Kyle Nagy’s Key Points On How To Make Sound Financial Decisions (Part 2)

Kyle Nagy’s Key Points On How To Make Sound Financial Decisions (Part 2)

We just wrapped up all the extension returns for TY2017, and can finally place our gaze SQUARELY at what’s ahead.

Which is a funny thing to say, because, well … for too many of our clients, we are continuously looking backwards — simply because they haven’t worked with us before the year is over, and we aren’t able to make the proactive moves that we could make, if given more time.

Let’s get ahead of the game, shall we?

Give us a call ((816) 272-8151) or shoot me an email through the button at the top of the page, and let’s set up a time to do some tax planning on your behalf. This is especially the case if you own a business in Kansas City (or have a side hustle) … with all of the changes this year, I anticipate that our calendar is going to be quite full in December with last-minute moves.

But taxes aside (I know, funny coming from me) … there are still plenty of mental “traps” that you can fall into, if you don’t get your mind right regarding money.

For years, we’ve worked directly with families in vastly different situations. And there are plenty of tactical maneuvers we advise — both from a tax standpoint, and a more holistic, financial standpoint — but nothing can replace the proper financial mindset.

Last week, I gave you two “mental mistakes” that you might be making with your financial decisions:

1)    Wrong Mental Accounting

2)    Subtle Price Anchoring

This week, I have a couple more.

Kyle Nagy’s Key Points On How To Make Sound Financial Decisions (Part 2)

“You can’t undo the past … but you can certainly not repeat it.” – Bruce Willis

Aside from the tactical moves that we often help families and clients to make, there are often underlying psychological traps that can influence the mistakes we make with our money. Things like…

Self-Sabotage Trap #3: Fixating on losses, instead of moving on

Definition: Our consistent tendency to avoid loss, rather than acquiring gain.

Typical Example: An investor is more likely to sell a stock which has increased in value, rather than selling stock that decreased. Over time, her investment portfolio is made up of investments that have decreased.

Cure: Don’t think of selling a stock for less than you paid for it as being a loss. It can actually work as a gain for two reasons:

* Tax deduction (which can really help!)
* The other side of opportunity cost: opportunity GAINED (i.e., you can better utilize that money elsewhere)

So, don’t check your portfolio so often. If you don’t know you’ve lost money, you don’t experience the pain. (And riding the roller coaster of your portfolio’s value is a waste of emotional space.)

Since stock prices go up in the long run, the longer you go without looking at your portfolio, the greater chance of seeing a gain.

Sometimes taking that loss really is the best thing you can do.

Self-Sabotage Trap #4: Financial Herd-Following

Definition: The tendency for us to want to do the same thing as a large group of others, with no thought to whether that action is rational or irrational.

Typical Example #1: Buying when prices are high because everyone else is.

Typical Example #2: Selling when prices are low because everyone else is.

Cure: Warren Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.”

Keep this in mind when making your next financial decision. If everyone is telling you to buy this or buy that (i.e., gold, silver, real estate), then do the opposite.

In the financial investment world, if it seems too good to be true, then it usually is.

One idea is to write yourself an investment policy statement or contract.

Include factors such as:
 * Investment objective
 * Investment goals
 * Desired asset allocation and diversification
 * Summary of your risk tolerance
 * Rebalancing schedule

Before making any changes, consult with this contract.

You can also take advantage of our inherent tendency to do what’s approved by others, to affect positive behavior in yourself. For example, let’s say you are trying to pay off debt. Tell your three closest friends, make an informal contract, sign your name at the bottom, and then email it to them. The pain you would incur from breaking that contract is high, relative to the pain of breaking your behavior if you went about it alone.

You might be making more mistakes than you realize. Perhaps these.

But do let me know: is this helpful to you?

And is there anything more that we could do for you, to help?

Until next week,

 

Kyle Nagy

(816) 272-8151

Kyle P Nagy, CPA

Kyle Nagy’s Common Financial Mistakes (Part 1)

Kyle Nagy’s Common Financial Mistakes (Part 1)

You pay your bills on time. You try to save as much as you can. You even follow the advice you read in the books and hear on the radio about how to keep your finances in check.

But you’re still not getting ahead.

Well, sometimes, it’s the unchallenged, mental assumptions about how we’re handling our money that rise up and bite us in the keister.

You see, in the course of our daily work around here, we not only work with tax forms and legal/financial documents a TON … but we also get a regular crash course, via those documents, on how people (our Kansas City clients, mostly) have arrived to the place where they actually have something to *protect*.

