T #4 – Title decision.

This step involves the actual transfer of title of your various assets.  The number one rule of stewardship applies especially here: no matter who the asset is titled to, the ultimate owner is God – we’re merely stewards.

Depending on what assets you are transferring in your wealth, it’s important to think long term.  If you’re transferring a business or a farm – what will happen if it becomes extremely valuable in 10, 20, or 30 years from now?  What happens if it becomes worthless?

To avoid sibling rivalry, it’s wise to figure out what is important to each heir, and using that information combined with the previous Timing decision, make the appropriate provisions.  It may surprise parents to find out what each child finds valuable.

T # 5 – Tools and Techniques decision.

After four previous steps that built upon each other, we now reach the decision commonly referred to as “estate planning.”  You can see that a lot of thought and context has needed to be built before arriving here.  Setting up trusts, wills, and other legal documents are only a handful of pieces in a much larger puzzle.

You’ve answered the “what, who, when, and why” questions, and this step involves the “how” question.  You want to keep your estate planning as simple as possible while still achieving your overall goals.  The tools and techniques aren’t the objectives themselves, they’re merely agents to accomplish your objectives.  Bringing in the right team of advisors at this stage is critically important – so be sure to find a good attorney, accountant, and financial planner who you trust and who share the same values as you do.

T #6 – Talk decision.

The sixth and final T is the talk decision – which is by no means a one time decision.  This is where you’ll want to communicate the specifics of your wealth transfer plan to your heirs, and it will probably take place more than once, especially if things in your scenario or the scenario of your heirs change.  The talking should allow a family to align their individual expectations with reality, and not be surprised when the actual transfer takes place.

Family conferences are a great opportunity to promote family harmony as well as to pass on the wisdom we mentioned in the Transfer decision.  You have a great opportunity to transfer the tangible wealth alongside the intangible wisdom that you’ve accumulated throughout the years.  These conferences also can serve as a good platform for you to evaluate the readiness of each family member to possibly receive the wealth at some point.

Looking back over the Six T’s of Wealth Transfer, you’ll notice that the actual tools used for the wealth transfer are preceded by four crucial steps.  Possibly the most common mistake that many families make is jumping first to the “how” before addressing the “why.”  It’s difficult to proceed to the next T without sufficiently satisfying the preceding T.  This holistic view of wealth transfer aligns with the holistic view of stewardship – we as stewards cannot make isolated decisions.

The discussion about wealth transfer varies strongly among various families, but we believe there are six common decisions that need to be discussed throughout the process, which we call the Six T’s of Wealth Transfer.  We’ll discuss the first three T’s now and the last three T’s in another blog.

T #1 – Transfer decision.

This initial step is deciding whether to make the transfer or not, and then deciding who receives the wealth you currently are in charge of.  This wealth could be in the form of investments, a farm, a business, or any other asset of value.

A good principle to keep in mind here is what is commonly called the treasure principle: the fact that you can’t take your wealth with you, but you can send it ahead of you (Matthew 6:19-21).  You’ll also want to consider the unity principle, which is affirming that you and your spouse are in complete agreement over this decision.  Our spouses are meant to complete us, not compete with us.

Lastly, yet maybe most significantly, you’ll want to consider the wisdom principle of transferring wisdom to your heirs before transferring wealth.  Proverbs 20:21 tells us that “an inheritance gained hastily in the beginning will not be blessed in the end.”  Wisdom may lead to wealth, but rarely will wealth alone lead to wisdom.  Be sure the next steward is well prepared to handle what you are passing on.  Ask yourself “What is the best/worst thing that can happen if I transfer my wealth to ____?  How likely is this to occur?”

T #2 – Treatment decision.

After making the decision to make the transfer, you then will need to decide how much each heir will receive.  For some families, this may be difficult if an illiquid yet valuable asset is being transferred, such as a business or a property.  A good guiding principle is that since you love your children equally you should treat them uniquely.  Fairness may not always mean equality.

In most scenarios, you will most likely be the best person to judge the readiness of your children to receive an inheritance.  A lot will need to go into this decision, such as their independence, their character, and their own financial situation.  Will the same amount of money be a blessing to one child yet a debilitating crutch to another child?

