The Financial Planning Process #2

Alrighty, here we are, back again, to continue the awesome journey that is “financial planning”. In our last post, you figured out two key pieces of information: where you are now and how much your “savings rate” is(or how much you can save each year). Do not be afraid if you feel like you don’t have much to start with, or if your savings rate is low. The fact that you are doing this process puts you about 7.4 steps ahead of most Americans. This part of the process involves figuring how and where to apply and invest that savings rate, to help you reach your goals.


Wait, “What goals?” you might be asking…


Good Question! We have to make those up! This is why it is the “fun” part of the process. Now, in the traditional financial planning process, we typically assign specific values to your goals (e.g. I want to live on $50,000 a year, indexed for inflation, starting when I turn 62, with an assumed tax rate of XX% and an assumed annual return of Y% with a standard deviation of Z) and use those variables to calculate exactly how much you need to save, including your starting point, each year, to reach that goal.


But that is basically just boring math (unless you are a dork like me) and not fun. So if you want to have a very SPECIFIC goal, I suggest you find a competent planner and have them run that calculation. Unless you want to take a college course on the time value of money and finance equations in which case, go nuts!


In our process, we start much more simply. I want to encourage you to stick to your budget and save as MUCH as you can. If we calculate a number and you can’t hit that, you might get disillusioned and  give up, which will put you in a much WORSE position. This is why I like to use the “Bucket” method. I did not invent this, it isn’t “my” method of planning, a lot of great planners across the country use this model or something very similar. The basic idea is this:


You have competing goals, with different time horizons and different risk tolerances, therefore, you need different investment strategies for each goal.


Make sense? If you are 30 years old, how you invest for the house you want to buy (two years away) will be different than how you invest for your new baby’s college education (18 years away) which is different than how you invest for retirement (35 years away). In addition to time horizons, you also have to deal with the complexity of tax-deferred or non-tax deferred accounts.


But we will get to that later. For now, you need to start making “Buckets”. I have about 10 buckets that most clients use (they rarely use all of them) so look at this list and see which ones make sense for you:


Emergency Fund

This one is mandatory and belongs in EVERY financial plan. It is also the FIRST goal to be funded. It should always be in a 100% liquid FDIC insured account.


College Fund

This bucket is pretty self explanatory. It is designed to fund an education goal. Typically for your child, but I have also used this bucket for people that want to go back to school.


Savings Goal

This bucket is used if you are saving for a specific goal. It might be something large like a vacation house, a boat, or other expensive fun items. It can also be used for smaller items, like the annual family vacation, a new TV, or a swimming pool (yes, these are all things I have helped clients make buckets for). You can also have several of these buckets.


Stable Value

This is one of my favorite buckets and one that people tend to like as well but never really think of. This bucket is designed to be an added layer of usable capital, but earns more than your emergency fund, which is only ever in a savings account. The goal is that it is invested to beat inflation by 1% or so, but you will never have more than a 10% down-swing.  So if you need the money you never have to say “I can’t sell now, the market is down so much!” I would use this bucket a lot if you have a small business and want additional backstop on the business, or if you are thinking of starting another business, or expanding yours, anything that you might be saving for but that may not be a certainty.


Long Term Growth

This bucket (which is typically for retirement, but not always) is where the “gambling” money goes. It has the highest risk tolerance and the longest time horizon. This is typically where tax-deferred accounts go because we cannot access them until we are 60 years old. For folks that are already retired (70s or later), or have a high net-worth, I will refer to this as the “Legacy” bucket. These are funds that they basically do not need in their lifetime, so we are investing it based on the heirs’ needs and situations.



I typically use two buckets for retirement, because retirement is the BIG deal in financial planning and is also one of the most complex pieces of financial planning. Transitioning from accumulating wealth to living off of it can be a very scary and difficult thing to do. These buckets will differ from the ones above because they will typically be designed around producing income as their primary goal. In addition to the two buckets below, you will often still have several of the buckets above (like Stable Vale or Long-Term Growth). But these are the two that are typically specific to retirement:


Guaranteed Income

This is the bucket that pays us a “pension”. It is an income stream that has some sort of guarantee on it, so we know that our basic bills are paid, no matter what. If you happen to work for the Government (or you work for a Fortune 500 Company and it is the 20th Century, not the 21st) you probably already have this bucket funded with your pension plan. But most people don’t and they need a steady income stream to rely on.


