Is your vision 20/20?

Robert A. Valente, CFP®, AEP®, CEO, Managing Member, RAV Financial Services LLC

Here we are in December approaching the end of another year. My parents were correct when they told me that time goes by faster the older we get. It’s funny how time just slips by, and I often struggle with the passage of time. However, as I get my hands around the concept of time, it is not time I want to control; it’s controlling how I spend my time that’s most important. We start the New Year with a list of resolutions hoping that 2013 will bring a different outcome, streamline our goals and aspirations, and free up our time. Ironically, we believe that by making resolutions, these changes will automatically occur.

How does one affect some meaningful changes in the New Year? To get prepared, make a list and identify items in these general categories:

  • What do you want to stop doing?
  • What do you want to start doing?
  • What do you want to continue doing?

Leave yourself room in each category, and then narrow down the choices to a few that you can successfully manage. Now that you have these entries on the lists in front of you, ask yourself what would you do with your time if you only had seven years left to live? What items are important? What items are imperative?

As you look at those items on your lists and you contemplate these questions thoroughly, do you feel your items on the lists coincide with the central core of your life’s purpose for the next seven years? Will the items on your lists achieve your purpose or are you just creating more items for your “to-do” list?

This illustration merely touches the surface of the inner work each one of you needs to pursue to make financial and life planning a thoroughly meaningful experience. Most people have only experienced the transactional dimension and walk away with no long-term meaningful solution. The transaction may have been only a temporary Band-Aid to the problem. The root of the problem needs to be addressed to complement your inner emotions, attitudes, values and purpose beneath that surface transaction. When those underlying emotions and purposes are identified and vocalized, the purpose then clarifies the choices.

In my definition of the world of personal financial and life planning, the transaction side of the equation overshadows the client-adviser conversation. The transaction driven-process is akin to where the adviser draws his convenient “arrow” from his quiver to solve your current problem. In today’s vernacular “I have an app for that.”

The purpose-side and value-side of the conversation is rarely entertained. The purpose-side involves the qualitative components of your wealth management journey. Wealth management and life planning is much more than just dollars and cents. Typically, people expect dollars and cents to dominate conversations they have with a wealth adviser, but when it comes to life planning, topics of discussion extend to matters far more personal than money, addressing your deepest life dreams and goals — and how to make them a reality through sound financial planning.

When developing a life plan with your RAV adviser, there are a few key factors that must come into alignment: mutual trust, understanding and working with a wealth adviser who has the integrity to tell you whether your current reality can support your future dreams. But you, as a client, also bear a large responsibility in the life-planning process — particularly if you long for a future that looks very different from your current reality. Investing time and energy in the discovery of your purpose and intention will make the journey more relevant and more powerful.

Vision and purpose go hand-in-hand. Vision is the definition of your tangible and intangible goals. Purpose drives your outcome, interrelated within your goals and objectives. So where do you want to be in 2020? Decide today to embark upon an experience where your purpose and vision are at the heart of your life-planning journey.

It is interesting in this age of technology that we want and can have immediate access to all types of information. Access to your innermost purpose takes a little longer to uncover, and it is essential to the personal and business financial and life-planning experience. Only then will you feel fulfilled in the outcomes of your decisions and choices.

So make a decision that by January 2020, your personal and family vision will be clearly 20/20. Hopefully, this will give you a time frame to unearth your inner destiny, so that a strategic financial and life plan will incorporate your unique values into its outcome.

You don’t have to wait to find a financial and life-planning firm. For more than 30 years, RAV Financial Services has been working in partnership with those individuals and families who understand that the road from success to significance is achieved by interweaving purpose, values, and intention into their financial and life-planning experience.

Wishing you a happy holiday and a healthy and prosperous New Year.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at (216) 831-4900 or [email protected]

Insights Wealth Management is brought to you by RAV Financial Services LLC

How to prepare for retirement with a dress rehearsal now – Part 2

Robert A. Valente, CEO and Managing Member, RAV Financial Services

Last month I introduced the concept of a “dress rehearsal.” So here is where the dress rehearsal comes in. If you’re five years from retirement, begin to live now on that bottom-line number you identified to be your future retirement income need. Working within your budget and with your advisor will help you focus on what nonessential expenses need to be eliminated or adjusted prior to retirement. Statistics indicate that retirees will need 70 to 100 percent of their pre-retirement income during their retirement years. Rather than guess what that required income need is, let’s identify your future bottom-line monthly number now.

