Drew and Becky* have been married for the past five years. Drew is 32 years old and currently works for an engineering firm as one of their top software engineers. Becky is a jewelry designer and aspiring entrepreneur. Drew has also retained a business interest in a partnership compensation structure at his company for eight years. After recently selling his partnership share, he realized he needed a financial plan to understand how to best use the proceeds from the sale.
I’ve always been focused on work and haven’t had a chance to think about our finances. So, I needed a financial advisor to help me decide how to best use our funds. My wife and I are planning to buy a home and have children soon, and we wanted a financial plan to begin with a solid foundation.
Planning for a family after selling the partnership shares
Even after selling his partnership shares, Drew currently nets around $250,000 a year from his salary and receives other income from his partnership interest. Becky has turned her hobby of jewelry making into a business that nets a modest income. She is very talented at creating her custom line of jewelry and wants to call it “Becky’s Brand”. She sells the jewelry from her online website. She currently earns around $15,000 a year and has aspirations to get a formal office space and officially launch her business.
Drew received a large payout from selling his partnership shares. When it comes to finances, the Lightners are excellent savers and have no debt, but need education and guidance on how to best invest their money. Drew’s priority is to use the payout to buy a property of land and use it to construct their home and begin a family. However, he also plans to use some of these funds to help Becky expand her business, “Becky’s Brand.” Lastly, the couple wanted to allocate the funds that would bring the family the most security and peace of mind while maintaining a certain rate of return.
Focus on life after selling the partnership shares
Drew and Becky were looking to confirm that they could afford the home of their dreams and support a family with their current financial situation. Their main question was if they should purchase the new home outright or assume mortgage debt in buying their home.
Because the couple is still in their 30’s, it was vital for them to focus on their immediate concerns rather than draw up a lengthy plan that mapped out too many years in advance. There are too many unknown variables at their age, including the potential number of children they would have and how much income Becky’s business would start to generate after expansion.
Their plan needed to be flexible and evolve with changing conditions. So instead of building a plan through to retirement, Drew and Becky agreed that a Phase 1 financial plan that mapped out their finances up to age 55 would work best for them. Therefore, at the “end of the plan” we would make sure to provide a financial cushion that would place Drew and Becky in a good position for Phase 2, retirement planning.
How would they best allocate the cash from selling the partnership shares to their home purchase, entrepreneurial pursuits, and family building?
Sound financial advice and investment
management can keep you on track to the
retirement of your dreams.
A good financial advisor helps you organize all your financial details into a focused and clear picture. A great financial advisor looks at your finances and life values as a whole, incorporating what’s important to you in your financial decisions.
You want a financial advisor who understands your goals and dreams, but also knows what keeps you up at night. An expert and experienced financial team can present unique solutions, see new or different opportunities, and simplify your financial life. A strong financial plan can provide a blueprint for building your assets.
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The Financial Plan Process
We worked with Drew and Becky to get a comprehensive picture of their financial past, present, and future. After the financial plan discovery process, we compiled and analyzed their financial data based on conservative assumptions for inflation, asset growth, and medical costs. We presented three scenarios with a high probability of success. They could choose the solution that made the most sense for them.
Their investments also play a crucial role in building their assets. The best investment management strategy considers market variables and tactics and their personal goals, time horizon, and risk profile.
The Financial Plan Scenarios
Our analysis showed the benefits and disadvantages of paying for the new home in cash or making a large down payment with a mortgage. How would the effects of different spending habits affect their goals as well as the amount left for their financial cushion at the end of Phase I? In all scenarios, we assumed at least two children in the next few years and included 529 savings plans for each child.
We emphasized the emotional benefits of having a mortgage to stave off any poor financial decision-making or overspending, even as it related to Becky’s new business. We suggested a 15-year or 20-year mortgage where there are higher payments and less interest. Potentially they would have the mortgage paid off by the time their first child attends college. The mortgage would come out to about 750K (noting that they can write off the interest up to 750K). Suggested life insurance would give them peace of mind as they started their family.
Investment Portfolio Management
After selling the partnership shares in the business, the couple needed to address tax liabilities and investment of an all-cash payout. We worked with them to determine their risk profile and quickly set up the necessary and appropriate accounts for their goals. Next, we allocated for their cash flow needs, selected the investment strategy unique to their goals with a time horizon set out in their financial plan.
Upon reviewing the financial plan, Drew and Becky were very pleased to learn that they wouldn’t have to change much about their current situation to achieve their financial goals. With their assets invested and continuously managed, they looked forward to enjoying their new home and upcoming family.
I feel like we made the best decision to use a financial advisor to ensure that we could meet our goals. My husband and I feel financially confident. Since obtaining the plan, we have purchased a plot of land to construct our family home. We trust our financial team to continue managing our assets and helping us with any new financial questions.
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