Chiropractic Business Tips – Riskiest Investment is a 401K
13 Reasons Why Your 401(k) Is Your Riskiest “Investment” by Garrett B. Gunderson As a financial advocate to business owners, I’ve worked with hundreds of professionals, most of whom diligently save in a 401(k). But when I teach them the following concepts, they’re eager for alternatives. Consider these 13 dangers of 401(k)s: 1. No Cash Flow The theory is that the money compounds, but this really means it stagnates. Most people will not choose to utilize these funds even when a compelling opportunity will make them far more money than the 401(k) would, even accounting for the penalties. Numerous legitimate opportunities are passed by as people stay “in it for the long haul.” 2. Lack of Liquidity The money is tied up with penalties attached for early withdrawal—unless you know how to safely navigate specific, obscure IRS codes for penalty-free withdrawals. 3. Market Dependency The performance of the funds is dependent upon uncontrollable market factors. Therefore, your retirement plans are based on unknowable projections. Do you want to live your ideal life only if the market cooperates? 4. Lack of Knowledge How much do you really know about your 401(k)? Do you know the funds in which you’re invested? Do you know the details of the companies inside those funds? Do you know the fund manager’s philosophy, history, and performance? How can you expect to gain a return from something you know so little about? And how can this be called investing? It’s not investing—it’s gambling. 5. Administrative Fees The funds are subject to various (and usually hidden) administrative fees in addition to expense ratios and 12-b1 fees—a fact ignored by most contributors and advisors. 6. Under-Utilization Because of Tax Deferral If you don’t like paying taxes today, why would you want to pay them any more in the future? The tax deferral aspect, which is touted as a great boon, is actually a primary factor contributing to under-utilization. Most retirees let the money sit for fear of triggering tax consequences. 7. Higher Tax Brackets Upon Withdrawal It’s ironic that people project healthy returns on their qualified plan while also projecting they’ll be in a lower tax bracket at retirement. If you have achieved any measure of success, you should actually be in a higher tax bracket at retirement, although most advisors assume the opposite. Do you think taxes will be higher or lower in the future? Deferring your taxes results in a far greater tax burden than would be incurred using different products and strategies. 8. Estate Taxes 401(k)s are sitting ducks for estate taxes. Much 401(k) money is never utilized because contributors don’t make withdrawals in fear of paying taxes. Yet when the money is passed on to the next generation, there is not only a likely income tax, but also an estate tax. 9. No Exit Strategy Getting into a 401(k) seems simple enough. But how are you going to get out of it? Do you understand the penalties and tax consequences? 10. Subject to Government Control and Change Your 401(k) does not even technically belong to you. Read the fine print and you will find “FBO” (For Benefit Of). It’s technically owned by the government, but provided for your benefit. It’s essentially a tax code. Judging by history, 401(k)s are in great jeopardy. What will keep them from changing the rules and taking your hard-earned money? 11. Disinvesting Suppose you’ve retired and begin taking interest payments from your 401(k). You project you can withdraw 6 percent a year, based on an average annual return of 8 percent. But what happens to your principal when the market is volatile? If in one year your fund is down 10 percent, you’re tapping into your principal to take your interest withdrawal. At that point, you have only two choices: start withdrawing principal leave the money alone until your account is up again. 12. No Holistic Plan I’ve witnessed many people whose finances are in shambles, yet they diligently contribute to their 401(k). It’s like a person trying to take care of a scraped knee when their wrist is slit. They urgently need a macroeconomic plan that identifies, prioritizes, and manages all pieces of their financial puzzle, with all pieces coordinated and working together. 13. Neglect of Stewardship 401(k)s cause contributors to abdicate their responsibility. They think they can just throw enough money at the “experts” and somehow they’ll end up thirty years later with lots of money. And when things don’t turn out that way they blame others. Interestingly, traditional media is finally realizing what I’ve been warning investors about for more than 10 years. For example, see the 60 Minute special, “Retirement Dreams Disappear With 401(k)s” and the Time Magazine article, “Why It’s Time to Retire the 401(k).” Saving for retirement is wise and prudent, but there are other investment philosophies, products, and strategies that would meet your financial objectives much more quickly and safely than a 401(k). Ok, so if a 401(k) isn’t the best option, what is? See how sustainable wealth can be created with investing and get a check-up on how you are currently applying it to your life. Go to www.freedomfasttrack.com/cfw and take our Financial Health Assessment at no charge and learn about our Curriculum for Wealth to get a deeper dive and more answers.