So as you begin to determine the actual monthly income need for your eventual retirement, you may stumble across insurance expenses for life, disability, long-term care and other insurance needs. What will you need to maintain and eliminate in retirement? Hopefully your children will be financially responsible and living on their own, minimizing your responsibility to cover their liabilities and commitments. However, if you have made assurances to your family to cover any of the shortfalls in their future, consider how these promises will affect your overall retirement income needs.

Having a conversation with your property and casualty agent is a good starting point to determine what coverage is needed on your homeowner’s, auto and excess liability exposure. Hopefully you have had the conversation with your wealth manager/life planner as to where you plan on retiring. Your residence location will definitely impact your decisions. Determining where you will live during retirement and what risks you will need to cover will give your agent an idea as to what proposals to prepare.

As you begin to address your future property and casualty insurance needs, you’ll need to evaluate the other insurances that you have previously budgeted during your earning years. Begin by reviewing the needs, purposes and future status of these policies by creating a spreadsheet of all of your life, disability, long-term care, personal, and business policies. Identify the date of issue, premium amount, length of coverage, portability, and the ability to maintain coverage, and its importance in your overall strategic estate plan.

Some of the policies, e.g. disability insurance, may terminate at a specific time or event (such as at age 65 or when you are no longer gainfully employed due to retirement, etc.). There may be some insurance policies that you will have no control over whether they continue  in your portfolio. Other policies, such as long-term care and life insurance, may provide you more flexibility with incorporating them into your new legacy plan. However, applying for any improvements into these policies may be dependent upon your current health and other factors. Once the spreadsheet is completed, identifying the various polices owned, your wealth manager can help you determine the relevance of each policy and how it fits in with your strategic estate and legacy plan.

With the increasing expenses of health care costs, a long-term care insurance policy should be a fundamental building block as you create the foundation for the preservation and transfer of your family legacy. As you receive proposals from your insurance agent, share this information with your wealth manager. Together you will determine which plan might best accomplish your overall strategic estate vision. Reviewing your LTC policy during this dress rehearsal phase pre-determines the budget allocation in your retirement expense projection.

Another way to protect, preserve, and/or provide heirs with liquidity of your legacy is through life insurance. What policies have you listed on your spreadsheet, and how are they owned? Are the policies personal or business? Which one(s) can you maintain or will you want to keep? Which ones are scheduled to terminate prior to or during your retirement? Remember, your health situation may limit your ability to purchase additional coverage or replace obsolescent contracts. So don’t cancel anything prematurely until you have your estate plan review with your wealth manager. Your discussion with your life planner will determine the policies or techniques to include in your strategic direction.

Initially, you are attempting to get a handle on your insurance expenses during this dress rehearsal phase. This in-depth discussion on estate planning and budgeting will now better prepare you for your discussion with your estate planning attorney to begin changes or amendments to your existing documents.

The focus of a wealth manager/life planner is to help you develop an ultimate legacy strategy. Once the vision is clear, then the techniques and products can more easily be assimilated to create your desired outcome. Many clients agree that they have been blessed with abundance, and they are concerned for the welfare of their children, grandchildren and other heirs. Long-term care insurance and life insurance can be great tools for wealth replacement or wealth preservation. Insurance may also perpetuate your commitment to your philanthropic institutions, ensuring your contributions continue assisting the non-profit(s) in accomplishing their mission. I am not advocating a one-size-fits all rule for all individuals and families. An objective discussion and analysis about insurance’s relevance to your family’s situation is necessary. Exploring your desires, passions, values and purpose drives the decisions as to whether insurances play a major or minor role in completing your strategic estate plan. Again, during this dress rehearsal phase, we are also attempting to determine the extent of your retirement income needs.

Make this dress rehearsal a powerful experience. You are preparing for the next phase of your life: a successful retirement.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]

Insights Wealth Management is brought to you by RAV Financial Services LLC.

How to prepare for retirement with a dress rehearsal now

Robert A. Valente, CEO and Managing Member, RAV Financial Services

How many times have you heard pre-retirees state that they could live on less when they retire? It is counterintuitive that an individual, or couple, could make that statement. What will change dramatically at age 65 (or after you eventually retire) to make that statement come true? Do the IRS, your mortgage lender, your utility companies, and the like give you a discount because you are a retiree? I’m sure that the majority of those comments by pre-retirees are part of their retirement wish list.

Fortunately, or unfortunately, we are all creatures of habit. Articles upon articles appear daily about losing weight, exercising regularly and eating correctly. People who are successful at accomplishing weight loss, becoming more physically fit, or eating a more balanced diet will tell you that to accomplish any objective, you need to make a life-style change. Wishing and hoping don’t change habits; it takes new knowledge, skills and action to effectively manifest new attitudes and new behaviors.

