How SPARC Can Boost Your Financial Picture

This article’s content comes directly from Chapter 1 of my book Messages From the Money Masters, available in paperback as well as an e-book on Amazon.

Based upon last week’s article about cultivating the habit of asking yourself if your spending is going to make your richer or poorer, as promised, here is the basic foundation for your call to action that I like to call S-P-A-R-C. 

S — START NOW

Warren Buffet calls Start Now the ‘Noah Rule.’ The 'Noah Rule' says: "Predicting rain doesn't count, building an ark does." In other words, don’t just talk about it, do something to prepare for the future. Start building your ark today. If you’re becoming mindful about whether or not your spending is going to make you richer or poorer, you’ve started. Pat yourself on the back. Now, back to the Noah Rule.

Buffett explained the Noah Rule in his 2001 shareholder report to explain a big mistake he made that year when Berkshire Hathaway went through an awful year, further exacerbated by the events of 9/11. He explained that he'd actually predicted much of the market events before they happened, but he "didn't convert thought into action.” In other words, he’d violated the 'Noah Rule' (the rains and floods came as he expected but he hadn't built an ark to escape them).

Whatever the financial journey you want to improve upon, make the commitment and take Action Today. This could that for you, it’s time to go further and create a budget while developing the discipline to stick with it. For others, it might mean hiring a full team of legal and financial experts and developing a complex plan that involves investments, estate planning, and more.

Everyone is on a different path and at different places on their financial journey. Don’t judge or compare yourself to anyone else. Focus on where you are, and on what you need to do next to reach your goals.

P — PLAN YOUR PROFESSIONAL TEAM — WHAT QUESTIONS TO ASK

J. P. Morgan once said, “I do not pay my lawyers to tell me what I cannot do, but to tell me how to do what I want to do.” That’s excellent advice for us all. You’ll have plenty of people telling you that you can’t do what you envision. You need people telling you how you can make things happen, not trying to convince you that they won’t happen.

If you’re serious about your financial future you will need to interview and hire the following at the very least. Hire a Fiduciary/ Fee Only Advisor or a Hybrid Advisor if needed. A Hybrid Registered Investment Advisor (RIA) is registered as both an RIA and Registered Representative of a broker/dealer or securities clearing firm. This dual registration allows advisors to operate both a Fee Only Practice for Asset Management and Financial Planning Service, as well as a commission-based practice that will pay the advisors based upon what product is sold. 

There has always been controversy over commission-only advisors when it comes to acting in the best interest of the client. So much so that the investment community of mutual fund companies and life insurance companies have gone to a levelized commission structure for consumers in order to eliminate those common practices of selling the highest commissioned products to their clients. In my opinion, a hybrid advisor is fine and well suited to offer a broad range of advice-driven strategies and solutions.

You need to simply ask and always know which type of advisor you are engaging.

• Hire an Accountant or CPA who can guide you through the tax code and the tax planning process to avoid overpaying your taxes year after year. 
• Hire an Estate & Trust or Tax Attorney. Did you know that according to AARP , nearly 60% of Americans do not have a will or estate plan. Don’t leave your end- of-life decisions to your spouse/partner, children or worst of all the courts.
• Hire a CFP-Certified Financial Planner, a CHFC-Chartered Financial Consultant and for business retirement & 401k plan reviews, hire someone with the following accreditation: AIF-Accredited Investment Fiduciary or an AIFA-Accredited Investment Fiduciary Analyst.
• Hire a Seasoned Real Estate Professional. Whether you are buying your first home, investment or a commercial property you will likely need an experienced Realtor. In the years leading up to the great recession, many individuals bought more of a home than they could afford by using high risk mortgage programs like interest only and reverse amortization loans, or “Low to No personal money down programs” as well as no Income—no asset verification loans which were called accordingly, “Liar Loans “ after the fact.

A — ADD YOUR FINANCIAL AND LEGAL TEAM 

This should be done only after doing your research, educating yourself about various roles, and after interviews with each professional. If you’ve never interviewed a professional, don’t worry. They expect it and want it. After all, they want to make sure they want to work with you as well. You’re both building a relationship that you both want to last for a long time. This isn’t an adversarial interview. Think of it as a first date. Is this someone you feel you can trust, who is authentic, skilled, and who will make a good business/financial partner? 

