Better than money

A financial plan can help you protect
yourself, your family, and your future.

by Scott Williams   Stacy Lewis is living proof that you don't have to be rich to benefit from a professional financial planner's advice. Lewis, 29, a REALTOR® with Janita Hinds Real Estate in Del Rio, is single, childless, and struggling to make ends meet on the unpredictable income common in the real estate industry. Faced with little savings, no retirement plan, and expensive credit card debt, Lewis hired a financial planner earlier this year in what she hopes is the first step on the road to a secure financial future.

It's about choices
"I don’t mind working hard," said Lewis, who earned her real estate license four years ago, "but when I get to be 60, I’d like to have the choice to work or not to work."

Lewis hired a financial planner recommended by friends and drew up a simple financial plan designed to eliminate debt and establish both short-term and long-term savings accounts. Following her adviser’s recommendations, Lewis began placing a certain amount each month into a savings account that she hopes to build into a $3,000 emergency fund.

Based on her age and the fact that she has no dependents, she also bought a $25,000 whole life insurance policy and opened a Roth IRA with $166, the same amount she will place into the retirement account each month.

"My main objective is to get my bills paid off and to have something to fall back on," Lewis said. "I’m glad that I’ve gone and done it; it’s something I’ve had on my mind for a couple of years."

Anyone can benefit
Some might be surprised that someone as young as Lewis with no spouse or dependents and with so little to invest would seek help from a professional financial planner. But the notion that only those with complicated lives and lots of money to invest can benefit from a financial planner is a common misconception, said Joel P. Brucken-stein, president of Global Financial Advisers Inc., a financial planning and investment advisory firm in Pleasantville, N.Y.

"The more complicated your finances are, the more work needs to be done, but someone who’s young can really benefit from a financial plan," said Bruckenstein, a certified financial planner and member of the National Association of Personal Financial Advisors, an organization of fee-only planners.

Getting clarity
Setting your goals early and making investments, no matter how small, allows you to take advantage of compound interest, and speaking with a financial planner could help you decide on a career, crystallize your financial goals, and plan your future, he said.

"Financial planning is really a process," Bruckenstein said. "In simple terms, you try to analyze your financial life, look at all the various aspects and how they interact, and come up with a plan."

David Diesslin, founder and president of Diesslin & Associates Inc. of Fort Worth, said everyone has a financial plan whether they know it or not, either by omission or commission. Most who seek help do so following a "life event" such as marriage, divorce, or the birth of a child.

Clients know the value
Rick Dittemore, a REALTOR® with Keller Williams Realty Katy at Cinco Ranch, a planned community between Katy and Houston, counts himself as among those who put off financial planning longer than he should have. Dittemore, 41, is married, has two children and a third due in mid-September, and yet he hired a financial planner less than two years ago.

"It’s one of those things you put on the back burner, but it’s probably one of the most important things you can do," he said.

Dittemore turned serious about financial planning when a couple looking to buy a house told him their financial planner recommended they purchase a less expensive house than they originally wanted. "When I heard that, it was kind of a different concept for me," he said. "Most people don’t make decisions (based) on what a third party tells them to do.

"It opened my eyes because this person probably could have afforded this house…and instead of making the decision to spend all their money on a house, they opted to pull back on the price and continue with their financial plan."

Dittemore wound up hiring his client’s financial planner. He also hired a certified public accountant and is looking to hire an estate attorney. Dittemore, who foresees switching to a financial planner who lives in Katy, intends to meet with all his advisers at once to come up with a comprehensive plan that addresses his insurance, investments, tax liabilities, estate planning, and real estate business.

Start with the basics
Bruckenstein said a good financial planner can help you find the specialists you need. "A (certified financial planner) and (National Association of Financial Advisors) member can help you with all aspects of financial planning," he said, "and has an implied or explicit duty to refer you to a specialist if there’s a need there." But worrying about specialists is putting the cart before the horse for most people, Bruckenstein said, because most lack even a basic financial plan.

According to NAPFA, a comprehensive financial plan will analyze the client’s situation, define goals, create a plan that considers all financial aspects of the client’s objectives, help the client implement recommendations, and provide periodic reviews and revisions to adjust to changes in the financial environment and the client’s goals.

Bruckenstein said you should consult a financial planner any time you experience a change in your circumstances. "I don’t like my clients buying a car without calling me," he said. "Any change in financial circumstances or life changes, I want at least a phone call to see if we can help them out."

The specific areas covered in a comprehensive financial plan include investments, cash flow, taxes, estate planning, risk management (insurance), retirement, educating children, business planning, employee benefit planning, and any needs specific to that client.

Self-employment issues
Issues of greatest importance to REALTORS® are those shared by others who are self-employed, Bruckenstein said.

"One is if they’re not an employee, they’re responsible for their own retirement," he said. "That has to be addressed from a young age."

REALTORS® also should consult someone familiar with tax laws and how they affect independent contractors, Bruckenstein said. The self-employed must pay their own social security tax, and they need to know when the payments should be made.

"If you don’t do them right, it’s going to cost you more money," he said.

