Strong Considerations During Career Transition

No matter how hard we try, we all inevitably face career transition. Having had experience with my fair share of career transition, I thought I’d share some of the things that successful career-changers have implemented…

Podcast Details

Podcast Title:  Strong Considerations During Career Transition

Podcast Series: Financial Literacy Boot Camp

Link to Show Episode

No matter how hard we try we all will be inevitably faced with a career transition–whether that be within the same company but a new position, a new company altogether or a complete career change and the ever so famous “starting your own business”. Having had my fair share of career transition I thought I’d share some of the things that successful career-changers have implemented.

Here’s a list for your “consideration”…

They consist of the following:

Consider Cash Flow
This is what will kill a new business quick if you are an entrepreneur. And it is not necessarily your business expenses, but your personal living expenses [that don’t stop] when you are trying to get a new venture off the ground.  Or perhaps you are going to a high base salary to a more commission based job.  Whatever the scenario, you’d do well to have good cash flow management strategies in place prior to your transition. A good rule of thumb for your bank account is to have 3-6 months in living expenses. This can be more but not less.

Consider Your Company Benefits
If you split this into 2 categories–current considerations and future considerations–you might think of things like company benefits such as medical care as something to consider in your career transition. How similar is the coverage between Company A and Company B?  If this is misunderstood, you can be leaving benefits on the table.   In the future consideration camp, consider “deferred compensation” and 401(k) accounts as things to try and maximize without leaving much behind.  A lot of people leave the money in the plan because they don’t know what to do with it but this is not the best choice in most cases. Another thing could be vested shares of stock or options or other types of incentive pay. These all should be carefully reviewed for the ramifications of you leaving or transitioning from the company.

Consider Your Biggest Asset–Your Home
Buy/Sell/Rent my home?
Check out another version of this explanation from my Facebook post.
One of the best financial decisions I made before starting my company was to refinance my home mortgage from a 30 yr loan to a 15 yr loan. This freed up some monthly cash flow and ultimately was the best decision for me and my family based on our long-term plans. I’d highly recommend reviewing your long-term housing plans prior to career transition to see if it makes sense to find a way to reduce interest, make improvements, etc before you take a pay cut.  I often get clients caught in whether they should rent, buy or sell when they are forced to move to a new city. Well, there is some math to this. If you decide to rent out [a previously purchased home], consider if the all-in cost of renting will be less in what you could charge. And if so, is that difference big enough for you to become a full-time landlord or pay someone to manage the property. If not, save the land lording for a game of Monopoly and look to sell your home.

What if you are upside down?
When you are underwater on the mortgage, it may be best to just rent our previously purchased home because you have no other choice.  But if you’re in a career that has you moving frequently and you haven’t purchased a home, you may consider renting until you get more stationary. Believe me, I know the hassle more than most being a military brat, but at some point, you have to be smart about your finances. And buying and selling homes without making any money is not a smart financial transaction and it will negatively impact your net worth.

Consider Your Mate
Hopefully, it goes without saying that if you are in a marriage relationship, you need to get your spouse’s support on any move.  If you want to add unnecessary stress to your relationship, just ignore my advice here.  Having been married for over 20 years, there hasn’t been any major move I’ve made in my career without the support of my wife.  When things are not looking rosy, you’ll need the support of your significant other in those times especially.

#financialplanning #careertransition #newjob #finance #financialadvisor #financialtips #financialadvice #episode55

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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Some Popular Questions and What They Mean

Some of the more popular questions about personal finance that I’ve seen.

Podcast Details:

Podcast Title:  Some Popular Questions and What They Mean
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

In episode 44, we discussed “Knowing Your Numbers” and this is a follow-up to that episode on some of the more popular questions I’ve come across.

