‘Financial therapy’ is on the top of my list of client services. It’s offered at one time or another to nearly everyone who walks through my office doors… or asks me out for lunch, or sits next to me on a plane.
The reason why is simple: As a society, we just haven’t been taught to talk about money, or to separate emotional decisions from prudent decisions. That means a huge part of my job is trying to get my clients to make better decisions, constantly.
And, usually, that means taking the heart out of the equation.
Emotional decisions – whether they’re prompted by happiness, fear, or another feeling – happen at every life stage, so the answer to the question ‘What do I do?’ is always changing. It’s different when you’re in college than it is when you’re just starting out in your career, when you’re getting married, or if you’re getting divorced. Further, emotional decisions are sometimes clouded even more by a lack of information.
The Learning Years
Take students loans. For many of us, it was the first major financial decision we ever made, around the age of 18. Sometimes, it feels like everyone has student loan debt. The problem with this is that’s how today’s students about to enter college see it, too. If everyone comes out of school with debt, they think, why would I choose a school with my future finances in mind?
Here’s why: A student with a $20,000 loan (the national average is $25,000) with a 5% fixed interest rate, paid back over 10 years, will be responsible for a $377 payment each month. With at least four years between the student and her first bill, those numbers are blurry at best, but applied to real-life purchases, they begin to come into focus. For some, it’s a car payment on a Lexus, for others, a rent check. Whatever puts that figure into real terms for someone – a new couch, a weekend getaway, the ability to start a business – that’s it. In these early years, students should consider a college’s academic programs, location, and student body. But they also need to ask, What’s the interest rate? Plain and simple.
Later in life, after careers have been forged and investments made, emotional decisions persist. Knowing you’re on the right track and having someone guide you makes all the difference. There are Five Key Steps to Financial Planning that can be revisited at any age:
Know your net worth
Know how you’re doing
Keep on target to meet your goal
Have an advocate or coach to help you
Sleep better knowing you’re financially secure
In other words, ask yourself: What do I want to do? Where do you want to go? With whom? The answers to these questions help point people toward experiences that are in line with their goals and with their budgets.
A successful woman might want to buy her dream home, for example, nestled on the water. She thinks she can afford to; she has enough money to buy the house, but then that would be it. Her retirement fund would be gone, and living in that house may quickly become uncomfortable, if not impossible. Still, all too many people find themselves in this situation and unable to see past the SOLD sign in front of that beachfront home.
We all need to make sure we’re taking our dreams past the instant gratification stage; past that sign, through the front door, and into the years that will follow.
Cary Carbonaro, MBA, CFP®, Managing Director with United Capital of New York and New Jersey, provides objective, impartial and comprehensive Private Wealth Management Services. She has more than 20 years of experience in high-ranking roles at JP Morgan Chase, Citibank and Lord Abbett Investment, among other firms. Cary has been seen on “The Today Show,” CBS, Fox News and ABC, has been featured in a variety of publications including the Wall Street Journal, USA Today and Money Magazine. She is coauthor of the book TIPS from the TOP: Targeted Advice from America's Top Money Minds (Alpha, 2003), and a contributor to The Wealth Management Manual.
This article is intended for informational purposes only. We recommend that you discuss these ideas with your tax adviser. United Capital does not offer tax or legal advice; therefore, this article should not be taken as such.