Growth & Income

This bucket is the one that is used to fund “lifestyle” expenses. All that traveling you want to do, the hobbies you want to pursue, all that good retirementy (yes, retirementy is a technical term in financial planning. Trust me, I’m a professional) type stuff. Unlike the Guaranteed Income Bucket, this income stream can go up and down, which is why we only use it to fund the expenses that could get cut out if we needed too. It is also designed (later in retirement) to combat the inflation risk that will be inherent in most Guaranteed Income Bucket investments.


I was going to start talking about how to fund these buckets and in what order, and what percentages should go into each one, but I just realized I have been typing for a long a time and HOLY COW this post is already 1200 words, so this is where I will leave you for now. Think about these buckets and which goals you think are critical for this stage in your life. Tune in next time and I will help you pick those buckets and guide you on how to fund them.





Broker Dealer Disclosure:


All Securities through Money Concepts Capital Corp.  Member FINRA/SIPC

11440 N Jog Rd., Palm Beach Gardens, FL  33418  Tel: (561) 472-2000

NCH Wealth Advisors and Money Concepts are not affiliated.

4 Reasons Small Businesses Fail Part 2

The second reason most small businesses fail is somewhat simpler to explain, but much harder to do. If you have the right tools, it doesn’t take much time to keep good records and run your business professionally. But knowing how to run the business right is only part of the equation. You have to know what business you are in!


Reason #2:  No Clear Vision

I once had several clients who flew to a resort to create a business plan (they needed to be “secluded” to work) and spent over $5,000 on the trip.  It was not until they completed the business plan that they realized their product would not actually work.  Their flawless business plan was worthless without a decent product.  They had a great five-year strategy of building the business and selling to a competitor (complete with a projected price) all laid out!  Before you start a small business, make sure you know you have a viable product or service, and then be sure you create a workable business plan.


Here are some critical questions I ask people when they present their new business idea to me:

◦       Who is your target market?

◦       How will you reach them?

◦       What is your target revenue or production?

◦       How will you service those clients?

◦       How big do you want to get?

◦       What is your exit strategy?


When a new business owner answers these questions with a blank stare, it’s a pretty good bet their business won’t last for long!  My favorite question is the last one:  “What is your exit strategy?”  Almost no one thinks of this, and it can be critical to key business decisions along the way to success.  If you are building a business for your family to run for generations, you might build it and run it differently than one whose goal was to sell out to a larger competitor in five years.  These are both great directions for a small business owner to take, but you need to know which path you are planning to go down.


Creating detailed answers to these questions will help you identify the best directives for starting your new business.  If you have an existing business and are seeking to reach the next level of success, revisiting these questions with an open mind can help you find the direction you need.


All of my successful clients have an annual planning and goal setting process.  They know how much they expect to make this year and what steps are required to get there.  An excellent example of professionalism is to be able to review your business objectively and honestly. This is something that all new business owners need to do, even if that means you might have to admit to yourself that you failed.  Do not set astronomical goals.  Set realistic stretch goals but be conservative.  When planning, I always overestimate expenses and underestimate income.  That way, we have no way to go but up!  Once your plan is made, you have to hold yourself accountable to it.  It does no good at all to create a business plan and then review it again at the end of the year.  Your plan needs to be reviewed regularly and adjusted as conditions permit.


Without a vision and a plan for reaching new clients, your small business is doomed to languish and fail.  You can offer the best products and services in the market, but if no one knows you exist, you will still go bankrupt!

Book Review – E Myth Revisited


The E-Myth Revisited by Michael Gerber is the next book on our list. I cheated a little bit in that I read this book some time ago. But it is a great book, and is usually one of the first that I recommend to small business owners. It is a great intro into thinking about business and business systems, and should be read early on, before we get into the more detailed areas.


