YFP 081: New Year Financial Gameplan

New Year Financial Gameplan

On episode 81 of the Your Financial Pharmacist Podcast, Tim Ulbrich and Tim Baker talk about a New Year financial gameplan to kick off 2019 the right way. Tim and Tim discuss 5 financial moves you should be making to ensure you get this year started off the right way.

Summary

On this episode, Tim & Tim dive right into 5 moves to make in your New Year financial gameplan. First on the list is setting financial goals by starting broad. Before digging into the numbers, ask yourself, what would define a successful 2019 financially? After taking some time to answer that and see how it fits with your year, you can bring it to a tangible level. This leads into the second financial move of New Year, new budget. YFP recommends following a zero-based budget. Tim Baker suggests going through your assets and liabilities and then doing a 90 day retroactive budget exercise. There you can view line items, track your expenses and see your spending. After, you’re able to see what your leftover amount is in savings. From there, you can use a savings allocation worksheet to prioritize additional goals, savings accounts, etc.

New Year tax filing and planning is the third financial move. Find a safe spot to collect all tax information and data. Often times, it’s helpful to work with someone who has an objective opinion on your financial situation. Ultimately, you need to find the best way to be proactive in your approach to taxes (DIY or using a tax prep service). The fourth financial move is to tidy up the important parts of your financial plan. This means revisiting or establishing an estate plan, insurance (life and disability), emergency funds, beneficiary information, investments, and making sure your legacy folder is current. The last financial move is to surround yourself with community that keeps you accountable and motivates you, like the YFP community.

Mentioned on the Show

• Script Financial
• You Need A Budget (YNAB.) – Giveaway
• YNAB.
• YFP 080: 10 Financial Moves to Make Before the New Year
• BiggerPockets
• YFP 032: Find Your Why (Part 1) – 3 Life Planning Questions w/ Tim & Jess Ulbrich
• YFP 033: Find Your Why (Part 2) – The Path to Success w/ Tim & Jess Ulbrich
• YFP 079: Is It Time to Redefine Retirement? w/ Nick Ornella
• 7 Figure Pharmacist by Tim Ulbrich and Tim Church
• YFP Budget Tool
• Mint
• YFP 057: The Power of Automating Your Financial Plan
• YFP 070: Pre-Planning for Tax Season w/ Paul Eikenberg
• YFP Tax Prep
• Dave Ramsey’s Financial Peace University
• YFP Legacy Folder Checklist
• Your Financial Pharmacist
• YFP Facebook Group
• The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley
• The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich by Timothy Ferriss
• Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki
• YFP Book Club

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to Episode 081 of the Your Financial Pharmacist podcast. Well, we have officially turned the page on 2018, are recovering, likely, from the financial hit that can be the month of December, and are ready to take 2019 head-on. We wrapped up 2018 by talking about 10 financial moves that you should make prior to the year’s end. So if you didn’t yet, check that out. Go back and take a listen, it’s not too late. So here, we are shifting our focus into setting your financial game plan for the new year. But before we talk through these financial moves we believe you should take to kick off the new year, Tim Baker, I believe we have a big congratulations to you and Shea that is in order. Give us the good news.

Tim Baker: Yeah, well, Merry Christmas, Tim. Happy New Year. Good to be back on the podcast. Yes, Shea and I got — we got engaged over the holiday.

Tim Ulbrich: Yay!

Tim Baker: Finally asked the question. So yeah, that’s really our good news. We’re really excited.

Tim Ulbrich: Awesome. Excited for you guys and what lies ahead.

Tim Baker: Yeah.

Tim Ulbrich: So wanted to make sure the community was aware of that good news as we head into 2019. So let’s do this — five financial moves that we think you should be making in the new year. No. 1, probably no surprise, setting financial goals for the new year. So Tim, when I think of this, I like to start broad and kind of think about what our goals and aspirations before you really dig into the numbers about what exactly do I have available per month and we get specific and measurable and all that. So why don’t you and I just talk broadly about 2019 in terms of things that are top of mind for us individually. We’ll obviously ask the listeners to do the same. So for you, 2019, I like to start by thinking of this question in terms of what would define a successful 2019 financially? So what’s top of mind for you and Shea?

Tim Baker: Yeah, I think the big thing for us is like we’re starting basically to gut our house. And so that’s a major financial I guess stressor for us. So we’re trying to cash-flow as much as we can for kind of some of the incidentals so we’re not putting those into our mortgage. So that’s really our big one. So right now, we’re in the process of moving everything out of our house a couple doors down and get that process going. So I think beyond that, which again, is a big thing, it’s really going to be about making sure that our emergency fund is where it needs to be kind of post-move. I think really, monitoring creep in terms of our spending. So that’s a big one I think everyone deals with. So I think the house is going to really kind of rule the day in terms of our finances. We’ve both agreed that because we’re doing this major undertaking, we’re going to kind of do a little bit less in other areas like vacation and things like this because, you know, we really want to make sure that our house is where it needs to be and we’re not really kind of dipping into those, the waters of being house-poor and cash-poor. And I think another big thing for us is like as our family grows, looking at something like an au pair, I know we’ve talked about that in the past and basically being able to have enough money month-to-month to basically support that. So those are the two big things financially that we’re looking at and really, kind of it’s pre-planning for the house and then basically after we get into it. So how about you, Tim? Like what does that look like for you?