Chiropractic Practice Management Decision Making
Wake Up and Smell the Coffee Dr. Ben might be able to make better decisions by tracking KPIs — but would it be worth it for practice management? “Do you really cut out coffee in the break room when cash flow is tight at the practice?” Carmen asked Ben, pouring him a cup of her special brew. Ben inhaled the aroma of freshly ground coffee beans brewed in a French press with filtered water. Their son was coloring at his end of the table while Ben and Carmen enjoyed a cup of coffee, the family’s usual evening ritual. “Why not? It’s a small thing that doesn’t affect the patients,” said Ben, breathing in the scent of coffee again. It would be just another minute before it reached the ideal drinking temperature. “I think that’s a mistake,” Carmen said firmly. “What happens when everyone is crazy busy all day and the waiting room is a zoo and Pam goes for her coffee break — and finds no coffee. You save yourself seven dollars, and you have a dissatisfied staff. That’s no bargain.” “So where should the savings come from if we need to scrimp a little bit? Sometimes we have to.” “There’s always something you can do to bring in a little more money in the short term,” Carmen said, swirling her cup. “You can call patients you haven’t seen in a while and invite them in, or offer a referral bonus or something.” “This isn’t like pizza,” Ben objected. “Plus, we don’t always have too little business when we have a cash flow issue.” Carmen frowned. “The solution to every problem in business is more customers. Cash flow for the pizzeria means we’ve had a slow week. It’s not that way at the practice for practice management?” “Not necessarily. There are a lot of things that can affect our income. No shows, for example. When people make an appointment but don’t show up, we lose that income. NFAs, no future appointments — those are the people who may have been coming regularly and providing predictable revenue, but then they leave without making another appointment.” “Recurring revenue is good,” Carmen agreed. “But when you expect it and it doesn’t happen, it can take a while to make up the difference.” “There’s also payment. When people order a pizza, they pay for it. We have accounts that are 60 or 120 days late, plus insurance payers who are slow or even dispute the claims.” “Hold on!” Carmen grabbed a piece of paper and a crayon from Jonathan’s hoard. “Can I have this one, sweetie? Thanks. Okay, Ben, let’s get this figured out. Things affecting your income include no-shows, NFAs, slow pays, and payers like insurance companies that aren’t always predictable. It’s all practice management.” Carmen drew a neat chart with the crayon. “Wait, I think the insurance companies need their own column. You need to keep track of which payers are fast and cooperative and which aren’t. You also need to know how many claims you have and when there’s a significant backlog so you can respond to it. Maybe also which specific procedures cause problems with which payer.” Ben admired the chart. “Looks like that about covers it.” Carmen sat back and admired her work. “I think these are your KPIs. Your key performance indicators that let you see if you’re on track and if you need to trim your costs a bit.” “Where will these numbers come from?” Ben asked. “You’re acting like I should know these things.” “You should,” Carmen shot back. “You have to know your numbers to make the right decisions at the right time. When you know your numbers inside and out, you can make strategic decisions wisely. Maybe there are vendors you can safely put off paying if you know that you have money coming in soon, or maybe you can put a staff member to work getting those overdue accounts cleaned up.” Carmen returned the crayon to their son. “Either way,” she went on, “you won’t have to mess with the coffee!” Ben drained his cup. He could see where Carmen was coming from. Her plan sounded sensible. But he wasn’t sure it would be worth taking time away from what he did best — patient care — to mess with all those numbers. Dr. Ben might be able to make better decisions by tracking KPIs — but would it be worth it for his practice management? Disclaimer: For HIPAA compliance, all characters appearing in this post are fictitious. Any resemblance to actual persons or actual events is purely coincidental.
