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MC Stories – Eliminating Capital Gain Tax on the Sale of an Appreciated Asset Through the Use of a Charitable Tax-Exempt Trust

For many investors, a barrier to diversifying their portfolio is the impact of losing 25% of their profits if they sell a highly appreciated asset. If you are charitably inclined, that barrier can be eliminated by using a tax-exempt trust, as outlined by the following example:

Let’s assume you have a highly appreciated asset (perhaps stock or real estate) that you paid $200,000 for, and that has a market value of $1,200,000. Your capital gain would be $1,000,000. If you sold that asset, you’d only have about $950,000 to reinvest after paying 25% of your gain in taxes (approximately $250,000). By using a tax-exempt trust you would have the full $1,200,000 to reinvest.

    Here’s how it works:

  1. You establish this trust prior to selling the asset. The terms and provisions of the trust are established at its inception. Prior to selling the asset, you transfer the asset to the trust. You and your spouse (if married) become income beneficiaries for your lifetimes to the trust. The IRS sets a range of “approved interest rates”; let’s say 5% per year.  So, in year 1, the trust will distribute an income to you of $60,000 ( 5% of $1,200K). If the trust earns a return of greater than 5%, your income the next year will go up. But the big advantage is that you have $1,200,000  to invest, rather than the $950,000. Additionally, you can be your own trustee, so that the investment decisions and control of the assets are retained.
  2. Why does this trust qualify to be tax-exempt? Primarily there are 2 reasons:
    1. The trust is irrevocable, so once established, it cannot be modified.
    2. A t the death of the last income beneficiary, the remaining balance of the trust is paid to a 501c3 charitable organization (the legal name of this trust is a Charitable Remainder Trust). An additional benefit is that upon transferring the asset(s) to the trust, you receive an immediate charitable income tax deduction for the “present value of the future interest” of the “gift”. Depending on the age(s) of the income beneficiary and the established interest rate, the deduction can be in the range of 25% of the gift. So, in this example, instead of paying $250K in capital gain taxes immediately, you’ll SAVE $100K in income taxes as a result of the charitable deduction.

   The main disadvantages of this arrangement are:

  1. Lack of liquidity. You do not have access to principal; only the income that the trust distributes. If you are dependent on the principal from the sale proceeds for your lifetime/retirement, this may not be the best strategy for your cash needs.
  2. At the death of the last income beneficiary, the money is not retained by your heirs. That “negative” can perhaps be eliminated through the use of a life insurance policy (the premium will be substantially less than the capital gains taxes you, otherwise would have paid). However, for those investors where this trust makes sense, this technique allows them to fulfill their charitable wishes, and normally, this is only a “piece of their estate” so the balance of their net worth will be distributed to their chosen heirs.
  3. While the earnings and gains in the trust are tax-exempt, the income that is distributed from the trust to the income beneficiaries is generally taxed.

The above is only meant to be a concise summary of this strategy. You should consult your financial advisor, tax professional or attorney to obtain more information. Tax rates used in this article are for illustrative purposes only and may not apply to your unique situation.

 


Disclosures:

This information is presented for educational purposes only, is hypothetical in nature and does not represent actual clients. The information presented is not written or intended as financial, tax or legal advice, and may not be relied on for purposes of avoiding any federal tax penalties under the Internal Revenue Code. Use of this information is not a substitute for legal counsel, and Morton Capital makes no warranties with regard to information contained herein. You are encouraged to seek financial, tax and legal advice from your professional advisors before implementing any transactions and/or strategies concerning your taxes or estate plan.

MC Stories – Wearing Multiple Hats

If I were to ask you how many hats do you wear, what would your answer be? For me, I wear the hats of wife, mom, Associate Advisor, and student. Unfortunately, time does not expand the more hats you wear. So how can we juggle the different roles that we are in? It is important to have separate environments for each of the roles that you have. One of the hardest things to do is to keep work at work. Not all our jobs allow us to take our work hat off completely. However, it is important that when we work from home, we have a dedicated space for doing so. Even though it is easy to take a laptop from room to room, it blurs the lines between roles.