In short, we get to be around a great many well-accomplished families and individuals from Kansas City.

So, perhaps it’s odd to you, but I’ve learned to pay attention to the little lessons I can learn from my clients, and from people of means around the country.

I’ve discovered a few things along the way about what keeps people from the kind of accomplishment and means that so many of them are looking for, at least when it comes to their finances.

Let me know what you think…

 

Kyle Nagy’s Common Financial Mistakes (Part 1)

“Remember that not getting what you want is sometimes a wonderful stroke of luck.” – Dalai Lama

 

In the course of working with clients, I’ve identified some financial mistakes I see (as well as ones I’ve made myself!), which can be fixed.

These are the sorts of financial mistakes that don’t normally show up in balance books, but are revealed after looking at overall trends. In some ways, they can be VERY difficult to fix … but that’s often because we aren’t even aware we’re making them.

Once we gain that awareness, however … well, you begin to notice that your finances are “suddenly” in a much better place. At that point, it’s easy. Because all it takes is thinking a little differently…

Self-Sabotage Trap #1: Wrong Mental Accounting

Definition: Tendency for families to divide money into separate accounts based on subjective criteria.

Typical Example #1: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.

Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.

Cure: Funnel income, no matter the source, into one savings account.

For any “found money”, such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.

As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental “books”, should be lumped into one monthly bucket.

Self-Sabotage Trap #2: Subtle Price Anchoring

Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.

Typical Example: The “rule of thumb” to spend two months’ salary on an engagement ring.

Typical Example #2: A realtor will tell you that “in 2015, this house was going for $500,000 — and is now listed at only $350,000!” … causing you to think this house is undervalued.

Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.

For everyday purchases, avoid looking at the MSRP or sticker price.

Ask yourself:

    Can I afford this today?

    What do I really want to spend?

    What is this really worth to me?

Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.

There are a few more big ones, but for the sake of brevity I’ll save those for another week.

But do let me know: is this helpful to you?

And what more could we do for you, to help? Shoot me back an email through the button at the top of the page. I read every one.

Until next week,

 

Kyle Nagy

(816) 272-8151

Kyle P Nagy, CPA

 

Kyle Nagy’s Five Key Elements For Setting Smart Business Goals

Kyle Nagy’s Five Key Elements For Setting Smart Business Goals

When I sit down with my Kansas City business owner clients (whether in person or on the phone), we try to look at EVERY aspect of their business, not just their books. And there is often great clarity when we peek at what is *behind* the books (marketing, sales, management, asset management, etc.).

The good news for my business owner clients from Kansas City is that when we put in place clear metrics and financial reports, they shed clear light on strategic decisions.

But the problem I’ve often found, is that OUTSIDE of the financial reports we’re able to create for our clients, there are very few additional metrics in place to evaluate if they’re headed in the right direction — from a strategic, tactical and growth-oriented perspective.

Sure, financial numbers are great — but what are your GOALS? And, I don’t just mean sales goals. What do you want your business to look like two years from now? Five years from now?

And what are you doing to get there?

Too often, business owners are so busy working “in” their business, that they don’t have the time to work ON these sorts of things properly.

Well, I have some short and sweet words for you this week on the subject.

 

 

Kyle Nagy’s Five Key Elements For Setting Smart Business Goals

“The two most important days in your life are the day you are born and the day you find out why.” – Mark Twain

Sometimes, as a business owner, you become so overwhelmed, the only thing you can do is take it one step at a time. And, although this may get you through the week, it’s not going to help grow your business. Real growth comes from writing out the goals you plan to achieve — and then putting those goals into action.

Here are some important rules to follow that we’ve found useful with clients in creating metrics and other goals:

Specific: You know exactly what your goal is.
Measurable: What will tell you that you actually achieved the goal?
Achievable: Speaks for itself. Don’t bite off something huge.
Relevant: It fits into a coherent strategy.
Time Bound: Put a deadline on it.

Did you know … only 3% of the population has written goals?

And, guess what?

This 3% earns far more than the rest.

If you truly want to see improvement and growth in your company, take the time to create SMART goals. Then, be sure to make yourself and your employees accountable for those goals.

Otherwise, you will always be taking it a day at a time.

Feel very free to forward this article to a Kansas City business associate or client you know who could benefit from our assistance — or simply send them our way? While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners.

