“Successful Established Brokers”
Written By: John Kageleiry, Verium Planning & Asset Management
www.veriumplanning.com, 603-343-2903, John@veriumplanning.com
When brokers have succeeded over a longer period of time and they are well established the challenges don’t go away. They just shift into other challenges. A range of issues may now be coming to the forefront. College costs, protecting your family and what you want out of your career.
College costs seem to be going nowhere but up. Student debt has become a serious problem. It’s a big challenge. With all the balls you juggle finding a way to save for this can be tough. But you can consider the following ideas and solutions.
Start saving in a 529 program. This is a way to save after tax dollars that grow without taxes and are tax free when paying qualified higher education costs. Even saving s small amount right after your child arrives can be big. As little as $100 a month over a decade and a half can really add up.
Strongly consider state schools. While that child may want to go to Georgetown it will also cost you $70k a year, in today’s dollars. A good state school will be closer to $30k. It is worth noting that research shows the biggest determinant of your child’s success post college is not where they went but how much the applied themselves.
Don’t worry too much if college is 10 years away and you haven’t started saving. Start when you can and remember your situation will probably be better 8 years down the road and the burden may be more manageable by then. There are those loans available to your child which can also be managed either by them or by you helping after a few years more of career progress.
Please don’t underfund your retirement plan in favor of college costs. Paying for education may seem daunting but it is a finite and nearer term event and then they are basically over. Your retirement will cost much more and last far, far longer. Neglecting the power of compounding for those years can really hurt.
Protecting your family
You have worked hard and your obligations have grown along with your family. But it’s not enough to just try to make more money. You need to consider how to protect your loved ones.
One situation for established brokers that can be problematic is if they are the primary earner in a relationship. While they may have saved money and have a steady pipeline of business they face a different risk: temporary or permanent disability. Their families depend on them so much that if anything happened to them the disruption in income could have long lasting effects. Brokers in this situation should really consider getting their own disability insurance. Even if you are diligent about getting exercise and eat plenty of vegetables you could get hit by a car while biking to the gym. Insurance always seems to look like an expense until you need what you have been paying for. It’s worth considering covering the risk of lost income and time.
You should also be considering what kind of life insurance will be adequate. You are protecting against the loss of your income and how your family will fair if you should pass. Everyone’s situation is different but you will generally look to replace many years of your current income. So what are your choices?
-Whole life- this is the insurance your parents probably bought. It was meant to provide for not only the risk of you dying but an accumulation of savings to be used later in life. Nowadays it is a fairly expensive option as there are probably better ways to accumulate money. But it is worth looking into.
-Term life-This is usually the cheapest way to insure your life and the costs are very low. The downside to term is that your premiums will go up over time and maybe more than you expected. You also have no accumulation of savings.
-Universal life-This is a bit like a mix of whole and term. You have a fixed premium for an agreed upon time, like 20 years. You do accumulate a small cash value but the real draw is that you have cost certainty on the premiums.
Another way to protect your family is to get a trust. If you have younger children and assets this can solve a lot of problems before they occur. “But” you think “I thought trust are for really wealthy people”. While that is true the value of a trust here is that it ensures that your wishes and hopes for your children don’t go awry. In this scenario both you and your spouse pass away. With a trust you can control when your children will get the assets you have left them. Without out it they could get their inheritance at 18. There is a lot that could go wrong if an 18 year old now has a couple hundred thousand dollars. You can read more about this on my blog by clicking here.
As part of setting up a trust you can also take care of other important documents like a will, financial power of attorney, healthcare power of attorney and living wills.
Envisioning what you want to do now
One of the great things about working hard and succeeding at commercial real estate is that you will find yourself increasingly in control of your own time and what you choose to do. A common theme emerged when I spoke to two successful brokers. They had no real plans to retire because they loved their work. But what they envisioned was possibly slowing down or starting their own brokerage so that they could work in the way that was best for them. One of those brokers found themselves comfortable financially because they did the right thing early on.
This broker waded through the usual challenges and distractions early in their career. Once they got on track and had settled into their career and family life they made an important decision. They set up a savings plan that they simply did not violate. First they set up an emergency fund. Then they set up an account that acted as their main financial system. Money went in and then was sent to all their financial priorities. Think mortgage, insurance, retirement savings, vacations and college savings. And they set it on auto-pilot. This simple process made them adhere to a budget and relieved them of having to make decisions about how much to put where. When you don’t have to think about these things it allows you to focus on other more important things. All they needed to do is review this every year or so to see if any changes needed to be made. Then it just took care of itself. Great stuff.
Another experienced and successful broker had a different long term plan that also worked for them. They were fortunate enough to have a spouse who had a solid and predictable income. So while her income could be quite volatile over time, they relied on his income for all the regular living costs. But when the broker finally got paid on a big commission they were very focused on using that money wisely. It went into college savings, retirement savings and other financial goals. While this may appear easy it isn’t. By taking that lump of cash and salting it almost completely away they were right back to where they started. That takes discipline and foresight.
When you are well along is your career and you can see you have found success it now allows you the enviable position of having choices. And choices gives you control over the rarest of commodities: your time. Most wanted to stay involved in real estate but under their own conditions. For long tenured brokers this looked like starting their own small firm. For others it was starting to take more days off. And that is pretty great stuff.
Ultimately money isn’t about Porsches and exclusive clubs or even that big house. It’s about giving yourself choices and being able to do things that make you happy.
Whether you are young or have 25 years in the profession, having a real plan that you can implement and follow gets you closer to where you want to be. Consider the kind of planning that can help you do that.