The only downfall to Michael Gerber’s books (I have read almost all of them, this downfall is why only one of this books is on my list) is his emotional story telling form of writing. I am all for breaking down complex ideas into a story. But I got really tired of hearing about how “Sarah” is feeling. I also get really tired of the paternalistic way that Mr. Gerber talks her out of her hyper emotional states, it was a little creepy. Just get to the business!


That being said, the ideas are awesome and the guide to planning is pretty useful. The book is broken into three major sections. The E-Myth, the Turn-Key Revolution, Business Planning.


Part One is, in my opinion, the best section. It talks about the three different “people” or mind-sets that are needed in a small business: the Entrepreneur, the Technician, and the Manager. It is really helpful to understand how these different mind-sets operate and why they are all critical. The progression is especially telling. Most small businesses are “life-style” businesses because they never progress past the Technician phase. The most successful small businesses get to the manager phase, and can grow beyond the original owner. A very small number make it to the Entrepreneur stage and have replicable, scalable, and sellable businesses.


Part Two focuses on what to do to get your business to the Entrepreneur phase. If you want to have a replicable, scalable, and sellable business, there are certain systems and processes that it needs to have. Part Two goes through how to think about your business as a series of systems so that you can replicate it.


Part Three is based on planning for your business. Expanding on Part Two, this section goes through some good steps to start actually planning for your own E-Myth business. It starts with your “Primary Aim” (commonly known as your Vision) and moves down to specific strategies for people, marketing, operations, etc.


In my mind, the most valuable take away from this book is highlighting the choice you have to make as a business owner. Do you want a life-style business, or do you want business- business? This book explains the work involved in creating a scalable business. How a well run business will have systems and strategies. If you want to sell your business and retire early, this book does a great job of illustrating the very HARD work that you will have to do to get there. There is nothing wrong with deciding not to do it. You can still make a good living, never growing your business to multi-million dollar levels.


The important part is to make a choice. If you are want to do it, then do it!

The Financial Planning Process Part 1

Greetings All!


I have found that many people are very confused by the idea of “Financial Planning”. It seems like a fairly scary thing or something way too complex for them and their needs. So I decided to do a series of posts that walk you through what I do when I work with clients to create a financial plan. Hopefully I won’t lose too many clients by giving away my process!


This will be the general overview of the process. The details and what we focus on will change with the clients and their situation.


The first step of the financial planning process sounds a lot simpler than it usually is. That step is the “figure out what you have!” step. You would be shocked how many people stutter or mumble something when I ask them what kind of investment accounts they have, or approximately how much is in them.  So this is your first challenge:

  • List all your accounts (checking, savings, IRAs, brokerage, 401(k)s etc) and their approximate balances
  • List out your hard assets (real estate,  etc) and what you think they are worth
  • List out your liabilities (credit cards, mortgages, auto loans) and their balances
  • List out any other assets or financial instruments you own (life insurance, business interests, etc)


And there you go! You now have your starting point. And what is a journey without a starting point, huh?


The other half of this puzzle is to look at spending. The goal of this is to determine a “savings rate”. Later on, we will learn how to allocate our savings to different goals, so we can project out where we will be at retirement, college, etc. But for now, we just need to know how much, if any, extra you have each month to save.


So make a budget!


Put down a projection of your income. For some of you, this will be simple if you have an annual salary or defined compensation package. For a small business owner, this can be a little bit trickier. For this reason, I typically tell business owners that they need to take a fixed salary or distribution each month; something that can be taken consistently so that we can have something for planning purposes. If there is more profit at year end, all the better, we can save more!


Then start adding up expenses. Start with monthly expenses. I find it helpful to review a credit card statements and bank account, otherwise things are often overlooked. Then make sure to pick up the expenses that don’t happen every month, like property taxes, some insurance payments, holiday season spending, things like that. I typically like to take these amounts and divide them down into monthly amounts, so I can work with a monthly net. Also pick up things that you don’t always pay directly, like 401(k) or health insurance that is deducted automatically from your paycheck.


Then just deduct the monthly income from your monthly expenditures and we have your available savings rate! You now have the two key pieces of information so we know where we are starting from. Next up, is the more fun part, “Where do we want to go?”




