Jacob Sensiba, Author at The Free Financial Advisor

Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.

A Systematic Approach to Goals

December 25, 2019 by Jacob Sensiba Leave a Comment

With 2020 staring us in the face, it’s time to review goal setting and the systems you can put in place in order to reach those goals.

“A goal without a plan is just a wish.” – Antoine de Saint-Exupery

That said, let’s look at systematic ways to approach goal setting and actionable tools you can use to smash those goals.

How to begin

Large/Lifetime goals – These are things you want to accomplish throughout your life. They can be philanthropic, health, financial, etc. Figure these out first.
Short-term – Now that you have your long-term/lifetime goals determined, you can break them down into shorter-term goals. Consider these stepping stones, and a lot of these will change as you age. For example, your philanthropic goals. There may be causes you care deeply about now, but that can change.
Actionable steps – Once you have your lifetime goals broken down into manageable targets, it’s time to create steps to get there and I’ll illustrate that using the three examples above.
1. Philanthropic – Research causes and charities. Pick the ones you most identify with. Review your budget to find out how much you can give. Do a little more research to find out if your donations are tax-deductible (most, if not all, should be).
2. Health – Establish the specific reason you want to be healthier (for yourself, your partner, your kids, grandkids, etc.). Research a diet that could work for you. Research an exercise regimen that could work for you. Consult experts (i.e. nutritionist and personal trainer).
3. Financial – Create a budget/spending plan. Cut expenses. Save for emergencies. Insure you and your belongings. Save for retirement.

Here are a few articles I’ve written in the past about financial goals:

Worthy Goals For You To Set And Crush

How Do You Set Financial Goals?

Systems

We can think of systems as the sub-category of actionable steps. A routine is another word for it. When it comes to goals and habits, you can’t rely on will power. You have put a plan in place to do the work for you.

Take exercising for example. You need to create low barriers for yourself. Wear your gym clothes to bed or have your bag packed the night before.

If you go to the gym, put your bag and your keys in a place where you have to pass them to get to your car.

If you exercise at home, have your routine and your equipment laid out and ready for you.

Habits

When it comes to creating habits, James Clear, the author of Atomic Habits, likes to break down the habit into bite-sized pieces.

For example, if your saving for a down payment, go to your banking app and transfer $1 from checking to savings every morning (or whatever amount is realistic for you).

When that becomes second nature, bump it up a dollar a day.

Another thing that James says is, “People ask me all of the time, how many days does it take to create a habit? My answer, all of them because if you stop doing it for one day, it’s no longer a habit.”

External versus Internal

This section is speaking specifically to mental health versus other goals. You could also consider physical health as an internal goal, but for this article internal relates to mental health.

There are several things you can do to work on your mental health. See a therapist, exercise, and start a journal. Those three are low-barrier, easy things you can implement into your day to help.

Meditation, medication, and other forms of mindfulness training/practice can also help. There’s a podcast that I listen to regularly called “10% Happier” that will help you with establishing a meditation practice.

Do some research about this. Meditation can and will take many different forms, and not each modality will be right for you. Some may find that magic mushrooms from a magic mushroom dispensary can help them to relax, whilst reading has also proven to have meditative benefits.

Financial Goals

It really is up to the individual as to what they consider, short, medium, and long-term, but my definitions are as follows: Short-term – less than 3 years. Medium-term – 3-15. Long-term – 15+.

My definitions are almost entirely based on the investability of those assets for that specific time period.

Short-term – Emergencies, a new car, what have you. This is money you will need soon, so risking it in the stock market is out of the question. High-yield savings accounts should be your go-to in this scenario.
Medium-term – Things like down payments for a house or sending your kid to college. What you’re saving for will dictate the vehicle that you use. If it’s saving for college, a 529 or a Coverdell ESA should do the trick. If it’s for a down payment, your best bet is usually a taxable brokerage account, as there are no fees for early withdrawal.
Long-term – This should be strictly focused on retirement. Assets should be in a retirement account(s) and invested (investment selection should be based on risk tolerance and time horizon).

Once you’ve established your short, medium, and long-term goals you can break them down into actionable steps as we talked about earlier.

Wrapping it up

Each New Year brings about resolutions that we hope to achieve. Whether it’s getting in shape or paying down debt, your barometer for success should be progress and consistency.

Are you in a better place than you were on January 1st? Do you have more saved? Are you still committed to the goals you set in the first place?