Tim Ulbrich: Yeah, you know, Jess and I have been obviously working with you on this. But I think for us, we made the move to Columbus in early October, new job started in November. I feel like right now, the dust is finally starting to settle. But I think we underestimated the impact of that transition, just both a little bit financially but even just emotionally, the impact on family and that what’s involved in a transition like that. So I feel like for us, it’s a lot kind of a reset back to some of the behaviors we had in terms of budgeting, goal setting and really getting a new foundation with new job and new differences of income and taxes and all of that and kind of getting back to norm. The other thing that’s top of mind for us is we have two cars that both have about 130,000 miles on them. So we haven’t done as great of a job as we would like — I mean, obviously, they’re paid off, which is good news, no car payments. But we’ve got to be thinking ahead either maintenance and/or purchasing new cars. And we just got slapped with a big, you know, about $2,500 repair bill on one of them that I think has brought this to the forefront a little bit for us and really being intentional about making sure that shouldn’t be an emergency, right?

Tim Baker: Right.

Tim Ulbrich: We kind of know that’s coming, and we need to at least plan for one if not both of those. And then the other thing is we have some aspirations around purchasing a first rental property in 2019. So we are super excited/nervous/fearful/insert emotion, you know, when it comes to that. And I’m binging on BiggerPockets, as many of our listeners know, and I think that’s really helped get me fired up. But one of the themes I keep hearing from so many of those that are on that show is, you know, it could be easy to kind of write the script of fear when it comes to real estate investing. And you know, you want to take risk. But it should be calculated risk. And I think I tend to probably think that that risk is greater than it is and wanting to really jump in and make that a part of our financial plan in 2019. So I think starting, as you kind of heard Tim and I talk through those in broad terms, what we didn’t do there is we didn’t put numbers to them yet, right? We didn’t put a date to them. And while we can’t put them yet into our budget, we’re going to get there here in a minute. It’s the beginnings of a conversation, either with you and your spouse and significant other, or maybe it’s just you alone about what would a successful 2019 look like? And take some time and answer that question and have fun answering that question, dream a little bit. And I think, Tim, for me, there’s this balance of doing this between not settling but also being aspirational on some regard, right? I think it’s easy to kind of look at things the way they were and say, OK, I’ve only got $100 a month, and I’m going to settle into what was. And I think it’s good to push yourself and to challenge yourself to think creatively about how those goals can be achieved. But obviously, you don’t want to be unrealistic either. So as you begin this conversation with clients around goal-setting, how do you do this? What direction do you take?

Tim Baker: Yeah, I really think of it as more of like a life plan. And we use the financial situation to really support that. So you know, when I ask a question of like — so when we do kind of like a success timeline, and we say — this is what I do with new clients is like, OK, if we get in our imaginary time machine, it’s December 27, 2018, and we go ahead two years, and we go to December 27, 2020, what does success look like? And really have them visualize that in that sense. So we kind of start there. But I think like most people, they say, is it financial success? And I’m like, I’m just talking success in general, you know. So to me, if it’s about exercise or personal development, to me, that has to be built in there because oftentimes, like that requires some type of like financial — I have a lot of clients that — and this used to me back in the day — they would spend a lot of money on races and traveling to different places to run half marathons or even like personal development courses or things like that or books or whatever. So to me, that’s all part of it and having a bucket of money set aside. So I think I don’t really separate the finances from I guess kind of the overall goals because to me, they’re very much intertwined. And it’s funny too because I get a lot of clients, like especially when we first go through this — and I know it happens in my household — but when we first go through this, I’ll ask a question of one of the spouses, and the other spouse is kind of like, you know, craning their neck and they’re like, I can’t believe that’s important to you or that’s even a thing for you — you know, good or bad, but it’s like, we don’t take the time to verbalize these things. And I know in our household, I feel like we often have the same conversation, but we come to different points of understanding. And then time erodes that. So I think writing it down and getting it on paper too is a good thing because our memories fade and even if we’re — I think we do a pretty good job in our household of kind of talk through where we want to go, but sometimes, you know, there’s two parties to that conversation. And sometimes, we just remember it differently or how to go about it. So I think just having the conversation with yourself and really your significant other, if that’s your case, is the first step because — I don’t know about you, Tim, but like I just have a lot of things running through my head, and to verbalize them and get them out onto paper is probably the majority of the step that needs to be taken. So I think that’s where having an objective third party just say, “Hey, these are questions you probably won’t ask yourself. I’m going to ask them, I’m going to get the heck out of the way, and we’ll just see where this takes us.” I think that’s important.