So initiate a dress rehearsal for retirement now. Rather than speculate on future cash flow needs, start today to identify those cash flow items that may or may not decrease as you transition from your “Earning Years” into your “Golden Years.”

Determining what expenses to eliminate may be the starting point of this exercise, but the second-dimension of cash flow analysis may uncover “free cash” to be reallocated to ongoing wealth-building and asset protection strategies.

Eliminate those items that you have no ability to control, identify those that require your creativity, and compromise on adapting and adjusting. Too often, the “Earning Years” reinforce our new cultural habits of affluence and consumerism. Affluence has its roots in the Ancient Latin word, affluere, which means “flow freely.” Yes, for consumers, money does flows freely when you have a paycheck. What happens in retirement when the majority of your income is now dependent upon the investment return and/or distribution from the assets you accumulated? Let’s not forget that we may be experiencing a longer life expectancy. This phenomenon is putting an even greater onus on being better stewards of our wealth for a longer period of time.

Other than the proverbial miscellaneous expenses, what other categories come to mind where you might be overspending? Is this a good time to refinance your mortgage? Interest rates are low once again. Is it time to review your cash flow to reduce the cost of your mortgage? Refinancing may be the catalyst to reduce mortgage/housing costs to free up cash to purchase wealth building assets and strategies.

If you refinanced your mortgage and the monthly (P & I) payment is lower, should those mortgage savings go to increasing your 401(k) contribution to build up your retirement nest egg or funding your child’s/grandchild’s 529 plan? The 401(k) contribution creates a federal and Ohio state income tax deduction; the other creates a tax-free accumulation account for education.

If you examine your payroll withholding and/or quarterly tax payments, will you receive a refund or will you owe taxes? The ideal is to pay, via estimated payments and your payroll withholding, exactly what you will owe. The balance in excess withholding or quarterly payments should be reallocated to categories to build your wealth on a regular basis. Periodically consulting with your tax advisor can maximize this strategy.

Are you paying too much for life insurance or auto and homeowner’s coverage? Maybe you would like to purchase long-term care insurance, but the premium would challenge your monthly budget. So rather than always spending more money to purchase things, why not review the expense of current items first. For example, by increasing your deductibles on your auto and/or home insurances, you may realize substantial savings.  These savings then can be applied to those items warranted by your new financial direction.

When you retire, what monthly obligations will remain? What expenses will go away? 401(k) contributions will drop off; saving/investing/accumulating money for retirement will no longer be an expense. Federal and state income tax withholding (and quarterly estimates) may be lower. So as you work through each line of your expense sheet, you’re approaching the true “bottom line” of what you need to live on in your Golden Years.

Working with your wealth manager and life-planner, can help you fine-tune the projected income needed per month, adjusted for annual inflation. So here is where the “dress rehearsal” comes in.  If you’re five years from retirement, begin to live now on that bottom-line number you identified to be your future retirement income needs. Working within your budget and with your advisor will help you focus on what nonessential expenses need to be eliminated or adjusted prior to retirement. Statistics indicate that retirees will need 70 to 100 percent of their pre-retirement income during their retirement years. Rather than guess what that required income need is, let’s identify your future bottom-line monthly number now.

Like anything else, retirement is a life-style decision. Don’t jump in to retirement unprepared. Ease into retirement by practicing fiscal responsibility and accountability. Approach the dress rehearsal technique as the opportunity to continue to live your Golden Years with an attitude of abundance as opposed to living a life controlled by scarcity.

As a fee-only wealth manager and life-planning company, we are ready to make your dress-rehearsal a success.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC.  He can be reached at [email protected]

Insights Wealth Management is brought to you by RAV Financial Services LLC

Addressing the challenges of retirement cash flow

Robert A. Valente, CEO and Managing Member, RAV Financial Services

For those of you diligent baby boomers who have filed your income tax returns on time, you can redirect your attention to your readiness for eventual retirement. Yes, on Jan. 1, 2011, the very first baby boomers turned age 65. For almost the next 20 years, more than 10,000 baby boomers will be considering retirement or retiring every single day. But just because you’re eligible does not make you necessarily prepared to enter this new phase of your life.

Today, let’s address some challenges to retirement cash flow. What amount of income do you really need in your golden years? What will be your expenses? Traditionally, previous retirees looked forward to living on the certainty of a fixed income and fewer expenses in the retirement years.

The first thing to do is some homework. Create a current personal income and expense sheet. Uncover what you are spending today and every day. Once that is completed, consider the potential financial obligations that you will face in the future once you retire and are without an employment income. The foundation for a solid retirement plan is built on managing your expectations and life-plan goals relative to your income sources, assets, liabilities and your overall net worth. Let’s explore some what-ifs that may impact you.

