Goal Setting

We at Paragon Financial Advisors don’t believe that “any direction” is acceptable. The financial well-being of you and your loved ones is too important to be left to chance. That’s why we encourage our clients to develop their personal financial goals.

Goals are basically a result or achievement toward which you are willing to expend time and effort. Goals vary with the individual’s wishes; hence, you set your own. Defining effective goals requires developing characteristics for those goals. For example, “I want to retire comfortably” is not a well-defined goal. Additional information is required.

Goal Characteristics

A well-defined goal requires the following characteristics:

1. Specific- An effective goal is specific in nature. It clearly defines the desired result or achievement in an unambiguous manner.
2. Measurable- Goals must be measurable, i.e. you must have a way to determine the attainment of the goal and monitor the process toward goal attainment. Financial goals would be measured in dollars.
3. Achievable- Effective goals must be achievable. For example, a goal of playing quarterback for an NFL football team would not be achievable for me given my size and athletic ability. Achievable does not necessarily mean easy. “Stretch” goals requiring significant effort are permissible if it is possible to achieve the final goal.
4. Relevant- Goals must be relevant; a relevant goal provides incentive for expending the effort required for goal attainment.
5. Priority- Most individuals will have multiple goals as they go through the goal setting process. Some goals will be more important to the individual than others. Therefore, goals should be ranked by priority. Which goals are most important and which goals have lesser importance? Identify and rank according to priority.
6. Time frames- An effective goal has associated time frames for completion and “mile posts” to monitor progress toward goal achievement.
7. Action Items- Action items outline the actions necessary to attain the goal. What needs to be done to successfully reach the goal?

Let’s restate our retirement goal according to these parameters.

“My first priority is to retire in 30 years at an income level equal to 85% of my current income adjusted for inflation at 3% per year. To accomplish this goal, I need to save X dollars per year and my investment portfolio needs to grow at Y % per year.”

This restatement clearly provides better definition with the characteristics discussed above.

• Specific/Measurable- “…retire… at an income level equal to 85% of my current income adjusted for inflation at 3% per year.”
• Achievable- certainly.
• Relevant/Priority- “…first…”
• Time frame- “… in 30 years…” with measurable mile posts—the value of the portfolio each year based on an assumed savings rate and portfolio appreciation rate can be identified and monitored.
• Action Items- “… save X dollars per year.” 

         Please contact us at Paragon Financial Advisors. We’ll assist you in developing your personal financial goals. Paragon Financial Advisors is a fee only registered investment advisory company located in College Station, TX.  We offer financial planning and investment management services to our clients

Goals Set-Goals Met!

The base of your financial planning should be your goals and objectives. Goals are basically a result or achievement toward which you are willing to expend time and effort. Goals vary with the individual’s wishes; hence, you set your own. Defining effective goals requires developing some particular characteristics for those goals. For example, “I want to retire comfortably” is not a well-defined goal. Additional information is required.

Goal Characteristics

A well-defined goal requires the following characteristics:

1. Specific- An effective goal is specific in nature. It clearly defines the desired result or achievement in an unambiguous manner.
2. Measurable- Goals must be measurable, i.e. you must have a way to determine the attainment of the goal and monitor the process toward goal attainment. Financial goals would be measured in dollars.
3. Achievable- Effective goals must be achievable. For example, a goal of playing quarterback for an NFL football team would not be achievable for me given my age, size, and athletic ability. Achievable does not necessarily mean easy. “Stretch” goals requiring significant effort are permissible as long as it is possible to achieve the final goal.
4. Relevant- Goals must be relevant; a relevant goal provides incentive for expending the effort required for goal attainment.
5. Priority- Most individuals will have multiple goals as they go through the goal setting process. Some goals will be more important to the individual than others. Therefore, goals should be ranked by priority. Which goals are most important and which goals have lesser importance? Identify and rank according to priority.
6. Time frames- An effective goal has associated time frames for completion and “mile posts” to monitor progress toward goal achievement.
7. Action Items- Action items outline the actions necessary to attain the goal. What needs to be done in order to successfully reach the goal?

Goal Definition

Let’s restate our retirement goal according to these parameters.

“My first priority is to retire in 30 years at an income level equal to 85% of my current income adjusted for inflation at 3% per year. In order to accomplish this goal, I need to save X dollars per year and my investment portfolio needs to grow at Y % per year.”