Your Data and Practice Management Metrics
Big Data? Can Dr. Ben get the benefits of data-informed decision making in his Practice Management? Carmen stomped around the kitchen, slamming cabinet doors, and mixing ingredients furiously. Ben wondered how dinner would taste with this level of irritation mixed in. “I am so mad,” Carmen informed him, as though he could have missed that. “You know a restaurant like mine is always just on the edge of profitability.” “I thought the pizzeria was doing well,” Ben objected. “We are! But doing well for a pizza place can be an 8% margin. I believe in giving good value, treating my workers well, and using fresh ingredients. And every time I turn around there’s another expense!” Carmen slammed the oven. “Hey, come sit down and let me get you a glass of water.” “I know I’m making a big deal over this, but seriously, Ben, this just makes me mad. We’ve had Wifi in the restaurant since we opened, and now all of a sudden we’re supposed to pay an extra fee and buy a special router and — I don’t know. I’m going to have to sell five more pizzas a day just to keep the same level of service I have now.” “So don’t have Wifi,” suggested Ben. “In a pizza place? You’re kidding, right?” Carmen shook her head. “Hospitality industry surveys say that over 70% of my regular customers could go elsewhere if I didn’t have free Wifi for them.” “Does it have to be free?” Carmen’s pitying expression answered the question. Ben persevered. “Okay, what if you raise the price of the pizza to cover the extra cost of the Wifi?” Carmen stared off into the distance and her eyes narrowed. “That’s not impossible,” she said. “I’d only have to raise prices by about 26 cents per item… if I went from $12.79 to $12.99 and made up the difference on the drinks, probably no one would notice.” “How can you do that?” Ben asked his wife. “It took you less than a minute to figure that out.” “In business, you have to know your numbers,” Carmen said firmly. “How can anyone know all those numbers?” Ben objected. “We have so many numbers in our practice, I don’t even know what I should be keeping track of, let alone what to do with them.” “Then how do you know when you need to hire another staff member, which products to stock, or which services are most profitable?” Ben considered the question. “I guess I don’t. We’re tied into all kinds of information systems, but they don’t seem to connect with decisions about the practice. As long as we’re doing pretty well and have enough money to pay everybody, I don’t really think about those things. If we’re falling behind, I cut out the free coffee in the break room…” “And stay up nights worrying,” Carmen’s voice was soft. “Wouldn’t it make sense to have control of that information for your Practice Management?” “I guess,” Ben frowned. “I don’t see how I can add any more to my work day, though, or to Pam’s.” Ben thought about his office manager. Pam was great, but he felt fairly sure that she didn’t have control of the numbers the way Carmen did. Carmen stood up and went more calmly to check the oven. “Can you help Jonathan wash up for dinner? And thanks for helping me sort out my problem.” “I’m always happy to help,” said Ben. He thought he might be the one who needed help, though. Can Dr. Ben get the benefits of data-informed decision making in his practice? Disclaimer: For HIPAA compliance, all characters appearing in this post are fictitious. Any resemblance to actual persons or actual events is purely coincidental.
Is the Infinite Banking System the Answer?