Writers have stated that boomers consider retirement as a time to reinvent themselves. The economic and financial events since 2007 have taken that reinvention definition to a new level. Let us be reminded that we boomers are still considered the “sandwich generation.” We still have an obligation to our children and heirs, but we also have the eventuality of dealing with aging parents and other relatives.

How are you preparing for these phenomena?

  • When will you really retire? The economic downturn includes the virtual disappearance of any “standard” retirement age. According to a recent report from the C.D. Howe Institute the new trend among baby boomers is to prolong retirement by at least five years because of economic and social pressures.
  • Employers are bracing for major changes in health care policy come 2014, and for better or worse, you’ll be affected. If you or your dependents have health issues, update your financial contingency plan around potentially higher costs for care.
  • Are you taking advantage of voluntary benefits? Voluntary benefits, which can include additional disability coverage, long-term care insurance and/or life insurance, are worth revisiting at different stages in your life.

How are college and/or post-grad education expenses impacting your future cash flow?

  • Americans now owe more than $875 billion on student loans, which is more than the total amount owed on their credit cards.
  • Since 1982, the cost of medical care in the U.S. has gone up more than 200 percent, but that is nothing compared to the cost of tuition, which has gone up by more than 400 percent.
  • Approximately two-thirds of all college students graduate with student loans. Student loan money is out there; however, high school students are never told that not even bankruptcy can get you out of student loan debt. It stays with you forever until it is paid in full.

So, what if you have co-signed and/or guaranteed those college loans or you have taken on other debt to help your children’s education? How will that impact your cash flow during your retirement years? What if your children become dependent for an extended period of time?

Parents’ and children’s delayed creation of a strategic and tactical strategy to deal with educational costs has created this huge burden on the graduate and the parents/custodians. The unfortunate result of this educational quandary is financial distress because not all college graduates are guaranteed a well-paying career to offset the costs of the financial debt incurred to achieve their diploma. In addition, many of those children don’t launch into independence but return home once again as a dependent.  These children are lovingly referred to as “boomerangers.” (By dissecting the word, you may also interpret that child(ren)’s return home has changed boomer’s frustration to boomer’s anger).

If you are a business owner, have you really addressed the issue of a successful continuation and succession plan? In theory, business succession planning focuses on contracts, numbers and documents. Taking the “you” out of the equation is a critical factor in business succession planning. What can you do to plan the best success for your own financial future, the business and potential inheritors?

Start by securing the services of a credible and unbiased business valuator, and understand clearly the basis for the valuation. Not only will accurate business valuations allow you to strategize your income potential, it will also provide the buyer with financial metrics to accurately price the current market value of the enterprise. The business valuation should also address the disposition of and/or the impact of existing liabilities on the future business performance and on your cash flow from the sale of the entity.

Focus on the business players. “It’s not personal, it’s business” is relevant in succession planning, too. Put aside personal feelings and expectations about tradition and keep succession planning about finances and business. Identify family members’ interest in being involved in the future business and accordingly incorporate their roles (or their lack of them) in the succession plan.

Recognize how much of your personal worth is the business. Work with your financial advisor and estate planner now to determine strategies that can strategically integrate your business plan into your personal financial plan and retirement income scenario.

As a fee-only wealth manager and life-planning company, we are ready to make your retirement reinvention a success.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC.  He can be reached at [email protected]

The price of procrastination when planning for retirement

Robert A. Valente, CEO and Managing Member, RAV Financial Services

Fifteen months ago RAV Financial Services, LLC decided to provide our readers with timely insights and strategies to maximize your business growth potential and increase your overall net worth. During this time frame, we all have been bombarded by many headlines both domestic and abroad that may have distracted our focus on our journey towards financial success and ultimate life-plan significance:

  • U.S. economy sees the worst downturn since the Great Depression
  • Foreclosures hit record levels
  • U.S. deficits are out of control
  • Global terrorism on the rise
  • Afghan war now the longest in U.S. history
  • European debt crisis threatens economic recovery
  • Gas hits $4 per gallon and still rising
  • The U.S. political climate is bitter and straining the possibility of cooperation between parties

These are just a few of the stories that have caused consumers to remain “frozen” in the headlines. We have become so ingrained in the negativity around the globe, that we have remained stationary and have abandoned the issues that are “close to home”: to create and implement a successful strategic retirement plan.