• This restatement clearly provides better definition with the characteristics discussed above.
• Specific/Measurable- “…retire… at an income level equal to 85% of my current income adjusted for inflation at 3% per year.”
• Achievable- certainly.
• Relevant/Priority- “…first…”
• Time frame- “… in 30 years…” with measurable mile posts—the value of the portfolio each year based on an assumed savings rate and portfolio appreciation rate can be identified and monitored.
• Action Items- “… save X dollars per year.”

We at Paragon Financial Advisors help our clients appropriately define, and attain, their financial goals. Please give us a call and we’ll help you.  Paragon Financial Advisors is a fee only registered investment advisory company located in College Station, TX.  We offer financial planning and investment management services to our clients.

What’s New in Social Security?

Changes in 2017.

Changes in Social Security benefits for 2017 have been announced. The cost of living adjustment is an increase of 0.3% (an increase of $5 per month for the average recipient). A small increase, but an increase none the less; there was no increase in benefits for 2016.

 

Social Security taxes are paid by both the worker and the employer. Each pays 6.2% of earnings (or 12.4% of pay in total) to support the Social Security system. There is a maximum amount of earnings on which that tax is paid (the “taxable wage base”); no taxes are paid on earnings above the taxable wage base. In 2016, the taxable wage base is $118,500. The wage base will rise to $127,200 in 2017.

 

Individuals who elect to start taking their benefits before their full retirement age (66 years or more) have their Social Security benefit reduced for each dollar of earnings they have over a certain amount. For each $2 a beneficiary earns above that amount, Social Security benefits will be reduced by $1. The earnings limit in 2016 is $15,720; in 2017 that amount increases to $16,920.

 

What’s Next?

 

Now that the election is over, President Elect Trump and Congress will face some challenges with the “entitlement” programs of Social Security, Medicare, and Medicaid. According to the Wall Street Journal (Wed, Nov. 9, 2016, pg. A18), those programs account for 10% of the US economy and that percent is rising. The deficit in 2016 is projected at 3.2% of GDP (in an economy growing at less than 2%). Medicaid spending has been increasing with the increased coverage under Obamacare. In addition, the US (and other developed economies) has an increasing population age. More individuals will become eligible for entitlement benefits. Our current system is not sustainable; be on the lookout for more changes to come.

 

We at Paragon Financial Advisors assist our clients in evaluating their Social Security options. Please call us to discuss your specific circumstances. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas.  We offer financial planning and investment management services to our clients. 

 

 

Living on the Financial Edge

 Living on the Financial Edge

At Paragon Financial Advisors, we recommend our clients have a 3-6 month cash “ready reserve” to meet unexpected expenditures. For most Americans, accumulating that amount appears to be much easier said than done. In the May, 2016 The Atlantic magazine, Neal Gabler wrote an article entitled “The Secret Shame of Middle Class Americans.” Some of the items he mentioned (and the sources he quoted) are shown below.

Unexpected Expenses

A Federal Reserve Board survey designed “to monitor the financial and economic status of American consumers” found that 47% would not be able to cover a $400 unexpected expense unless they borrowed, sold something, or could not cover it at all. David Johnson (University of Michigan) surmised that Americans usually smooth consumption over their lifetime: borrowing in bad years and saving in good years. People are now spending any unexpected income (bonuses, tax refunds, etc.) instead of saving it.

A 2014 Bankrate survey found that only 38% of Americans had enough in savings to cover a $1000 emergency room visit or a $500 car repair. Nearly one-half of college graduates could not cover the expense through savings. In 2015, A Pew Charitable Trust study found that 55% of households didn’t have enough liquid savings to cover one month’s living expenses.

Another study by Annamaria Lusardi, Peter Tufano, and Daniel Schneider asked whether a household could raise $2000 within 30 days for an unexpected event. More than 25% could not; another 19% would have to pawn something or use a payday loan to raise the money. Nearly a quarter of households with an income of $100-$150,000 per year could not raise the $2000 in one month.

Liquidity or Net Worth

Is this situation only a liquidity problem or is net worth (the net sum of all assets including retirement accounts and home equity) also at risk? Edward Wolff, an economist at New York University, reported that net worth has declined significantly in the last generation. Net worth declined 85.3% from 1983 to 2013 for the bottom income quintile, decreased 63.5% for the second lowest quintile, and decreased 25.8% for the middle quintile. He looked at the number of months a household could fund its current consumption by liquidating assets if the household lost all current income. In 2013, the bottom two quintiles had no net worth; hence, they couldn’t spend anything. The middle quintile (with an average income of approximately $50,000 per year) could continue spending for 6 days. A family in the second highest quintile could maintain current spending for a little over 5 months.

