Mary Shaw, 49
When we met Mary, she’d been self-employed for just 5 months working 2 days per week for one client and was making $90,000. She’d previously been earning around $300,000 per year in a corporate ﬁnance role for a large company and by living well below her means managed to accumulate about $1.5M in investments while aggressively paying down the mortgage on her condo. Mary is pretty comfortable at her current lifestyle and felt like she is probably okay ﬁnancially, but wasn’t sure if she was really doing the best she could with her resources. She lives off of a mix of her investments and her business income and wasn’t sure whether her investments were positioned well for this strategy. She also had some uncertainty about whether she’d be okay if she lost her client and couldn’t pick up another one or whether she’d need to do something for income. Mary also has a teenage daughter whose education she expects to pay for in 5 years and isn’t sure whether doing so would impact her long term security should her income become unreliable.
Plan Options To Consider
The ﬁrst thing I noticed when looking at Mary’s ﬁnancial statements was how much she was paying in taxes every year on money she didn’t need from her investments. Because she was invested in mutual funds that were generating capital gains and big dividends, her tax bill was bigger than necessary and her money wasn’t able to sit and grow. Also, the fees she was paying in her investment portfolio were very high because she was getting charged advisory fees by advisors who weren’t giving her any advice. This added up to over $10k per year in unnecessary additional fees. We would suggest that to help Mary interview several different investment managers to ﬁnd a good ﬁt in terms of strategy and personality with a goal to save her signiﬁcant money on taxes and fees immediately. The next thing I noticed when it came to Mary’s ﬁnancials is that she was aggressively paying down her mortgage which was amounting to close to $45,000 per year in payments, but she had a low interest rate, a ton of equity and she was missing out on investment growth by paying down this low interest debt. Different analyses can be run to see if paying down her mortgage fast actually leaves her with more money in both the short and long term, and then alternative strategies can be considered around those results. Additionally, we can help analyze her cash ﬂow at different income levels so that she could make decision about whether to take on an extra client with full information. We also did an insurance and beneﬁts analysis and walked through different strategies when it came to how much she had in emergency reserves and which types of accounts should be part of her strategy. Lastly, we suggested Mary meet with a CPA to do tax planning and incorporate her business in order to pay less taxes on her earnings.
The client experience described may not be representative of any future experience of our clients, nor considered a recommendation of the advisor’s services or abilities or indicate a favorable client experience. Individual results will vary. Strategies mentioned may not be suitable for every individual.