I have found the following tips useful in helping me be fully present in each role:

  • Have separate spaces: It is important to have separate environments for each of the roles that you have. One of the hardest things to do is to keep work at work. Not all our jobs allow us to take our work hat off completely. However, it is important that when we work from home, we have a dedicated space for doing so. Even though it is easy to take a laptop from room to room, it blurs the lines between roles.
  • Dedicate your time specifically: This advice has been the most helpful for me. If you look through the pictures of this post, I shared my schedule. On weekdays, I dedicate my mornings to my family, 9am-5pm to work, 5pm-7pm to my kids before they go to bed, then I have time for school. This way, I can focus on each role individually rather than being overwhelmed with everything that needs to get accomplished in each role all at once. 
  • Communicate your schedule and ask others to hold you accountable: Unless I have a meeting or school assignment that takes me out of my normal scheduled time, my family knows that when it’s 5 o’clock, they can come into my office and help me transition to family time. I think this is important because it makes them feel just as important as the work I was doing during the day. I also set these guidelines with my peers at work so they are confident that I will be responsive and reliable during my work hours. 
  • Schedule things to look forward to in each role: Sometimes our schedules can become monotonous. It is important to schedule things to look forward to in each role. My oldest daughter and I have hot chocolate every Saturday morning. When I am bogged down by a busy work week or demanding school assignment, the thought of Saturday morning helps me push through it.

Many of us may not realize how many hats we truly wear. However, the current environment is challenging the “norm” and highlighting the different roles we all play.  What hats do you wear? Which of these tips do you think would be useful for you? The next time you start feeling overwhelmed by how much is on your plate, take a moment, breathe, and make sure you aren’t wearing too many hats at once.

 

 

 

 

 

 

 

 

MC Stories – Timing is not critical to long term success… however, time is!

 

Time or timing…which is more critical to investment success? We would say time in the market is more important. Investors would all like to buy near the bottom of the market declines and sell near the high, but no one can accurately predict when those opportunities will present themselves. It is only with the benefit of hindsight that these highs and lows become evident, so staying invested in the market is critical to capture the benefits. We often hear investors say that their market anxiety keeps them on the sidelines to save them pain, but it may also ensure they will miss the gain. Historically, downturns have been followed by eventual upswings, but knowing when that is going to occur is impossible to predict. This is why it is imperative to understand how much stock market exposure is appropriate for you, diversify your portfolio so that your lifestyle isn’t impacted by market swings, and avoid trying to outsmart the market.

Here is an example of what could have happened if an investor tried to outsmart the market vs. giving their investments time to perform. If you had invested $1000 in the S&P 500 (excluding dividends) on January 1, 2009 and left it there 10 years, until 12/31/18 it would have grown to $2775 or more than 10% a year. Had you tried to time the market and missed the 20 best days during that ten-year period, your investment would be worth $1228 or a little over 2%. Had you missed the 40 best days your $1000 would only be worth $712. The conclusion: time in the market is much more important to your investment success than timing the market.

(Sources: Thomson Reuters and S&P 500 index)

MC Stories – Why You Should Give Your Children the Desire to Learn About Finances

Studies suggest that parents may dread financial conversations with children almost as much as the conversation about “the birds and the bees.” A 2018 study conducted by T. Rowe Price reveals that two-thirds of parents show reluctance in discussing money with children. Parents may find that it is only important to begin discussing finances when there is an immediate concern, such as a health crisis or an economic downturn. However, that is not the case. A keystone to growing up is independence and part of that is financial independence. A recent study shows that 64% of adults believe that by 22 years old one should be financially independent of their parents; but, only 24% of 22-year-olds are actually financially independent.