Research funded by the Russell Sage Foundation found that the inflation adjusted net worth of the median point of the wealth distribution was $87,992 in 2003. In 2013, it had declined to $54,500—a decline of 38%.

Debt

Value Penguin did an analysis of Federal Reserve and Transmission data pertaining to credit card debt. In 2015, credit card debt per household was $5700. Thirty eight percent of households carried some debt; the average debt of those households was greater than $15,000. Apparently the rise of easy credit availability has supplanted the need for personal savings. The personal savings rate peaked around 13% in 1971, fell to 2.6% in 2005, and has risen only to 5.1% now. These debt levels reflect only personal debt; no serious attention is being paid to our $19 trillion government debt.

What’s Going On?

Financial products are becoming more sophisticated, both in quantity and complexity. Such additional products should provide a better way to manage personal financial “hiccups.” Lusardi and her associates (in a 2011 study) found that the more complex a country’s financial and credit market became, the worse the problem of financial insecurity becomes for its citizens. That study measured the knowledge of basic financial principles (compound interest, risk diversification, the effects of inflation, etc.) among Americans ages 25 to 65. Sixty five percent were basically financially illiterate.

Why are we at a financial advisory firm writing about this situation? The United States finds itself in the midst of a most unusual political situation. Some candidates for President of the United States are espousing theories or programs outside the normal capitalistic structure. Are conditions such as the ones described above partially to blame?

A crucial part of managing investment portfolios is attempting to monitor the economic, political, and social conditions that might affect the investing environment in the future. What will that environment look like and how will it affect the selection of assets going forward? We at Paragon Financial Advisors don’t have a crystal ball for the future, but we do try to help our clients invest for the long term. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas.  We offer financial planning and investment management services to our clients. 

Back to the Basics: Dust off your Budget

I read a great article recently about the St. Louis Rams football team. Before they allow any of their new draft picks to sign contracts (many containing huge signing bonuses) they have to attend a mandatory “Financial Planning 101” class.  If the story is true, one of the coaches walked into the room with a briefcase and dumped out one million dollars in cash onto the table. Hopefully that got their attention [it would have gotten mine!]; because the next thing he did was physically remove a third of the pile…for taxes. He then took away several other stacks representing the player’s management fee and declared what was left was theirs to keep… BUT they had to make it last for the rest of the year.  

Not all of our employers are able to put our entire annual salary on the table in front of us in cash and challenge us to be good stewards of money, but what if they could? Would it change how you manage your money right now?

Our coach in this story is teaching his players a very valuable life skill and lesson on the importance of wisely controlling how you spend money. In the financial world we call this a “Spending Plan” or a “Budget”; a great tool that when used properly can help prevent you from overspending on your lifestyle and falling into debt. 

If you’re new to budgeting and making a spending plan, regardless of your age, don’t sweat it. No one gets their budget perfect the first, or even after several tries.  What is crucial during this timeframe is that you compare the projections you made to what you actually spent that month.

If you need a place to start or a format to follow; email us today at info@paragon-adv.com to request a free copy of our Household Budget Template.

The key to budgeting is to plan for your expenses ahead of time. By knowing your spending habits and accounting for your wants and needs it’s possible to take out the guesswork and quit wondering where all your money went.  If you’re married, being able to sit down and discuss your budget with your spouse will allow you to be on the same page and prevent future money disagreements; which can be a huge stress reliever. 

What if I have a surplus or a deficit?

If you find yourself having too much month left at the end of your money then it’s time to be honest with yourself. If you have a deficit by spending too much or your expenses are greater than your income, one of two things should happen 1) Decrease your Expenses and/or 2) Increase your Income. If you’ve dug yourself into a hole the best thing to do is stop digging! Put a plan in place to alter your habits so that destructive financial behavior will not create further problems.  In the words of Ben Franklin: “Beware of little expenses; a small leak will sink a great ship.”

What if you review your budget and make more money than your expenses? Congratulations, that is a great problem to have! When you reach the point where your expenses are under control is a perfect time to maximize your contributions to retirement accounts, children’s college funds, as well as save and invest for major purchases and financial goals.

We, at Paragon Financial Advisors, assist our clients in identifying their cash flow needs in order to maximize their savings and lifestyle. We offer Financial Planning and Investment Management. Paragon Financial Advisors is a fee-only registered investment advisor located in College Station, Texas.