8 Things Figure Skating Taught Me About Financial Success

Gracie Gold's Performance

2016 US Figure Skating National Champion, Gracie Gold  warming up at the Excel Center, St. Paul, MN.

Recently, my family and I had the opportunity to attend the US National Figure Skating Championships at the Excel Center in St. Paul, Minnesota. While my kids stalked skating celebs hoping for an autograph or selfie, my wife and I enjoyed watching the best skaters in the country vie for the title of US National Champion.

To be the best in any sport requires a mind-boggling amount of talent, discipline and focus. Figure skating is no exception.

Becoming a champion figure skater may not be on your bucket list, but I am guessing that goals like comfortable retirement or sending your kids to college are.

Below I list eight things that I learned about achieving financial success from watching some of the country’s most successful figure skaters.

Planning and goal setting are everything. Competing at the highest levels takes years of setting high goals and developing a plan to reach them. Even my little 10-year old star on ice meets with her coach to set goals for the year and develop a detailed plan to meet them.

Your financial goals require the same skillset.

Retiring at age 62 with 95% of your current income or paying for half your kids college expenses requires a lot of planning over a long period of time. Meeting on a regular basis to review progress towards your goals and making adjustments to your strategy is key to staying on track and reaching your goals.

The great ones make mistakes, but they move on. If you have ever watched figure skating you’ve no doubt seen your favorite skater jump for the stars only to come crashing down to Earth half a second later.

With the exception of 17-year old Polina Edmunds, every one of the top female skaters made mistakes in their short program including Gracie Gold who singled a triple jump.

At the end of her short program, Gold knew she made a serious mistake, but she never lost sight of the big picture. Undeterred, Gracie Gold went on to become the US National Champion two days later.

You will make mistakes as well.

An IRA required distribution is missed. Stock options weren’t sold when they were in the money. You jumped out of the market when you should have stayed in.

Like a double axel that isn’t fully rotated, financial mistakes happen. You need to leave the past behind you and keep moving toward your goals.

The best never give up. 26-year old Adam Rippon won the senior men’s national title. However, like many high performers he sometimes suffers from periods of self-doubt and occasional setbacks. In a Twitter post after the event, Rippon credits a strong team for pushing him to do his best and encouraging him to not give up.

You will suffer setbacks and self-doubt as well. The athletic scholarship that was a done deal may come undone. Or the market may take your IRA for a wild ride just as you are about to retire.

Even if the full-ride scholarship doesn’t come through or you retire a few years later than you wished, the goal of a college education with minimal debt or a financially secure retirement can still be reached.

Stay focused and never give up.

Great skaters overcome challenges. Mirai Nagasu came to St. Paul in 2008 and at the age of 15 became the youngest woman since Tara Lipinksi to win the national championship. This year her skating boot ripped on impact during one of her jumps in her short skate. During the free skate she was forced to skate with a boot that was literally patched together with duct tape.

In January your health insurance premiums jumped higher than Nathan Chen in a quadruple lutz. Last year you were prepared to max out your retirement plan, but not for being laid off for the year. Instead of paying down your mortgage, you were faced with unexpected home repairs.

What challenges you will face, anyone could guess. But you will face them.

To reach your financial goals, overcoming life challenges is part of the deal.

Winning takes a variety of skills. Adam Rippon, the men’s champion, summed up the sport of figure skating pretty well when he said, “It’s not a jump competition. It’s not a choreography competition. And it’s not a spin competition. It’s a little bit of everything”.

Your retirement plan requires a little bit of everything as well: investing, tax planning, social security, managing college expenses, budgeting, insurance, etc.

Financial planning. It’s not an investment competition. It’s not a tax competition. It’s not a budgeting competition. It’s a little bit of everything.

Dorothy Hamill and Sarah Branch

Dorothy Hamill and Sarah Branch. Photo Credit: Danielle Dee

Great skaters give back. My daughters and their friends fearlessly pursued skating greats like Michelle Kwan, Dorothy Hamill, and Scott Hamilton asking them for an autograph and maybe even a picture. All of them were generous and gracious with their time and willingness to share.