So, how do we create financially mature and independent adults? Teach them young. In today’s world, money has moved to the ether of numbers on a screen and plastic cards. We rarely use cash for daily transactions and checkbooks (or balancing them, for that matter) are a thing of the past. In the eyes of a child, it is becoming increasingly difficult to tangibly understand the value of a dollar. Realistically, it is becoming difficult for all of us to understand the value of a dollar. We must re-wire the way we think about money and then translate that to the next generation.

Parents have a unique responsibility of molding children’s development – particularly around their financial education. The T. Rowe Price study revealed that what children learn from parents (as opposed to financial literacy courses) strongly informs their financial decisions later in life. Parents revealed that the topics they wished their own parents had discussed with them were credit and financing, insurance, basic life budgeting skills, and investing. Using that as a baseline, it is suggested that these conversations begin early and become a central part of your relationship with your family.

Establish age-appropriate conversations and activities for your children. Here are some suggested age-appropriate methods. For young kids, you can make it fun, while also teaching them basic math skills. For children 6-10, help them understand the value of a dollar by creating ways for them to earn money. Once earned, they can decide how to spend and save money. Forgo the piggy bank and help them open a bank account. The earlier the better, because this is the new way of life and it is important for children to understand not only the value of a piece of paper, but the numbers on a screen. For pre-teens, help them learn budgeting for expenses such as activities with friends and extra-curricular. Give them allowances and see if it lasts. Introduce compounding interest and the importance of investing early. For late teens, teach about credit and the importance of maintaining good credit scores throughout life.

In addition to regular conversations and supporting strong habits, there are numerous online resources available for children and parents (provided below). It’s ok to not be an expert when it comes to finances. It is more important to instill an eagerness to learn within your children. That willingness to learn and grow will develop into great money habits and forge the way to a successful financial plan for your family. And as always, if you do not feel you have all the answers, please reach out to your financial advisor or a trusted source for more information. We are always here to help you and your families.

 

Resources:

-FDIC’s Money Smart for Young People (includes activities and resources for parents of all ages) https://www.fdic.gov/consumers/consumer/moneysmart/young.html
-Credit Card Insider https://www.creditcardinsider.com/learn/
-Stock Market Game https://www.howthemarketworks.com/
-Payback – Game to teach about student loan debt https://www.timeforpayback.com/
-Practical Money Skills (games/age-appropriate discussions for children) http://www.practicalmoneyskills.com/learn/life_events/family_life/educating_your_children

MC Stories – Set it and Forget it

That sound you heard earlier in April, all across America, was the clattering of knives and letter-openers, dropped to the floor by retirement age investors staring at their quarter-end 401(k) statements. What had gone wrong with their “set it and forget it” investment plan?

The “set it and forget it” rhyming aphorism is one among of a bounty of rhymes that give our brains an easy path to perceived truth. These easy paths are known as heuristics, where one might take a shortcut to an answer — when time or interest or resources do not allow for a deeper dive. The first one we all learned was, “An apple a day keeps the doctor away”. Later, on the golf course we were told, “Drive for show, putt for dough”.

This tendency to view rhyming statements as more truthful is known as the Keats Heuristic, a term coined by two psychologists in a 1999 academic paper.* The term is drawn from Keats’ poem Ode on a Grecian Urn ,** wherein Keats concludes, “Beauty is truth, truth beauty,” — where a prettier image or prettier language is perceived to be truer. Academic studies have shown that where two phrases possess similar meanings, a rhyming one will be perceived as
carrying more truth:

“Woes unite foes” is an easier path to the brain than “Woes unite enemies”.

“What society conceals, alcohol reveals” trumps “What society conceals, alcohol unmasks”.

Obviously, this cognitive bias has not gone unnoticed by politicians and corporate marketers. General Eisenhower’s Presidential campaign slogan was “I like Ike”. And before it went out of business in 2019, the Thomas Cook Travel Company’s catchphrase was “Don’t just book it, Thomas Cook it”….All of which leads us to the phrase the financial press has often used to describe Target Date mutual funds: “Set it and forget it.”

