In this video, we’ll discuss the significant stress finances can cause in relationships when partners disagree on financial matters. Matt shares some of the worst financial decisions he’s seen clients make during his years as a financial advisor. These mistakes often stem from rushed decisions due to busy careers. Matt recommends taking the time to make well-thought-out decisions. The most common errors include buying a house in a new area before evaluating the job or location properly, signing employment contracts without understanding the terms, and focusing solely on tax savings during the accumulation stage without considering future tax implications in retirement. To avoid such mistakes, Matt suggests a balanced approach considering returns, time-saving, and peace of mind, as well as having a values conversation to align decisions with personal values. Feel free to ask questions about making significant financial decisions; it’s a crucial part of financial planning.
According to studies, finances are one of the biggest stressors in a relationship when spouses tend to disagree on how finances are handled or financial decisions. So in this video we’re going to talk through some of the worst financial decisions that we’ve seen clients make and how to be proactive and avoid them.
So Matt, are some of the worst financial decisions in your twelve years of being a financial advisor really dating me there? It’s actually been close to 14 years now. So first of all, the characteristics that.
Have come along with bad decisions are one is really just a lack of time. And so when there’s a lack of time and there’s stress involved with a really busy demanding career, such as if you’re an executive, a business owner, a physician, typically decisions have to be made.
In high stress environments. But making those high stress environments for. Yourself we’ve seen is a very common trait when making a bad decision. In the end is it was usually a very rushed, a very quick and.
Not something that was well thought out. And normally something that we get hired to help unwind. So we recommend before making a big. Decision, one of the biggest value adds a financial advisor provide is to help.
Take the time to think through what. Is the best decision in the context. Of a financial plan. So the biggest mistakes that we have seen typically when rushed are buying a house in a new area before seeing if your new job or career you like and before seeing if that job really likes you.
There’s a lot, lot of statistics at how many times people switch jobs or move and so buying a house in advance of your first day on the job, this is very common with physicians who finish residency or fellowship.
They sign a contract, maybe in a different state, and they start looking to live. We’ve rented all of residency and we’re finally going to become homeowners. You buy right away before seeing school districts, before seeing commute times, before seeing traffic, before all of these different factors of the culture that you’re going to be engraved in, we find as mistake.
So make sure that you do research, you make sure you like the job, the job likes you potentially renting for six to twelve months. Even though annoyance factor of moving twice can solve a lot of these issues.
The second biggest mistake we’ve seen is when a client signs a contract for employment without reviewing what the terms are for, how they’re compensated, what the non compete is, what geographic location they’re actually expected to work in, if that’s even defined.
And so having a professional review, an employment contract at a high level, if you’re an executive physician, et cetera, can be very crucial to help unwind a bad thing. A good plan can always get you through a bad time.
And so the pre work done in advance of these decisions can sometimes be the saving grace on the back end if something needs unwound. And then the third biggest mistake we see is when a client hires us for the retirement distribution planning, if all they focused on during their accumulation stage of life in their is saving taxes.
Even though there’s the adage of get tax breaks now because we’re going to be in a lower tax bracket later in retirement. May be true because your kids are out of your house, your debt is paid off, such as your mortgage or student loans.
If you pile too much money, that save you taxes along the way. That money is going to get taxed when you take it out. And the government does have a couple of bombs that could go off during retirement, such as marginal tax brackets, which do rise and you may not have control of if you have.
Two Social Security is paying you and you have required minimum distributions that are determined based upon IRS tables from any pretax 401K or IRA that even though you may not need the money, there’s going to be a 50% penalty if you don’t take the distribution out.
And that distribution hits as a fully taxable event. So even for someone that was spending 20 a month, now we’re going to spend ten a month. Well, you may be back to spending 20 a month or at least showing 20 a month of income because those accounts are so big.
So doing balance and proactive planning with looking not only how your accounts affect you in the future as well as how they affect you today, is key in avoiding that third mistake. Typically, for guidance on how to avoid any big mistakes like these, a philosophy in place with how decision making is made is very important.
So typically when evaluating a financial decision, we recommend to balance three factors. The first factor is what are the returns you’re going to get? Are they good? Are they bad? Secondly is is this going to save you time or is this going to create more time?
And then the third factor is, does this give you peace of mind? Are you going to sleep well at night after this decision? And if you’re really looking at all three factors, all three of those together in a balanced way, it’s really hard to make a bad decision if you’re weighing all of those three factors into it.
The second thing exercise we recommend to do is to do a values conversation. So look up 50 values, or we have a deck of cards we actually use, narrow those down to the top five. If you’re married per spouse and then apply each of those values, maybe it’s autonomy, maybe it’s family, maybe it’s health that’s important.
How do those factors apply into the decision that is being made? Because usually there’s five to ten big financial decisions that can be make it or break it decisions over someone’s 40 year working career.
And making sure those are healthy decisions can really define your financial security and ultimately your financial independence in the end. Any questions on a big decision, we welcome. These are some of the favorite conversations and most enjoyable, impactful conversations that we have with our clients on a day to day basis.