by Garrett B. Gunderson Some of the most frequent questions we get at Freedom FastTrack have to do with infinite banking. The financial strategy, which leverages the living benefits of cash value life insurance, was created by Nelson Nash and is detailed in his book Becoming Your Own Banker. Other popular books on the subject include Bank on Yourself by Pamela Yellen, The Banking Effect by Dan Thompson, Prescription for Wealth by Tom McFie, and Live Your Life Insurance by Kim Butler. I would characterize my attitude toward infinite banking as “cautiously positive.” I’ve personally interviewed Nelson Nash twice by flying him to Utah. I’ve ran hundreds of infinite banking calculations using financial software and consulting financial software developer Todd Langford. I’ve even used the concept in my own life. The problem with the strategy is that most people who do it or want to do it ignore the larger context of their full financial blueprint. It is frequently sold as a magic bullet. It tends to be a classic case of, “When all you have is a hammer, everything looks like a nail.” The truth is that it’s just one strategy and technique surrounding one product. And as you frequently hear me preach, strategies are only as useful and profitable as the people executing them. Infinite banking is a one-trick pony that can be useful in certain circumstances for certain people, but it’s not for everyone and it doesn’t solve every financial problem. To echo another theme I stress, if you’re asking whether or not you should use the strategy, the obvious answer is that you shouldn’t because you’re not educated enough yet. When you know enough about the strategy, you’ll know whether or not it’s appropriate for you, and how to execute it to fit within your particular financial blueprint and meet your specific needs. So let me give a brief overview of the strategy, then I’ll reveal its blind spots and pitfalls and explain how to use it appropriately. What is Infinite Banking? In concept, the strategy is simple: You use your whole life insurance cash value essentially as a line of credit. Instead of paying banks interest when you finance cars or other purchases, you pay that money back into your policy and essentially to yourself. This is done by funding dividend-paying, equity-building permanent life insurance. Once your policy is funded enough to make a major purchase, you utilize your cash value, take out a policy loan to make the purchase, then make “payments”—with interest—back to your own life insurance policy. The cash value of permanent life insurance is referred to as a “living benefit,” because you can access it throughout your life. Whereas term life insurance provides a death benefit only, permanent life insurance offers living benefits, such as the cash value, tax-free growth and tax-free withdrawals (under specific guidelines), liquidity, dividends (on certain policies), and liability protection (in most states). The strategy is smart, to be sure. Consider a five-year, $20,000 auto loan at 7 percent interest. On that loan your monthly payment would be $396.02. At the end of five years, you’ll have paid $3,761.44 in interest alone. Why not recapture that interest to build your own wealth, rather than padding bankers’ accounts? By the time you pay off the car, instead of just having a dramatically-depreciated asset, you’ll have the car, eventually you can build a way to have your $20,000 restored, and you can even have an additional $3,761 (not fully considering the interest that the insurance company may charge you on the borrowed money). So what could possibly be wrong with the strategy? Problem #1: Insurance Protection Comes First The trick to making infinite banking work as quickly and effectively as possible is typically getting a low amount of insurance coverage (face value, or death benefit), then max out your premiums (also known as over-funding the policy). Remember that the goal is to build up your cash value. The focus is on the living benefits, not the death benefit. But fully protecting your human life value with the proper death benefit amount should take precedence over any living benefit. Infinite banking makes the cash value the main benefit of permanent life insurance and overshadows the importance of the death benefit. Before you even consider infinite banking, you first need to maximize your insurance protection. That is the primary and most important purpose of life insurance. Living benefits are nice, and in most cases I highly recommend permanent life insurance with living benefits over term insurance. But they should be viewed in their proper context as supplemental benefits, not the primary benefit. In fact, before you even consider the type of insurance you should buy, you first need to understand how much death benefit to have. Your amount of life insurance to protect your economic value (replacement of income) is the primary consideration to drive all decisions regarding the type you purchase. This is why I don’t always advocate whole life insurance 100 percent of the time. I’ve seen too many cases where insurance salesmen sold permanent policies people couldn’t afford, and who then lost their policies because they couldn’t fund them. Just as it’s a problem to get too little insurance coverage, it’s also damaging to get too much whole life insurance. Focusing on death benefit first avoids problems like this. Some people may purchase convertible term insurance now to get the proper amount, then convert it to permanent insurance as their cash flow situation improves. (HINT: make sure your term insurance is convertible and with a company that has whole life insurance). This is another way to say that a person’s comprehensive financial blueprint should govern financial decisions, which leads me to my next point. Problem #2: Lack of Context Infinite banking, if right for you, should be just one piece of a much larger puzzle. It shouldn’t be the one thing you implement at the expense of other important things in your life. Your complete financial blueprint