How To Build Your Financial House

For some people, the idea of putting together a financial plan doesn’t sound like much fun. But the idea of building a home sounds like a lot of fun. So let’s find the similarities in building a strong financial plan and a dream home.

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Transcript Of Today's Show:

Speaker 1: Hey, everybody. Welcome into Plan With The Taxman. Thanks for tuning into this edition of the podcast with Tony Mauro and myself. Tony, what's going on, buddy? How are you?

 

Tony Mauro: We're surviving right now-

 

Speaker 1: Still standing?

 

Tony Mauro: We're still standing. We had a weird series of events last week and we had one of these things blow through here that I'd never heard of.

 

Speaker 1: I think most people had. Yeah, we were just talking about that before we started. The time where we're taping this podcast you're just a few days removed of the Derecho, I don't know what they call it.

 

Tony Mauro: Something like that, some kind of hurricane-

 

Speaker 1: Yeah, it's like a hurricane with no hurricane [crosstalk 00:00:32].

 

Tony Mauro: Yeah, there's no spinning, it's not like a tornado where we're familiar with here in the Midwest. And I happened to be out of town and I had a brother call me and said he had this weird thing going. And I said, "Well, did we have a tornado?" And he said, "No, it's just this weird thing nobody's ever heard of."

 

Speaker 1: We don't know how to explain it.

 

Tony Mauro: The people here, if anybody's listening in the Des Moines area or even in Iowa, I mean, they know the devastation it left. We were without power for a while and we've got a whole city up in kind of Northwest Iowa, Cedar Rapids that just... Much of the city's without power, a lot of damage up there just-

 

Speaker 1: Yeah, I saw that.

 

Tony Mauro: ... it's weird because it flattened crops and unrooted trees in one section of the street-

 

Speaker 1: Snapped trees I saw, yeah.

 

Tony Mauro: Yeah, it's crazy.

 

Speaker 1: Well more 2020 for us, right?

 

Tony Mauro: Exactly, yeah.

 

Speaker 1: It's like, "What else have you got?" I don't know if we should say that or not we'll jinx it. Well, we hope everybody was okay, and I know you said your business, you were without power for a few days, but obviously you're back up and rolling and all that good jazz. So I'm glad everybody's okay. And yeah, just strange, every now and again mother nature likes to remind us that she's a little tougher than we are. She's a little-

 

Tony Mauro: She's the boss.

 

Speaker 1: She's the boss, that's right. Well, we were going to actually talk... And we were planning today's topic to be around how to build a financial house, and that was actually on the docket before this even happened last week because we kind of send out some things for us to think about to talk about Tony, you and I.

 

Speaker 1: And so I think we'll still go ahead and do that, because a lot of folks right now, obviously we're not trying to make light of anything, but a lot of folks are maybe having to rebuild. And of course that's obviously terrible, but we were initially thinking about this from more of the standpoint of, for a lot of people they think, "Oh, it'd be neat to build our own home." Right? You kind of want to go through the designing process and picking out everything that you want to make it yours, right? And have you ever done that before by the way, have you ever built a home from scratch?

 

Tony Mauro: We have, the home we live in now we built it-

 

Speaker 1: If you do it once-

 

Tony Mauro: ... and it was a lot of fun and a lot of work.

 

Speaker 1: I was going to say, if you do it once I've heard you'll never want to do it again.

 

Tony Mauro: Yeah, yeah, it's interesting. I mean, for us in our younger days... I mean, we still have some rentals and we've built some rentals. We had a little background in it because my dad was in the business and so we had a little help, a little inside track. But yeah, for most people even building their own custom home, it's a lot of work, a lot of stress.

 

Speaker 1: Yeah. Well, and people sometimes equate that same thing to building a financial house or a plan, right? If you will, a financial strategy. And sometimes at least building a home sounds a little cooler, it sounds a little sexier maybe than building a financial plan. So we thought we'd have a little fun and just do a little correlation between the two. Now we're not going to kind of get all super into the weeds, we'll keep this kind of short and sweet. I've got it broken down to basically four tiers, if you will, the four major components of building a house as well as a financial house, and we'll roll with that. We won't get into all the permits and wiring and architecture and all that kind of stuff, we'll keep it pretty simple.

