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Life’s randomness is what makes it beautiful and dreadful. Especially with your financial plan. 

Not understanding life’s randomness increases your chances of running out of money in retirement. Or making boneheaded financial mistakes that sabotage your quality of life. 

A good financial plan helps counteract life’s randomness. But only when you update it after 4 major life events. 

In this episode, I reveal each of these 4 major life events so you can make smarter financial decisions and avoid unnecessary stress. 

Listen to the episode now!

Show Highlights Include:

  • The 4 unique circumstances where you must review your financial plan for maximum gains and minimum uncertainty (5:33 
  • The “material change” method for updating your financial plan so you don't run out of money in retirement (8:27) 
  • Why your financial plan obliterates stress and uncertainty when making important financial decisions (11:27) 
  • How frequently you need to review and update your financial plan so your finances don’t cause unnecessary stress and frustration (14:48)

To schedule your complimentary retirement track review, head to https://onecapitalmanagement.com. You can also call us at 805-410-5454 or text the word ‘TRACK’ and we’ll reach out to you.

Read Full Transcript

Welcome to Make Your Money Matter, the show that aims to change the way we think about financial advice so you can make better financial decisions. Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1,500 clients nationwide, with over $2.5 billion in assets. They are a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now, here's your host, Brad Barrett.

Welcome to Make Your Money Matter, the show dedicated to helping you create a better relationship with your money. I'm your host, Brad Barrett. And it's my goal to help distill the best ideas when it comes to your finances so you can make more confident money moves. Here at One Capital Management, our mission is simple, to help our clients and you listeners take control of your finances and build the life you deserve. Friends, today, the challenge is no longer the access to information, but rather it's finding the right information, and more importantly, how that information applies to you. And that's my commitment to you here each and every week, because after all, your money matters.

And as always, before we get started on this week's episode, to find out more about myself or any one of our advisors here at One Capital Management, you can visit our website at onecapitalmanagement.com or give us a call. You can call us to (805) 410-5454. And when you go to our website, you can click on the media tab and there you can actually download and subscribe to the Make Your Money Matter Podcast. You can also download and subscribe to the podcast on any other platform where you would otherwise download a podcast, whether that's the Apple app on your phone, the Google Podcast app, Spotify. Leave us a comment. Let us know how we're doing. It's always good to get feedback.

And as I share each week, if you like the show, share it with someone you like. And I guess, if you don't like the show, share it with someone you don't like. But today's episode, especially as we start this new year, is largely around times when we need to re-look at or review our wealth management plan or our financial plan. And in particular, we're going to talk about four, four unique times that I've seen in nearly 20 years of being an advisor where I think it's crucial for every client, every person to really understand, hey, now is a pretty good time to take a look at my plan.

And in talking about planning and times to review your plan, it got me thinking about randomness and the probabilities that exist. So, if you think about it, life's randomness, it's not always bad. Sometimes we look at things that happen to us that can turn our world upside down, but life's randomness is also what makes it so beautiful. Spontaneity is the spice of life, we've all heard that. And I bring this notion or topic up as it relates to the certain times when you should review your financial plan, because we're sitting here at the dawn of 2022, have gone through 2020 and 2021, and we think we're out of it, and yet cases keeps rising and we're still in this pandemic environment. And so, sometimes we need to look at things with a glass half full, or said differently, the silver linings of things.

And I think looking at life's randomness, as it relates to reviewing a important aspect, such as your retirement plan, makes a lot of sense for us. And let me give you an example. I was born in Torrance, California. My wife, Veronica was born in Santa Barbara, California. Now, with over 330 million Americans walking around this great nation of ours, I would suggest the probability of my wife and I ever meeting was pretty low.
Wouldn't you agree? You can probably all say the same thing for your spouses if you think about it. Put in another way, the odds were very high that we would never meet, that our paths would never cross. In fact, I bet there was more than a 99% probability that we never know each other even existed, yet we met, we fell in love, we married, have two beautiful kids in spite of all the probabilities, and that's the beauty of life.

Now, I have God to thank for that and I think he's the master of that plan and all of our plans. And I'm so grateful for that. And the things that go on in our life, like a pandemic on the bad side, we need to adjust with. We need to move with and grow, because at the end of the day, life is indeed filled with randomness. And sometimes, random, unpredictable, unforeseen events, something we call an economics, black swan events, can actually defy some of the best probabilities. So, randomness, it can baffle and derive probabilities of success, turning some worlds upside down, like I had mentioned, and really flying in the face of what once seemed so probable. We've all lived through that, if we've lived on this earth long enough. Something that we thought was going to go one way, but goes another and we try to adapt to it and we try to take stock of it in our mind and really filter it to make sure how it fits in our box. We all go through that both emotionally, physically, spiritually.