Charlie White, the 2014 Olympic Gold Medalist in Ice Dance, noticed my daughter looking his way, autograph book in hand, and with a wink and a nod he indicated for her to come over. He even switched chairs with his co-announcer at the Ice Desk momentarily so that she could snap a quick photo of the two of them together.

I think if she was a couple years older she would have completely melted.

I quickly scanned the crowd for his Olympic partner, Meryl Davis, but sadly a wink and a nod was not in the cards for me.

You are generous with your resources as well. This doesn’t have to change in retirement.

Include a charity as beneficiary on a portion of your IRA. Gift some shares of highly appreciated stock to your church. Volunteer a few hours of your time.

Realizing your retirement goals provides you with opportunities to share and give back in ways that you couldn’t when you were working.

You may not start your own foundation like Scott Hamilton Cares or Kristi Yamaguchi’s Always Dream Foundation, but even small acts of kindness can make a big difference in the lives of others.

Figure skaters make sacrifices and hard choices. All athletes do. So do most people who reach their financial goals.

Fund an IRA in March or pay for a tropical vacation?

Borrow heavily to attend an exclusive Ivy League college or graduate debt free from a state college?

Eat out at a fancy restaurant once a month or make an extra mortgage payment once a year?

The sacrifices and choices you make will define the goals you reach.

Success is never guaranteed. After her performance in the women’s short program, Gracie Gold said “just because you go big and work hard” doesn’t mean you will win.

Markets can decline at the worst possible time. An illness can derail your savings plan. Kids sometimes drop out of college.

You can do all the right things and still your goals can be elusive.

Bottom line – there are no guarantees – in skating or in life.

Your goals may not be as ambitious as a gold medal in a national championship, but they are no less important. You, your family and the community around you are counting on your success.

Follow the example of these successful athletes and you will reach your financial goals like a champ.

What’s Your Net Worth?

photo-1438027316524-6078d503224bDonald Trump recently reported a net worth of over $10 billion. Earlier estimates had pegged it at around $3 billion, but who’s counting?

While $10 billion may be a hard concept to get your mind around (it is for me anyway), the concept of net worth is fairly simple.

For example…

Net worth is the difference between your assets and your liabilities. Put another way, it’s the difference between what you own and what you owe.

Assets are things of value that you own. They include your home, cabin, and other real estate as well as financial assets like IRAs, 401(k)s, stocks, bonds, mutual funds, etc. The term “assets” can also include personal assets like your car, jewelry, artwork, and collectibles.

If you own a business, the value of the business would also be considered an asset and would count towards your net worth.

Life insurance cash value also contributes to your net worth. However, life insurance death benefits don’t count towards your total until after you die.

Liabilities are what you owe other people. Your mortgage, car loan, student loan and other debts are liabilities.

Subtract your liabilities from your assets and you have your net worth – voila!

A Hypothetical Case study …

Joe and Sue own a small home Washington County with a few acres of land that they bought in 1989. Today it’s worth about $350,000 and they still owe $50,000 on their mortgage. They also have a cabin in Wisconsin that they inherited from Joe’s mother. It’s paid for and valued at $275,000.

Joe teaches math and has a 403(b) plan at work with a balance of $300,000. Sue owns an antique store in White Bear Lake, Minnesota. The value of her business is roughly equivalent to the value of her inventory: $50,000.

Like most people, they have checking and savings accounts, IRAs, and a small amount of savings in a brokerage account. All told these assets add up to $185,000.

Their life insurance doesn’t have any cash value, but the two policies they own have a combined death benefit of $250,000.

Other than their mortgage, Joe and Sue’s only debt is a $25,000 line of credit they took out for some house projects.

Pop quiz: What is Joe and Sue’s net worth? If you guessed $1,085,000, you are correct. Ding! Ding! Ding! You have a pretty good understanding of net worth. The life insurance only counts towards their net worth after they die.

