Many humans, like me, have a tendency to make things more complex than necessary. As we work toward financial goals, let's keep things simple and let's start with avoiding "unforced errors."
Here are three good examples:
1. Save some of what you earn. (Probably 20% of your gross.)
The "unforced error": Most people don't save any of the money they earn.
2. Invest some of what you save. (After a 6 months cash reserve, invest the rest for long-term growth in diversified stock exchange-traded funds like VTI.)
The "unforced error": Most people who save have too much in cash, which means the value of the money erodes over time as the cost of living increases.
3. Diversify what you invest. (Don't hold more than 10% of your net worth in any single security.)
The "unforced error": Most people who do invest savings tend to invest in a single company. It's usually the company for which they work. It's understandable, since it's a company they know and understand. But today, now that we have low-cost, exchange-traded funds, it's easy to buy a basket of quality stocks to spread that risk.
These three rules probably sound sort of boring. But that's the secret. Much of financial planning success is about avoiding unforced errors with our money.
New York Times columnist Carl Richards, a financial advisor, has a great saying. He says, "a financial advisor is someone who puts a gap between you and stupid." The smartest investors in the world are tempted to do dumb things with your money. An advisor's job is to look you in the eye, shake their head and walk you back from the ledge.
Farm legacy planning is an excellent example of the need to actively work to avoid unforced errors. In most cases, if a farm business does not take specific strategic action to create a farm succession plan so the business can transfer to the next generation, there will be trouble. For example:
-If the estate is taxable at death, heirs will have to sell farm assets to pay estate tax.
-If no successor is in place, trained, and prepared to take over, the farm business will be sold to some other operator.
-If there is no plan that identifies who is in charge of the estate and where the various farm business assets are supposed to go, it will be easy for conflict to develop among the heirs.
Here are a few simple things that can help you avoid unforced errors in your farm transition plan:
-Update your basic estate documents to be sure they are current and you have the right people named to serve, specifically:
-A Will that names the executor of the estate after your death;
-A Living Will to spell out your wishes around medical care to help guide decision makers at the end of your life;
-A Medical Power of Attorney to spell out who should decide health care issues if you cannot; and
-A Financial Power of Attorney to name somebody to make financial decisions for you in the event you are not able.
-Discuss with an experienced attorney working on agricultural estate planning issues to see if your operation is at risk for state estate tax or long term health care expenses.
-Insist on a free initial discussion to get to know a prospective attorney.
-The attorney should work 2/3 time, or more, on agricultural estate plans.
-At least half of the attorney's clients should have farm businesses that are more complex than yours.
If you would like help avoiding unforced errors in your personal financial life, contact my office at [email protected].
The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.
Advisory services offered through AdvisorNet Wealth Management Inc. an SEC registered investment advisor, 701 Fourth Avenue South, Suite 1500, Minneapolis, MN 55415, (612) 347-8600, [email protected] AdvisorNet Wealth Management Inc. and Dunncreek Advisors are separate entities. These articles are for informational purposes only. While designed to provide accurate information on the subjects covered, they are not intended to provide specific legal, tax, or other professional advice. For a comprehensive review or specific personal assistance, always consult with an appropriate professional. Dunncreek Advisors does not provide legal or tax advice.