Yes. It feels great to set a target and hit it, but as far as I’m concerned, if you’re better than you were yesterday, that’s all that matters.

Take it one day at a time and keep your eyes on the prize. You got this!

Jacob Sensiba

mygfpartner.com/jacob-sensiba-wisconsin-financial-advisor/

401k Withdrawal Taxes and Penalties

December 18, 2019 by Jacob Sensiba Leave a Comment

The 401k has grown in popularity over the last couple of decades because pensions have all but vanished; as a result, strategies around taking withdrawals and how to limit taxes and penalties are extremely prevalent.

In this article, we’re going to discuss the common penalties and taxes, and some of the strategies you can deploy to reduce them.

When a penalty typically applies

In almost all cases, a penalty applies if you withdraw from your account before the age of 59 ½. This is a 10% tax penalty. (Be advised: All withdrawals are subject to ordinary income taxes)

There is also a tax penalty if you fail to withdraw your Required Minimum Distribution (RMD). This applies to individuals over the age of 70 ½. This penalty, however, is 50% of the amount you should’ve withdrawn.

There are several exceptions, however.

Additionally, with the new Secure Act, there have changes to required minimum distributions, contributions, and others. For more information, click here.

When you are exempt from penalty

Withdrawal after 59 ½
Left employer after 55
Left employment in public safety after 50
Death distributions: your beneficiary is able to take distributions without penalty, regardless of their age
Totally and permanently disabled as defined by the IRS
72t rule – Agree to withdraw the same amount for a fixed period of five years or until you turn 59 ½, whichever is greater.
Unreimbursed medical expenses: You’re allotted to withdraw the unreimbursed medical expenses minus 10% of your adjusted gross income
If you over contribute to your retirement plan for the year, you’re allowed to withdraw the excess without incurring a penalty.
IRS Tax Levies
Divorce: Depending on your state and how you settle the divorce with your former spouse, he/she can withdraw their respective portion without penalty
Roth conversion: you pay taxes on the conversion, but there is no 10% tax penalty

*All exceptions may have certain requirements that need to be met to qualify for the exemption. Please check with your 401k Plan Administrator and Financial Advisor regarding your personal situation.

Taxes

With regard to tax-saving strategies on 401k withdrawals, there are no short-cuts or exceptions like there was for the penalty section.

The best way to save money on taxes when taking distributions is to be strategic.

If the expense you are withdrawing for is something that can be planned ahead of time, determine your current tax bracket, figure out how much you’ll need at that future date, and withdraw slowly over time (how much you withdraw depends on how soon you’ll need it).

For example, if you are in the 22% tax bracket, are $10,000 from going into the next bracket, and need $40,000 for a down payment in 4 years, then withdraw just under $10k each year.

This assumes that your income and tax bracket will stay the same.

Another way to go about it is to utilize Roth conversions. If the intention is to minimize or eliminate your tax liability for retirement, do a Roth conversion every year. Just be mindful of where you are in your current bracket, so you aren’t bumped into the next one.

In this example, however, it can be counter-intuitive because in most cases, your tax bracket in retirement is lower than it was while you are working. This is commonsense, though. You’re making less, so logically you would be in a lower bracket.

With regard to taxes, it comes down to math. If you need to withdraw from your 401k, crunch the numbers and figure out how you can do that while limiting your tax exposure.

Living with Anxiety and Depression

December 11, 2019 by Jacob Sensiba Leave a Comment

A few weeks ago, I wrote a post about my personal experiences with anxiety and depression, and how those mental illnesses affect your finances. (See article here)

This week, I’d like to talk about what it’s like living with these two illnesses. Before I do, however, I’d like to show a graphic from Anxiety.org that sum the symptoms pretty well.

The most challenging part about having anxiety and depression is that no day is the same.

Sometimes, I can’t even tell they’re there. Although, to be honest, those days are very few and far between.

Other days, my anxiety is in overdrive, which is exhausting. I’m jittery, constantly worrying about things that I needn’t worry about, and I have a big ball of negative energy that’s ever present in my stomach.

I have to say, though, the days when my depression is dominant are the toughest. The only thing I want to do these days is stay in bed and sleep.

Isolate myself from everyone, and just deal with it alone. Which is counter intuitive because social interaction is one thing that helps the most.

Recent changes

My medication changed. I don’t know if I noted it in that prior post I alluded to earlier, but my previous prescription wasn’t doing the job.

I’ve been on my new dose for two weeks now. My doc gave me two medications. One to treat my depression and another to treat my anxiety.