 

Speaker 1: So let's start it off with the foundation, need a good strong house, need a good strong foundation. Different parts of the country you're allowed to do different things depending on the soil and all that kind of stuff. But for the most part, people think of a foundation as the concrete slab, so to speak that you're going to build the house on. What would be the financial equivalent?

 

Tony Mauro: Well, before I jump into that with the events that happened last week, I want to add one.

 

Speaker 1: Okay, sure, yeah.

 

Tony Mauro: That basically, I would say before the foundation, I don't know, what you call it? The soil test, the groundbreaking, whatever, but that's the emergency plan because-

 

Speaker 1: [crosstalk 00:04:02], there you go.

 

Tony Mauro: As business owners, and I feel like we have a pretty good emergency backup plan, but we're questioning some things and, "Hey, we need this, we need that. Here's what happened here." And I think people need to do that in their financial aspect as well is getting and developing an emergency fund or funds in case things happen.

 

Tony Mauro: But moving on from that, I mean the foundation really is, I think, especially if you're talking about saving money for the future, and most of us equate that with some sort of retirement goal is to, you've got to have some sort of plan for income in this foundation. Meaning that at some point, if you are not going to work anymore you've got to... Obviously, you're still kicking, you got to pay your bills, you want to do some fun things, you've got to have a plan on how you're going to replace that income. And that can come from a lot of sources. It could come from of course, social security, your investments, your pension or 401k at work, and maybe even a rental income, passive types of income, things like that. But you've got to think about it because basically you have to start there, which is why I equate it to foundation and build from that, because if you don't have that everything else it doesn't really matter.

 

Speaker 1: Well, you got to have paycheck. Yeah, I mean you got to have a paycheck in retirement just the same as you did when you were working, you got to still pay for food and lights and all that kind of stuff, so definitely got to have a paycheck. So income plan would kind of be that foundation. Next you're going to put up some walls because you don't want to just be sitting out there on just a concrete slab, hopefully. So you're going to want some walls and what would be the financial equivalent of the wall?

 

Tony Mauro: I think the walls, in my opinion are basically the root of the whole plan, which is whatever you choose to invest your money in, so your investments. It's different for everybody, and I would preface all of this by saying you need to talk an advisor about some of this because obviously starting at the bottom, which is where I like to start is how much income do you want? And then you got to try to figure out, am I going to have enough? And what types of investments do I need to get my income plan in place? And that's where it's going to be different for everybody, a lot of things at stake there, we don't want to get too far way out in left field on that one. But that's really what it comes down to, you got to have the investments, it's going to get you to your goal.

 

Speaker 1: Definitely, no, you want to get to the goal for sure. Okay, so if the walls are kind of the investment plan and that's kind of how you're funding the income plan and so on and so forth, then we'll turn our attention to the roof. Now I've mentioned on the podcast before I'm finally getting around to getting my deck done and I'm putting a roof on it. The old deck we had one of those SunSetter things, you just crank out the awning type of deal, but I'm putting the actual roof on this one. Because it gets really hot, we get a lot of sun in our backyard and it just beats down on you. So you need some protection from the sun. I would imagine the roof has got to be that kind of insurance equivalent or maybe even the emergency fund you talked about, what do you think?

 

Tony Mauro: Well, I think the roof's the most important part as well because how many of us would build a house without a roof, right?

 

Speaker 1: Well, you never know.

 

Tony Mauro: Nobody would do it.

 

Speaker 1: Hopefully not.

 

Tony Mauro: And so many people in our investment world they don't take the time to talk about, in my case and what I believe the roof should be is, your insurance to protect you from disasters. And so many people we talk to, whether it's in the tax arena and the financial arena, we get to these questions and you just get a blank look, whether they...

 

Tony Mauro: And most people will do the insurance on their house and their car because that's what they know, yet many, many don't necessarily have enough or any life insurance. They don't have need longterm disability insurance, even though there's a much greater chance of that happening than your house burning down. Many, many, have never thought about longterm care insurance, so there's a lot of things there that I think you need to protect yourself because as you're trying to make this plan and build this egg, if you will, or house, if you will, I guess we're talking about-

 

Speaker 1: Talking about houses right now.

 

Tony Mauro: ... you got to protect it from disasters.

 

Speaker 1: Absolutely.

 

Tony Mauro: We don't know when they're going to come around and we got to be prepared for them.