You want to make sure they embrace the same values as you, your family and or business. Don’t be afraid to replace someone if needed if you find out they’re not a compatible match. I’ve had to replace people several times. It can be hard to cut someone from the team, but remember, this is your financial future at stake. You can’t afford to have teammates who aren’t contributing to your future. I mention legal because 60% of Americans have failed to do a basic will/estate plan. It might not seem that critical, but all kinds of unforeseen problems may arise for children, grandchildren and senior parents being cared for by children. When selecting an attorney for your financial team look for a finance lawyer. 

Finance lawyers’ expertise includes assisting clients with financial matters ranging from tapping debt markets to assisting corporations with restructuring businesses. Other specialized categories they handle may include banking, project finance, real estate finance and private equity finance, or they may have broad industry knowledge. It’s important to know what you want them to do—whether help with drafting a will or estate plan, or assisting in other ways. You’ll be hiring them, so they’ll initially look to you for direction.

Why hire a lawyer before you need them? The cost of an attorney to keep you out of financial trouble is much less than the cost of an attorney to get you out of trouble once you’ve made some poor choices. 

Big law firm or solo practitioner? There are advantages and disadvantages to each. A larger firm will have every kind of specialist you might need under one roof. They’ll cost more, but will save you time. A larger firm is going to have more influence, should you need that. They carry a bigger stick if they are large, well known, have attorneys in several states and are more networked. A solo attorney or someone from a small office will have fewer resources, less influence, and may not be able to practice in as many states. They will be less expensive. Don’t forget that a larger firm may be able to make introductions to other resources such as alternative financing sources. They may also be able to make business introductions should you need that. Only you know which makes more sense for you.

R — REESTABLISH AND REVIEW YOUR FINANCIAL GOALS WITH YOUR NEW “WEALTH TEAM"   

One of the advantages of having a “team” of professionals to work with is you’re exposed to ideas, possibilities, and expertise you never knew existed. Not only are you getting an objective view from your planner, but your team should be able to give you multiple perspectives on your financial plan and opportunities. 

While each team member will be a different personality with different skill sets, they should all have one common characteristic—a legitimate interest in making sure your best interests come first. Trust your gut and intuition. Do your due diligence. Ask for their credentials and references and check them out. 

These are the people you are trusting with your money, your future, and your life really. So take your time. You’ll be glad you did. Even if a friend or business associate recommends them, check them out anyway. One of the things I found so interesting about Bernie Madoff’s Ponzi scheme is that a lot of the people whose friends recommended him decided not to invest with him. They trusted their gut, followed what they knew, and recognized that what Madoff was promising didn’t follow known return percentages. 

It’s a basic rule we’ve all been taught since we were young: “If something sounds too good to be true, it’s probably not (true).” I can think of dozens of clients and friends who, in spite of knowing better, opted into opportunities that sounded too good to be true, and unfortunately got burned. In our rush to get richer, do better, or make the deal of a lifetime, it's too easy to convince ourselves a fantastic opportunity is real when that intuitive side of us knows it’s not. Listen to that voice and resist the temptation to act on the things your intuition tells you not to get involved with. There are risks, and then there is something beyond risk. 

When you have a good, honest, reliable team they can help you avoid these risks, and pursue the ones that have promise. There’s a difference. This is the kind of team you want—smart enough to recognize smart risks, and to support your dreams, but savvy enough to see problems and bad risks and alert you to the pros, cons, and potentially bad outcomes. Other than death and taxes, there are no sure things in life — and even the king of investing, Warren Buffett will tell you that everyone, even experts like him, make mistakes. The best simply make fewer mistakes, know how to recover faster, and learn from their mistakes.

