyle will almost certainly decline. It’s critical to actively plan for that new lifestyle as part of the divorce process. Creating a spending plan is very important. Is this difficult? Yes, for most folks it is. It's hard enough to create a spending plan in good times, much less in the chaos of your world being ripped apart. Yet this will give you vital information to help you evaluate and intelligently respond to settlement proposals.

    Finally, resist taking the attitude, "I don’t care what it costs me, I just want to be done with it!" Avoiding the discomfort of negotiating and dealing with conflict may seem easier now. Yet chances are great that you'll regret it later. A divorce is financially and emotionally devastating enough. Don't make it worse by allowing your own beliefs to sabotage your future.

    Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!

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