Too often bad news reminds us that the “glass is half empty, not half full.” Other times we become angry, lamenting that we have no control over external events. Regardless of the environment, it may be appropriate to accept the events around you, and begin a plan to adjust and adapt to the “cards you have been dealt.” Next, focus on the things you can control as you build your retirement strategy. Individuals and businesses don’t plan to fail, they fail to plan. When a plan is non-existent, fear is created and magnifies what can go wrong. I learned a new definition a while ago about FEAR: false experiences appearing real. Fear immobilizes us and reminds us all of what Franklin D. Roosevelt said: “The only thing we have to fear is fear itself.” Emotional planning and knee-jerk reactions to short-term events can be dangerous to your long-term wealth.  A well-thought-out plan with your trusted advisor and wealth manager can help you crystallize the vision in your life-plan.

So what other statistics are increasing the difficulty of reaching retirement nirvana?

  • According to a recent poll conducted by Americans for Secure Retirement, 88% of all Americans are worried about “maintaining a comfortable standard of living in retirement.”
  • On January 1, 2011, the very first Baby Boomers started to retire. For almost the next 20 years, more than 10,000 Baby Boomers will be retiring every single day.
  • According to one recent survey, 74% of American workers expect to continue working once they are “retired.”
  • A recent AARP survey of Baby Boomers indicated 40% of them plan to work “until they drop.”
  • Per the Congressional Budget Office, the Social Security system paid out more in benefits than it received in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead, these “Social Security deficits” are scheduled to become absolutely nightmarish as hordes of Baby Boomers retire.
  • In 1950, each retiree’s Social Security benefit was paid for by 16. U.S. workers. According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.
  • According to a survey by careerbuilder.com, 36% of all Americans say that they don’t contribute anything at all to retirement savings. (1)

In an article written by Michael Cohn, Small Biz Owners Not Prepared for Retirement, Cohn refers to a survey conducted by the American College:

“The survey, by the American College, a nonprofit educational institution devoted to financial services, found that while 66% of the women and 70% of the men said they had developed an estimate of their retirement needs, only half of these individuals have done so with the assistance of a financial professional.

Even for the small business owners who have calculated their retirement goals, most do not have a formal plan to achieve their financial objectives. Among the small business owners surveyed, 77% of the women and 74% of the men have no written plan for retirement.

Cost of living is a major issue for many small business owners planning for retirement. The main concerns of roughly four in 10 of the small business owners surveyed were increases in the cost of living, higher health care costs, and the ability to maintain their current quality of life.

While just over half of the small business owners who were surveyed reported being concerned about maximizing the value of their business to help fund retirement, only 10% of the women and 20% of the men polled had a written plan to transition their business upon retirement.”

There are many more examples in the media of individuals procrastinating to begin their retirement planning. Let’s get started in a serious commitment to get your retirement planning underway. The first thing is to do some homework. Create your personal current income and expense sheet. We’ll use that in my next article to examine what information is unveiled to you as you examine where money comes from and where it goes today. Remember, when you’re retired, how will that income/expense picture change. We’ll elaborate on that more next month.

In the meantime, I wish you financial well-being and comfort during these taxing times.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]

(1) Excerpts from “The Economic Collapse : Are You Prepared For The Coming Economic Collapse And The Next Great Depression?” November 23rd, 2011

Insights Wealth Management is brought to you by RAV Financial Services LLC

The power of your vision

Robert A. Valente, CEO and Managing Member, RAV Financial Services LLC

As you continue to rummage through income tax receipts and other miscellaneous forms, don’t you wish you could make this process more productive? Throughout the calendar year we accumulate tax receipts into piles or folders. So now the task begins to organize last year’s income and expense history. Could you add a new dimension to tax filing that would make this activity more enjoyable as well as financially profitable?

I propose that sometime in the first quarter of every year, you adopt a “5-day Financial Self-Care” program. This take-care-of-me program gives you permission to carve out 5 days (40 hours) to take the time to review your family’s goals and progress to date.

Income tax preparation and organizing is just one of the pieces in financial self-care. Rather than just hunt and gather “stuff” for tax preparation, why not elevate this process and revisit your purpose in the “why” you do what you do?

Let’s start with an obvious theme for your inaugural self-care regime: retirement planning. What is your strategic financial purpose to be achieved? Once you and your wealth manager quantify that specific financial goal, you may want to adopt “tunnel vision.” In other words, that goal, that end-result, will now drive every decision you make from this point on. It is the benchmark that every other decision is weighed against. So let’s couple retirement planning with the necessity to accumulate more capital, and let’s ponder some issues.