Tim Ulbrich: Yeah, and I want to echo that. I think you did a great job — you have done and continue to do a great job of that with Jess and I. And we’ve talked before on the podcast about episodes 032, 033, where you walked us through some of those big dream questions about your why. And that’s a little bit about what we’re talking here. I mean, a little more granular on a year-long basis, but obviously, even before you think about 2019, I think what we’re encouraging you to do is think about the long-term vision. What is the end goal? What are you trying to achieve? Why are you trying to achieve it? And then you back into what needs to happen in 2019 that’s going to help you get there and making sure you’re prioritizing things appropriately. I know one of the mistakes I have made, Tim, and I know many others have made as well, is we tend to want to start with the budget. And I think that’s difficult, especially with a spouse or significant other. One, because it’s hard to know where you are trying to go to if you haven’t yet defined what are those goals and what you’re doing. And I think it instantly brings in some points of contention, and you’re focusing on the weeds and the numbers. But I know for Jess and I, we can sit down and we can have these conversations and we can dream big and then kind of back into reality and get on the same page. The budgeting process — I’m not going to say it’s easy, but it becomes easier because we’ve already talked about the goals and aspirations that we have together.

Tim Baker: Right. And a lot of people have the opposite problem is that they do the goals, but they never look at the budget because I think they’re afraid to. And that’s very common as well. So you know, I think at the end of the day, it doesn’t have to be perfect. And we would like to connect the dots to, you know, in terms of like what’s past behavior? How is money flowing through the household? To OK, can we account for every dollar that’s going to every goal? And sometimes, that’s just not reality. And that’s fine. But I think what it does is when you introduce all of these goals, whether it’s the home purchase or a vacation or you want to buy a car in the future or whatever that is or upping your retirement game, money is a finite resource, so when push comes to shove and we’re looking at, OK, where is this extra money going if there is extra money — and hopefully that there is extra money — then that’s when we really talk about prioritization and OK, what do we focus on first? What is most important? So some people don’t get to that step because it’s just, it’s too overwhelming for them or the “b” word is so — it’s like ash in their mouth. But I think a measure of kind of looking at goals and aspiration and a measure of practicality of OK, how are we actually going to back into these things is good. And again, you know, I think also having — some people, when I work with them, they’re like, well, tell me what you think I should do. And I give them my opinion based on my thoughts and I think the tone of the conversation and what’s important to them, but I also, I sprinkle in kind of, “This is what the textbook says too. And this may not be the best thing for you,” but I think those are good things to kind of talk through. And a lot of this is just, again, out in the open, talking through the issue. And then I think that brings clarity. If you’re kind of a one-person show or if you’re married and you’re basically calling the shots by yourself, maybe your spouse is not as engaged in the process, to me, you can get in your own head. And you really — not that you lose your way, but I think fleshing things out with an individual, whether it’s your spouse or someone else, is super important.

Tim Ulbrich: So I think for those that are listening and say, “Alright, Tim and Tim. I’ve got it. Goals are where I need to go,” and are looking for a tangible follow-up to do here, my recommendation would be go to episodes 032, 033, where Tim Baker and I talked through with Jess and I some big questions on finding your why. Ask yourself those same questions. If you listened to Episode 079, we had Nick Ornelia on. He actually talked about going through that process himself and how powerful and impactful that was. Then, begin to back into 2019, what are some of the things that you have as goals, based on that bigger picture of purpose and why and what you’re trying to do. And then get down to the tangible level. So we’ve all been taught in school, when you have goals, they need to be specific, measurable. They need to realistic, they need to be time-bound. And we talk about in “Seven Figure,” the book, “Seven Figure Pharmacist,” also adding a why to that. So if you’re somebody that says, OK, I’ve got $150,000 in student loan and I want to get that paid off in five years, you actually add a date to that. So by what date would I like to have that paid off? And what’s the reason why I want to do this? What else am I trying to accomplish, which obviously provides some of the motivation along the way. Once we get to this level where we have 2019 goals, we have some dates, we have some aspirations, we have exactly what we’re trying to do numbers-wise — so for example, for Jess and I, you know, maybe we say by December 31, 2019, we want to have $20,000 saved for our car sinking fund — now we can begin to then get into Step No. 2, which is making those goals become a reality through the budgeting process. So Tim Baker, No. 2 here is a new year, new budget. And so you know we’re big fans of the zero-based budget. For those that need a budgeting template, head on over to YourFinancialPharmacist.com/budget, and you can download and Excel sheet, and we’ll kind of walk you through what we’re going to talk about here. But we really believe Step No. 1, as we begin thinking about this transition from goals becoming a reality through the budgeting is tracking expenses. So talk us through where people can get started with tracking expenses to begin to calculate what are they working with each month to fund these goals.

