VENTEUR spoke with Michael Pappachristou about how to level-up our personal finances. Pappachristou is responsible for building client relationships, analyzing their financial pictures, and providing recommendations to help them achieve their financial and legacy planning goals. He joined RegentAtlantic in 2016 and has been an active member of the Firm's Financial Planning Committee, providing thought leadership across various financial planning topics.
In addition, Pappachristou is a host of The Family Bonds podcast, where he and two colleagues explore financial decisions' impacts on family dynamics. He appreciates working with families across multiple generations and keeping their goals and values in mind. He has also taken an interest in working with young entrepreneurs to help them transition from focusing on building a business to creating a plan for personal wealth.
Financial literacy is when one can consume information on finances, digest it, and make intelligent and confident decisions using that information.
Unfortunately, I believe many people struggle with financial literacy because it has not historically been taught broadly.
However, education is essential, and teaching concepts about personal financial management at a young age should benefit people throughout their lifetimes. It is also essential that the curriculum behind that education evolves as the world changes.
It is extremely difficult for individuals, especially entrepreneurs, to effectively manage their own money while having many additional daily responsibilities.
One conversation I tend to have with clients upfront is about budgeting.
Of course, getting a handle on your expenses is essential, but what is more meaningful is how much you save monthly or yearly.
Ultimately, people's ability to save may drive their financial success.
Working with a fee-only advisor focusing on financial planning and investment management can be hugely impactful. In doing so, you should be able to take an active role by having conversations about your financial and legacy goals but delegate the responsibility of managing the money and operations to that trusted advisor.
An emergency fund is a cash bucket that can range from three to twelve months' worth of living expenses, depending on your situation. This reserve is vital if you incur a significant, unexpected expense or find yourself out of work. In addition, this can prevent you from diverging from your typical monthly budget or, in a worst-case scenario, needing to take on debt to cover an expense.
People often cringe when they hear the word budget. After all, it feels restrictive because it's simply a mechanism to place spending limits. While that's true, reframing the discussion and focusing on savings can change that mentality. In that case, the savings target becomes the only budget item. If you can hit that target, you can spend the rest of your monthly earnings in whatever manner you'd like.
It allows you to save towards goals that may be more near-term and tangible than retirement. It should also prevent you from having to dip into your emergency fund.
If you work for an employer offering a retirement plan, consider participating. Contributions to a retirement plan will come out of your paycheck before it hits your checking account. Therefore, you get accustomed to receiving an amount to spend after savings have already been set aside in your plan.
Also, your employer may offer a match, which is essentially free money from them! If you don't participate in a retirement plan, you may want to apply the same concept using a brokerage account. You can automatically transfer your checking account to your investment account on payday. Again, the idea is to get used to only seeing a certain amount of money from your paycheck accessible for spending.
Additionally, you can change your mentality around budgeting. Worry more about establishing a disciplined savings target versus how much you're spending. People often cringe when they hear the word budget. After all, it feels restrictive because it's simply a mechanism to place spending limits. While that's true, reframing the discussion and focusing on savings can change that mentality. In that case, the savings target becomes the only actual budget item; if you can hit that target, you can spend the rest of your monthly earnings in whatever manner you'd like.
Saving for specific goals instead of one long-term retirement bucket also helps some people. It may make sense to establish near-term, intermediate-term, and long-term goals and save for each accordingly. Not all goals have to be life-changing, like buying a house. Consider adding fun goals such as vacations to keep yourself motivated!
I believe that almost any vehicle that allows you to save is good preparation for retirement. The primary goal is forming a disciplined savings plan.
The account to which you save those dollars is secondary. A 401(k) plan is just one example of a retirement savings plan, but there are other plans that employers may provide.
In addition, if you are self-employed, there are unique plans that you can choose from, such as an Individual 401(k) or SEP IRA, that may even allow you to save more than you could do a traditional 401(k) plan depending on income.
You should also consider the tax nature of your savings.
Retirement plans often default to pre-tax savings contributions. You may also have the option to make Roth contributions. In addition, brokerage accounts can be funded with after-tax contributions. Having assets in different tax buckets should give you more flexibility and the ability to be more tax efficient when supporting your lifestyle from your portfolio in retirement.
This may result in people selling their investments to pay off loans, even though the expected return on those investments may be higher than the interest rate on the debt. In that scenario, you may be sacrificing the future growth of your assets.
That being said, the "sleep at night" factor is typically the most important. If debt keeps you up at night, you should talk with your advisor about options for efficiently paying that down.
Instead of aimlessly throwing money at each loan, consider your options. For example, do you want to pay extra money for the loan with the highest interest rate? On the other hand, do you wish to pay off the loan with the smallest balance first to feel like you have accomplished something?
Again, having a plan should make you feel better.
It has been a long time since savers could earn any significant interest on their cash. However, that has changed, with interest rates now higher than they have been in a while. As a result, online savings accounts tend to offer higher yields on your cash than your typical brick-and-mortar bank. Parking cash in these accounts also keeps it completely liquid, but note that you may be capped on the number of withdrawals you can make during a statement cycle.
As with most investment questions, there is no "one size fits all" answer.
Venture capital is an extremely risky asset class, so it may only be appropriate for investors with an appetite for risk. Given the nature of these companies, it is possible that investors can lose their entire investment and, therefore, should not be committing capital that will be necessary to support their lifestyle.
Investing in VC can be more complex and challenging to understand than investing in, say, an S&P 500 ETF, so it's vital that investors in these funds are financially sophisticated as well.
Entrepreneurs should consider working with a professional accountant from day one.
They can help ensure that the structure of their business is appropriate and may help them take advantage of tax strategies, such as qualifying for Qualified Small Business Stock (QSBS) treatment.
It is one thing to complete your simple tax return. Still, tax returns quickly get complex when dealing with a business or other entities.
If the IRS ever comes knocking, you want to have a professional on your team.
On a personal level, life insurance can be critical in ensuring your family is financially secure in the event of premature death.
Depending on your company's size, you may also want to consider key-man insurance.
This is a life insurance policy that a company takes out on behalf of someone whose loss would cause significant financial consequences for the company.
The proceeds could buy the company time when finding a replacement.
Putting protections against liability in place is also essential. From a personal standpoint, you may want to consider property and casualty insurance if you own a home. You can also enhance that with an umbrella policy covering injuries, property damage, and personal liabilities.
Entrepreneurs and small business owners should talk to a professional to determine if other types of insurance, such as workers' compensation insurance, business income insurance, data breach insurance, and professional liability insurance, make sense.
Estate planning is another central area of financial planning. Entrepreneurs should work with trusts and estates attorneys to document what happens to their business and personal assets in the event of death. They also need to consider factors that may not seem obvious, such as guardianship for children for entrepreneurs who have them.
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