Target Date funds (TDF) are most often employed in retirement accounts such as 401(k) plans, where the investor aligns his or her TDF with an expected retirement date. For example, an investor who turned 45 in the year 2000 might have chosen a “2020 Target Date Fund” — 2020 being the anticipated year of age 65 retirement. A fund such as this would begin with a high allocation to the stock market in the early years, and then taper that equity allocation in favor of bonds as the expected retirement year approached. To quote Investopedia: “ The asset allocation of a target-date fund thus gradually grows more conservative as the target date nears and risk tolerance falls. Target-date funds offer investors the convenience of putting their investing activities on autopilot in one vehicle.”

A December 15, 2018 article on MarketWatch offered these comments on Target Date funds: “A good deal of the money in 401(k) accounts is ending up in target-date funds. In fact, more than half of 401(k) accounts hold 100% of their assets in target-date funds, according to third-quarter data from Fidelity Investments. Target-date fund are investments tailored to an individual account holder’s age and retirement year. It’s essentially a ‘set it and forget it’ strategy because the fund will automatically rebalance itself to align with the investor’s age.”

All that sounds good, but many “set it and forget it” investors retiring this year were shocked to see that their 2020 Target Date Fund was not really “conservative”. According to an April 9th Bloomberg News article, the three largest TDF providers — Vanguard, Fidelity, and T. Rowe Price — each had half or more of their TDF 2020 allocation in stocks. T. Rowe Price, at 55% equities, had the highest allocation, and the fund’s return from February 20th to March 20th was a loss of 23%. The loss figures have diminished somewhat in the intervening market rally, but the risk is that when a retiree sees his or her portfolio drop by almost a quarter, there is a panic moment when some retirees will (and some certainly did) cash out and lock in their losses. Had these funds been on a truly more conservative glidepath, the less extreme losses would more likely have kept the otherwise panicked investors in the game.

Even if it does rhyme, there is a certain inadequacy to any “set it and forget it” mentality, particularly when considering how complex and fast-paced the world has become. We see governments and Central Banks attempting new, and radical, responses to economic problems. Just so, thoughtful re-evaluation in the face of changing circumstances should be a part of anyone’s financial plan.

It really is incumbent upon investors to think about (or hire an advisor to help take that deeper dive as to) where we are in economic cycles. While there will always be a divergence of opinion about the future, it is a fact that the U.S. stock market coming into 2020 had had a 10-year bull market, the longest on record. And, as cycles actually do occur, one would have observed the above fact and might have reduced equity allocations — certainly on the eve of retirement and the phasing out of a full paycheck.

Bottom Line: When it comes to investing for retirement, the Keats Heuristic just isn’t realistic.

 

* https://www.sciencedirect.com/science/article/abs/pii/S0304422X99000030
** https://www.poetryfoundation.org/poems/44477/ode-on-a-grecian-urn

MC Stories – Gen Z’s American Dream

For most 20th century Americans, the goal was, have a house with a white picket fence, two kids and a dog named Spot. For their future, they imagined flying cars and holographic images, something you would see in a sci-fi film. For those born between the years of 1997-2015, known as Generation Z, the idea of the “American Dream” has completely evolved from what their parents and ancestors imagined as their measure of success. Today young adults experience a level of connectivity that influences their purchases, investment decisions, and overall interpretation of wealth. Holographic images are a reality, but video calls just seem to be more practical.

Technology Age

The way we communicate has come a long way from the ever famous, “You’ve Got Mail.” While email is still the most prominent form of communication in many professional settings, Millennials and, even more so, Generation Z use text messages and direct messaging as their primary form of communication. Platforms like Twitter have championed the distribution of information in bite-size formats like short passages, videos, and GIFs (brief collages of images and/or text). The rapid-fire of information impacts many decisions being made by young adults, whether they are aware of it or not. Furthermore, the demand for up-to-date information is even higher and affects businesses in all industries. There is now a generation that is not only concerned with their personal style and brand but also the cost to bring their vision to life.