Tim Baker: Yeah, so there’s a lot of different tools that you can use to really, whether it’s Mint or YNAB or Giveaway, like there’s a lot of things that you can use. There’s a free resource on my website, Script Financial. Basically, what it does is you link your accounts, it builds a dynamic basically balance sheet, so you can see all of your assets, all of your liabilities, and then you actually can look at to see how based on what you’ve connected, whether it’s credit card or checking account, you can see how money is flowing in and how it’s being basically categorized across the various, whether it’s housing or loan payments or whatever. So those are really a good way to kind of get baseline data. I think what often happens is when people look at, you know, the budget process exercise, you see it with people that are training for races that are kind of haven’t done it, they want to get off the couch and run a marathon right away, and sometimes they end up hurting themselves or quitting. And what I really implore clients when I kind of first work with them is our process is to kind of go through the balance sheet and say, “OK, these are all your assets. These are all your liabilities,” get a nice picture of where everything is and what it looks like. And then we do that 90-day retroactive budget exercise where the idea is if you have $10,000 coming in in income, so this is basically your take-home pay, as we walk through and we looked at how much money, we kind of have an idea on what our average is. So in the tool, it shows you, on average over the last three months, you spent $400 on your cat Snuffy. And then for a lot of people, they’re like, “Oh, that’s not good.” So I say, “Well, what’s a good number?” And they automatically want to say it’s $100. But maybe that might not be the reality. So sometimes we go chalk, meaning we take the average. But sometimes they’ll say, “Well, it’s kind of an outlier that Snuffy had surgery,” or whatever, so a realistic number is maybe $200 a month. So the idea is as we go through all of those line items, if $10,000 is coming in, and we have $9,000 that’s going out, in a zero-based budget, essentially what that tells me is that we have $1,000, more or less, to play with in terms of whether it’s increasing money that we’re putting towards loans or there’s basically a line item that is savings. So we might look at that $1,000 and say, “OK. Half of that we want to put towards, per month, we want to put towards maxing out our Roth IRA,” which is what the $500 times 12 months, that’s $6,000. That would max out your IRA. And maybe the other money goes for a different goal. So I think the exercise itself kind of shines a light on how money is flowing through. So on the flip side of that, Tim, you know, if we add up all of those and realistically, the number is typically more conservative because we just have leakage and things that we don’t really account for in that process. If $10,000 is going out, then it means one of two things. It either means that we’re eating into our savings or we’re running some type of credit card debt, and we’re basically running a deficit with our spending. So I think just getting a snapshot of where we’re at is important. And then a lot of those from there, it’s tracking your expenses. And again, like to me, one of the things that I preach is that it’s a two-sided equation, so I always try to impress upon clients to think of other ways to make income, grow the top line, because you can really only cut so much. And again, in this day and age, it’s always good to have alternative income streams than just like the W2 income that’s coming in. So things like that I think are important as we’re kind of going down the path of how to properly fund these goals.

Tim Ulbrich: Yeah, and I love hearing you talk through — I mean, I think what this does if we merge steps 1 and 2 here — 1 being the goals, 2 here being the budget — is that you start with the goals in mind and then you work into, OK, based on the last 90 days, what do I have available? And you start to merge the two of these together. And I think what typically happens — I know it happened for Jess and I as we just did this last week with you — is that you get to your goals and your aspirations, and then you get to the reality of what is there. And you say, “I don’t like that reality,” right? So there’s not enough monthly income that’s not being spent on expenses, that’s freed up to put toward our goals, so we either now need to grow the top line, cut the expenses, or both, right? And then you start to really get into the questions of, what can I cut? Or how can I grow my income? And as you mentioned, it’s on both sides. So I think this merging of the goals and the budget really helps not only put it into reality, but it also helps drive some of the motivation to be able to achieve these goals. So I think the next step here — and you alluded to it a little bit — is this idea of what you do with your clients, which I love, is a savings allocation worksheet.

Tim Baker: Yeah.

Tim Ulbrich: So once we kind of begin to think about the goals and then we do this 90-day retroactive tracking of expenses, we now get into putting these into a category of what goal, how much am I trying to achieve? What do I need per month to get there? What can I do current versus what do I need to be doing? And then prioritizing those. So talk us through that process and how you do that with clients.