Financial success is a journey toward a worthwhile predetermined goal. With that mindset, you begin to see each component of the wealth management process with a different perspective. You may begin to see your tax bracket as a tool to leverage the accumulation of more wealth. If Uncle Sam and your resident state tax put you into the 30 percent marginal income tax bracket, can your marginal income tax bracket provide you any leverage to accumulating more wealth? In a simplistic observation, a 401(k) contribution can generate a 30 percent reduction of income taxes on the amount contributed to a 401(k).  So if you contribute $12,000 to a 401(k), you will owe $3,600 less in income taxes because your reportable income is $12,000 less for that calendar year. Another way of looking at it is that the taxing authorities are contributing 30 percent of your contribution. Those contributions are pre-tax, and your deposits and earnings compound on a tax-deferred basis.

So are you maximizing the benefit of your employer-sponsored retirement plans? If not, why not? Are other expenses competing for your quest for self-care?

There are times when the discussion about taxes may appear to be counter-intuitive. Another pitfall to accumulating wealth is to Roth or not to Roth? Why convert your traditional IRA to a Roth IRA? It’s expensive to convert. How much do you have to make up in future gain to reimburse yourself for the taxes paid on the conversion? If accumulation is the goal, then paying the conversion taxes may at best be “taking a step back to take two steps forward.” Predicting the future tax system is akin to predicting the weather.

Remember financial planning is part art and part science. Successful retirement planning requires soul-searching and dogged-determination to your chosen path. Your passion for that objective keeps both the advisor and you on that path to achieve a positive outcome. Temptations are bound to distract you from clearly seeing your outcome. My role as your confidante and wealth management coach is to continue to remind, clarify and quantify that specific target. Not only do we collaborate with you on long-term strategies, we also identify those events that could potentially sidetrack you from the big picture. What past behaviors and habits need to be altered to create this new outcome, rather than repeating habits that failed in the past?

What passion do you want to manifest? What is your vision that requires our collective energy? I ask you to describe with clarity and detail that picture in your mind and heart. That becomes the aim and purpose for your family.

You may comment that you cannot afford to maximize your retirement contributions because you have other bills to pay. What if your mortgage lender has convinced you to accelerate your mortgage payment or refinance and reduce the term-loan on your mortgage from 30 to 15 years or less? How does that get you to your financial retirement nest egg? Will a paid up home make your retirement financial objectives a reality? After all, your parents always told you to pay off your mortgage.

What if your retirement financial objectives fall short because you invested your extra cash into an illiquid investment — your home? And how does your home provide you income in retirement, without resorting to a reverse mortgage in your retirement years?

Therein lies my argument. Most decisions to pay off the mortgage, buy a car for the children, or be self-indulgent create reductions in 401(k) contributions and other retirement accounts. Paying off your mortgage, buying your child a car and being self-indulgent are good ideas, however, relative to your goal to accumulate wealth for retirement, how do those choices fit in to your true overall strategic purpose? What’s the long-term implication of a decision made in a vacuum today?

Join Dan Cunningham and me on our next SBN webinar on Wednesday March 28 at 1 pm EST. We’ll discuss How Strategic Finance Helps Grow Your Business and Your Personal Net Worth.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]

Resolutions versus meaningful expectations for your business

Robert A. Valente, CEO and Managing Member, RAV Financial Services LLC

Ah yes, 2012! Another year behind us, and another year to continue to impact the world in which we live. We spent some time in the past few weeks focusing on presents to give to our loved ones. Let’s now turn our attention to presence.

Merriman-Webster dictionary describes presence as the fact or condition of being present. For me, being present is akin to being conscious and aware of everything you say, do, feel and think. Forgive the pun, but presence is also a gift. Presence is a rare quality that few people consistently manifest. So what does this have to do with 2012?

Let’s put resolutions aside and explore more meaningful and creative ways to approach the onset of 2012. I trust that many of you will agree that we cannot control the events in the world, but we can control the manner in which we respond to events. So rather than talk about our expectations for the New Year, let’s concentrate on ways that will assist you in controlling your “world.” Rather than use the word resolution, why not create meaningful expectations for yourself and your business?

To start with, if you assume increasing revenue as fast as possible as the “new normal” for future revenue expectations, your business could grow broke. Especially during these challenging times — when accelerating and/or realizing any growth seems to be a good thing — companies can get tripped up when they focus on increasing annual revenue as fast as possible with little regard to its full effect. The growth ends up consuming the resources of the balance sheet much more quickly than they can be replenished. Since company executives still need to meet the demand, they must find additional financial resources and usually must pull from their available cash flow. In the end, they are left with much less (if any) cash flow available to reinvest in the company’s long-term strategic growth plans.

Successful businesses recognize the “cure” for growing broke: sustainable revenue growth. Operating from that strategy, businesses focus on the ability to sustain or increase revenue growth year after year. By following that approach, they don’t deplete their available free cash flow just to keep the immediate business growth afloat.