So far, so good. My depression isn’t gone by any means, but it’s definitely reduced. Though, I will say, there are days when it flares up due to certain triggers.

My anxiety is, somewhat, better. The biggest positive is that I’m sleeping better, which is vitally important.

The biggest drawback I’ve noticed is something I didn’t expect.

A temper was passed down to be, and sometimes, it’s really bad. Over the past year or so, my depression has been so prominent that it’s muted my anger.

Guess what? The new medication is doing its job and the anger is making its way back.

So what do I do? Change my medications again? Or do I learn techniques to manage my anger? Techniques that will allow me to feel my emotions without feeling controlled by them.

Yes is my answer.

Meditation, relaxation, and exercise. The two former I’m incorporating into my morning routine. The latter will take place in the evening.

My new morning routine will go as follows: (all while listening to relaxing chillstep)

Wake up 45 minutes before I have to get ready (shower, shave, change, leave)
Start with 5 minutes with my neck/head tension reliever
10 minutes in my inversion table
15 minutes of meditation
15 minutes of Tai chi
Turn on some classic 90s/00s hits to get ready to

My exercise routine changes everyday. At least 30 minutes each day.

Day 1 – Elliptical

Day 2 – Stretch

Day 3 – Pull-ups and lunges

Day 4 – Stretch

Day 5 – Resistance bands and jumping jacks

Day 6 – Stretch

I haven’t done enough to take my mental health into my own hands. Sure, I’m seeing a therapist and I’m taking prescription medication, but that’s not enough.

I need to move my body and relax my mind.

I’m also reading a book about the Dalai Lama right now, and it’s quite interesting. It’s giving me a different perspective on how I can go about my day and the mentality I can incorporate into my daily life.

How it affects my finances

Depends on the day. If it’s a depression day, not too much. Like I said, I want to isolate myself on these days and I generally won’t buy things to make me feel better.

If it’s an anxiety-ridden day, that’s a different story. Food is my go-to when my anxiety is running high. That negatively affects my finances.

Bottom line, just make sure you are taking care of yourself. Whatever that looks like for you. Also, make sure you have a “person”. Someone you can vent to. Someone that checks on you.

Jacob Sensiba

mygfpartner.com/jacob-sensiba-wisconsin-financial-advisor/

Retirement Planning for Freelancers

December 4, 2019 by Jacob Sensiba Leave a Comment

As the employment pool thins, there’s a growing section of the population filling in the gaps – freelancers.

In this article, we’ll explain what freelancers are, the tech they can utilize, how they can budget, and how they save for retirement.

Let’s dive in.

What’s the Gig Economy?

Essentially, the Gig Economy is a group or sector of individuals that work as independent contractors, and/or classify themselves as self-employed.

Typically, these workers are made up of freelancers and contractors, as I mentioned. Freelancers don’t work for an organization. They work for themselves.

They set their own rates, hours, and services/products that they offer.

Many of these individuals, take advantage of different apps, programs, or organizations that subcontract a lot of their work out. Many of these are listed below.

Apps and Programs

The two most popular apps/programs used by freelancers to find work are Upwork and Fiverr.

With these two apps, an individual can create a profile and list the services they offer, qualifications, hourly rate, service location (geographically, where they can/will work), among other things.

There are, however, several companies that utilize the services and flexibility of freelancers. They include but aren’t limited to Uber, Lyft, Grubhub, and Doordash.

There are many others currently in use, with new ones seemingly popping up every day.

All that said, because freelancers and individual contractors work for themselves, they usually don’t get benefits. Additionally, they don’t have a set schedule, so their income often varies, week to week.

How to budget

As I alluded to, income received for freelancers isn’t consistent. What’s more, they often have business expenses and taxes to think about. How you budget, will differ from your typical W-2 employee.

First, find out how much you must bring in to meet your necessary expenses. This includes rent, transportation, food, utilities, and other bills. Bare minimum what you need to earn each month.
Now you need to figure out what your average month looks like, in terms of business expenses. This can include travel, lodging, website, gear, etc. What is classified as a business expense can vary depending on what you do and how good your accountant is.
Okay. We have your expenses taken care of, now we have to focus on income. We established you need enough to pay for necessary expenses, but I should’ve included the cost of doing business.
1. Equipment
2. Marketing
3. Website (domain license, etc.)
Another variable that can’t go unmentioned is your taxes. When you’re a freelancer or an independent contractor, your income normally isn’t taxed. That means you’ll either need to set savings aside to pay your taxes, or you’ll have to pay quarterlies.
Last thing. As mentioned, your income will vary, so you need to plan for that. Using your budget, determine what you need to bring in each month (keep a LITTLE extra for fun) and save the rest.
1. The extra savings are designated for down months, but could also be used for taxes and/or retirement.

