Can Money Buy You Happiness?

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Happy New Year!! We hope you had a fantastic holiday season. Now, it’s on to 2019 with planning and resolutions for the New Year. What are your goals? More money? More Happiness? More Joy? As you tackle these huge questions of money and meaning, we’d like to offer you some ideas.

Does money buy happiness? King Midas was rich, but his gold didn’t bring him happiness.   That’s because there’s a difference between being rich and being wealthy. Brian Portnoy, in his book, “The Geometry of Wealth,” articulates this well: “Being rich is having ‘more.’ The push for more is a treadmill of which satisfaction is typically fleeting. Wealth, by contrast, is funded contentment. It is the ability to underwrite a meaningful life- however one chooses to define that.”

Money, of course, is a huge part of our daily lives. Our life cycle with money includes earning, spending, saving and investing. Our first paycheck shows us our ability to earn and sustain ourselves. Next, where do we spend the money and how much do we save? Lastly, as we accumulate money, we choose to put our financial capital at risk to grow at a higher rate of return than cash. Money is like the oil in your car; without it, the car grinds to a halt, but with it, YOU still have to steer the car in the right direction.

Sonja Lyubomirsky in “Pursuing Happiness,” identifies three factors which determine happiness/human fulfillment. These are disposition (who you are), circumstances (what you face) and intentions (what you do). Her research shows that outcomes are impacted as follows: 50% comes from disposition, 40% from intentions and 10% from circumstances. The good news is that we can control our intentions; which, of course, is our review, planning, implementation and monitoring of our life planning.

As Daniel Kahneman (featured in earlier DWM blogs) has proven, how well we handle our intentions and planning has a lot to do with “Thinking Fast and Slow.” The fast brain is the home of impressions, impulse, and feelings. The slow brain is engaged when we are deliberately thinking and making informed choices. The two systems work together; the key is using our slow brain as we shape a life of money and meaning. The process of building and executing a plan can be, in itself, a source of happiness.

In 2015, the Dalai Lama and Archbishop Desmond Tutu met and discussed life; recapped in “The Book of Joy.” They separated happiness into two categories; one, experienced happiness, which comes and goes with daily pleasures, and, two, reflective happiness, the achievement of joy, which takes work. Dr. Portnoy identifies the four pillars of joy:

  • Connection-the need to belong
  • Control-the need to direct one’s own destiny
  • Competence-the need to be good at something worthwhile
  • Context-need for a purpose outside of one’s self

These “Four C’s” are at the heart of funded contentment. And while contentment can be achieved by all, including those in lower levels of income, money helps.

Dr. Kahneman found in his research that happiness directly increases as income increases. However, after about $75,000 of annual income (per person), experienced happiness levels out. The concept is that good and bad moods come and go at the same pace for someone making $100,000 per year as compared to someone making $1 million per year. However, reflective happiness, or funded contentment, does increase with higher incomes for many people. This is because at higher levels of income, money, allocated wisely, can underwrite the Four C’s, which constitute reflective happiness. Money can be used for both experienced and reflective happiness and, by using both our fast brain and our slow brain, we can achieve both.

In our crazy, chaotic world, it’s important not to let our fast brain guide all of our intentions. We need to have a plan and a process and be ready to adapt it as the world changes. True happiness takes work. Our goal, as wealth managers, is to assist you with a process not only to protect and grow your money, but also to help you achieve “funded contentment”- the ability to underwrite a meaningful life- however you choose to define that.

Good luck on your planning for 2019. Please let us know if you would like us to help.

Winning the Super Bowl and Achieving Long-Term Financial Success

Clemson and Alabama know it.  The Super Bowl contenders-Patriots, Steelers, Falcons and Packers- know it.  There are many factors and lots of hard work that contribute to success.  You need consistent, effective blocking and tackling.  You need excellent offense, defense and special teams.  You need a super game plan.  And, you need to be able to make modifications as conditions change.  It’s the same thing with achieving your long-term financial goals. This “elephant” needs to be eaten in “smaller bites.”  Wealth management requires attention to the key building blocks, a disciplined process and likely an accountability buddy and coach to be successful.