Broker Dealer Disclosure:
All Securities through Money Concepts Capital Corp.  Member FINRA/SIPC
11440 N Jog Rd., Palm Beach Gardens, FL  33418  Tel: (561) 472-2000
NCH Wealth Advisors and Money Concepts are not affiliated.

4 Reasons Small Businesses Fail Part 1

You have finally decided to take the leap and open your own business. You have probably thought about it for a long time, debated the pros and cons, worried over if it. Or maybe you are an entrepreneur at heart and always knew that owning a business was your dream. Either way, you are embarking on a journey that is the surest path to creating lasting wealth for you and your family. But even though it is a sure path does not mean you will be assured success! How do you, a novice to business, know that you are doing the right things to make sure you are successful?


I consult with hundreds of business owners each year.  I am always amazed by how many unique ideas to make money my clients have thought up!  Despite the variety of ideas, businesses, products, and services, the characteristics of the most successful new businesses are dramatically similar.  The goal of this series is to share with you, an owner of a new small business, those strategies, concepts, and rules that my most successful small business clients employ.


To that end, I have created a list of the five reasons that I see as the most common that small businesses fail.


Reason #1:  Running Your Business like a Job

Many people fall into the misconception that because America is built upon small business, that running a successful small business is an easy thing to do.  Many of my conversations with aspiring small business owners start with them declaring, “I want to earn my paycheck in my pajamas.”  This is the main reason that new businesses fail.  A business is NOT a job you can do in your pajamas.  Owning a successful business entails so much more than just doing the work you have done for many years at a job.


Working IN Your Business versus Working ON Your Business

Evolving your business from a ‘job you can do in your pajamas’ to a successful small business requires finding the right balance between working IN your business versus working ON your business.  Now that you have a new business, you need to expand your mindset.


Working IN your business is selling and delivering the product or service that your business offers.

Working ON your business is about managing cash flow, finding future client markets, implementing business plans, keeping your accounting current, tracking progress towards your goals, collecting accounts receivable and utilizing accounts payable systems to cover costs.


In order for your small business to succeed, you need to have a functional balance between both perspectives.  Most small business owners err on the side of working IN their business.  If you only work IN your business, you will run aground financially because you do not have accurate information or a proper cash flow to handle the sales you have made and delivered. A fatal flaw in many new businesses is thinking: “As long as I keep making sales and delivering the products or services, I am successful”. This is just flat out wrong! I have seen more than one profitable business go bankrupt. Without the balance of working ON the business, one degree of change in the marketplace can disassemble that ‘success’.


Remember, the many aspects of working ON your business require time:

◦       Marketing – Client Acquisition

◦       A/R – Collections

◦       A/P – Covering Costs

◦       Financials – Grading Your Business

◦       Project Management – Meeting Deadlines

◦       Employee Management

◦       Time Management


The worst scenario I have ever seen was a business owner that was very good at selling what he did.  He recruited so much of new business that he couldn’t deliver the completed product in a timely manner.  Without a clear plan, he worked in a feast/famine cycle between sales and delivery without a thought about cash flow, costs, or timing.  Unable to deliver what he had sold, he was fielding client complaints about how long it was taking him to deliver on his word.  Uncomfortable with the change in dynamics, he didn’t communicate with clients because he was so bogged down all the time.  Once-happy clients eventually left, unsatisfied.  He went from start-up, to successful business, to almost bankrupt in less than 18 months.


This situation happens more often than not in the small business marketplace because owners do not understand how important it is to have more than the ability to deliver a service or product.  Most new business owners are entirely focused on working IN their business, but do not know how to arrange their business or schedules to facilitate working ON their business.  Creating plans for growth, managing cash flow, and having current information about your business is as important to your success as delivering your goods and services.  Every new business owner needs to have a functional balance between working IN their business and working ON their business to secure future success.



Some new business owners think if they wear a suit or have a fancy website that they have a professional business.  Professionalism in business is the main reason small businesses succeed.  But professionalism in business is really about how you approach your business finances and operations.  Remember, analyzing your financials, your profit margins, your capital usage, and your tax situation are all mandatory parts of running a successful business.  When you miss these fundamentals, you miss out on maximizing the benefits of owning a small business.