Retirement plans available

Essentially, there are five retirement plans available for freelancers (depending on business structure, employees, income, etc.). I’ll link to an in-depth guide of all plans available for businesses, but here’s that list of five.

Traditional IRA – Available to anyone. Income limits can constrict the tax advantages, but everyone is able to open a Traditional IRA.
Roth IRA – This is not available to everyone. Income limits vary depending on marital status, so here’s a link to the IRS site for specific information.
SIMPLE IRA – Tax treatment of a SIMPLE is similar to the Traditional IRA. This plan, however, is designed for small businesses.
SEP IRA – I’ll echo my last point about tax treatment; very similar to a Traditional IRA. Contributions are made by the employer, no matter how many are employed by the company. The contribution limits for this plan are much higher, however.
Solo 401k – Almost exactly the same as your standard 401(k), with two distinctions. One, it’s designed for one individual; two, you are allowed one employee on the plan (I know I contradicted myself)…your spouse.

Business Retirement Plan Guide

Talk with experts

You can do all the research in the world, but you still need to talk to someone that does this every day.

In your contact list, you should have a financial advisor (Hi there!), an accountant that specializes in one-person businesses, and an attorney.

Your financial advisor can assist you with budgeting, saving, and selecting a retirement plan. Your account can help with tax filings and deductions. Your attorney can determine what business structure is best for you, disclaimers, and other documents to CYA.

Related Reading:

Ways to increase your wealth

Jacob Sensiba

mygfpartner.com/jacob-sensiba-wisconsin-financial-advisor/

My house and what brought me here

November 27, 2019 by Jacob Sensiba Leave a Comment

In today’s article, I’m going to discuss the current dilemma with my house, the choices I made that got me here, and how I see things playing out over the next few years.

Background information

Let’s go way back to 2014. That year, I proposed to my then-girlfriend. After we were engaged, I moved in with her.

A smallish, one bedroom, one bathroom apartment, but affordable. After about 6 months of that, we moved to a different apartment. Different city.

This one was 2 bedrooms, 1 ½ bathrooms, but 50% more for rent. The majority of the cost, in my opinion, was due to location.

Our first apartment was in a suburb of Milwaukee, Wisconsin. The second one was in Milwaukee, in a sought after neighborhood. At the time, this seemed like a fun choice. We’d experience life downtown in a bigger city (Milwaukee is small compared to actual BIG cities).

Fast forward 9 months. We were looking to get a puppy, but our landlord wouldn’t accept a pet younger than 1 year of age. Add that onto poor management and several plumbing issues, we’d had enough.

Time to move

Found a sub-lessor for the remaining three months on our lease, and moved in with my folks.

We decided that was the best choice because we wanted to buy, and living with them costing very little rent was the easiest, and fastest, way to save for a down payment.

Three months with them and we saved enough for a small down payment (FHA mortgage requires just 3.5% down).

March of 2016 is when we bought our first house. 3 bedrooms, 2 bathrooms. Perfect for the two of us. However, the city we lived in didn’t have good schools, so we knew (as we wanted kids) that living here would be temporary.

The plan was to live in this house (located in West Allis, Wisconsin) for 4-5 years until our child started school. Then we would move to a different city with better schools.

Moving again

Fast forward to late spring of 2018. One day, I was browsing on Realtor and found a house in the suburbs.

I liked what I saw, liked the city, and the price. I showed my wife and we agreed to take a look at it. Obviously, this was quite a few years before our planned move.

We looked at the house and loved it. We loved it so much that we submitted an offer in the car on our way back from looking at it.

We moved into that house (located in Oconomowoc, Wisconsin) in July of 2018, and that kind of brings us to today.

Real quick. I wanted to briefly explain the decision to move so far ahead of schedule. I knew our budget would be tight with the increased mortgage payment, but I was looking far ahead. The schools were better, the neighborhood was safer, and it would’ve been a great place to raise a family.

Current housing woes

As I’ve noted before, I’m in the middle of a divorce. Part of that divorce is selling our house. As you can imagine, having lived there for only one year, there wasn’t any equity built up.