Tim Baker: Yeah, so I found that there was like a disconnect between kind of these steps. So one of the things I developed is this — I call it the savings allocation template. And it’s essentially like all of my clients have one. And it’s really just an Excel sheet. You know, it’s funny, like all of these pieces of software that are fancy, like I find that more and more I use kind of my own homemade thing. So essentially, what it is is it’s basically a spreadsheet that kind of shows what are our primary everyday spending accounts. So for some people, it might be Bank of America or USAA or whatever that is. And essentially, that’s where all of the money flows through. And then sometimes we have like a backup account just to make kind of a buffer. And then we have our emergency fund, which is that deep storage where we never touch. And then we might have like retirement accounts that are more for long-term savings. But then we have these, kind of these tweener accounts. And really, these are what we’re talking about in terms of like sinking funds. So most people — I think if you’re doing it correctly, in my opinion — are going to have things like a home maintenance, a car maintenance fund, a gift or a holiday fund. So a lot of people, they’ll say, “Hey, Tim, I do a really good job 11 months of the year, but then Christmas rolls around, and I blow my budget out of the water.” So typically, my question is, “Well, how much do you spend during the holidays?” Say for simple math, the answer is $1,200, then I say, “OK. In January 2019, this month, let’s set up a sinking fund. We’re going to call it ‘Gift, Holiday Fund,’ whatever, and every month from January 2019 to December 2019, we’re going to fund $100. So by the end of that month, or by the end of that year, we have $1,200, so essentially replicates spending. And really, we’re not getting into credit card debt or anything. But that money is there. So the idea behind the savings allocation sheet is to kind of get everything on one page and then it shows kind of the location of the account, what the monthly contribution is, so this is kind of what we’re talking about now — so typically, this is blank until we figure it out — what the current balance is, what the target is, what the source is — this could be paycheck or it could be moonlight shifts, or it could be Airbnb, which is kind of like what I talked about in the past with our travel fund — and then the description of what it’s actually for. So the example that I give for our travel fund, I said, “Hey, Shea, my buddies, we’re going to Vegas for a bachelor party. I really want to use the travel fund.” We look at the description, she’s like, “Sorry, bro. That’s for family vacations only, so you’ve got to find that money somewhere else.” But it keeps us honest, and it keeps us on the same page. So our car maintenance fund is for, you know, car repairs, oil changes, tires. For our home fund, we have the things that we know we need to spend money on in the future. And I think another field that I would add to this is, you know, we have kind of the current balance and the target. So if your emergency fund, it needs to be $20,000, and you have $15,000 in it, and you’re funding it $1,000 per month, then you essentially have five months until it’s fully funded, if you’re running at a clip. I think getting that on paper too, I think one of the things we talked about last time, Tim, was, OK, if we contribute to the emergency fund at this clip, it’s going to take us three years to fund it. Is that acceptable? So I think if when we look at it in that context, then you’re going to say, “Well, no, not really. It’s not.” Or you might look at it differently and say, “Yeah, that’s fine. We have cash there, and we’re building it up over time.” So I think that’s the piece. But it’s amazing, like we talk about kind of the small wins, and I think sinking funds are a big thing, but I think actually looking at this — and I equate it to almost like the debt roll down method in reverse. So we talk about when a debt is paid off, we basically roll that payment into the next one. So same thing, it’s like when our target balance is achieved, and in that example I gave you, you had $1,000 that’s going into the emergency fund, then essentially, we free up that $1,000 to now fund your travel fund or whatever it is. And I think that’s when we kind of talk about priorities. Do we do a lot of one thing? Or do we do a little of a lot of things in terms of spreading the dollars out?

Tim Ulbrich: And I think, again, just to reinforce for our listeners to not underestimate the power of writing down your goals and how you’re going to achieve them. I just pulled up right now the allocation worksheet you and Jess and I were working on, so we have things on here like additional giving and gifts, like you mentioned, vacation, home improvement fund, emergency funds, car sinking funds, different retirement accounts, and then we have the 529 accounts for the boys, real estate investing, paying down home early. And after we prioritized them, which is another step of this process, I see here a bunch of areas that it really pisses me off that we’re not able to contribute to these right now, right? Because of other things we’re trying to do. And so I think there’s that motivational factor of, OK, what needs to change? What do we need to do to make these a priority and make them happen? And obviously, there’s patience there as well. And so the next step of this is once you have your goals and once you have this allocation worksheet and you have the budget set and you prioritize these items, you then begin to put these on automation, which is what we’re talking about here with the sinking funds. And so I would point our listeners back to Episode 057, we talked about the power of automating a financial plan and we have some more detailed information there. OK, No. 1 we talked about is setting goals for the new year. No. 2 is new year, new budget. No. 3 is a new year tax filing and planning for 2019. So in Episode 070, you and Paul had talked about kind of pre-planning for the tax season. And so here we are, January, and for me, there’s really two buckets that we’re thinking about is what we need to do to file 2018 returns and then obviously, the strategic planning for 2019. So what should our listeners be thinking about? Here we are, January 2019, and what they need to do in terms of filing and probably the most common question we get here is what are the pros and cons of DIY, TurboTax, versus hiring and working with a professional on this.