In addition, if the owners look to sell the business, they have more reliable growth numbers. Buyers will appreciate those figures, and the sellers will gain from providing them. Also, if the owners sell to a group (such as key employees) who will make payments over a term, they can expect sustainable growth will ensure on-time payments.

Let’s let our ears and eyes guide us this year to keep a better barometer on the productivity of our business.

Be present with your ears. When an event occurs or when a client or employee speaks to you, are you really hearing what they are attempting to communicate to you? Too often we are so busy with daily routines that when it is time to really respond to someone, we fall to habit and give an answer, sometimes even interrupting the conversation before your client or employee completes their remarks. Active listening is an art form. Some people listen but never hear.

Next let your eyes see more clearly. Take a good look at your financials to make sure that your growth strategy will not have your business growing groke. Spend some time reviewing and checking the barometers for success in your business.

Are you checking the “dashboard” (indicators and measurements) within your business?

Some of the items on your dashboard are periodically examining your business cash flows. Are you reviewing your cash flow and asset to liability ratios?

There are twelve key financial metrics that business owners should examine annually. Please join me and Dan Cunningham, CEO of The Business Ferret LLC, on January 25, 2012 at 1 pm (EST). Our webinar that day will discuss these 12 Key Financial Metrics, and how you can apply these principles to your income statement and balance sheet to determine whether you’re on the road to prosperity or mediocrity.

I wish you a Happy and Prosperous New Year. Be present in all that you do this year.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]

Reinventing the way you do your business

Robert A. Valente, CEO, Managing Member, RAV Financial Services LLC

Here we are several weeks after the death of Steve Jobs, and many of you may be wondering if you could make a similar impact on your business, clients, and the world in general. Steven Paul “Steve” Jobs was an American inventor and businessman widely recognized as a charismatic pioneer of the personal computer era. He was co-founder, chairman, and chief executive officer of Apple Inc. You can read more about the man, Steve Jobs, in the recently released authorized biography written by Walter Isaacson, “Steve Jobs”, published October 24, 2011, by Simon & Schuster.Steve Jobs has been praised for his brilliance, passion, and energy that created countless innovations that enrich and improve all of our lives. Some would say that the world is a better place in some ways because of Steve Jobs. Sometimes in our reactions to another’s death we take the time to reflect upon the reasons for everything that we do in business, in life, in all.In this ever-changing world, you are all faced with issues addressing the viability and efficacy of your current business model. There are client/customer issues in how to remain competitive while at the same time delivering a high-touch quality service that meets the expectations of the ever-changing expectations of your clients.

There are internal issues from employees and colleagues who are expecting financial security and personal fulfillment from their work experience with you, and they are critically evaluating you as to how you adjust and adapt to all of the factors bombarding your business. However, most employees are resistant to change, and at times the words of Albert Einstein periodically cross your mind as he defined insanity as “doing the same thing over and over again and expecting different results.”

There are your personal, financial, and business goals that are being challenged everyday: creating a sustainable company with a viable predictable revenue stream, maintaining a steady marketing system that generates quality clients/customers “beating a path to your door,” and getting commitment and buy-in from your colleagues that nothing is constant but change. The metrics of economic value for your business are also being redefined.

So let’s substitute the word “change” for re-inventing. Every business is to some degree in a transformation process, and as the changes in our world accelerate with more technology, you need to be perpetually morphing. So where do you begin?

Let’s begin with the basics. It may be time to identify and assemble your key employees into a Strategic Planning Group. This task force is a core team of the organization’s leaders and is mandatory in the effective creation of a strategic plan. Some strategic questions you should all begin to answer are:

What business are you really in? What is your mission statement? Your Unique Value Proposition? Your vision statement?

We all remember the mission statement that you wrote a long time ago or never got around to recording on paper. Your organization’s mission is a definition of who and what you are. Mission statements often include core goals and values of the company or organization.

Too often you overlook the vision statement. The vision statement is simply a roadmap for the future. In a vision statement, you’re creating your vision for the preferred future of your company. Initially, the vision statement should be vaguely specific, negotiating with others to eventually create the path to the ultimate future.

The value proposition is another important statement the company may need to address. Wikipedia defines a value proposition as “a promise of value to be delivered and a belief from the customer of value that will be experienced.” Developing a value proposition is based on a review and analysis of the benefits, costs, and value that an organization can deliver to its customers, prospective customers, and other constituent groups within and outside the organization.

So as you begin to redefine what business you are in and to re-address these three statements, it may be time to perform a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis.