Financial Literacy

Generation Z is regarded as more financially savvy than their big sibling Millennials. Since they were born to Generation X parents, comprised of the do-it-yourself “latch-key kids,” they were raised with the philosophy that nothing will be handed to them. Do your own research and make your own way is the mentality of Gen X. Sometimes the best-orchestrated plan does not work, and you need to have contingencies. That imprint from their parents is what birthed the determined and opinionated Generation Z. They view the world through their personal lens and that of their parents, who have experienced multiple market crashes and withering retirement savings. Gen X parents went to four-year colleges and got the well-paying job (then came the dotcom bubble) and moved out to the suburbs (just before the housing crisis) to start a family. They checked all the boxes in the American Dream checklist and still came up short on the scale of financial security. So, what does that mean for Generation Z?

Wealth Transformation

While previous generations caught on gradually, young adults today make swift moves to take control of their future. These adults have the option of being an “Influencer” as a full-time occupation, which essentially means being a celebrity of social media platforms like YouTube and Instagram. Generation Z has harnessed the demand for instant communication by sharing their opinions on everything over the internet. Coupled with the famous marketing and advertising revenue that businesses have generated for decades, you have yourself a cash cow. There is a level of investment that young adults are putting into themselves that was unheard of for earlier generations. If you can take out a personal loan for an iPhone, ring light, and the aesthetic backdrop of a performing artist’s dressing room, you may be better off now than someone who invested $200,000 in post-graduate education. Both roads are a path to potential success, but the value of success is dependent on the individual.

In Conclusion…

The metrics measure of success is different for every person. Generation Z is not immune to the feelings of financial insecurity, not measuring up to the success of their peers and having doubts about their future. Those feelings are a part of every generation’s coming- of- age story. The important part is to gain awareness along the way. Generation Z was set up for success in the sense that financial literacy is much more prevalent today. Tools to improve daily living or “life hacks” are readily available in a five-minute YouTube video, instead of an eight-week course. Education about how to protect your assets and ensure that you are growing your financial buckets with purpose are all tools that young adults already have in their knowledge bank. The final piece is living a healthy life with enjoyment and purpose. That means: Build bonds that deepen relationships with family and friends. Set goals with your circle and execute them so that the whole group improves their quality of life in this generation and the next. Please stay tuned for future articles about the impact that our culture has on the financial decisions of young adults and future investors.

MC Stories – Finding Calm in the Chaos

What has been your reaction to pandemic news? Perhaps you are instinctively driven to hunker-down and shelter in place with your loved ones. Maybe it’s the opposite – perhaps you are driven to action and do whatever you can to stock up on food and supplies to weather the storm. Perhaps you are somewhere in between. Regardless of where you stand, a crisis affects each one of us differently. It is very personal. That being said, you are not alone!  We are all going through the same collective experience right now, and while the feelings and emotions that arise will be unique to each person, the tools available for working through them are not.  While material concerns are top of mind for many us, there may not be much within our control.  However, we can reconnect with our own internal compass during this time to help us achieve a sense of direction when no external marker exists.

What you do and how you deal with what is in front of you is personal to you. But what happens when it all seems too overwhelming and you find yourself unable to move or act? Perhaps you find yourself crippled with fear, anxiety, or uncertainty of the future. With the amount of news and information constantly coming our way, managing our emotions becomes a daily priority, and we can take small actions that add up to a meaningful change in our ability to regulate ourselves over time.