Tim Baker: Yeah. So I think the big thing is as tax documents come in, you know, basically having a safe spot, a known spot, to basically gather all those and collect all those. I think that’s the big one. There are still things that you can do between January, this month, to April 15 that can affect your tax bill. So I think understanding that is important. So you know, right now, I think it should be about data collection, looking at where we’re at. But then as we kind of transition to alright, now we’re ready to file, what’s the best step? So for some people, it might be a TurboTax. It’s fairly easy. Now, the changes in the tax code makes the tax picture a little bit different. It’s supposed to be easier. It’s supposed to be a lot easier, but I think it’s about the same as far as what I’ve looked at and what I’ve read in terms of the new tax code. But again, it’s the same thing with goal-setting and a lot of this stuff is sometimes, it’s worth an objective opinion. And I would say the big win with Paul with a lot of clients that we’ve had is, you know, actually looking at — you know, we’re talking about midway through last year — looking at if nothing changes midway through, “Hey, client, you’re going to owe $6,000, $8,000, or we’re going to get back that amount of money.” And both of those things are not necessarily optimal outcomes. A lot of people — for some people, it is, because if they get back $6,000, it’s really the only way they can save, unfortunately. But that’s really a tax-free loan to the government. And on the flip side of that, no one really preps for or prepares for a large tax bill to Uncle Sam. And it happens if residents are moving from a residency salary to a regular pharmacist salary or life event changes, baby, increase in income, home purchase, a lot of these things can move the needle. So again, like we preach being proactive with this. And I think what we want to do in really this time of year is start the process of filing, especially if you’re going to get some type of return. File early, and then look ahead for 2019 and say, “OK. What are the things that we can do to affect change so we can be as efficient with the money that we’re sending Uncle Sam.” So for some people, it’s going to make sense to DIY it. And that’s more than OK for some people, especially if they have multiple states or things like that, it makes sense to kind of slow down and say, “OK. Tax permeates everything. What’s the best way to plan for this and be proactive in the approach?” And I think that’s the difference is I think the act of filing taxes is very transactional, it’s very reactive. But I think the planning piece can make it a lot more pleasant if you kind of get in front of it and make sure that you’re doing what you need to do to better your tax situation.

Tim Ulbrich: Yeah, and I think that’s a goal we have for our community and audience is to really shift the mindset from just the filing, the transaction, to actually the strategic planning around taxes, you know, being intentional with the individual situations that everyone has and really — obviously, we’re not trying to deviate the tax code in any way, shape or form but really trying to look at all things considered, all those variables you mentioned, what can we be doing in advance of next year’s filing to be strategic to maximize the individual plan for each and every person? So really, thinking much more proactively about taxes than I think reactively.

Tim Baker: Right.

Tim Ulbrich: So I would point our listeners to YourFinancialPharmacist.com/taxprep, where you and your team with Paul offer a service to both do the filing as well as kind of looking ahead to the strategic planning of the new year. Alright, No. 4 here is a bucket of things that I’m calling tidying up the not-so-sexy but oh-so-important parts of your financial plan. So Tim, what are some of the things that our listeners heading into the new year probably often may not get the same attention that maybe student loans or saving for retirement, but some of the foundational, maybe more of the defensive things people need to be thinking about if they haven’t yet done putting a plan in place for 2019 to get it done?

Tim Baker: Yeah. I think you hit it on the head, Tim. I think it’s so much of the defensive things that don’t get the sizzle that things like, you know, the controversy over PSLF or the student loans because it’s a main pain point or investments, Roth conversions, that type of thing. It’s really about setting yourself up for good defense. So like I have a lot of prospective clients that came in the door, and they rattle off a bunch of things that they want to achieve or accomplish. And when I ask the question of like, “Do we have an estate plan in place?” which is super important because you own a house, you have kids, and the answer is no, then I need to impress upon them how important that actually is because what we don’t want to do is we don’t want some judge in the state of Wisconsin, Ohio, Florida, wherever it is, basically deciding who’s going to be guardian for your kids or how your body’s going to be treated in the event of incapacity or how your affairs are going to be handled in death. So it’s not something that is sexy or that we like to talk about, but it’s also typically one of the things that we don’t know what we don’t know. So I like to elevate that. To me, that’s where I think a good planner kind of elevates that. And I think that’s, again, it kind of goes back to one of the things that you said, Tim, is we worked together for a long time, and we get around to investments because, you know, most people, there’s other things that we need to tackle before we hit the investment piece. And I think this is one of the things too is, you know, yeah, I got it, we want to do Roth conversions, we want to make sure that the 401k is properly allocated, all that stuff. But if you kind of fall into those buckets — especially if there’s kiddos involved, having a proper estate plan is super important. So that would be the big thing, and some employers offer this as part of employment that you might pay a little bit more for legal, but I would definitely recommend talking to an attorney. And I know you and Jess talked to the person that I work with, and I think it was a big win for you guys. But I think that would be No. 1 is looking at that and making sure that we’re good in that regard.

Tim Ulbrich: Yeah, and just to build off of that, we did. We just finished up that work, we’re reviewing the documents right now. And I had gone the DIY approach a couple years ago and really underestimated the power and the value of the conversation. Again, third party, different viewpoint. You know, Jess and I may be thinking about it one way, him asking questions, getting us to think about the different documents, and even some nuances and implications around life insurance policies and where other things go and how assets are handled and establishments of trusts and all those things that I would have never gathered through a template form. So I think that’s one that, you know, maybe for many people feels overwhelming, not only the topic in and of itself, but just the some of the legalese and working with somebody and all that. But I think it’s a good goal for many of our listeners to think about in 2019 if they haven’t yet done so.