We placed the house on the market in the middle of October. We started out asking $239,000 and didn’t hear much of anything for about a week.

We dropped the asking price by $10,000 to $229,000. Officially, we received our first offer on 12/2/19 (I’m writing this on 12/3/2019).

Their offer came in at $215,000 cash. Quite a bit lower, so we countered back with our full asking price.

They countered today at $225,000 and we accepted that.

Here’s the problem. We bought the house for $239,000 and we’re selling it (pending inspection and further negotiation) for $225,000. Again, we put 3.5% down. Still, we have $230,000 left on the mortgage.

That brings in a short sell situation. This means we will have to cut a check to the title company for the difference to clear the title.

You’re probably thinking $5,000 isn’t too bad. Hold on. We still have to factor in closing costs, which include the realtor’s commission. A rough estimate puts the check we’ll have to write around $15,000/$16,000. Ouch.

Lessons learned

Nobody has a crystal ball. Did I know I’d have to sell the house a year after buying it? No. Do I wish I would’ve done things differently? Sometimes, but I try to look at every situation as a learning experience.

I take the good and the bad. My son took his first steps in the Oconomowoc house. He had a lot more space to run and play. He had a fenced-in backyard. It was perfect for him and for us. I wouldn’t take that back.

Do I wish we would’ve stayed in the one-bedroom, one-bathroom apartment until we were ready to buy? Absolutely.

That would’ve given us so much more time to save. Figuring we would’ve lived there for one full year before buying the West Allis house, and the rent was roughly $400 cheaper than the Milwaukee apartment. That’s an easy $4,000.

Not to mention the commute would’ve been shorter. Insurance would’ve been cheaper. Heck, even our grocery bill would’ve been less.

They’re all learning experiences. Those lessons sting right now, but I’ll learn from it and hopefully, you’ll learn from me.

Related Reading:

Where Your Property Goes When You Die

When Are You Ready To Buy A Home

Appreciating Versus Depreciating Assets

Jacob Sensiba

mygfpartner.com/jacob-sensiba-wisconsin-financial-advisor/

Debt Collectors With Attitude

November 20, 2019 by Jacob Sensiba Leave a Comment

Debt collectors and debt collection agencies are a real pain! They’re persistent, and sometimes, they can be downright mean.

However, there are still laws that govern them. If you come in contact with an aggressive debt collector, here’s what you have to know.

Also, if you want to pay off your debt but you are financially broke, you can consider getting a personal loan.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is the law that governs what third-party debt collectors can and can’t do.

Things they can’t do include calling before 8 am and after 9 pm based on your time zone, call you at work, harass, oppress, or abuse you, lie to you, threaten you with jail time, conceal their identity, disregarding a written request from you to cease contact or dispute a debt.

Debt collectors also can’t reveal any personal information about your debt to people, except your spouse or your guardian (if you’re a minor).

Mail correspondence can’t show that the mailer is from a debt collector. Also, if you hire an attorney and the collector has your attorney’s contact information, they must correspond with your legal counsel, not you.

If the aggressive debt collector violates any of the parameters set by the FDCPA, you have one year from the date of the violation to file a complaint. You can do that by using the online form, here, or by calling (855) 411-2372.

Take notes

If it ever gets to the point where you file a complaint or sue the aggressive debt collector, copious notes will help you make your case.

Get as many details as possible. Time, date, name of the collector, the agency they work for, the debt they are calling about, etc.

Hang up or don’t answer

If the call is from a number you don’t recognize, don’t answer. If the call was important, they’ll leave a message.

Typically, debt collectors are dialing for dollars (calling A LOT), so they typically won’t leave messages. If they do, listen to it and do your research to confirm if it’s legit or not.

In a lot of cases, consumers don’t know what they’re rights are. Even though collectors must abide by the laws set forth in the FDCPA, they might not if they think they’re speaking with an uninformed individual.

If they start badgering you, use aggressive language, or violate the law in any other manner, just hang up the phone.

Write a letter

You can write a letter to a debt collector for two reasons.

One, asking them to stop. They HAVE to stop if you put it in writing. Two, dispute the debt. If you believe that the debt they are trying to collect is fraudulent or not yours, write a letter to dispute it.

Cool heads prevail

Debt collectors are ruthless. Their objective is to get as much out of you as possible before they sell the remaining portion of your debt to the next collector in line.

It’s human nature to get worked up or downright pissed off in this situation, but getting angry won’t help you.