Questions/Issues We’ll Address on this Episode:

Q) What is a good debt ratio and what is a bad debt ratio? (5:23)

    A) Most experts would say for every dollar of income you should have no more than 36 cents of debt.  This would be anything you have a payment on (house, car, etc.).  As I explained in episode 44 about knowing your numbers, underwriters will use 43% to give you a loan, but this is a really high number.  Now let’s talk about some reasons people may want to ask this question.  I think it centers around the concept of “delayed gratification”.  How much can I afford to consume and not have a negative consequence is essentially what someone is asking when they ask this?  So let’s just illustrate the concept of bringing your future consumption to the present.  A good example of this is when someone buys a home.  You buy the home and of course, you are financing that purchase over a long period of time (e.g. 15-30 years).  So you are bringing a considerable amount of your consumption forward into the present.  However, when you start to purchase additional items to furnish the house this is when you may tend to go overboard.  The level of consumption generally speaking far exceeds what needs to be brought into the present.  So try and keep this inside 33%–that would be good.  Above 43% would be bad.
Q)  Can an individual contribute to both a Roth and a Traditional IRA in the same year? (10:30)

 

A) Yes;  as long the total contribution doesn’t exceed the IRS limit of $5500 ($6500 if over 50) per person.  But why would you want to contribute to both versus one or the other?  In a lot of cases, the contribution to a Traditional IRA can be deducted from gross income in the tax year you make the contribution.  There are some rules around this based on income and whether you participate in your employer’s retirement plan.  For instance,  if you can’t make a deductible contribution to a Traditional IRA you may want to make the entire contribution to a Roth IRA if you qualify.  You also may want to split the contribution between the portion that is deductible since it phases out and contribute the remaining amount to a Roth.
Q)  How did the financial crisis affect the banking sector? (14:09)

 

A)  The short version is that lending was constrained because there was a lack of trust in the system.  In most cases, you never see a banking crisis because there is always a “lender of last resort”.  This is the bank or collection of banks that will always buy a security that is offered as collateral so that the seller can use the cash to continue whatever operation it has.  Can this happen again?  There is a lot more liquidity in the system because the FED has purchased a lot of treasuries from banks and that cash has been “put” into the system for lending and “cushion”.  However whenever a large enough fear can be built into the system because asset prices get too high and form a “bubble”, then you have the makings for uncertainty again.

#financialadvisor #financialplanner #financialquestions #finliteracy #finlit

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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Know Your Numbers: The Most Important Financial Ratios/Formulas to Know

After this episode, you should be able to use this information to get a pulse on your financial health…

Podcast Details:

Podcast Title:  Know Your Numbers:  The Most Important Financial Ratios/Formulas to Know
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

In episode 40, we talked about whether we were winning the fight for financial literacy and I made a comment about understanding certain financial ratios when it comes to your personal finance. Today,  I’ll cover some of the most important financial ratios and formulas to know that are crucial to your financial picture.  After this episode you should be able to take these financial ratios and formulas to get an indication of where you are when it comes to spending, saving or investing.

Questions/Issues We’ll Address on this Episode:

  • Understanding Your Debt to Income Ratio (4:50) – Very popular ratio when it comes to receiving a loan.  A lot of underwriters and financial institutions use this to determine credit worthiness.
  • Understanding Your Emergency Fund Ratio (7:40) – Very popular ratio when it comes to determining your liquidity.  The saying “living from paycheck to paycheck” stems from a lower than needed emergency fund ratio.
  • How much House Can you Afford (14:45)–This is a formula that should be calculated when you buy a house or attempt to refinance your current home loan.
  • Personal Savings Rate and a Quick Lesson on how to calculate your retirement number (17:15) – This is the mother of them all–personal savings.  This will directly determine how much will be in your nest egg at retirement.  I break down how to get to this number.

#financialliteracy #finlit #finance #financialplanning #financialeducation #advice #financialadvisor #finlit #money #finances  #money #tips #retirement #investing #debtratio #knowyournumbers

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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The Low-Down on Financial Advisor Credentials

Which one should I work with? Which designation is “better”? What are the qualifications to become one? How are they regulated?

Podcast Details:

Podcast Title:  The Low-Down on Financial Advisor Credentials
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

Powerpoint Slides

Questions/Issues We’ll Address on this Episode:

How many financial advisors are there?  (5:15)

Per the BLS there are 249,400 (in 2014) of “financial advisors”.

How many financial advisors are there?  (7:20)

Natural Questions….Which one should I work with? Which designation is “better”? What are the qualifications to become one? How are they regulated?