T #3 – Timing decision.

Next you will need to begin discussing when to transfer the wealth.  The key governing principle within this decision is an acknowledgment that the timing of the transfer needs to maximize the use of the wealth by you, your heirs, and the charities your support.

Ron Blue says you should “Do your givin’ while you’re livin’ so you knowin’ where it’s goin’.”  Translated: you’re going to know best how you allocate and distribute your wealth, so the surest way to see that it will be used to your liking is to be around when it’s being distributed.  This isn’t to say you should squander your wealth in haste in your last years, but it does run contrary to a lot of beliefs.

Timing will also be significant especially when giving money to children – as you don’t want to use the money to manipulate behavior, change their lifestyle, or destroy the need to provide.  You’ll also need to take great caution in not being swayed by your children’s demands or expectations.

When considering charities, you’ll also want to ask yourself how confident you are that the values you cherish in your charity won’t change over time.  The answer to this question can help determine whether you do your giving now or after you pass on.

We’ve covered three T’s and still have three more to go – be sure to check back in soon for the remainder of the wealth transfer process.

Does this make setting goals and making resolutions meaningless?  Not necessarily, as we believe even the act of making goals is a step in the right direction – especially financial goals.  So, how do you stay within the 15% of those who keep their resolutions and hit their goals?  There’s really no set formula, but the following ideas may be of assistance.

Make your goals realistic.

Setting unrealistic goals, such as paying off the your home’s $250,000 mortgage this year, aren’t just unrealistic – they actually serve as de-motivators.  According to research done by David McClelland and John Atkinson back in the 1960’s, we should set goals that we have a 50% chance of accomplishing.  That way our mind doesn’t give up too easily on goals that we have no shot of achieving, nor do our minds simply glide effortlessly toward a goal that isn’t much of a stretch at all.  The key principle is to ensure that our goals are within reach yet simultaneously will require more effort than we displayed in years past.

Make your goals visible.

This is key, as most everyone agrees to the old adage “out of sight, out of mind.”  A lot of people will earnestly make their resolutions and set their goals in January, possibly write them down on a hidden piece of paper somewhere, and then not even be able to recall them a few weeks later.  If we can’t even remember our goals, what chances do we have of achieving them?  One idea is to print these goals somewhere you will see them frequently: on your bedroom mirror, on the refrigerator, inside your car, anywhere your eyes will frequently be drawn to.  One of our favorite ideas is to laminate the goal sheet to make it water-proof, and hang the sheet in the shower.  That way, either early in the morning or late in the evening, you’ll be reminded of your drive to accomplish what is laid on your heart.

Make your goals social.

We don’t mean you should post your goals on Facebook or publish them in the church bulletin, but rather you should share your goals with a select group of trusted friends.  This could be your family, but doesn’t have to be.  What is important is trusting who you’re sharing these personal goals with, and then giving them the permission to hold you accountable to them.  Then set up a regular time to get together with these goal accountability friends to make sure there is ongoing review, and not something that’s just going to be brought up next Christmas dinner.

That’s really it – there’s no magic ingredient to accomplish your goals.  But there are certain ideas we all can implement that can at least increase our likelihood of achieving our goals, whether they’re financially related or not.

The fascinating aspect of retirement is that it means so many different things to so many different people.  This poll reflected that.  For example, 25% of those business owners surveyed plan to retire before age 65, while 17% don’t ever plan to retire.

From those who do plan to eventually “retire” from their own business, 39% plan to alternate between periods of work and leisure, 21% plan to volunteer their time, 14% plan to work part time, 10% plan to work full time elsewhere, 9% plan to never work again, and 4% plan to start new businesses.  The remaining 3% still don’t know.

What we’ve learned from our time in this industry is that retirement has one basic element common across all definitions: freedom.  You can choose to work if you’d like now, since you’re no longer required to out of necessity.  You can choose to volunteer your time now, since you’re financially free to do so.  You can choose to never work again, since your income can be derived from places other than labored earnings.

There’s tremendous freedom in this idea – but also potential risk.  For some individuals, their primary identity is their job, and when that job is no longer there, it can be a difficult transition.