Tim Baker: And at the end of the day, it’s really not about you. And the next things that we’re going to talk about is also not about you. You know, when you’re talking about estate planning, this is really about your family, your survivors. And a lot of people, it’s like, well, I won’t be here, I don’t have to really worry about it. But again, if you have a family to look after, I think it’s important to get this right and spending a little bit of money I think is well advised. So I think the next part of this, you know, some other not-so-sexy but oh-so-important parts of the financial plan would be your insurance game, you know. And again, I think that a lot of advisors will lead with this because, you know, a crappy permanent insurance or disability policy can pay a lot of premiums and typically, you know, I see a lot of people that don’t necessarily have what they need or they’ll over buy or whatever that is, but I think at the end of the day, looking at do you have enough term to basically cover what you need to cover? And again, if you have dependents, that’s going to be better. From a disability insurance where we’re talking about insuring the income that you earn, when you have dependents and you’re at the stage of life where you have spent a lot of time, energy, blood, sweat, tears to get the PharmD, you want to make sure that you protect that. So if it’s a simple calculation for life, which could be 10-12x your income to get that policy in place, so maybe that’s a $1 million term, which is cheaper than you think for — I kind of use, we talked about the rule of 30. For a 30-year-old who buys a $500,000 30-year term policy, it’s about $30 a month. So a lot of people think that’s a lot more. And then disability policy, you probably want something that is own occupation, which means it covers for your occupation. And you want something that’s around 60% of your gross monthly income. So a lot of people, again, they overlook this. And you know, this is as important as some of the other things that we’ve talked about, the investment, the emergency fund, all that kind of stuff. And then that’s the next thing is really — is your emergency fund up-to-date and current? So Tim, you said you mentioned kind of life changing, moving to Columbus, we re-assessed the emergency fund, and we saw, OK, we probably need to plus it up a little bit. Same for our household. I love to just watch that money sit and get its 2% from Ally every month. Like it’s a beautiful thing. But you know, do we have enough cash reserves for the unthinkable to happen and be good with that? And then in terms of some of the other things, you know, updating beneficiary information on your investment accounts — do you have a primary beneficiary? Do you have a contingent beneficiary? And make sure that’s current. And to circle back to the estate planning stuff is, you know, is your legacy folder, is that current? Is it even in existence? And basically talking through with loved ones about, “Hey, this is if something were to happen to me, this is my LastPass account. This is where you look for everything.” And make sure. Because again, a lot of people think it will happen to someone else, but at the end of the day, the odds are is that this will happen to one of our listeners, and it’s important to be prepared for that.

Tim Ulbrich: Yeah, and if you haven’t heard us talk about that on the show before, legacy folder, that’s a play off of Dave Ramsey’s content. He talks about this in Financial Peace University, having all of your financial documents, insurance policies, birth certificates, investment account logons, you name it, in one place where people or whomever, one person, knows where that is in the event that you need it, whether that’s spouse, significant other, or obviously extended family. So we have a document, YourFinancialPharmacist.com/legacyfolder that is a list of things that you may consider including in there. And Tim, just to put a bow on this and kind of wrap up the things you had talked about, I think for those that are listening and say, “Estate planning: check. Life and disability: check. Emergency fund: check,” it’s really going back and asking the questions, if you already have those in place, to your point, are they up-to-date? And do they align with your current financial situation? So I know, for example, I mentioned Jess and I have the estate plan, we kind of looked at that and said, “Yeah, we did it. But we didn’t really do it as well as we could have or should have.” And it didn’t represent, I think our current status of our family, and it probably won’t again in three years, and we’ll have to update it. Life and disability is one that we’re working with you on right now to say, “OK, when we purchased a life insurance policy three years ago, our financial situation, our family situation is very different.” And so we’re at a point now of needing to kind of up those policies. Same with the emergency fund that you mentioned. So really going back and looking to say, “Are these policies representative, are these parts of the financial plan representative of current status of what’s going on?”