Warmly,

Kyle Nagy

(816) 272-8151

Kyle P Nagy, CPA

Should Kansas City College Students Invest In The Market Or Pay Off Student Loans Early?

Should Kansas City College Students Invest In The Market Or Pay Off Student Loans Early?

As a general rule, most debt isn’t helpful to you. In fact, I could probably state that more clearly: debt can be a massive load on your financial future.

And, of course, that is especially true of student loans.

Now, much can be written about the explosion of student loan debt over the last decade (and has), but today I wanted to posit an idea to you if you carry these kinds of loans. It’s perhaps a “dangerous” idea, but it is the kind of financial thinking that, when followed, can build habits of wise investment and careful risk-taking that often mark a wealthy, successful life.

But before I get there, a quick follow-up to my note from last week.

I wrote about optimizing our mental machine, and keeping clear of the dogmatic opinion-sharing so prevalent on social media and outlet media.

But I’m also reminded of that old Abraham Lincoln quote: The mind is like a parachute; it functions best when open.

(Yes, I know Lincoln didn’t say that.)

In their excellent book, Think Like a Freak, best-selling “Freakonomics” authors Steven Levitt and Stephen Dubner wrote about the rising phenomenon of dogmatism — and how it significantly hampers our ability to see solutions to problems very clearly.

In my opinion, there are many serious problems in our culture. Many people are being abused, repressed and victimized. Even in Kansas City.

But shouting, lecturing, militarizing and browbeating won’t get us there. While social media can certainly play an important hand in bringing attention to, and opening dialogue on, some of these situations and issues, let’s be careful to maintain a tone with one another that is respectful and open to the validities in others’ thoughts.

In other words, let’s all pour a small bucket of ice water over our heads around some of our cultural hot topics — and be sure we’re listening first and speaking last, shall we? Myself included, for sure.

Now, let’s talk about student loans and investments…

 

Should Kansas City College Students Invest In The Market Or Pay Off Student Loans Early?

“Go confidently in the direction of your dreams. Live the life you have imagined.” – Henry David Thoreau

The media is certainly good for this: bringing awareness to the rising, crushing wave of student debt. In fact, the average student in the Class of 2016 has $37,172 in student loan debt. And while this is a big number, it doesn’t have to cripple your financial future.

In fact, some students from Kansas City may be better off not taking their parents’ advice on how to get out of debt. Because unlike many other forms of debt, student loans are usually best when paid as slowly as possible.

Yes, as I said previously, almost all debt is bad. But, there are two areas in which this general rule is not as hard-and-fast: home mortgages and student loans. Wise financial stewards can, in fact, use these types of debt to their advantage.

Graduated students are often told that they need to pay off student loans early so that they can start building real wealth. Make extra payments, and the process accelerates. So, is that always the best strategy?

Well, it depends. You see, if you’re careful, you can take advantage of a financial principle that can help you make later financial decisions: “the spread”.

You see, the lower the rate of interest on your loan and the higher the average market return (as now, when the market is, in fact providing excellent returns), the more it makes sense to invest your extra dollars instead of paying down on your loan. The difference between a debt and investment rate is known as the “spread.” for example, if market rate of return is 11% and the interest on your student loan is 4%, then, the “spread” is 7% (11% minus 4%).

Let’s look at this in the real world. Madison and Tim each have $20,000 in student loans which are to be paid over 10 years at 4% interest. Tim pays his monthly payments of $202 plus an extra payment of $100 extra so he can clear that debt ASAP. Which, because he makes those extra payments, he’s out of debt in six years, instead of ten. No more debt now, and Tim actually invests the full $302 per month that he had been putting towards his debt. Ten years after graduating, Tim has paid off his school debt and his investments have grown to $16,728.

Madison does it differently. Instead of paying extra on her loans, Madison pays only the minimum amount of $202. And now, she ALSO puts $100 per month (that she could have used to make extra payments) and she wisely invests it. She does this for ten years. But, when you look at the math, her investments have grown to $21,700, beating Tim’s return by $4,972.

I’ve written before about “the time value of money”, and this is a sterling example. That’s because, in Madison’s case, instead of making extra payments as Tim did, she invested her money for a longer period of time. Tim’s four years of investment (even with a larger sum), can’t beat Madison’s TEN years of (smaller) investments, because she harnessed the power of compounding interest.