Top Down View on Advisors and their Specialty (8:15)
What is a CFP and what are the requirements? (9:35)
What is CFA and what are the requirements? (16:12)
What is CPA and what are the requirements? (20:35
Other designations (23:10)

Other Resources:

FINRA website for designation comparison
Episode 24 on Advisor Compensation
Episode 22 on What to Look for in an Advisor
5 Tips Before Hiring a Financial Advisor
10 Questions to Ask Your Financial Advisor

#financialliteracy #finlit #finance #financialplanning #financialeducation #advice #financialadvisor #financialliteracy #money #finances #financialplanner #cfp #cfa #cpa

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

 

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The Infamous 401(k) Rollover…The Why and The How

You leave a job and you have money in a 401(k) what should you do with it?

Podcast Details:

Podcast Title:   The Infamous 401(k) Rollover:  The Why and The How
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

Powerpoint Slides

Questions/Issues We’ll Address on this Episode:

  • There are two buckets of money…qualified or non-qualified (5:00)
  • What is a 401(k)? (6:00)
  • Is it mine?  (6:35)
  • Can I roll this into my new employer’s plan?  (10:35)
  • Can I still participate in my former employer’s plan?  (11:30)
  • How should I invest my  401(k)?  (12:33)
  • What is an IRA?  (15:35)
  • Why would I want to rollover my 401(k)? (17:00)
  • The steps to a 401(k) Rollover (19:00)

 

#financialliteracy #finlit #finance #financialplanning #financialeducation #advice #financialadvisor #money #finances #taxes #tips #retirement #investing #401k #401kplanning

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

 

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Are We Winning the Fight for Financial Literacy?

Are we winning the fight for financial literacy–what do you think? What influences our purchasing decisions and is that “force” the loudest of all voices? I’ll tackle this important subject this week.

Podcast Details:

Podcast Title:  Are We Winning the Fight for Financial Literacy?
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

Questions/Issues We’ll Address on this Episode:

The Question–“Are We Winning the Fight?” (2:25)

What drives or influences our spending decisions?  (5:30)

The influences that marketing has on us are undeniable.  We are constantly bombarded with the message of CONSUMPTION to, if not drive decision making, definitely influence our decision making.

What is US consumer spending?(8:00)
Domestic consumption of goods and services is near 70% (per the Bureau of Economic Analysis or the BEA).  This is measured by PCE or “personal consumption expenditures”. How much of that do you think is a result of the “Marketing Machine’s” influence?
What are the Facts? (9:40)
So how many people actually learn the basics around cash flow management, budgeting, saving or investing in high school?  or even college?  Here are some sobering statistics…
    • Per the WSJ, the US ranked 14th in a 2015 global study conducted with a grade of just 57%
    • As of May 2016, only 17 states require high school students to take a course in personal finance.
    • Another independent study that about 1/3 of students took a personal finance course in college
Two Articles from WSJ I reference:
Another Independent Study:
Past Problems (12:20)
 I think the most notable problem of the last decade was the US Housing crises where would-be homeowners were SOLD the idea through marketing that homeownership was good (which it is) regardless of your level of income and financial situation.  We needed more educated consumers back in the early 2000s (when was the bill passed?) that could have navigated the relaxed lending standards that allowed them to secure mortgages they couldn’t afford.  (What was the debt-to-equity ratio or the home ratio 1 or 2 back then compared to what it should be?)
Current/Future Problems (15:15)
Have we learned from our mistakes?  I don’t think we have or at least our children haven’t.  The next domino could indeed be something that is ironically enough, “in the name of education”–student loans.  Student loan debt is #2 on the list behind mortgages in the consumer credit market.  Per the St. Louis Fed, the number of student loans outstanding has increased 300% since 2006.
This all points to a problem of lack of education efforts towards financial literacy to keep consumers ignorant as to the consequences of their purchase decisions.
Solutions (19:30)
    • Start with earlier, more relevant education to younger students (my wife as a school teacher);
    • Financial services industry needs to take a more proactive to educate through pro-bono work;
    • Post-secondary lending standards need to be raised to stop the bleeding

#financialliteracy #finance #financialplanning #financialeducation #advice #financialadvisor #debt #studentloans #finlit #money

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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