Here are the main building blocks to achieving your long-term financial goals:

  • Goals– establishing the financial and personal goals for your lifetime and your legacy; separate them into needs, wants and wishes.
  • Financial Plan– developing the road map for your future; showing how you get from point A to point B and accomplish all of your goals.
  • Investments– identifying your investment objectives, constraints, risk tolerance, asset allocation, and rebalancing and other procedures to protect and grow your assets.
  • Income Taxes– determining strategies to minimize your income taxes and make sure your investments and financial planning strategies are tax efficient.
  • Insurance/Risk Management- making sure your coverage is appropriate (like Goldilocks, “not too much and not too little”) and the premiums are as low as possible.
  • Estate Planning- ensuring that your estate will be distributed in the manner you wish, that you pay the least amount of estate tax and that estate administration is inexpensive and hassle-free.

At DWM, we review these key areas with new clients using our DWM “Boot Camp” process.  This is a series of four to six meetings, typically over a 4-12 week period.  For you ex-athletes, our clients tell us these meetings are like “two a day” practices:  “It feels great when they are over.”

Next is monitoring.  Again, you need a process.  In today’s world, “set it and forget it” just doesn’t work.

On a daily basis, you need to track activity in your investment accounts.  You need to keep up to date with the news, the investment environment and the financial information that could be impacting you and your goals.  At least monthly, you need to review investment performance by asset class and compare to benchmarks.  On a quarterly basis, you need to review your investment portfolio for performance and asset allocation.

You should review your financial and personal goals at least a couple of times per year and update your financial plan.  You should review your prior year income tax returns in May, determine what new strategies might apply for the current year and obtain a current year projection.  You should review and update this tax projection in the fall.  You should carefully examine your insurance premium statements when received and, at least every couple of years, go out for quote again.  You should review the key points of your estate plan every year, including executors, trustees and agents and their successors. Based on updated current assets, you need to review if your estate is taxable and the distributions and their timing based on your current plan.

Monitoring is a big job. And, then add to that some of the key life events for you and your family (that may also require changes to your game plan) including:

  • Birth of a child or grandchild
  • Educational matters
  • Child/grandchild reaches majority
  • Weddings
  • Job and career changes
  • Moving
  • Major illnesses
  • Inheritance
  • Divorce
  • Onset of physical incapacity in old age
  • Death of a spouse, parent, sibling or other significant person

Is it any surprise that with all you need to do to achieve financial success and manage your wealth that you might consider an accountability buddy and coach, perhaps someone like DWM?

At DWM, we use a proprietary process to help you develop, monitor and modify your financial plan and manage your wealth over time.  Our Boot Camp is a great way to develop your plan.  Our daily, weekly, bi-monthly, and monthly processes which we refer to as “Increasing Wealth by Adding Value” are designed to monitor your plan and provide suggestions to improve your plan.  Personal meetings with you are times to review both progress and status of your building blocks and changes (including key life events) so we can help you keep your plan current.  And, most importantly, as your independent friend and coach, we are accountable to you and help you be accountable to yourself and your family in achieving your long-term goals.  When you accomplish all of that, it’s like you (and we) have won the Super Bowl.

New Year’s Resolutions- How Do You Eat an Elephant?

College football playoff national champion coach, Dabo Swinney, has the answer:  “One bite at a time.”  His Clemson Tigers did it Monday night when they scored in the last second of regulation to edge Alabama’s Crimson Tide.  Fantastic game!  Kudos to both teams and their coaches!

Both teams are champions.  Both have high goals and have a process in place to accomplish these goals.  For those of us in the second week of our New Year’s resolutions there are some real lessons to be learned by the way Clemson and Alabama go about putting together their championship seasons.  They don’t do it the same way, yet both have had great success.

Alabama coach, Nick Saban, has created the “Elephant” of college football, guiding Alabama to four of the last eight national college football championships.  He’s all about process. Coach Saban is often called a control freak who is never satisfied. Here are some of his great quotes:

“There are two pains in life. The pain of discipline and the pain of disappointment. If you can handle the pain of discipline then you’ll never have to deal with the pain of disappointment.”

“What happened yesterday is history.  What happens tomorrow is a mystery.  What we do today makes a difference-the precious present moment.”

Coach Saban knows that “discipline is about changing behaviors.”  His players know that the process is accomplished one step at a time. That’s certainly a key point toward keeping New Year’s resolutions.

Dabo Swinney’s process is different, though every bit as successful.  Nick emphasizes the journey, Dabo focuses on the joy in the journey.  It’s no surprise that Coach Swinney loves Chicago Cub skipper Joe Maddon’s style.  Dabo visited Wrigley field last summer and was “blown away” by the disco ball, drum set and celebration room in the Cubs’ clubhouse.  Of course, Clemson’s new football facility includes miniature golf, a bowling alley and a movie theater. Joy needs to be part of the journey. Perhaps it is not by coincidence that both Dabo and Maddon have celebrated recent championships.