There are four actions I take whenever life feels out of my control:

  1. Stop. Take a moment where you are and consider that as humans, we are biologically equipped to be adaptable to change.  Assess what you have and what you need. Make a list and focus on accomplishing the small tasks.
  2. Breathe. Bring awareness to your breathing if you start feeling stuck. Start your mornings by spending quiet time journaling, meditating, listening to your favorite music or reading a book that inspires you. Give thanks. Go for a walk.
  3. Focus. Narrow in on where you are and where you want to go. Reach out to friends and loved ones. Use technology as a tool for connecting with others. Choose to see this time as a gift to work on yourself, to work on projects that perhaps you never had time for, or to act in service to others. Take as much time as you need to find your footing and love yourself through the process. Speak positivity and kind words to yourself.
  4. Let go. Accept what you cannot control…Do your best to stay present and know that nothing lasts forever. This too, shall pass.

We are powerful in our ability to care for ourselves.  What small action will you commit to today that moves the needle toward balance in your life?

MC Stories – Identifying Your Relationship With Money

We all have a unique relationship with money. Usually, this association is deep-rooted and developed over time starting from early childhood. Money Scripts are identified as the unconscious beliefs we have about money, often partial-truths, and sometimes they are passed down from generation to generation. Our money scripts tend to correlate certain statistics, such as income, net worth, debt levels, certain financial behaviors, and decision-making processes. Identifying your money script will even provide insights into your current financial health.

There are four core money beliefs (scripts): Money Avoidance, Money Worship, Money Status, and Money Vigilance. You might not just be one of the four, you might be a hybrid of two or three, with dominant characteristics of one. You might even have two money scripts that contradict or be a member of a household where everyone has a different one!

This quick and easy quiz below will get you on your way to observing and identifying yours – plus you can also download and print the quiz here. Once you’ve narrowed down your specific money script, challenge your friends and family to identify theirs as well. Light bulbs might go off on why opposing money scripts tend to make different financial decisions, have different emotions or reactions to events, and how they respond to financial matters entirely!

Now that you’ve sourced your money script, how can you use this newfound knowledge to your advantage? That’s right, being able to identify your money script is not only a powerful (and fun) activity but will also provide you with an awareness that allows room for change if necessary. The adage “Once you can name it, you can tame it” rings true here.


To the high scoring Turtles (9+ points), you are considered a Money Avoider. Deep down you may believe that all money is bad and that you do not deserve to have it. Ignoring your finances and avoiding thinking about money comes naturally to you. Sometimes you may even give money away or sabotage your financial situation in an unconscious effort to not have any money to manage. You may believe that wealthy people are greedy and corrupt and there is something to be said about living with less money, living more simply.

Having this negative association with money and wealth leads to ignoring financial statements that arrive in the mail, overspending, enabling others financially, or finding difficulty in creating or managing an expense budget. Those individuals in the helping professions, such as social workers and psychologists, tend to score higher in this area than those in other professions, such as business or financial advising.

Money avoidance can have a negative impact on your financial health. Below are some tips that can assist you in challenging and changing these beliefs:

  1. Automate your savings plan – creating a schedule where automatic monthly transfers take place into your savings account (without you having to direct it every time) will eliminate you sabotaging or preventing your savings strategy. Include IRA, 401k and other Qualified Accounts in this process – auto transfers or auto contributions will work miracles for you.
  2. Create a quarterly recurring calendar meeting where you sit down to review your financial statements, speak with your advisor, your partner/spouse, and evaluate your financial situation as well as budget. This way, you can’t avoid it completely knowing that you have a firm set date and time to have these conversations.
  3. Re-assess what money can do – how it can be good. Make a list of how money could help you, others, charities, non-profits, donations, philanthropic projects. Recognize how money can be beneficial if put to good use.

To the high scoring Bumblebees (9+ points), you are considered a Money Worshiper. We get it, we live in a society that worships money – how are we supposed to set ourselves apart when money worship is commonplace? The behaviors that stem from money worship may be toxic or destructive, but our society supports and even rewards this type of behavior. You may even believe that more money will solve all of your problems. What’s interesting is that although you think there is never such a thing as “too much money”, putting work ahead of family in the pursuit of money never quite satisfies or fulfills you.