Tim Baker: Yeah, and I had a prospective client ask me this and actually became a client. They basically said is like, “I kind of understand how you work through the financial plan. But then like what do we do after that?” And it’s like, you know, is there work to do? And I was like, “Well, you know, if you look back two years and what you were doing two years ago, is that different than what it looks like today?” And inevitably, it’s like yeah. So the beauty of the financial plan — to nerd out a little bit — is that it’s fluent. And life happens, so I feel like asking the question, like does this make sense today is valid across all part of the financial plan. And for some people, you know, they’re going to move from the accumulation phase of, say, their 529, they’re saving for little Johnny’s education, to actually the distribution phase, which looks a lot like retirement in terms of like how can we set up a plan, you know, your kid’s in middle school, high school, and make sure that we know exactly what we’re paying for college down to the penny and how we’re going to fund that. And you know, it sounds — you know, a lot of people kind of get stuck in the here and now and where we’re currently headed, but we forget how much life changes over time. Even in your case, Tim, when we talked about, when we looked back at kind of your goals, some of them made a lot of sense. But then you had a lot of things change as well. Again, I think that’s where it’s good — and I even have problems with this in my life — but it’s good to kind of slow down and ask the questions like, “Do we like where we’re going? Does this still make sense?” You know, has something basically come up that’s now more important? And then really adjusting the plan accordingly. So and that’s one of the reasons I’ve been on my soap box — that’s really the reason I like to work with young people is that you can come in completely scattered or in a tough spot, but I think the fact that we have time to really right the ship and get the plan going is a beautiful thing. So.

Tim Ulbrich: And if those listening, you know, maybe you have a question about life and disability, emergency funds, all these things we’ve talked about, taxes, you know, we have so many resources on the website, YourFinancialPharmacist.com. We’ve got guides and calculators and links to previous content. So head on over there, search the topic that you’re looking for, and if there’s not something there that you’re looking for, let us know. No. 5 and finally, you know, probably the quickest one that we’ll talk about but maybe the most important is surrounding yourself with community that one, keeps you accountable and two, motivates you to learn and better yourself financially each and every day. So we’ve talked before about the YFP Facebook group, and our challenge for those of you that are listening that are not yet a part of that group, number one, it’s free. Number two, there’s multiple conversations going on each and every day: people posing a question, something they’re struggling with, a win that they had. Please join us in that community. I think you’ll find it incredibly helpful and valuable just to stay sharp when it comes to your own financial plan and what you’re working on. And number two is obviously when it comes to accountability and finding somebody that can motivate you and help you learn, of course, the comprehensive financial planning services. So Tim Baker, we’re of course proud to be partnering with him, ScriptFinancial.com. You can head over to that website, schedule a free call, see if it’s a good fit for you. And Tim, from what you’ve seen working with clients, whether it’s accountability and community with a significant other, a spouse or a planner or some other form or fashion, I mean, how important is this aspect of accountability and community?

Tim Baker: I think it’s huge. You know, I think when I start with clients and we do kind of a wealth building survey, which is built on kind of “The Millionaire Next Door” and the research that was done there, you know, pharmacists grade out very highly in things like responsibility, but from an accountability measurement or like a focus measurement, sometimes they don’t — or a confidence measurement, sometimes they don’t. And that’s where we kind of lose the way. So again, my job in essence from a behavioral standpoint is to kind of nudge you in the right direction. And sometimes, it’s just as easy as bringing up the savings allocation, kind of the goal and the success timeline and saying, “OK. Where are we at? And where are we going?” And you know, I love the community that we’re building because I think it was — I know I heard it through Tim first, I think he stole it from someone else — Tim Ferriss is the author of “The 4-Hour Workweek,” is that you’re the average of like your five closest friends or things like that, something like that. And I think when you surround yourself with people or community that are like-minded, in essence, or are cheering each other on to kind of change their situation, I think that’s where you really start to see action. So that can be a community, working with your spouse, it can be working with an advisor. But at the end of the day, I think the accountability is such a huge piece of it. And I often say to clients, like you know, “You guys can look up how to do a Roth conversion, what you need an emergency fund and where, but at the end of the day, I think it’s that objective voice in the room that says, ‘Does this make sense?’ and ‘Is this still important?’ And if it is, where’s the money? Where’s the bucket? Where’s the resources to say that it is imporant and we’re going to see it through?” So yeah, I think it’s probably the most important part of the financial plan is really pushing it forward and being accountable to what we’ve laid out.

Tim Ulbrich: Absolutely. We’ve talked before, it’s not — the x’s and o’s are important, but what is more important is the execution, which comes down to accountability and community and upping your financial IQ. And I’m feeling that right now, I mean, we’re finishing up a book club in the YFP Book Club Facebook group on “Rich Dad, Poor Dad,” and it’s been to facilitate that, but even seeing the conversation, you know, we’re one month in, and I think like we talk about the compound growth of your investments, there’s a much more or equal significance of the growth of your financial IQ that can happen through reading a book each month or every month or whatever that the cumulative effect of that, you cannot underestimate that. So I hope you’ll join us in the YFP community if you’re not already a part of that group. And before we wrap up today’s show, just another reminder about our first giveaway of the year. We’re doing three yearly subscriptions to the budgeting software, YNAB, again, standing for You Need A Budget. Head on over to YourFinancialPharmacist.com/giveaway to enter that contest today. As always, we appreciate you joining us for this week’s episode. And if you haven’t done so, please leave a review of this show in iTunes and make sure to subscribe, whether that be in iTunes or whatever podcast player that you get your content each and every week. We’re grateful for your listenership, and we look forward to joining you again next week. Have a great rest of your week.

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