Americans love get-rich-quick schemes.  We seem to fall for them repeatedly, no matter how many

times we learn that there is no magic bullet.  Nevertheless, there is a reason that the wealthiest Americans generally started out as entrepreneurs.  However, the part of that tale that you rarely hear is that they worked very hard, in many capacities, and shouldered an amazing amount of risk.  For all that, they were rewarded.  Owning a small business can provide you with tremendous opportunities to create wealth; but if mismanaged, can cause financial ruin on a scale you have never imagined.


10 Days to Faster Reading – Review

The first book I read (on my “official journey that is) from my Business Guru reading list was “10 Days to Faster Reading” by Abby Marks-Beale. It is a great little book, that is, literally, broken out day by day. It gives you specific activities and training techniques each day to help improve your reading skills.


I struggled a bit with it, because after the time trial on the first day they said “Our goal is to get you to 350 or more words per minute with a 70% comprehension score.” I clocked about 400 words per minute at 80% on the first day. So when the goal is less than you already are, there is not a lot of motivation to to keep trucking through!


But I did, and picked up a few pointers. Turns out I already did much of what Ms. Marks recommends, but it was good to see it explained in a formal setting, so I knew what it was and how to use it properly.


My only criticism is that it seems a little outdated, especially for those of us that have never struggled getting through a newspaper because we have never read one. Other than that, a very helpful and approachable way to improve your reading.


If you ever struggle to get through your reading lists, or you are like me and need to really crank up the number of books you want to be getting through, I would definitely tell you to pick this up!


Those Who Can’t Do…

This is the first official post in my “Those Who Can’t Do…” category. Against the advice of counsel, I am going to tell you a story of failure. I don’t think it is a failure but to some, I guess, it could be perceived that way. About three years ago, I decided to go back to Cal State Fullerton to get an MBA. I had done my undergrad degree in accounting and finance there and taken about two years after graduation to get my CPA license and miscellaneous insurance and securities licenses (oh, and get a job and stuff too…). I figured the MBA was the next thing in line and I should go get it. The first couple classes I took were electives, which were very helpful. But after that, I was forced to take almost an entire load of “core” classes. Which were effectively the exact same thing as the upper-division classes I took for my bachelors degree.


That’s right, for those of you that DON’T know. If you already did a Bachelor’s degree in business, an MBA is about 85% the same damn thing. Haven’t we business majors fooled YOU GUYS! I actually finished all but two of the classes (with much kicking and screaming along the way) I had to take to get my MBA when I was taking a mid-term for “Operations Management” (that is the class where they teach you Japanese words). The entire test was a recitation of the chapters we had read in the book. No thought, no application, just straight memory recall. I got so pissed at how pointless this was I got up and walked out.


For me, the Cost/Benefit to finishing just wasn’t there. They wanted two more classes, (which equates to about 150 hours of my time) plus several thousand dollars. What did they offer in return for this?  A piece of paper with the words “Masters of Business Administration”. Now, I understand that for some people, this might mean something or be valuable. But for me, someone who was already running a small company, I knew what it was worth. Almost nothing. I was not going to learn a damn thing I didn’t already know. I wasn’t going to “open” any doors that my CPA license wouldn’t have already opened. I wasn’t going to get a raise; it literally would do nothing for me.


This got me thinking about why I started this whole process in the first place. It started with a very simple plan:


I wanted to be better than I was. I wanted to improve myself and my skill set.


So it seems natural that, with this in mind, back to school I went! Turns out, the university system has utterly failed the business community. They simply cannot keep up or be dynamic enough to provide anything of value to the small fast moving companies that, I believe, are becoming the driving force of the economy. Sure, if you want to be one of the guys that crunches numbers for Proctor & Gamble, an MBA might be a good investment. But most of us (especially those reading THIS blog!) will never be working for a Fortune 500 company. It was around this time, I stumbled across Josh Kaufman’s book, The Personal MBA and this quote, from Isaac Asimov:


Self-Education is, I firmly believe, the only kind of education there is.