There's a professor named Mihan Yari, is a distinguished economic scholar who's actually taught at both Stanford and Yale. And I bring him up, because one of the pillars of his economic philosophy is that when making plans for the future, a person must account for uncertainty. Makes sense, right? And in my nearly 20 years of work in the financial services industry, the only way I know how to combat uncertainty and randomness, life's randomness, is to have a strategy and a plan built and review it on a proactive basis. So, we're going to talk about those times when to review. We've talked a lot about planning and why it's so important. Probably at nausea for many listening, but it's really important. It's why I talk about it every week. It's at the core of what we do here at One Capital Management.

But we're going to talk about the other side, when to review it, and in particular, the four times when reviewing your financial plan is the smartest. Now, in building our wealth forecast for our clients here at One Capital, the financial plan, if you will, something we call our black book that we provide to each of our clients. We have a tendency, if you think about it, or a plan does, a plan is a tendency to become outdated, literally, the moment they're set down on paper. I mean life happens immediately to all of us. So, once you have that financial plan, we don't want to let it go stale. You want to review that plan often, even when things in your life don't seem hectic or eventful.

In fact, I'd argue that those are some of the best times to sit down, give your full attention to your finances and do a thorough review. But we'll talk about some more specific triggers here in life that can prompt us to do a review. And the first one I want to bring up is actually what I just mentioned, it's reviewing your plan when all is calm. That's number one. The first time you want to look at reviewing your plan is, hey, things are going well, let's take a look at it. It could be a quick review, but it's important.

What's the key to a financial plan? The planning. You want to develop a process, a system and a strategy for managing your finances and achieving your goals before you need to make a critical decision. Author James Clear has quoted, "We don't rise to the level of our goals, but fall to the level of our systems." So, building a system is the small steps that we take that actually gets to the goal is itself. So, we need to build that system, so that before your critical decisions get made in life, especially in finances, we have that plan in place.

It doesn't do much good to experience an event and then say, you know what? We should have made a plan. So, be proactive. We talked about a lot of this in our podcast early on, around widening a financial and why having an advisor to help you with that is so important. And I want to make sure that we review all of those on a consistent basis, which is why I'm bringing it back up here, especially as we start the new year, as we start off with new year's resolutions. It's a great time, if you have a plan, to talk with your advisor and look at reviewing it. It could be a simple conversation. Right now, with my clients, I do lot of reviews. A lot of it's about the portfolio, about the retirement plans and bringing that back into their planning.

And in those discussions, something I bring up with each client is something around material change. Now, what does that mean? I brought that notion up on my clients years ago and I've used it today, even still, around something that changes your plan in an impactful way. Now, we need to quantify that. So, I always look to the distribution rate. That's something we talk about heavily as it relates to... Well, it's actually one of the biggest bridges between your investment portfolio and your wealth management plan, if you think about it.

Your investment portfolio is about rate of return. Your wealth management plan or ultimately your retirement plan, when you choose to need the money will have a lot to do with how much money you're spending relative to your savings, correct? Those two need to be a married concept. So, when we talk about a material change, something that changes your distribution rate by about 1% or more, I consider material. That could be an inflow or an outflow. Let me give you an example. Let's say we have an income that is more than we expected. That's a material change that would ultimately drop your distribution rate. You're bringing more in, so you need less in retirement or whenever you need the money.

Now, inversely, staying in the income category, you could also have the other side where we have less money. Maybe it's a job loss or some contract's not being hit and we're making less money, that would impact your distribution rate in a material way by increasing what you may need on a go forward basis. Material change, right around 1%. Now, on the other side, outflow could be the same thing. We could have paid off a debt and now we don't have that outflow anymore so it lowers our rate of distribution. That's a material change if it moves it by 1%. Conversely, if we added an outflow, as example in your financial plan, something you wanted, maybe you wanted to buy a new car or upgrade or something like that and we showed how that impacted your plan. If that moved the needle by 1%, it's something of a material change.

That only means to me, that it's worth discussing and making sure both parties, client and advisor are on the same page. Again, that's why it's so important to have a mapped out plan. You can do so many, what I'll call stress tests with things in life. Whether it's goal oriented, material oriented, whatever it might be, it's really important that you have that plan to be able to fall back to. That wealth forecast that we do for our clients allows us to, again, for lack of a better term, stress test what we are looking at doing.

Now, with that said, I get the comment all the time like we don't need always. And you always can. I have clients that definitely do this. I don't need to know that you changed your cable package or what your Netflix or Hulu costs are. We know those by the overall living expenses that we discuss, and usually a $7 change will be of material effect. Not that I'm saying those aren't important because they end up adding up. But the bigger changes are when it's good to review a plan, especially when things are calm.