You are more likely to overspend on yourself or others, have a lower net worth, and carry high debts. You find yourself making purchases in the pursuit of happiness. Going against societal norms has its challenges but paying attention to real moments of experienced happiness will help detach this mindset. Notice the distance and lack of correlation that happiness has to our level of income, net worth, and total possessions.

Money worship can have a negative impact on your financial health. Here are some tips to help challenge this mentality:

  1. What is important to you? Sometimes we forget why we are chasing money. Achieving wealth can quickly lose its glamour unless we attach it to our values. What are your plans with that money? Challenge yourself by asking yourself why. For example, I want more money to go on vacations. Why? To spend time with my family. Why? So we can have experiences together and create memories. If you scrape away the stuff, you can see what is important to you. What really matters doesn’t cost a thing! When we keep our priorities straight, it can help us maintain a healthy work-life balance and make sure to connect with loved ones throughout our day/week/life. After all, your relationships are more likely to bring you happiness than money in and of itself ever will.
  2. Eliminate Buyer’s Remorse! Who doesn’t like buying a new toy? It can be thrilling to make a new purchase, especially so if it was an impulse one. Often, that excitement dwindles away, and you regret the purchase. If you experience this, practice pausing between the idea of the purchase and the actual purchase. Come back later. Think if over. Evaluate the purpose and intention of the purchase. Does this purchase align with my values, beliefs, and family’s needs? Creating space allows your financial decisions to live in a more rational place, maintain its initial desire, and stop making you feel bad when the whole point was to make you happy.
  3. Give back. Support a charity, donate, or volunteer your time. How do you feel? Notice the impact. Did you feel better giving books to children in need or buying yourself something? You will surprise yourself! Make sure you budget the time and space for your giving initiatives and explore different ways to support others, beyond giving them money. Your time will be just as valuable to those in need (if not more).

To the high scoring Peacocks (9+ points), you are considered a Money Status Seeker.

You tend to link your self-worth with your net worth. You are driven to earn more money than your peers and taking risks to make money quickly plus the desire to buy expensive things is in your nature. Outward displays of wealth are important to you – and as a result, overspending is a recurring obstacle you face. You are more likely to gamble excessively, become financially dependent on others, or hide financial matters from your partner/spouse.

Sometimes you think that if you live a virtuous life, the universe will take care of you (financially speaking). Growing up, you may have experienced lower socioeconomic environments or were surrounded by a household that prioritized social status through displays of wealth. It is clear we live in a society that associates financial status with social standing. That being said, it is normal to be attracted to money and desire to be financially successful. Although these feelings are normal, if not identified and tamed this mindset can be damaging.

Here are some tips to keep your money status mindset from becoming toxic to your financial health:

  1. Create a budget and involve your family/advisor. The point of this exercise is to create accountability and get your financial situation in order. You want to make smart purchases, be intentional with your spending, and pay attention to how, when, and why you are spending. Your budget should not feel like constraints but instead, empower you to make the right decisions in your spending behavior.
  2. Work-life balance. You are constantly striving for financial success. In this pursuit, you may find that your work and life is not balanced. Take the time to dedicate hours to your family and loved ones, create connections that are separate from the strive to make money. Be aware of workaholism, this can have a negative impact on relationships as well as your own wellbeing. All the money in the world can’t buy you loving relationships or sanity. Create the balance.
  3. Challenge WHY before making purchases. Money status personalities tend to make purchases for the wrong reasons. Is the purchase filling a need? Or is the purchase a desire? Is the desire for myself, or for others? Recognizing the reasoning behind your financial decision making can shed light on this personality trait being present. Is the purchase for an appearance? Identify the emotions you experience throughout the entire process and how long they last. Is there a pattern? How can I eliminate the bad feelings and keep the good?