Collectors have been conditioned to withstand a verbal thrashing from consumers. Staying calm will keep your blood pressure down and help you think straight.

Client Experiences

November 13, 2019 by Jacob Sensiba Leave a Comment

Over the years, I’ve heard a lot of stories and I’ve seen client after client make mistakes that set them back. Today, I want to share some of those with you in hopes that you will learn from them.

Obviously, I won’t use the actual names of people in order to protect their identities.

Can’t stop using credit cards

I have a client (Bob) that had a lot of credit card debt. Unfortunately, this debt was accumulated prior to him becoming a customer of mine.

Anyway, he had over $20,000 in credit card debt. One day, he decided to take out a home equity line of credit (HELOC) to pay off that debt, as well as finance some home repairs.

Taking out the HELOC was a good choice for paying off that debt, but the home repairs weren’t necessary. They were wanted and should’ve waited.

Not long after he got the HELOC, he started accumulating more credit card debt. It got to the point where he was back over $20,000 and had to take out another loan to pay that debt off. The most recent loan he took out while a client – and he still is my client. We will see if he can restrain himself enough to not use his credit cards.

There are two things I want you to take away from this.

One, if you take out a loan to pay off credit card debt, you better be darn sure you won’t accumulate any more. Paying off high-interest debt is great, but only if you stop buying with your card.

Two, had he not racked up all that debt in the beginning, he could’ve saved up for those home repairs. That’s the biggest advantage of having a rainy day fund, it’s there when you need it.

Bad financial advisor

I have a client couple, John and Jane, that became a client of mine several years ago. Before me, they had another advisor.

They had an extremely bad experience with this advisor, and it’s because of him my profession gets a bad rap.

This advisor (George), acquired John and Jane’s assets and helped them establish a retirement account. George charged them a fee of 1 percent annually to manage their accounts.

Once the paperwork was signed and the account was set up, George, seemingly, didn’t do another thing for John and Jane.

He let their account sit and collected his 1 percent per year fee. Obviously, John and Jane were upset and lost a lot of money.

Two takeaways here.

One, this is your retirement savings at stake. When hiring an advisor, you really need to do your homework. Have multiple meetings with him/her. Get an idea of their character and what’s important to them. You owe yourself to be picky.

Two, fees will crush you. Every. Single. Time. A trusted advisor should be transparent with their fees, and the fee that they charge should correspond with the services they provide.

If they’re full service, 1 percent is justified. If they only perform a select number of services, then their fee should be less.

Risk-averse client

Barbara has only been a client of mine for a few years. When we first met, she had all of her money in a savings account. All of it!

She was fully invested when the Great Financial Crisis (GFC) took place, and she lost a significant amount of money. So she pulled it all and stuck it in a bank account.

You know as well as I do that had she kept the money invested and rode through the GFC, she would’ve come out so much farther ahead, but the brain doesn’t work that way.

Her psyche was damaged from experiencing those losses to the point where she was no longer willing to take risks.

Thankfully, she’s slowly investing her money and hopefully, will continue to do so.

Making up for lost time

This last story, unfortunately, is all too common. Rick is in his fifties. He hasn’t had the best saving habits, so his retirement account is underfunded.

He still has time to save more and beef up his account, but he’s worried and rightfully so. Everything is expensive, and if you’re not able to work, the money has to come from somewhere.

Along with increasing his savings rate, Rick decides he wants to be more aggressive. Someone in their fifties should have a 50/50 stock/bond allocation. This is a general recommendation, actual allocations will vary by risk tolerance and time horizon.

Rick wants an 80/20 allocation. In my professional opinion, it’s far too risky. I do my best to nudge him back the other way, but he’s insistent and at the end of the day, it’s his money.

In this situation, I’ll have the client sign a consent form stating that they are choosing to not take my advice and that I won’t be held accountable for excessive losses if they occur.

Conclusion

Mistakes happen all of the time. Unfortunately, some happen much more often than others. Part of my job is to recognize those mistakes and correct them before they do too much damage.

Learn before you commit the same errors.

Related Reading:

How To Save Money Effectively

The Psychology Of Money

Why Asset Allocation Matters

Financial Mistakes To Avoid

Hiring A Financial Advisor

Jacob Sensiba

mygfpartner.com/jacob-sensiba-wisconsin-financial-advisor/

Holiday Saving & Spending

October 30, 2019 by Jacob Sensiba Leave a Comment

With the holidays quickly approaching, I think it’s time we discuss proper spending and saving for this time of year.