The key is to have a plan – a plan to get to retirement and a plan to spend retirement.  Most retirement planning is focused on getting to it, ensuring you have enough money saved up and then creating distribution plans to provide for a rising income stream, and this is certainly necessary.  However, as you inch closer to your actual retirement day, you need to also start thinking about how you will fill your suddenly large margins of time.  Be intentional with this stage of life – it’s a blessing.

A term that Ron Blue of Kingdom Advisors often uses is “rehirement” – a concept that we’ve adopted into our own discussions with clients.  This time of re-hiring can be viewed in multiple ways, but ultimately it’s rooted in the idea of being “employed” to fulfill God’s agenda in your later years.

Here’s a few questions you can ask yourself as you consider your rehire/retirement stage of life:

What are some activities you wish you could have done that work prevented you from doing before?

What skills can you bring to the volunteer world that can be beneficial?

What individuals in your industry could benefit from a seasoned pro willing to mentor them?

What places have you and your spouse never visited but wish to?

There aren’t any right or wrong answers to these.  What was satisfying and fulfilling for your neighbor, or brother, or mother may not necessarily be satisfying or fulfilling for you.  Explore around and ask yourself some good questions.  If you plan well, you’ll have the freedom to craft and live out a retirement that is satisfying and fulfilling in ways unique to your own specific calling.

One of the great privileges of being in the financial planning field is getting to know other quality planners around the nation.  Carl Richards, a Certified Financial Planner™ in Park City, Utah, is one of such planners.  Carl runs the online blog “Behavior Gap,” is an accomplished paper napkin artist, and contributor to the New York Times.

We asked permission to share one of his recent pieces, entitled “Repeat Until Happy.”  You’ll find it in its full content below.  The positive biblical concept of contentment is at the heart of this – as well the warning against envy and jealousy.  We’d encourage you to take some time and reflect especially on the questions posed at the end of the article.  Thanks, Carl, for allowing us to share your wisdom.

Repeat Until Happy

There seems to be a constant battle between what we have, what we need and what we think we want.

About a year after my wife and I had our first child, we moved into a neighborhood with homes built decades earlier. Each had two or three bedrooms. We soon noticed that when people had a third or fourth child they moved from the neighborhood in search of more space. One day I mentioned this to my next-door neighbor, who was 70 at the time, and he expressed surprise.

He and his wife had raised their five kids in one of the smallest homes on the block.

One of the most challenging personal finance issues we all face is the ever-expanding definition of “need.” Things we once considered clear luxuries have somehow becomes necessities, often without any consideration of how the change in status happened.

Cars that seemed just fine now seem old fashioned. Then there are children and their cell phones. Only a few years ago it would’ve seemed outlandish for 14-year-olds to need one at all, let alone the latest iPhone.

Achieving clarity about the difference between our needs and wants remains one of the biggest challenges in personal finance and a tremendous source of potential conflict within families. While simple in theory, the calculation is much more complex in practice.

One of the most discouraging parts of modern life seems to be this never-ending sense that we should want more. While this may not be true for everyone, it does seem like it’s become more difficult to be content with what we have. Whether it’s the media, our friends or even our family, it can be a challenge to separate real needs from wants. So here are a few of things to think about:

What if financial happiness is not about getting more but about wanting less?

What if things start out as wants and become needs not because the thing itself has changed but because our feelings about it have changed?

What if you can never really get enough of something that you don’t need?

From personal experience, I know that the shiny new toy I just had to have often ends up in a pile of things that I eventually need to sell on eBay. I’m not the only one that’s fighting this battle. It’s yet another example of why personal finance can be so complex. Because there’s no definitive list of the 100 things that every family must have, these end up being very personal decisions.

I’ve talked about some of the ways I’ve seen people look for balance between wants and needs. They include things like sleeping on a decision overnight. My personal rule is that before I buy a book, it has to sit in my Amazon shopping cart for five days.

What have you done to help better define the difference between a want and need? And how have you focused more on being content with what you have instead of always striving for what you think you want?

The author of the article, Michael Kitces, argues that goals are not as important as habits – and that habits are the true drivers to our success and accomplishments in life, including finances.  He contends that in setting goals, we may actually be capping our potential success by shooting for less than we can achieve.