To the high scoring Squirrels (9+ points), you are considered a Money Vigilant. Unlike the turtle who avoids thinking about finances, you are always concerned about your financial future. You believe that being frugal, smart with spending, and saving as much as possible is important. You don’t believe in financial handouts and barely buy on credit, always maintaining low levels of debt. You tend to be anxious about your financial future but that just drives you to save more. You have a hard time spending on yourself and more likely to spend on others. You may be uncomfortable discussing money openly, however, you are never deceitful or secretive with your partner.

Although you have healthy concerns about your financial future, your high levels of financial prudence may prevent you from enjoying the fruits of your labor. Here are some tips to not allow your money vigilance to deprive you from the financial pleasure of life:

  1. You earned it, now enjoy it. Ever heard the term work hard, play hard? Well, you’ve got half of that equation down – you just need to embrace the second part. Nobody disagrees that financial stability and saving for the future is important to your financial health, you just need to remember that life is a journey and you should enjoy the ride. Saving all of your hard-earned money for a day that may never come is a scary thought. That’s why it is critical that you budget money for yourself and enjoy your hard work while you can. If you have a financial plan, you will see that including discretionary spending on enjoyment now will not hinder you from reaching your future financial goals. Enjoy responsibly.
  2. Open up with a trusted advisor. Although chatting it up about your finances with a girlfriend may be uncomfortable, try confiding in a financial advisor or financial therapist about your financial situation and specific goals. The point is to broaden your horizons a bit, hear new perspectives, and realize that although saving for the future is important, the anxiety and stress you may be feeling can be hindering your happiness and overall mental health. Pay attention or keep a journal of how often you think about finances. Is this time taking away from family time or causing unnecessary stress? Once you identify how much of your headspace your finances are consuming, you can create change and set up dedicated times to not allow your vigilance to take over.
  3. Create a play account. That’s right, just like you have been diligently saving for your family’s future goals, you should have a savings account that is intended for fun and play! If you are uncomfortable spending this account on yourself, involve your loved ones as well. Save for a fun family vacation, activity, or purchase that the whole family can enjoy. You will find pleasure in enjoying your hard work as a family, sooner than later.

As you may have noticed, even those that have the healthiest relationships with money will lean towards a money script (or two). From the exercise above, I hope you have noticed that you do not need to have money problems to identify with a money script. Perhaps before this article, you already noticed some financial behavior that is more obvious to pinpoint, such as compulsive buying, hoarding, workaholism, or financial enabling. Otherwise, the behaviors may be more subtle or – simply a mental roadblock instead of a physical one. Hopefully, you gained some insight into yourself and your personal relationship with money. It is only after you become aware that are you able to assess whether your script is restricting you from achieving your financial goals and living a financially healthy lifestyle.

To learn more about financial therapy, visit www.financialtherapyassociation.org

Article author Celia Meagher is a Morton Capital Wealth Advisor, CFP®, and is currently studying Financial Therapy at the Financial Therapy Association.


Sources:
Klontz, B. T., & Britt, S. L. (2012). How Clients’ Money Scripts Predict Their Financial Behaviors.
Klontz, Brad, Sonya L. Britt, Jennifer Mentzer, and Ted Klontz. 2011. “Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory.”
Klontz, Brad, Sonya L. Britt, Kristy L. Archuleta, and Ted Klontz. 2012. “Disordered Money Behaviors: Development of the Klontz Money Behavior Inventory.”
Klontz, Brad, Rick Kahler, and Ted Klontz. 2008. Facilitating Financial Health: Tools for Financial Planners, Coaches, and Therapists.
Sages, R.A., & Britt, S. L. (2012). Introducing clients to financial therapy. Trust & Estates, 1519 (3)
Your Mental Wealth. “Discover Your Unconscious Money Beliefs” Web.
Zohlen, Evelyn M. “What’s Your Money Script?” Web. 23 May 2017. Financial Awareness, Retirement