Now, let’s take these championship lessons and apply them to the setting and keeping of your New Year’s resolutions.  Approximately 50% of Americans make resolutions each New Year.  The top ones include weight loss, exercise, stopping smoking, better money management and debt reduction.  You’re probably still doing well on your 2017 resolutions after only two weeks. Historically, by February most people start backsliding.  And by the end of the year, people are generally back to where they started or often even further behind, due to another year of “failure.”    Keeping resolutions isn’t easy.  We’re talking about changing behaviors and changing your thinking.

Here are some suggestions on making and keeping your resolutions:

Be realistic.  Don’t resolve to “eat an elephant.” Break up your long-term goals into smaller “bites.”

Focus on the process, not the outcome.  If you want to run a marathon, don’t be disappointed if you can’t run 26 miles initially. Simply resolve to run a little farther each time and gradually work your way up to longer distances.

Rework your thinking.  You have to create new neural pathways in your brain to change habits.

Set positive goals.  For example, don’t verbalize the goal as losing 50 pounds but, rather, reinforce how good you’ll feel, in many small ways, once you’ve done that.

Celebrate successes.  Add joy and fun to the process.  Focus on your wonderful journey at hand and the milestones your reach, not the distant outcome.

Use an Accountability Buddy and Coach. You need a trusted friend to help you set your objectives, help you monitor your progress, provide suggestions and criticism and encourage you to meet and exceed your goals.

 Next week’s blog will continue this New Year’s Resolution theme by focusing on your financial goals and how a trusted friend, such as DWM, can help.

Your Health Matters

healthcare_costs_2[1]How are you feeling today?  At DWM, we hope you are feeling your best and enjoy robust good health every day.  As financial advisors, we certainly pay attention to your financial health and look for ways to maintain and improve your overall financial well-being.  And with the cost of health care these days, the state of your physical health has become inextricably linked with your financial well-being.  A recent WSJ article about health expenses in retirement noted that excellent health can actually raise an individual’s lifetime health spending needs because of the likelihood that they will live longer.  So good health may actually cost you more!  At DWM, we want to make sure we help you plan for these costs and analyze ways to save.

There are many changes occurring in the healthcare industry.  Aging populations and longer life-spans will strain the existing resources.  The industry is evolving to invent strategies and plans for preventive medicine and new technology to make healthcare more efficient.  As consumers, we are able to be pro-active in managing our own health care.  We can now download health apps, consult a medical practitioner by email and use strap on devices to monitor our own vitals.  Technological health advances in diagnostic tools and treatment options are ever-changing and, when we have medical questions, we will likely hit the internet and educate ourselves before calling the doctor.  As consumers in the marketplace, we can select from a vast menu of insurance options and many health care providers are offering innovative ways to finance even traditional medical services.  Welcome to the new health economy!

There is also a cost to new medicines, better technology and a shift from traditional strategies.  According to reports by the Centers for Medicare and Medicaid Services, which published its projections last August in the policy journal Health Affairs, spending on healthcare is expected to grow at an average annual rate of 5.8 % over the next decade.  Another report from the Pricewaterhouse Coopers (PwC) Health Research Institute estimates those costs growing at 6.5% per year.  Some estimates for Medicare Part B and Part D are over 7%!  WSJ quoted a report by HealthView Services Inc that says a healthy 65-year old couple can expect to pay, on average, $266,589 for insurance premiums and $128,365 for related expenses (dental, vision, copays and out-of-pocket bills) over their lifetime.  These figures show that healthcare costs are far outpacing cost-of-living increases of 1-3% and have made us take notice of how these increasing healthcare costs will affect your future financial health.

With these rising health care costs, mandatory Medicare premiums can account for a larger share of retirement spending than even recreation or housing.  And few people realize that your annual Medicare premiums are based on your retirement income, according to Mary Beth Franklin of Investment News.  It makes good financial sense, therefore, to understand your modified adjusted gross income (MAGI) and plan withdrawal strategies with income targets in mind.  Even moving one tax bracket can result in significant savings in Medicare costs.  You really need to put the ‘microscope’ on your health care expenses and make sure you are doing everything you can to minimize their impact on your financial plan.

Recently, we discussed the upgraded, newly released version of MoneyGuidePro – MGP4- and highlighted some of the new features in our blog (http://www.dwmgmt.com/mgp-4-).  MGP4 has added a new healthcare spending goal, a tool which allows us to isolate the rising health care spending needs in your financial plan results and make sure that your plan can successfully accommodate this spending.  There is a worksheet for including your actual expenses or estimates for Medicare Part B, Part D for prescriptions, supplemental or Medigap policies and out-of-pocket spending.  This will be a great tool for us to use to make sure our clients are prepared.