The holiday season is a special time of year that brings together family and friends to share a special day with one another.

That said, it also brings along expenses. Buying gifts, food, and for some, plane tickets. What can you do to help save money during this time of year? Let’s find out.

Save!

Your holiday spending plan should start on January 1st. Set up a recurring transfer from your checking to your savings account.

Start with an amount that’s realistic. Personally, I do a weekly transfer. $10 per week. Multiply by 52 and we get $510 (technically) for holiday spending.

Another way to boost your savings is to start with one dollar amount, say $5, and increase it incrementally throughout the year.

There are a ton of savings challenges out there. Check this one out!

Start early

When buying gifts, a lot of people wait to buy big items on Black Friday or Cyber Monday. Regularly marked down items are priced relatively similar to those items that go on sale after Thanksgiving.

Save yourself the hassle and stress, and buy items throughout the year.

Make a list

Create a list of the people you want to buy gifts for. After that, assign a dollar amount to that person. This is how much you will spend on each person.

Here’s an idea for next year. Make that list right away and add it up. Whatever the total is, that’s how much you need to save for your holiday budget.

Another point I’d like to make. If your list is long and the total $ spent is high, you might want to consider removing some people from your list.

I know this might sound harsh, but you don’t have to buy them something. Maybe bake some cookies for those you won’t buy gifts for.

Use tech to your advantage

There are so many apps and programs out there that can help you save money. A few of my favorites are Coupons.com and Gas Buddy.

For online shopping, there are browser extensions and apps like RetailmeNot and Honey that find coupon codes for you.

The link below is an article about 7 different apps that can help save you money during the holidays.

7 Best Apps for Holiday Shopping

Track your spending

There’s no better way to gauge outgoing cash flow than tracking your spending. When you track your spending, you not only figure out how much your spending, but on what.

Better yet, use that list you created earlier and record what you spent on them. It keeps you honest and gives you a “checklist” so you don’t buy for someone more than once.

Make gifts

Handmade gifts are so much less expensive than store-bought gifts (most of the time). Also, in my experience, they are more appreciated than purchased ones.

Take a skill or craft you enjoy and make something special for someone.

Holiday party alternatives

There’s a large number of things you can do instead of your normal holiday party. For one thing, if you do have a party, make it a potluck! Everyone brings a dish so the financial burden of preparation doesn’t fall on one person.

Take the family sledding. Start a Secret Santa. Go for a walk/drive through a neighborhood and admire all of the Christmas lights.

One thing I found when researching for this article that moved me was volunteering at your local food pantry. Serve and set up a meal for those in need.

Treat yourself

There’s one other person I want you to put on that list. Yourself. We bust our backs trying to make a living, and often, we think about treating everyone else, but not ourselves.

This year, do something for yourself. Buy that thing you’ve wanted or take yourself to dinner. Whatever #treatyourself looks like, do it. You deserve it.

Can You Afford Not To Use Index Funds?

October 23, 2019 by Jacob Sensiba Leave a Comment

One of the most popular investment vehicles in use today is the index fund. Recently, the assets under management in the index fund category surpassed that of which is managed in active mutual funds.

That said, what is an index fund? How did it come about? What are the characteristics of an index fund?

What is an index fund?

In its simplest form, an index fund is a passively managed mutual fund that tracks an index. It started out by tracking the S&P 500 and for a long time, that’s all these funds tracked.

Now, there are index funds for anything. The DJIA, biotech sector, micro-cap stocks, the list goes on and on.

In terms of stock market history, index funds aren’t old. The first index fund was created by Vanguard in 1975.

Through the late seventies and into the eighties, the index fund failed to catch on. It seems that only in the last decade or two, index funds were recognized as compounding machines and grew in popularity.

So what’s the big deal? Why are these investments so popular? What are the advantages and disadvantages?

Pros

Low maintenance – Similar to a target-date fund, in the sense that you can invest a percentage of your portfolio in a single index, and leave it for an extended period of time. However, these funds won’t reallocate and shift from stocks to bonds, that’s on you.
Low cost – Most index funds are low cost. I’m talking about the general funds that track large indexes. It also makes a big difference if the fund is with a big fund family or not. The big fund companies have more capital and more products, so they can offer for less. Also, as a general rule, the more specific an index gets, the higher the expense ratio.
Participation in the broad market – you have the chance to grow your principal (original investment) by participating in the potential growth of the stock market

Cons

Concentrated index – most index funds are market cap-weighted, which means the larger companies make up a greater portion of the index. That provides you less exposure to smaller companies AND can leave you concentrated in one industry. Four of the top five companies by market cap are tech companies.
You ride the index up, and down. When the stock market tanks, there’s no protection if you invest in an index. For example, during the Great Financial Crisis, the S&P 500 lost 55%. The Vanguard S&P 500 index (VFINX) lost 55% from peak to trough.