Our company mission statement says that we are to lead and advise our clients – and Michael’s article brings up a good question: should we lead by encouraging clients to focus more on their goals, or more on their habits?  As proponents of goals-based financial planning, as well as purpose-focused investment management, the answer seems obvious at first.  But upon further reflection, it’s actually the third option: both.

Once goals are set up, habits should then be identified as to how specifically that goal should be accomplished.  If you make a personal goal to run a marathon, you’d better have a plan on how you’re going to train your body to run 26.2 miles straight.  Few people can do that right away – or a year from now – without adapting some serious running habits first.

Similarly, if your goal is to retire at age 65, or to send your three children to college, or to give a substantial gift to your church, you’d better first count your costs, so that you can identify the habits you’ll need to develop in order to achieve that goal.  These goals won’t self-actualize, they’ll need to be helped along and ultimately accomplished by habits of saving (or running) diligently.

So as financial planners who lead our clients, we’re doing our jobs best when we’re looking at both the goals and the habits of our clients.  It’s not enough to look at only one or the other.

Paradoxically, habits can also then refine our goals.  As we identified above, the creation of goals leads to the clarification of habits.  But sometimes once we are establishing good habits, they end up refining, or even altogether replacing, the original goals – and this is good.  It’s an ongoing cycle – refining of goals, refining of habits, refining of goals.  And this is why it’s critical in your personal financial plan to have both articulated goals and an ongoing method of monitoring your habits.

Cornerstone currently needs some more volunteers to serve in the following capacities:

§       as a Client Advocate offering hope to those in pregnancy related crisis,
§       be a Church Liaison speaking truth about CPCS’s purpose in your church
§       or serve life as a Table Host at our annual Banquet.

If you’re interested in helping in any of these areas, please email cpsc@cornerstonepsc.com.

We’d encourage you to check out their website at: http://www.cornerstonepcs.com/ to learn more.

We’ve come to know Debbie Davenport, the executive director, over the past several years, and have been blessed to help out with various CPSC events.  In fact, our very own Ethel volunteers her time there several times a week.

Thank you for all of your votes and your input on the website.  We’re still working out a few tweaks here and there – so feel free to keep us aware of anything else you see that could be improved.

Thanks again – and congrats to Cornerstone Pregnancy Care Services!

By the time this article is completed and posted and being read by you, the stock market will most likely have made further moves – either up or down.  

So – what’s the cause of this?  Should we be seriously concerned about a systematic failure in the financial systems?  What should we be doing about it?  Let’s address these one at a time.

What’s the cause?  There really isn’t any singular cause to the market’s reaction as of now.  So while the sell-off doesn’t appear to have one isolated culprit, the following most likely are playing contributing roles: 

• US Treasuries Downgraded.  On Friday, August 5^th, Standard & Poor’s downgraded the US long-term sovereign debt rating one notch, from “AAA” to AA+”  Standard & Poor’s is one of the nation’s three major rating agencies, with the others being Moody’s and Fitch.  Both Moody’s and Fitch reaffirmed the US’s AAA rating – but remained on their “negative” watch.  
• Continued Uncertainty in Europe.  There are strong concerns especially over Italy and Spain’s liquidity, as well as Greece’s, Ireland’s and Portrugal’s solvency.  These events could lead into a banking crisis for European banks similar to our own banking crisis of 2008 – but that remains to be determined.  
• US Economic Data.  The economy is showing weak signs of improvement – rather than robust and fast recovery signs.  This leads to less confidence in a “true recovery.” 

Should we be seriously concerned?  Here’s the real crucial matter: most, if not all, of the news reports lately focus on governments – when in fact, companies are what truly drive stock markets (and most investments in the long term).  The bad news is that companies are sometimes at the short term mercy of panic and fear (such as now) over things they can’t control, such as the government and people’s emotions/reactions.  The good news is that companies, the primary driver of equity returns, are in phenomenal shape as a whole.  Here’s a sampling of the good reports coming from companies: 

