Meet the Financial Advisors Who Don't Always Follow Their Own Advice
Nick Holeman became obsessed with ancestry and DNA testing sites while in quarantine, spending around $1,000 one week on genealogy-related items like DNA tests and death certificates.
“I was kind of like ‘Oh my God, what did I do?’” says the New York City-based 30-year-old. “It’s just this spiraling thing where one thing led to another and before you know it you’re signed up for a bunch of stuff.”
It’s not in his nature. Holeman is a fan of the “24-hour rule,” which requires that if you see something you want, you give yourself a day to think about it first. It’s not just his nature to be cautious, it’s also his job: he’s head of financial planning at Betterment, where he helps clients set up budgets and avoid impulse spending.
Breaking classic personal finance best practices, like pay yourself first and diversity your investments, can feel detrimental.
“Oftentimes folks will immediately shame themselves and go down this rabbit hole that they’re bad with money and make bad decisions,” says Danetha Doe, a financial psychologist based in San Francisco.
But it’s best to accept it, and move on. Even the people who know the most about managing finances slip up occasionally. Don’t believe us? Here are some tried- and-true financial rules that financial advisors themselves have broken. If they got themselves back on track, so can you.
Pay yourself first
It’s a favorite tip among personal finance professionals: before you take care of your monthly expenses and debt payment, or splurge on those shoes you’ve been eyeing, route some of your paycheck to your savings account or 401(k). Better yet, automate a monthly contribution so you never touch the money. In other words, “pay yourself first.”
Dwain Phelps uses it all the time with his clients.
“You never can get back the potential interest that you could have earned a month ago — or two months ago, three months ago, six months ago, a year ago — had you just put a little bit aside and paid yourself first,” he says.
But does Phelps pay himself first? Not always.
Phelps is self-employed; he owns Phelps Financial Group in Kennesaw, Georgia. He knows that if he were following his own advice, when a commission hit his bank account, some would be transferred to savings. But sometimes expenses come up that he has to cover before sending money to his savings accounts, like a costly seminar he’s running, or dinner with a potential client.
But don’t fret, he says he always gets to paying himself eventually.
Don’t stretch on a home purchase
When Anjali Jariwala and her husband moved from Chicago to Los Angeles five years ago, they did what Jariwala often tells her clients not to do: they stretched their finances a lot to buy a home.
“I had kind of immediate buyer’s remorse,” said Jariwala, founder of FIT advisors in Redondo Beach, California. “I had some financial regrets as to whether we made the right decision or not.”
While they had initially intended to rent, they opted to buy the home (without seeing it first, as they were in Chicago with a newborn daughter), since the mortgage payment would have been comparable to rent. It was tight financially for the couple their first two years in the new house, Jariwala adds.
The financial advisor tells her clients who are looking to buy a home to stay within their comfort level when it comes to spending on a mortgage.
“Now we're in a much better financial position, so in retrospect we were glad we made the purchase at the time,” she says.”But I still tell clients to try not to stretch financially on the home.”
Get your estate in order
Nadine Burns runs a financial advising firm where she works alongside her husband. They also haven’t updated their estate planning documents in years.
“I was working with clients, telling them to go see their estate planner, and I wasn’t doing my own trust,” says Burns, President and CEO of A New Path Financial in Ann Arbor, Michigan. “I was putting it off and putting it off.”
The pandemic has highlighted the importance of putting a plan in place to make sure your loved ones will be taken care of if anything ever happens to you. Estate planning can include creating or updating a will to assure your money and possessions will be passed down according to your wishes, as well as choosing an executor, health care proxy and power of attorney to make medical and financial decisions if you become unable to.
Burns and her husband are planning to sit down this year to make sure that their documents are in order, she says.
“We put it off because we thought it would take time, and it does take quite a bit of time,” Burns says. “But we’re glad we’re doing it and the sense of relief from doing it is amazing.”
Diversity your investment portfolio
Clients holding a majority of their net worth in one or two stock positions would cause alarm for Ryan Firth, the founder and president of financial planning firm Mercer Street based in Bellaire, Texas. But when it’s himself, not so much.
Firth’s investment portfolio is concentrated in alternative assets and Tesla stock, and while he says he’d advise a client to diversify and sell some of those positions, it’s hard to get himself to do the same.
“It’s hard to let go of something if you really feel strongly about it,” Firth says. “You feel like you’re kind of leaving it behind.”
The fear of missing out also comes into play, he says. If he sells a stock as it’s hitting record highs and it keeps hitting record highs, he’s going to be kicking himself.
“There’s an emotional attachment there that really isn’t good, that you shouldn’t have when you’re investing,” he says. His advice to anyone in the same position? Speak to someone else about it, like a financial advisor, as they won’t feel invested in keeping that security.
Invest for the long term
Brian Schmehil tells his clients to have a long-term perspective when it comes to investing and to avoid day trading. But what does he do in one of his brokerage accounts? You guessed it: day trade.
The director of Wealth Management at The Mather Group in Chicago, Illinois says he uses it as a way to remind himself of how hard it is to time the market, and why he tells his clients to not even try.
He has about 5% of his investable assets in the brokerage account where he buys individual stocks and call options to try to beat indexes — “even though I truly believe that I can’t,” he says.
“It’s a nice way to teach myself to practice what I preach.”
Save for retirement early
Custodial Roth IRAs are an awesome tool teenagers can use to start investing in their future if they have earned income, says Catherine Valega, a financial advisor at Financial Freedom Wealth Management in Winchester, Massachusetts. Savers can pay taxes on money they contribute and take out the money tax-free when they need it — a good move for teens who will likely be in a higher tax bracket later in life. Minors can have a custodial Roth IRA controlled by an adult until they become old enough to manage it on their own (18 or 21, depending on the state.)
Opening a custodial Roth IRA allows your child to take advantage of compound interest, and can be a good lesson for kids in why it’s important to start saving early. Valega recommends it to all her clients with children. But, she admits, she was late to the game when it came to opening them for her own daughters. And last year, one of them earned around $400.
“I remember thinking, ‘I don’t have the time to process the paperwork to establish those accounts right now,” Valega says.
But even though her daughter wouldn’t have seen outsized gains on a very small investment, she admits she should have made the time: “Every minute counts when it comes to time in the market.”
Check your credit reports
How often should you check your credit report? It depends, but Beth Agnello tells her client to do so once every four months to protect against identity fraud. You can get a free credit report with each of the three major reporting agencies once a year.
“As with most things, it doesn’t get done unless you put it on your calendar,” Agnello, a financial planner with Fair Winds Financial Advice based in Winston-Salem, North Carolina, tells her clients. “But I still haven’t done it myself.”
There’s no excuse other than sheer laziness, she says. (And adds that, now that she’s admitting it, she’s off to put those reminders on her calendar.)
“We’re all humans,” Agnello says. “We all do this stuff. Nobody’s got it all together.”
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How to Train Your Brain to Stop Making Impulse Purchases, According to a Financial Psychologist