Commonalities with active funds

Active mutual funds and passive index funds do have similar characteristics.

Potential growth – Each of these has the chance to grow and compound over time. History shows that passive has a leg up in this category, but a portfolio manager of an active fund could outperform the index
Target date funds – I briefly mentioned these before, but you pick a date in which you plan to retire. For example, 2040. You would then pick a 2040 target-date fund. At this point in time, the fund would probably be allocated 80/20, stocks/bonds. As we get closer to 2040, the fund will progressively shift its allocation more towards bonds.

What I think about index funds

I’m a big fan of index funds, especially for the general public. Fees, over the long-term, are really good at eating into your returns. Selecting low-cost index funds reduces your fee exposure.

That said, I’m also a believer in active management. When the economy is booming like it has the last 10 years, index funds will win almost every time. However, when the market finally turns over, that’s where an active manager can set themselves apart.

Related reading:

The Pros and Cons of Index Investing

The Different Between Mutual Funds and ETFs

Fees and Why They Matter

Jacob Sensiba

mygfpartner.com/jacob-sensiba-wisconsin-financial-advisor/

Anxiety, Depression, and Money

October 16, 2019 by Jacob Sensiba Leave a Comment

Levels of anxiety and depression seemingly climb every day. This week, we are covering a different subject. It’s incredibly important, personal, and relevant.

I want to go over my personal struggle with mental illness, the things that I use/do to help, and how I figure out when I need help. Towards the end, I’ll tie in some instances of how your finances can impact your mental health.

My diagnosis

I have anxiety and depression. I was diagnosed earlier this year. Once you can put a name to how you’re feeling, your eyes open.

When I was diagnosed, it forced me to look back on my life and I realized that I’ve had this for a long time. Mannerisms, behaviors, etc. all made sense.

With the diagnosis, however, came a new challenge. How do I treat this? How do I cope?

How I feel

At the time of writing, not great. I call these, funks. A funk means I’m depressed. Reluctant to hang out with friends and family. Reluctant to talk to anyone. I just want to be alone.

That said, the funks don’t usually last long. My current one is going on for four days.

The question I often ask myself when I’m in these funks is, is this the depression or my current situation that’s causing this? The answer is both, but is one playing a bigger role than the other? That question will never have an answer because there is no way of knowing.

What I do

There are a few things that I’ve started to help cope with anxiety and depression.

Exercise – You have to. In my opinion, this is the most important thing you can do for your mental health.
Talk to someone – I go to therapy every three weeks. When I started, I was going every other week, but I got to the point where I felt good enough to wait one more week. It’s also a good idea to have a “person” you can go and vent to. Get it off of your chest.
Journal – Before I go to sleep, I review the day to see how I felt throughout and try to figure out why I was feeling a certain way. I also list a few specific things I was grateful for.
Medication – I’m on an anti-depressant, which has helped, but I also think I need to change this up. Talk to your therapist and/or psychiatrist to get this figured out.
Meditation – I don’t have a formal mindfulness practice. Mine is centered around movement and breathing. Specifically, I do Tai-Chi every morning. It has helped tremendously.

When to get help

I have a very obvious line in the sand for when I need to get more help.

When I’m depressed and in a funk, I know it’s only temporary and will get better, but if I ever think that it won’t get better, that’s the sign.

That’s when the thought of suicide can become more prevalent.

Finances

There are a few examples when your finances can hurt your mental state.

Too much debt – If you are in a hole and can’t see a light at the end of the tunnel.
Feeling like you aren’t where you thought you’d be.
Making just enough to pay your bills, with very little, if any, leftover.
Investments – having an emotional attachment to your portfolio is never good. In this case, I usually recommend people ask themselves two questions.
- What type of portfolio allocation will help me meet my goals?
- What type of portfolio allocation will help me sleep at night?
- The right allocation is usually somewhere in the middle, but it’s a good idea to backtest the allocation to see what you are really comfortable with.