A SWOT analysis must start with defining a desired end state or objective and may be incorporated into the strategic planning model. When you have completed the SWOT analysis, what are your conclusions? Why not do a SWOT analysis of your major competitor? Now compare the two. What makes you unique or distinct in the marketplace? What are your strategic advantages and how can you leverage your strengths and your competitor’s vulnerabilities?

Reinventing the mission statement, the vision statement, and the value proposition coupled with the SWOT analysis is time-consuming, and relevant to your business planning. It may be advantageous to review these strategic planning components on an annual basis.

So as you embark upon the journey of re-invention, keep the words of Steve Jobs ingrained in your thoughts:

Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]

Checking the dashboard on your financial planning journey

Robert Valente, CEO and Managing Member, RAV Financial Services LLC

The month of August was consumed with the issue of the U.S. debt ceiling and all of the subsequent fall-out that occurred afterwards. As usual, the debt ceiling was only the “tip of the iceberg” of our country’s real issues. Below is data from an e-mail that has been circulating that does a great job of explaining this country’s debt in terms we can all comprehend:
• U.S. Tax revenue: $2,170,000,000,000
• Federal budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000

Let’s remove 8 zeros and pretend it’s a household budget:

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

Businesses and governments should be checking barometers on a regular basis. Are you checking the dashboard of your vehicle as you travel on your financial journey from success to significance?

Some of the items on your dashboard are periodically examining your business and personal cash flows. Are you reviewing your cash flow and asset-to-liability ratios? Determining what expenses to eliminate may be the starting point of this exercise, but the second dimension of cash flow analysis may uncover “free cash” to be reallocated to wealth-building and asset-protection strategies.

Some of your focus and worry may be centered on your investment/portfolio performance. You may speculate and agonize on the events that are occurring beyond your control, and you expect your portfolio managers to have the “crystal ball” to help avoid the downturns and capitalize on the upticks. You soon realize that it is futile to attempt to manage those events beyond your control. Our intent should be to adapt and adjust to these events and control things we have the ability to manage.

What can we control and influence directly? What family strategies can be employed now during this period of uncertainty? In recent years our society has been characterized as a more affluent one. If you open a dictionary to the word affluent you will find that affluent has its roots in the Ancient Latin word, affluere, which means “flow freely.” Yes, for consumers, money does flow too freely. So let us explore some simple concepts.

Other than the proverbial miscellaneous expenses, what other categories come to mind where you might be overspending? Is this a good time to refinance your mortgage? Interest rates are low once again. Is this time to review your cash flow to reduce the cost of your mortgage? The debate continues as to whether to maintain or reduce mortgage balances. With the fall out that has occurred in the real estate market, what is the most appropriate strategy for you, especially if you don’t plan on living in your present home forever, and if you don’t expect real estate and financial markets to recover for quite some time? Refinancing may be the catalyst to reduce mortgage costs to free up cash to purchase wealth-building assets and strategies.

Let’s pinpoint some cash flow reallocation items. Obviously if you refinanced for a longer term or if you secured an adjustable rate mortgage (ARM), your principle and interest payment is lower. Should those mortgage savings go to increasing your 401(k) contribution? Fund your child’s/grandchild’s 529 plan? The 401(k) contribution creates a federal and Ohio state income tax deduction, the other creates a tax-free accumulation account for education. The choice depends upon what your strategic financial plan is trying to accomplish. Maybe both strategies need to be done, but where does the cash flow come from if your income potential is limited?

Where else can we find cash that can be re-directed?

If you examine your payroll withholding and/or quarterly tax payments, will you receive a refund or will you owe taxes? The ideal is to pay via estimated payments, and payroll withholding should be exactly what you will owe, and the balance in excess withholding or quarterly payments should be reallocated to categories to build your wealth on a regular basis. Periodically consulting with your tax advisor can maximize this strategy.

Are you paying too much for life insurance or auto and homeowner’s coverage? Maybe you would like to purchase long-term care insurance, but the premium would challenge your monthly budget. So rather than always spending more money to purchase things, why not review the expense of current items first. For example, by increasing your deductibles on your auto and/or home insurances, you may realize substantial savings. These savings then can be applied to those items warranted by your new financial direction.

Are there benefits that you are paying for that could be treated as a company benefit and paid to you as a fringe benefit? What if your advisor has been telling you to purchase long-term care insurance? Should it be purchased with company dollars or your personal dollars? What if we discovered that you’re paying too much for life insurance coverage and/or homeowner’s/auto coverage?

The point of this discussion is, even though people do not like to review cash flow (aka budget), the more we explore items in the budget, the more we are able to extract dollars that could be repositioned to build wealth during this period of uncertainty. Are you making the appropriate choices regarding how you spend your money?

I look forward to your comments and questions.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]