 

Speaker 1: Well, okay, so if we're keeping this kind of simple, like I said, kind of a four step process, you've got one, you've got the foundation, your income plan. What streams of income of revenue do you have coming in to pay the kind of life you want to have in retirement? Number two is the walls. That's the investment plan. That's the strategy, outpacing, inflation, all the different kinds of things you may have inside your investment plan. Three's the roof, that's insurance protections. Four would be the finishing touches, we're going to kind of bundle this all together.

 

Speaker 1: Now for a lot of people tell me when they build the house, and I'm sure you went through this, they look forward to this part the most. They work with the architect, they design the layout, how many bedrooms, yada, yada. But really the finishing touches is where you put your stamp on it, right? Crown molding, not crown molding, this kind of tile versus that kind of tile, so on and so forth. What would be that same kind of thing, the finishing touch in a retirement plan?

 

Tony Mauro: Well, for most, it's really the end of the line type of thing or maybe you're estate plan. And for most of us when we get to that point, and if we're lucky enough to enjoy a good retirement and whatnot, you have to start thinking about the end and the fact that none of us are going to get out of here alive, as they say. And you want to make sure all of the loose ends are tied up, whether that be if you have over the amount, which is a large amount today, but there are still a lot of Americans that have over the amount that they may owe a state tax. But for most of us, under current law, we're going to be under that. But nevertheless, you still need to have an estate plan. You need to have a will. You need to have some medical directives and some advanced care directives. Even maybe some financial POAs, if you can't make decisions.

 

Tony Mauro: And most of us don't want to be a burden to either our kids or other family members if something happens to us. And for most of us, we want to make sure that when we pass on that you can go out, I guess, feeling at ease that your plan or your legacy has been cemented in place. And I think this is an area, these last two, people don't take advantage of thinking about or at least acting upon enough of. We have many clients, no wills, no advanced directives, and I've seen a lot of clients as they age, at least the ones that are in the tax arena ending up with one of the spouses getting dementia, and it never gets better, it just kind of progressively gets worse. So it's tough to see.

 

Speaker 1: Sure, yeah. No, definitely tough to think about and do, but it's one of those things where... And somebody might be listening saying, "Well, you know what? We don't plan on leaving anything to the kids, we want to use it all up." And that's okay, or some may say, "I don't have children or whatever." An estate plan is more than just what you're leaving here and there and you can't take it with you, there's not a Brinks truck following the hearse, so you're going to have to do something with it. So some form or fashion of an estate plan is a great final piece, if you will, to building a financial house.

 

Speaker 1: And that was today's topic here on the podcast. So obviously there's been a lot going on here in the area lately, so hopefully, again, everybody's safe and all those kinds of things, and we'll keep plugging along. But if you have any questions about today's topic, if you're just in general want to learn more about how to get your financial plan put together, maybe this analogy hit home for you, maybe it didn't, but either way you know you need to take some action and get some pieces together. Maybe you need to work on the income side, or maybe it's the investments, or maybe it's just the estate, or maybe it's the whole thing. Tony and the team can help, reach out to him at Tax Doctor Inc at 844-707-7381, that's 844-707-7381 in the central Iowa area, his offices there in Des Moines.

 

Speaker 1: Check him out online at yourplanningpros.com, that is yourplanningpros.com. While you're there, subscribe to the podcast and whatever platforming app you like to use. Plan With The Taxman, you can search it out in the app or just find it on the website, yourplanningpros.com. Tony has got more than 23 years of experience. So a great resource for you to tap into here in the area and Tony, my friend, well, did you have at least a good vacation before you came back and found out about the craziness?

 

Tony Mauro: I'll tell you what it was very relaxing. We went out to Vail, Colorado, we stayed up on the mountain.

 

Speaker 1: Oh, nice.

 

Tony Mauro: Yeah, there wasn't wasn't a ton of people up there, which is-

 

Speaker 1: I'm sure.

 

Tony Mauro: ... bad for biz, but good for the vacationer. But yeah, very enjoyable.

 

Speaker 1: Well good, I'm glad to hear that. And then he came back and went, "What in the world?"

 

Tony Mauro: Yeah, what did I leave?

 

Speaker 1: So, mother nature. All right, folks, we'll take care, stay safe and sane. And we'll see you next time here on Plan With The Taxman with Tony Mauro.