As a CPA, I’m asked for financial advice on a fairly regular basis. The blessing and the curse of this is that our clients trust us and think we know all things financial. This is flattering, but rarely the case. When our clients ask about tax and accounting, that is expected, but we’re also asked about mortgage interest rates, the economy, certain stocks and even the President. There are some brilliant CPAs who do know all of these things. Unfortunately, I am not one of them nor do I have the desire or time to learn it all – keeping up with the tax code is enough in my book. I am, though, always happy to give my two cents worth when it is appropriate, avoid questions I feel are a little above my head, or make a referral for someone who is more skilled in this area then I am so at least the question gets answered.
In my role, I work with several professional athletes and other high net worth individuals who acquired wealth at an early age. A benefit of early wealth is you typically have time to learn and recover from mistakes. So I’d like to take a moment to step up on my soapbox to relay a bit of financial insight to some of those younger clients, even given my earlier comments. But just a quick reminder, in case you missed it the first time, I am not a financial advisor or investor, so for the best answers and a little more detail, contact them directly.
I am a big believer in constantly educating yourself, no matter your age. Specifically, it’s important to stay abreast of the latest financial regulations, industry trends, changes in tax code, etc., as these can impact your bottom line. While you don’t have to do my job, or anyone else’s, knowing what’s going on will always get the best results. This is because when you understand how these things intersect with what I am doing, you can help me capture all the tax benefits available. The trick is how do you get educated in an area you have really no desire to learn about? My guess is that you have a million other things to do, so reading about financial information is not going to be on the top of your list.
To help you get started, I’ve pulled together three easy pieces of advice:
- Get the Saturday edition of the Wall Street Journal. If you get it every day it’s too intimidating and overwhelming. Along with financial information, it also has great articles for us regular humans like travel, food, gadgets, fashion, books, current events, some great general personal health, and best of all, there are some color pictures, not those weird dotted face pictures that the weekday WSJ uses. But I digress…In the Saturday edition there is a section that references the weekend investors, i.e. you. There are also articles here and there about IRAs, the difference in bond funds vs high growth funds, retirement savings, different types of life and health insurance, home office deductions, and many other informative articles written for regular human beings. So as you read about the latest summer fashions (remember Wall Street is in NY) or places to go, you can stumble into an article that relates to your family’s financial interests. Next thing you know you are calling your CPA or advisor to discuss something YOU learned.
- Get Money magazine. This publishes monthly, so it’s perfect to keep by the bed or add to a travel bag so you can read a quick article here and there. Again, I don’t think you need to read every article, just those that catch your eye. They do a good job of taking complex concepts and breaking them down so you can better understand them. They also provide more information on the market with stocks to watch, tax effects of certain investments, and industry forecasts. I know the word “forecast” is going to lose some of you, but trust me, give it a shot. Can you imagine the feeling when you go to your advisor and ask them why your investments are in an industry that is “forecast” to struggle, and not in the industry that is growing? Your advisor will love this because it shows you are paying attention and your questions will help him do a better job for you. Or you ask your accountant how a dividend is different for tax purposes than interest? Or better yet, you’ll be able to tell your spouse you just saved the family money because you took a job to get the employee discount on a new couch you purchased (see Wife Math.)
- Open an E*trade account. Over the years I have learned that when a CPA or advisor saves a client money, they often say “Thanks,” pay the bill, and move on. That’s fine, we’ve done our job and that is really all the appreciation we need. On the other hand, when you do something that reduces your taxes or improves your investment, YOU RULE! You’re telling everyone and beating your chest about how great you are, and you know what, you are. So that is why you open an E*trade account. This shouldn’t replace your advisor, though. Having this account allows you to educate yourself without disrupting the financial plans your advisor has put in place. Open an account, put a little money in it and watch it every day, because that is “your” money. This is different than “your” money with an advisor for some reason and we all tend to look at the two pots differently. Most do not watch advisor accounts as closely since they expect the professional to be in charge of that. When I work with my athletes who open an E*trade account, they don’t talk about the money the advisor made; they’re telling their teammates “I made this investment and made $1000!” Now that is some interesting locker room talk! By doing this you will learn how to read the monthly statements, how to buy and sell stocks, what a dividend in cash looks like versus one that is reinvested, and most of all, how much in fees you are paying. We all hear these words but many of us have no idea how it works or what it looks like. I used to teach a tax class and all my students knew that mortgage interest was deductible, but I gave them all a Form 1098 and asked how much interest was deductible and half the class could not find the correct number on the form, there is a difference between knowing and doing. We just think these financial things magically happens or are so complex that we say “I can never do that!” The truth is, you can if you try, and if you start early and make a mistake, it’s ok, you can recover. Imagine if Johnny or Suzy had a sweet 16 party and instead of all their friends giving them clothes or gadgets (which they probably don’t need), their friends gave the cost of a present as an investment in their E*trade account. Johnny and Suzy are not just playing with their phone 24 hours a day, they are looking at all the apps that they are using and then going online and buying one or two shares of the stock of the company they are playing with, wouldn’t that make for a nice change of pace? And again, all you did was move a little money around on your spare time with your newfound knowledge.
Everyone’s financial needs and abilities are different, but a small investment of time and money is all it takes. The key is to get started sooner rather than later and educate yourself so it’s not intimidating, overwhelming or disruptive.
Please note that I am not affiliated with any of the above companies. There are plenty of similar options out there, these are just the ones with which I am most familiar and have used.