At DWM, we can help you manage and budget for a changing health care environment and the costs you will face in the future.  So get enough sleep, eat right and exercise…we want you to stay healthy and enjoy your life.  Your health matters!

MGP 4 – The Next Generation of Financial Planning

MGP logo onlyThe financial industry is seeing some interesting changes spurred by the recently-enacted DOL fiduciary rule (see our recent blog at http://www.dwmgmt.com/fiduciary-standard-closing-in-on-reps-and-brokers/ ). At DWM, we welcome these changes as it now requires financial advisors to adhere to a rule that we have been following from the beginning…which is to make investment and planning recommendations with the client’s best interests in mind.  We always put the client first and always remain committed to this philosophy.

 

Last week, MoneyGuidePro, our chosen software provider, came out with a new version of their financial planning tool called MGP 4.  It is the next generation of financial planning software and the updates are specifically intended to help the financial advisor stay in line with the new rules.  The changes have made the software more “conversational” so advisor and client can spend more time discussing goals and retirement requirements, something we have always focused on.  We have spent some time reviewing the new features and there is a small learning curve with it.  We do think in the long run, it’s a nice update.  If you have recently logged on and were surprised or frustrated with it, you are not alone.  We want to describe some of the basics to you and, of course, we are always available for questions.

 

The biggest change is in the presentation and some of the familiar indexes are set up in new locations.  The updated format takes you to a My Plans landing page where you will have access to your financial plan.  Once the plan is selected, you will be on the page with personal information, similar to the previous version.  If you look at the top of this page, there is a progression line with three circles on it. The circle on the left is marked “About You” and is green at this stage. Once you click on the circle, the dropdown has all the items from the previous version grouped in four categories- Personal, Goals, Money and Risk and Allocation.  Click on each of these for details. ‘Personal’ shows personal information and has a new area for expectations and concerns.  ‘Goals’ has a retirement schedule and a place to include your goals, including one for health care, a newly-established feature to help us understand and track the costs that health care may have on your financial plan.  When you click on ‘Money’, you will see the familiar drop-down categories from the old version – including investments, retirement income and net worth.  Finally the ‘Risk and Allocation’ section will help us evaluate your risk tolerance and allocation strategy so we can see if they are in line with your goals.  You can always skip a category by returning to the “progression line” at the top and selecting your choice.   Everything is here, it just may take an extra step to get there.

 

*Tech Tip:  If you want to have an abbreviated look at your plan, you can select the ‘My Snapshot’ tab on the first page to have quick access to some of the most popular features like net worth, goals and results.

 

Once you finish ‘Risk & Allocation’, you are ready to move to the ‘Results’ circle.  You’ve seen these headings before. We suggest you click on ‘recommended scenario’.  Once on that page, look at the left side and you’ll see blue rectangles with personalized strategy tabs based on your goals.  One new, exciting feature is the Social Security tab which allows you to calculate your best strategy drawing benefits, if you haven’t already begun.  You can also choose the “What if Worksheet”. Here is where we modify certain predictors for the future like rates of return, inflation or living longer.  You can look under the recommended scenario or under the ‘What if worksheet’ Monte Carlo simulation graphs and you will see the blue rectangle “explore”.  Click on explore and then scroll down to “combined details.”    You’re now into the results page and graph, which all of our clients have seen before and shows the annual and linear progression of the value of your future portfolio.  This chart starts with the current value of your investment portfolio and shows how the additions, earnings, taxes and spending or goals might impact it going forward.  You can follow it to the wonderfully euphemized “end of your plan”!  We always find that amusing…

 

There are many other features hidden in this financial planning software and we invite you to “play” with this program any time. There is something for everyone in here.  In the play zone, you can add any number of crazy or exciting goals to see if you can make them come true.  Or if you want to prepare for the worst, you can stress test for challenges in the “what are you afraid of” feature. There are strategy tools, a budget feature and you can print your net worth report anytime. The ‘Finish’ tab includes the reports area which is not as intuitive as before, so if you have questions, please call us.  We are always glad to help…or run them for you!  And don’t worry, when you are finished playing with your plan, we always keep the original copy that is our constant.  DWM wants you to understand and participate in your financial planning and be as educated and knowledgeable as possible.  After all, that is our fiduciary responsibility and we always put our clients first!