All right, number two. What is a good time in life to review your plan? Is to review not just when things are calm, like number one, but on the flip side of that. Review it when you have questions about what to do next, because when uncertainty arises and it will, it's called life, your financial plan, your wealth forecast can provide clarity and peace of mind. That's the unsung hero of things when it comes to why you would want to do a financial plan, not to just get the numerical data, that's important, but of what you don't see. It's that peace of mind, that clarity.

Now, presumably at this point, you've committed your plan to paper if you've already set a plan and discussions here, as we're talking about reviewing a plan. So, I'm assuming here in this podcast that we've committed your plan to a piece of paper in a more stable and less emotional times. So, we've done that in the previous step. And in the first step, actually building the plan when things are calm and you want to focus on it. So, taking time to review that when things feel shaky or when there's a heightened emotional situation that can remind you of a strategic and rational course of action to take, that's where your plan comes in. It brings you back in a way to that time when you built the plan originally or when you first reviewed it when things were calm, but now life's throwing something at you.

It's the best time to take a look at the plan. That's number two, when things are going differently, maybe it's a job, maybe something in your life, that's a great second time that I've seen in my client's lives, over 20 years, that's a good time review. Maybe it's things that are positive, like a child being born, or your child are going to college or a debt's being paid off. Maybe it's some things that really are concerning to people, maybe it's a divorce or a death in the family. Whatever the foundation of it is that shakes it up, it's a good time to make sure you review your plan.

All right. Number three, the third item of when in life is a good time to review your plan. And again, I'm bringing these four items up starting in this new year, because I think it's really good for everybody who has a plan. We talk a lot of those of why you need a plan, but those who have a plan, why it's important for you to review it. And number three is reviewing it after finalizing major changes or transactions. Now, there's a majority of our clients here at One Capital Management that are in their 40s and 50s, and that means we're always changing. We all do that.

Human nature is we're still building in those time periods between buying homes, maybe it's even starting some businesses for some, maybe it's paying off your mortgages, putting kids through school, a lot's happening in that time period. And by the way, it's happening even more so in your 20s and 30s, if you're listening and you're even younger than 40s or 50s. So, we want to make sure we review times and major life changes and big ticket transactions. They're really the norm for a lot of clients in that age range. So, each time a change occurs from either a pay raise, like a promotion, or the purchase of a new house, or maybe you paid off a house, either way, major times when you have a big transaction happening, again, back to my material change conversation is a great time when you want to review you your financial plan.

All right, the fourth and final item or times in your life when it's a good time to review your financial plan is an easy one to lay up here, it's to review it at least annually on an ongoing basis. I always say a good financial plan is not a static document. It's not two dimensional, it's three dimensional. It's dynamic, it's living, it's breathing, it's a process. It's something you intentionally and consistently engage with over time. By the way, a good advisor is really great at bringing us back to that every year. Something we strive here at One Capital Management, between myself and all of our advisors is being really great in making sure we use the foundation of what we built, maybe it's years ago and we've updated it, but going back to that and reviewing it on an intentional basis.

Now, I know that may sound with these three and then this last one being yearly, it sounds like, oh, it's a whole bunch of work and you always got to keep up on it. And that's where you offload that work to an advisor, by the way. Partnership is key here, it really is. Having that advocate, that experience guide, if you will, helping you navigate all these uncertainties we talked about, because one thing we can agree on is life holds randomness and uncertainty. So, using that to be able to construct a plan, review your plan on the four times we mentioned when things are calm, when things are not calm upon a major transaction or what I call a material change.

And then annually, if you hone in on those four times and partner with the right fiduciary advisor, like we have here at One Capital Management, you can really set yourself up for success and really be able to tackle a lot of the uncertainties, especially as it relates to your finances. So, as we start this new year, this new you, new year, it's a great time to sit with your advisor. And if you don't have one and or listen to this podcast, maybe you heard about it from a friend or a colleague or one of our clients, give us a call. We're happy to help you. That's what we do here. You can give us a call at (805) 410-5454. You can also go on our website at onecapitalmanagement.com. You can set some time with myself or any one of our advisors here at One Capital Management.

You can also text us. You can text the word track, T-R-A-C-K to that same number, (805)-410-5454. We set up a text line to make sure we can reach out to you to set some time to go through your goals and objectives, as it relates to your investments and your overall planning. Do it today, it's too important not to. I want to thank you all for listening to the Make Your Money Matter show. Before acting on anything discussed today, remember, speak with a financial advisor near you. And again, if you're not sure where to turn, you'd like our help, you can visit us at onecapitalmanagement.com for a complimentary retirement tracker review meeting. And until next week, always remember, Make Your Money Matter.

The information in this podcast is educational and general in nature and does not take into consideration the listeners' personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.

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