I was so inspired! There were guys smarter than me that realized the same thing that I had! I began to feel foolish for having stuck with the MBA program so long and began creating my “Business Guru” reading list. It started as being based off the Personal MBA reading list, but as I dug deeper into the world of business books, I found other sources or “best of” reading lists. This list (which, coincidentally, was also the inspiration for this blog) was going to be my attempt to do what Josh Kaufman did, but with a small business twist. Josh’s book (which is EXCELLENT and I will be reviewing in detail later) is designed to sum up all the MBA type topics. I wanted to create a reading list for my clients. They need some MBA stuff, but also some things more, and less, advance than MBA level.  It was also meant to be my “dream” list of books. The list that, if I ever finished reading it, I could say to myself: “I am a Business Guru”.


So here it is. In this section of the blog you are going to follow me on my journey through self education. As I create and read the books on my list, I am going to review and summarize them here. At some point, I hope to be smart enough to figure out how to put the actual list on the blog, so you all can see how the list grows and evolves. But I am not smart enough to do that yet (maybe there is a book for that…).


Where Do I Go… Business Edition!

This post is a continuation of the “Where do I go From Here?” post I did a little bit ago. Small business owners have the same issue, sometimes, of being pulled in too many directions. I created this guideline to help you focus your attention on the things that you should be focusing on right now to help improve your business. A successful business goes through many stages, each requiring a particular focus with important decisions that lay the foundation for the future. It takes many, MANY steps to create a large, profitable and scalable business, but each step can only be taken one at a time!


1 to 5 Employees “The Start-Up Stage”

The start-up stage is the first stage of any new business.  Most likely, you are struggling with the day-to-day responsibilities of the business, the things you did not have to worry about when you were working for someone else.  You are overwhelmed with the complexity of running your own business.  At this stage, you need to focus on business basics such as:

  • Developing business plans
  • Required financing
  • Basic business concepts
  • Accounting and management systems

Small business owners, especially at this stage, are inundated with ideas, options, choices, and plans.  It is important to stay focused on implementing the basic principles of a successful business.  This foundation will provide a solid platform for you to grow your business on later.


5 to 15 Employees “The Growth Stage”

In the growth stage, you face other, distinctly different, problems.  You have proven your business concept and are likely making some money.  You know how to run the day-to-day operations of your business.  But you are struggling to grow the business by adding more employees and services.  During this stage, your focus needs to shift to things like:

  • Business entities
  • Profitability
  • Hiring and training
  • Tax advantages

Growth Stage businesses are where most small business stop growing.  Their owners do not have the ability to create a strategic plan to help them grow beyond themselves.  The focus needs to be on long-term planning and preparing for the inevitable bumps in the road.


12 – 25 Employees “The Mature Stage”

Mature businesses face problems and issues that are even more complex.  You have created a successful business, you have great staff, you have good profitability, and great customers.  But how do you keep this complex operation running, without you needing to be involved every second of every day? At this point, you need to transition away from the small business mentality and start thinking like a business professional. You need to focus on:

  • Goal setting
  • Retirement plans
  • Cash flow management
  • Organizational structure

Mature businesses have a unique challenge.  How to grow is no longer your primary issue.  You are grappling with the issues that are created by a growing company.  How do you manage the growth?  How do you keep it sustainable?  How much growth is enough? These are the tough questions that are best answered with professional guidance as a sounding board.


Any Number of Employees!  “The Exit Stage”

A business in its Exit Stage is the climax of every business owner’s life.  You built this business; you achieved your dream.  But how do you take that business and turn it into the retirement that you have worked so hard for?  You need to focus on the big ideas like:

  • Succession planning
  • Retirement income
  • Exit strategies
  • Estate and income tax issues

Making decisions at the Exit Stage have lifelong consequences.  By now, you know the impact that one bad decision can have on the business.  You understand your needs for retirement, and know that you will probably never grow a business to this stage again in your lifetime.  Most business owners procrastinate their planning due to “paralysis by analysis”.  They are emotionally attached to their business; they are unable to face the tough choices involved in exiting.  Getting professional help to give you an objective view is critical at this stage.


Owning a business is the single greatest way to accumulate personal wealth.

The trouble is, most people enter the business arena because they want to do something they love – not because they are great at running a business.  Running a business is also a LOT of work, so stay focused and you can grow it successfully!