Facing a fork in the road

by Owen Mulhern, CFP®

I recently connected with a family friend who celebrated her 40th birthday last year.  After the usual pleasantries and generally “catching-up”, the conversation shifted to a more serious “business tone”.  My friend, we will call her Elizabeth, was feeling somewhat anxious about not having sufficient savings for “the future”, and the milestone of her 40th birthday highlighted for her that she wasn’t where she wanted to be with her personal finances.  She was starting to feel like the time was no longer on her side — a situation that many people find themselves in.  This is also a critical fork in the road where a person can either avoid or ignore this financial reality and continue to put off getting their house in order, or they can begin to take small but meaningful steps to build a nest egg, while also building their confidence and momentum towards their desired future. 

As a financial advisor and someone who has been in the planning and advice business for 2 decades, I am frequently approached by friends and loved-one’s about my opinion or advice on various financial matters.  The subject of “where/how do I start” is one I get a lot, and one where the first step may be the hardest.  It can also be the most rewarding.  At New Wealth Project, we developed a method to prioritize financial objectives and then define the destination for savings and investment.  We call it The Cash Flow Roadmap, and in Elizabeth’s case, as with many folks, it started with the “emergency fund”.

We quickly identified that any type of significant financial curveball Elizabeth might encounter could be very detrimental.  Some of the challenges included a potential health issue not covered by insurance, or maybe a refrigerator that went on the fritz.  “How would you deal with your car breaking down?”, I asked.  The shoulder shrug said it all.  At this stage of the game, she was unprepared for some of the most common financial misfortunes, and remedial action was necessary to create a backstop and have a contingency plan for these types of eventualities.  We agreed that she could afford to redirect $100 per month to her savings account, and that every 3 months she would increase that savings by $10.  Over the next 3 years this game-plan would allow for Elizabeth to create an emergency fund of $5,500 and be on her way to having the necessary flexibility to deal with an unforeseen expense. 

We expanded our conversation to include expenses that were foreseen, as Elizabeth was hoping to do a big trip to Europe with friends next year.  So after prioritizing the emergency fund, we considered a way to “pre-pay”, or set aside, the necessary funds for this exciting travel opportunity.  As it turns out, she received a semi-annual bonus each year from her work at an accounting firm which she had been using for years to pay-down her college loans.  Together we decided to earmark some of those funds to her travel account and we implemented a systematic savings regime to build the necessary resources to go on her trip.  The momentum was building for Elizabeth, and the activity of organizing her cash flow and prioritizing where all the money was going began to provide clarity and confidence that she could not only make ends meet, but she could be an even more fulfilling and exciting lifestyle. 

As Elizabeth’s story shows, it doesn’t take much to make a big impact.  By raising her hand and asking for a second set of eyes, she was able to uncover some legitimate areas of concern.  Once identified, those concerns turned into areas of opportunity through our Cash Flow Roadmap process.  At New Wealth Project, this method has proven time and again to provide the necessary clarity to know where all the money is going and the confidence to redirect it in a more targeted and purposeful nature.  We agreed that once the emergency fund was built and the travel dollars set-aside, we would develop a focused investment plan for retirement and take advantage of a company match in her 401(k) at work.  Until then, we look forward to seeing Elizabeth build on this new found confidence in the coming years. 

Investment Advice offered through FC Advisory LLC, a registered investment adviser doing business as “New Wealth Project” and as “Financial Coach”.  This content is provided for informational purposes only.  Views and opinions expressed are those of the authors and do not necessarily reflect those of FC Advisory, LLC.  Information provided is not and should not be interpreted as investment, tax, legal, or other professional advice or recommendation by FC Advisory, LLC or the members of our firm.  Always consult the appropriate professional regarding your specific situation before implementing any options presented or inferred.  FC Advisory LLC, All rights reserved.

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