Oh, and there is one additional reason students might consider this: Student loan interest, like home mortgage interest, is still tax deductible (which of course, you KNOW I love). Even under the new tax law, there is a tax deduction of up to $2,500 for student loan interest (as long as you meet some basic requirements). The tax code is, in effect, helping to subsidize the cost of your loan. The faster you pay down principle, the faster you lose your tax deduction, which is one more reason that paying just the minimum may be the best option for some. And, with the savings from your tax deduction, you have more money to invest at higher rates of return.

So, yes, this is a “dangerous” strategy. And you should look at the numbers for YOUR situation. The smaller the spread between your loan interest rate and the average market return, the less appealing this strategy becomes.

Plus, there are other important cases to be made, of course, for working to be debt-free as quickly as possible, especially from a mental standpoint.

Here’s the critical component of this strategy: you must save and invest your money. If you don’t invest the extra money (and you simply spend it), you would have obviously been better off putting your extra dollars toward the repayment of your loan.

So, consider this carefully. Research your loans, your rates. Make sure you have an emergency fund, don’t get saddled by credit card debt, and make sure you are handling other financial basics.

But remember: one of the greatest strategies to building wealth is TIME. Start investing as early as possible, do it smart … and don’t get scared by “conventional wisdom”.

And, as always, my team and I are here to help. Thanks for listening.

Until next week,

Kyle Nagy

(816) 272-8151

Kyle P Nagy, CPA

Getting Your Mental State Out Of Fear And Anxiety By Kyle Nagy

Getting Your Mental State Out Of Fear And Anxiety By Kyle Nagy

I might be wrong, but I get the sense that many of my friends and clients in Kansas City are getting wiser about the dangers of our digital age.

Because they are, indeed, quite real.

There is a famous clip of an interview with NYT-bestselling author, and cultural commentator Simon Sinek that made the rounds about a year ago on the way millenials have been trained to think by the always-online lifestyle.

But if we think that the things he discusses in that video are only pertinent to younger people, we are fooling ourselves. Many things that have defined this millennial generation have trickled upwards into every generation via the mass media.

And look — I do taxes and help with finances for a living. I’m not an expert in these matters.

However, I do see what happens to my Kansas City clients who get wrapped up in the media cycle of fear and negativity, and, well, what often happens to their finances as a result.

Frankly, I’m tired of seeing clients and friends who are “beaten down” by all the fear and anxiety in their lives.

And there is one major source for it — which is entirely optional.

And I suggest you “opt-out”, if you will.

So if you’ll pardon this diversion from my normal financial fare, here goes…

Getting Your Mental State Out Of Fear And Anxiety By Kyle Nagy

“Time sets the stage; fate writes the script; but only we may choose our character.” – Liam Thomas Ryder

Life in the modern world isn’t always a trip in the sunshine.

But it’s made so much harder by the tendency of our world to suffocate you with mental junk and global negativity.

I believe that the number 1 danger for ALL of us moving forward in 2018 is allowing today’s world to starve your brain with “junk food” and deaden your spirit with the overwhelming feeling that you are small, insignificant … helpless.

I’ve learned to avoid the 24-7 news channels, and the sites online that traffic in fear. I figure that I’ll see what I need to when seeking out resources for our clients about current events. But let’s look, for example, at CNN.

CNN is about as bland as you can get — it’s “normal” to “normal” people. But I also realize, most “normal” people accomplish relatively little in their time on this planet (at least on the outside). Those of us who are going somewhere in life must have better things to do than to listen to talking heads opine about political gamesmanship and the dozens of tragedies that we can’t (and won’t) be able to do anything about.

Right now, the world is swimming in negativity. And you need to be serious and proactive about it. Because — if you don’t — it’ll kill your vocation, kill your career growth, kill your dreams and everything you really care about.

The mass news media is NOT your friend.

They feed on fear, and they sell paranoia, division and hyperbole. It’s what they do.

And not only must you protect yourself from this drip, drip, drip of depression, you need to fight it on behalf of your family and friends, your coworkers and customers.

Tell them what’s good. Greet them with a smile and with encouragement. Tell them what they’re doing right. Give them a voice to the hope still latent within their bones — which is too often buried in a junkpile of media-fueled negativity.

You (and they) need to celebrate little tiny victories. Every. Day.

This is an essential skill for a business owner, for a careerist, for a parent at home — and for all of us: when you have a major victory in your life, you need to find encouraging people who will celebrate it with you. Because good news is good news indeed.

Until next week,

Kyle Nagy

(816) 272-8151

Kyle P Nagy, CPA

« Previous Entries Next Entries »