C — COORDINATE YOUR NEW GOALS AND STRATEGIES WITH YOUR WEALTH TEAM AND EDUCATE YOURSELF

Daymond John of Shark Tank is one of the most vocal financial masters to speak out about how critical it is to educate yourself about money. John secured a $300,000 order for FUBU (For You By You) hip-hop clothing startup. But, he was working out of his basement and needed to make $300,000 worth of clothes. It was his big break — only he didn’t have the infrastructure, resources or financial knowledge to get the money. In fact, he was rejected for a loan by 27 banks! His mother interceded and took out an equity line on their home in Queens. It didn’t get him the full loan, but got him $100,000 which he used to set up a mini-factory in the house. His worries were far from over. That $100,000 became $500. John was six months late on paying the mortgage, and in danger of losing his mother’s house. 

He told CNBC reporter Catherine Clifford, “My lack of financial intelligence and my lack of having like-minded people around me was about to be my downfall.” His mother told him she needed $2,000 to fix the problem. John went back to Red Lobster as a waiter, earned the money and gave it to his mother. She took out an ad in the local paper that said, “One million in orders needs financing.” Okay, she stretched the truth, but she got results. Of the 33 people who responded to the ad, one—Samsung’s textile division, was the real deal. 

The company had been watching the urban clothing trend and wanted to test out the market. They made John an offer: They would fund his orders but he would have to make $5 million worth of sales in three years. John agreed. In just three months, he racked up $30 million worth of sales. Since then he’s made it his mission to understand wealth, income, and money. He’s made many mistakes since then, including losing $750,000 his first year on Shark Tank. But he’s made more money than he’s lost. He’s not afraid to fail because he knows that’s how we learn.

Education comes in many forms. You can read books, take a class, join a group of like-minded investors, watch videos, listen to podcasts. Even if you have no time to read, you can learn while commuting to and from work, on your lunch break, or on weekends. If you’re serious about learning (you’re reading this book aren’t you?) you will find or make time to educate yourself about wealth. Not every book about wealth will be about numbers and investing, percentages, and finance. A lot of helpful books will also be about the soft skills of life and money management. 

Books like Rich Dad, Poor Dad; Think and Grow Rich; The Millionaire Next Door and Your Money or Your Life talk about our relationship with money. By relationship, I mean how we think about money. What is our money mentality, how did we develop it and how can we change it? Understanding the tool that money is, is easy. Understanding the influence it has on our ego, our sense of self, our choice of career, how and what we spend our money on, is far more complex. 

So when I say, “Educate yourself about money,” I mean take time to examine your thoughts, feelings, and beliefs about money as well as learning how compounding, investing and budgets work. If you don’t believe you deserve it, or are “worthy” of being wealthy or financially secure, you will sabotage yourself and any chance you have at achieving wealth—even if you consciously think you do deserve it! 

Every money master I’ve researched and read says the same thing, mindset matters:

“Your thoughts and feelings could play a part in how much money you earn. The biggest thing holding you back from building wealth is you,” says Suze Orman, personal finance expert, best-selling author of “Women & Money” and host of the “Women and Money” podcast. Whether your fear keeps you from asking for a much-deserved raise, or starting your business, or investing in your financial future everything, she says, “...it comes down to you thinking that you can’t do it. You most likely are your own financial obstacle, and you have to remove your fears from wanting to create more.” This quote comes from a May 2019 CNBC interview she gave about how your mindset could be holding you back from getting rich.

Other financial experts agree that your mindset can affect your finances. Jen Sincero, best-selling author of  You Are a Badass, credits a shift in her financial mindset for her going from making $28,000 a year to making seven figures a year. Her advice comes from personal experience in being poor and being rich. She says that “the biggest difference between wealthy people and broke people is their mindset and how they feel about money.”

Your mental money talk affects what and how you think. What you think affects how you feel. How you feel determines what decisions and actions you take. Eventually all those things combine to determine the financial results you get in every part of your life. By learning to recognize and then change that mental talk, you can change your life by changing how you feel, act, and what you believe about money. It sounds a little new age, but it’s true.

Even the Bible says so. Proverbs: 23:7: “For as he (man) thinketh in his heart, so is he.” 

Stay healthy and happy, and check back next week for advice about avoiding failure in your finances from the Money Masters and myself!