REALTORS® should learn more about tax deductions available to them such as automobile deductions and when and how to write off equipment purchases, said Bruckenstein. He said Section 179 of the tax code may allow small businesses to treat certain depreciable equipment as current expenses, allowing them to deduct the full cost rather than a portion over several years. And there may be other deductions they don’t know about or don’t know how to handle," he said. "Those decisions can save money and ultimately put more money in your pocket."

Other potential deductions include trips, meals, supplies, advertising, online service charges, gifts, uniforms (such as a shirt with the company logo), and office equipment like copiers, personal computers, and laptop computers.

REALTORS® should also educate themselves on the various retirement plans for which they may be eligible. He said REALTORS® are most likely to be eligible for Individual Retirement Accounts (IRAs), Roth IRAs, SIMPLE IRAs, a Simplified Employee Pension (SEP), or a Keogh plan.

"Which one is best will depend on someone’s individual circumstances," said Bruckenstein, adding that one retirement plan does not fit all. "You need to know what that person is doing, what their spouse is doing, and you have to look at the whole picture. Most people aren’t capable of doing that without professional guidance. They’ll read a few lines in a magazine and say, ‘That’s good for me.’ Well, maybe it is, maybe it isn’t."

Diversify
Bruckenstein said REALTORS® planning to invest in real estate should understand tax laws that pertain to it. He warns that many REALTORS® invest in real estate because it’s familiar to them, and too many have an inordinate percentage of assets in an industry that pays their salary and accounts for much of their net worth in the form of the value of their homes.

You’re the boss
Diesslin said one common mistake REALTORS® make is not realizing that most are running their own business, and planning for an entrepreneur is different from planning for a company employee. "You have the ability as an entrepreneur to invest in your business, and that creates the greatest potential for return that most REALTORS® ignore," he said.

REALTORS® tend not to invest enough in their business, he said, preferring instead to invest in the stock market or upgrade their quality of life. He said REALTORS® also tend to lack enough disability and life insurance and generally pay little attention to estate planning.

Diesslin said most REALTORS® lack disability insurance or don’t have enough because it’s expensive and difficult to obtain. He described term life insurance as a "low-expense, high-impact" item often ignored by REALTORS®. Another area he said that is consistently ignored is umbrella coverage on top of homeowners and car insurance.

He said it’s common for young real estate professionals to have poor saving habits. He remembers one client telling him that REALTORS® spend their commissions three times: when a client signs a contract, when they close on it, and when they actually receive the commission.

Other mistakes REALTORS® tend to make is not maximizing 401k deductions and stock option plans offered by their spouse’s employer and lack of documentation to justify tax deductions.

Need help?
It should come as no surprise that Diesslin and Bruckenstein believe REALTORS® should hire a professional to help them plan their finances. They said it’s similar to a person hiring a REALTOR® to help with the process of buying or selling property. No matter how intelligent you might be, and no matter how carefully you study the issue, you can’t possibly bring the same knowledge and expertise to the process as an experienced REALTOR®.

Amy Hughes, broker and owner of Amy Hughes REALTORS® in Amarillo, agrees. She and her husband sought advice through an eight-hour course offered by a local financial-services company several years ago. The course helped them assess their financial standing and plan financial goals.

"People come to me and need counsel and advice, and it’s the same with me and money: I need to look for counsel and advice," she said.

A do-it-yourself strategy
But John Nelson, a broker specializing in property management at John Nelson Real Estate in Lubbock, believes the need for professional financial advisers is exaggerated and that certified financial planners in particular are overrated. Nelson, in addition to being a REALTOR®, is a licensed insurance agent and registered representative who sells financial services products through several different companies.

He said most REALTORS® don’t earn enough to warrant the fees paid to certified financial planners, and outlined a few simple strategies for REALTORS® seeking financial security:

First, write down your assets and liabilities and come up with a plan to get out of debt. Next, buy a 20- to 30-year level term life insurance policy with an amount equal to eight to 10 times your earnings. Establish a Roth IRA with a good mutual fund and, when you reach the limit on contributions, contribute to a Simplified Employee Pension (SEP). The next step is to establish an education plan for your children, and, when all that is done, accumulate wealth in a tax-deferred variable annuity.

"They need to do the simple things first and accumulate some money before they have a need to spend that money for a financial plan that they may never implement," he said.

Keeping what you earn
Karen Dean, a REALTOR® with Choice #1 Realty in Bullard, south of Tyler, handles her own financial planning. She began in 1986 when the IRS threatened to swallow a significant share of her soaring income.

She discovered she could shelter some of her income from taxes by opening a Keogh retirement account, an attractive move considering she had no retirement nest egg at the time. Her original $2,900 investment–and $1,000 added in 1998–has grown to more than $19,000.

"I just feel very fortunate that we’ve done so well," she said. "I just wish we’d started a lot earlier."

Just do it
Whether you do it yourself, attend classes, or hire a professional financial planner, the results are likely to be better than doing nothing. Not having a financial plan–no matter how basic–is like trying to drive to a strange city across the country without a map.

"A financial plan helps you to be proactive, so when you confront a situation you can make the most out of those situations," Diesslin said. "It’s pretty hard to argue against the planning process; it’s like arguing against good health."

Scott Williams is a freelance writer in Corpus Christi.

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