VENTEUR spoke with Joe Di Gangi, Certified Financial Planner, about controlling our finances. Di Gangi has been helping clients with their finances for 31 years. His focus has been on retirement and disability planning for catastrophically injured individuals involved in civil lawsuits. Di Gangi’s work as a settlement planner has led to leadership roles with the National Structured Settlement Association and, most recently, as President of the Society of Settlement Planners. In 2021, he was selected to participate in a study organized by the National Leadership Consortium on Developmental Disabilities out of the University of Delaware.

Joe Di Gangi, Certified Financial Planner

Personal Finance (Generally)

What is financial literacy, why do so many people struggle with it, and how can we become more financially literate?

It takes time and experience to become proficient in a given topic, like most things. It starts with a basic understanding of money and its many implications. Our school systems teach children how to earn a dollar but don’t teach them what to do with it once they have it! 

If we spend a little time on financial literacy at earlier ages, our children have a better chance of financial success later in life. If schools don’t teach it (and even if they do!), parents should spend time with their kids on simple banking and investment concepts. 

We can’t expect our kids to understand something as complicated and intimidating as money if we don’t start planting the seeds of education early in life. Financial literacy has a unique language, and without basic education throughout life, you may never be able to speak and understand it properly. 

Basic spending plans, loans, credit, investing, and protection are the basic building blocks we build on throughout our financial lives.  Those are the areas to focus on first!

How can we manage our money more confidently, and what would this look like in practice?

To me, it looks like a funnel. Broad-based needs, wants, and wishes. Drill down to steps and milestones.  Monitor it to keep on track. Treat it like an annual physical….more often if indicated by a professional. 

Visit finances regularly by reviewing statements, spending plans, the performance of current investments, and realistic savings plans for future needs. You must become your best advocate and find your best, most sustainable way of treating your financial health as important as your physical and mental health.

How does our health affect our wealth, and what can we do to ensure we’re on track to a prosperous future? 

I always want to see clients with a high energy level when it comes to their finances, which usually starts with physical and mental energy levels. Sometimes it’s difficult to come home from work and still have the energy to dive into personal finances. Of course, if our physical health is a problem, it could lead to poor financial health and high medical bills that must be paid.  

Budgeting and Saving

What three out-of-the-box strategies can you share to help us improve our personal budgeting, and why these three?

I like to draw an analogy to sports. In sports, there are physical and mental aspects to winning. When both come together, we develop a winning attitude. 

I ask clients to treat budgeting the same way…a game that starts with a mental commitment to succeed, followed by the physical, or in this case, the tools to execute the process correctly, and when winning habits create success, it becomes part of your life. 

Financial success should be the positive reinforcement of a winning approach to budgeting.

What strategies should we use to save more, and why might these be the most effective?

Begin with a budget/spending plan. 

Next, create a system that works for you (tech, spreadsheets, CRM projects, 3-ring binders, envelopes, etc.). It’s important to be accountable to yourself and others. 

State your goals, write them down and share them with other trusted individuals that will help hold you to your plans. 

What you get to keep depends on two variables if we want to increase our savings….make more, or spend less. 

That seems simple, but planning a career path and the lifestyle we want to lead goes a long way in determining how much can and, more importantly, will be saved. It’s okay to dream big but spend carefully. 

Finally, I always recommend clients have a meaningful cash position to protect savings and to lean on tax-deferred and tax-free investment options whenever possible.

What should we look for in a bank account, how might this change based on our financial situation, and why?

Like most projects, needs and wants change along the journey. Early in a young person’s financial life I recommend a savings account or an interest-bearing checking account. If a regular income flow exceeds expenses, a monthly savings plan should begin immediately to build up the cash reserves of 3-12 months of needs. 

I recommend taking that time to brush up on financial literacy, such as basic investment terms and meanings, risk, and maybe even a financial literacy class to start building the knowledge base to become your best advocate. 

Once the cash reserve is fully funded, it’s time to expand beyond simple savings and checking accounts.  Banks offer different financial products for savers that are also investors.  This is where improving personal financial literacy begins to benefit those that took the time while building the cash reserve account.  The discussion could progress to credit card offerings,  loans ranging from personal, vehicle, and mortgages, or insurance.  

Retirement

Why a 401K is not the best vehicle to prepare you for retirement?

This is an area I get to spend a lot of time discussing with clients. The word “qualified” in a qualified retirement plan (401k, 403b, IRA, SEP, etc.) means the account qualifies for certain “tax advantages” because it is compliant with the code. 

Accounts like these usually allow the account owner to defer his current tax on income, grow that income over time without being taxed, and eventually taxed as regular income when a disbursement is made. 

In theory, we defer income during our working years when our tax rates are high and take disbursements in retirement when our tax brackets are lower. The problem is that by agreeing to defer income now only to be taxed as income (no capital gains, just income!) later, the account owner agrees to be a partner with the government. 

To further that scenario, imagine that you had a business partner who is a 20% owner in your business. Suddenly, without much warning, your partner decides he needs to be a 30% owner because HIS expenses have risen, and he needs more. What if he then decides to push it to 35%, 40%, or 50%? 

This is the government's hold on a retiree’s future financial security as long as they remain your partner…because you have no say in the matter.  

Not the ideal partner, is it? 

There are other retirement funding options that, when blended with a qualified plan or on a stand-alone basis, can produce tax-free income later in life without sharing ownership with the government.  

Insurance

What types of insurance should we consider being covered by, and why?

Let’s start with the basics. Insurance is best when it covers a potential loss that you cannot cover on your own. We insure our vehicles, lives, and investments with insurance policies that, if triggered, protect against losses too big to handle ourselves. When considering protection, there are three must-haves… auto, home, and life policies.  

Ensure the auto and homeowners policies have the coverage you need to repair or replace damages.  

Remember to check the medical payment provisions since they can be used to cover a 3rd party claim or even your claim for damages in the case of an auto policy.  

Health insurance is a big-ticket item and must be fully vetted annually, especially before Medicare eligibility, since the range of coverage and premium options are quite large. I like to see clients protected when it comes to their potential long-term assisted care needs. 

Long-term care policies can be costly, but some options allow coverage to be tied to a life or annuity policy that creates investment and tax-savings opportunities as well. Healthcare is getting more expensive each year, and protecting yourself against the high price of future medical care is important.  

When it comes to life insurance, there are a lot of choices. Buying pure protection against death is possible with either a term or a guaranteed permanent policy….so term or perm.

A term policy is typically the least expensive option, usually with a guaranteed premium rate until the term is over and for a certain amount of years agreed to in advance. If somebody dies during the “term,” the policy will pay the death benefit as promised. But, if the term’s time period passes and it’s either too expensive to continue paying the premiums (that usually rise dramatically after the agreed-upon term years) or health concerns stand in the way of being approved for a new policy, the previously insured person can be left un-insured. 

A perm policy (Whole Life or Universal Life) differs from term policies in two ways. First, as the name suggests, as long as premiums are paid and the policy remains in good standing, the guaranteed death benefits last until the insured passes away. Many policy owners like to add extra cash to the premium needed to maintain the death benefit that can be used as a savings and investment growth of those “extra” cash values in the policy. 

IRC 7702 provides certain tax advantages to growing cash values in a properly designed life policy that may be distributed as loans to the owner and, therefore, not taxable as income. 

Outstanding loans are oftentimes repaid to the policy issuer at the time of death. After loan repayment, the remaining (net) death benefit can then be distributed income tax-free to named beneficiaries.

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