• Earnings are up.  According to Bob Carey, of First Trust Advisors, earnings for the S&P 500 are up 20% over last year (a year which was also very profitable), with about 80 companies left to report.  The forward price/earnings ratio, a broad measure of a company’s earnings compared to its stock price, is approximately 12 – compared to a lifetime average of around 16.  This means prices are cheap compared to earnings.  (Source: First Trust Advisors) 
• Cash reserves are high.  Companies are also sitting on more cash than they have in the past 60 years.  According to a report earlier this year from the Federal Reserve, non-financial corporations had approximately $1.93 trillion in bank accounts and other liquid holdings.  To compare this more tangibly, that represents about 7.3% of their total assets, a number not seen since the mid 1950s.  The cash could be used for a number of things – including acquisitions, dividend increases, or expansions.  (Source: Federal Reserve)

An interesting comparison to make is the obedience of the companies and the disobedience of the governments in following the five biblical principles of financial management we discussed earlier.  To review them again: 

1. Spend less than you earn
2. Avoid, or at least minimize, the use of debt
3. Build liquidity
4. Set long term goals
5. Be generous

Again, number 5 is a tough one to measure as it was when we assessed the government, but we can see that corporations are at least following the first 4, and are in a good situation because of it. 

What should we be doing about it?  And all of this brings us to our main point: to encourage us all to recall the hard fact that owning “stock” means owning companies – not governments or economies or even stock markets.  Our focus should be on these businesses, these companies, and not on the geopolitical issues or macro-economy.  Fear is a powerful emotion, and one that shouldn’t be discounted.  But fear most certainly shouldn’t prevent us from owning a healthy, diversified, profitable portfolio of companies that are weathering the storm we all find ourselves in.  

And so – if we look at the five principles for our own situations and we’re spending less than we earn, we’re minimizing debt, have built some liquidity, have set long term goals, and remain generous, we could be in a great position to take advantage of the pricing of these companies we’ve just talked about.  Investing in companies is something that should be done with a long term perspective, and when doing so can potentially provide great rewards.

“Advising and leading clients in a life of stewardship by applying biblical principles to the financial planning and wealth management process.”  

The above phrase is our company’s mission statement.  And the core essence of it is the application of biblical principles to guide our financial decision making.   

You’ve no doubt seen the news headlines recently of the vicious market declines, the reaction within the stock market has been just about impossible to miss.  But what’s the real cause of this?  The real cause is this: violation of debt principles.  And so in the midst of all this noise, we’d like to provide a distinct signal and take a look at what the Bible has to say about money, especially debt, and how it may be related to the economic and financial situation we find ourselves in presently.  

In general, the Bible lays out five main principles to apply to financial situations.   

1. Spend less than you earn
2. Avoid, or at least minimize, the use of debt
3. Build liquidity
4. Set long term goals
5. Be generous  

If we measure our government, and other governments around the world, against these principles, we see blatant discrepancies.  A logical argument can be made for Congress going 0 for 5, depending on how we define generosity, but if we give them the benefit of the last principle, they’re still 1 for 5.   Even from someone who may not believe in the truth of the Bible, or argue that the government should be exempt from it’s truths, these principles just make sense.  And when they’re not followed – well, we find ourselves in situations less than ideal. 

Let’s just look at the first three, for the time being: spending less than we earn, avoiding debt, and building liquidity.  With news agencies reporting numbers like $2.1 trillion (our new debt ceiling) and $900 billion (the agreed upon budget cuts over the next 10 years), it’s difficult to wrap our minds around such figures.  Dave Ramsey used some more tangible figures: 

“If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, and are $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year”  

As you can see, the “family-government” is spending $17,000 more than it earns, has a disregard for it’s astonishing amount of debt, and also has zero liquidity.  Biblical principle number 4 can also be applied here, assuming with that massive amount of debt and minimum amount of spending cuts, the future isn’t of much importance.   

The massive decline in the general markets over the past few weeks has only partially been due to our own government’s fiscal controls.  Many economists and investors argue that the larger influence is what’s taking place in Europe, especially with Portugal, Italy, Ireland, Greece, and Spain (affectionately referred to as the PIIGS).  These countries have also broken this biblical principal of managing debt even more severely than our own government, and the ramifications are largely still to be determined – although there are steps being taken by organizations around the world to minimize any potential effect on the global economy.  We’ll talk more in depth on this later.   

For the moment, we only choose to emphasize the need to pay attention to what the Bible has to say about money – not just for individuals and families, but for any entity.