Net worth is a simple concept, but it’s one you should know. The exact number isn’t critical, but it helps you to know roughly where you stand financially — especially if you plan to run for president someday. Give or take a few billion.

5 Ways Minnesota Residents Can Avoid the Estate Tax

shutterstock_163602638 (2)Minnesota is one of only a few states that have an estate or death tax. MN residents who die this year will be assessed an estate tax by the state of Minnesota if the value of their estate exceeds $1.4 million (increasing to $2.0 million by 2018).

Depending on the size of their estate, the tax bill would be between 10% and 16% of the amount that exceeds $1.4 million. If you die with a $2 million estate, you will owe $60,000 or more in estate taxes to the state of Minnesota.

Below are 5 ways Minnesota residents can avoid the estate tax.

Don’t die. I say that only somewhat tongue-in-cheek. Obviously we are all going to die someday, but the exemption amount increases from $1.4 million in 2015 to $2 million in 2018. If you are a healthy person with an estate valued between $1.4 million and $2 million, you will likely avoid the estate tax just by living a little longer. In fact, according to the MN Department of Revenue, fewer than 2% of all Minnesotans will die this year with a taxable estate. That number drops by 37% in 2018.

Don’t die in MN. More accurately, don’t die as a Minnesota resident. Although there are some exceptions, it’s usually only MN residents who are subject to the MN estate tax laws. If you are a resident of Florida or any number of other states with no death tax at the time of your demise, you will avoid the MN estate tax. Click this link for a handy map of the 30 or so states with no death taxes.

Be generous to others. Assuming you don’t need a large net worth to fund your retirement income needs, one way to avoid the estate tax is to simply make sure that your estate stays under the exemption amounts (up to $2 million by 2018). If you can get by on $2 million, maybe you should consider making charitable gifts and/or gifts to others during your lifetime.

An individual can gift up to $14,000 per year to an unlimited number of other individuals without affecting their exemption amount. A married couple can gift up to twice that amount. If you are married and have two adult children who are married with two children of their own, you and your spouse could gift up to $224,000 ($28,000 x 8) every year.

If you are still feeling generous, there is no limit to what you can give to qualified charities (501c3 organizations), your kids’ or grandkids’ colleges to pay for education, or to a hospital to pay for medical expenses.

Be generous to yourself. Who says you have to give it all away? Maybe this is the year to take an Alaskan cruise or travel around the world. I spoke to a client recently who said, “It’s not like we are going to buy a sailboat and go around the world.” Why not? If you can afford it, why not trade in some cash for an experience of a lifetime? At the end of life most people regret things they didn’t do, not the things they did.

Credit Shelter Trust. $1.4 million is the exemption amount for the MN estate tax. This number increases to $2 million by 2018. However, a married couple can establish a credit shelter trust as part of their estate plan that will shelter up to $2 million from estate taxes for each of them.

In other words, if you are married and have properly drafted will and trust documents, you should be able to protect up to $4 million from the MN estate tax (by 2018). If you are not sure if your estate plan includes a credit shelter trust or a similar vehicle to minimize your estate tax liability, talk to your attorney and have them review your plan.

Planning is the key

That’s five ways you can avoid estate taxes as a Minnesota resident. For families with a higher net worth or more complicated estates there are even more things you can do to reduce the tax burden. With a little planning, however, 99.5% of the population of MN can eliminate their estate tax completely.

Minnesota Residents Pay More Estate Tax

shutterstock_133487081 (2)The Federal government assesses an estate or death tax only on estates valued at more than $5.43 million. Married couples can avoid these taxes if their net worth is less than $10.86 million. In fact, only a fraction of a percent of all Americans who die in 2015 will owe any estate taxes.

Unless you’re from Minnesota — or a handful of other states that assess an estate tax at the state level. MN residents who die this year will be assessed an estate tax by the state of Minnesota if the value of their estate exceeds $1.4 million (increasing to $2.0 million by 2018).

How much are you worth?

The value of your estate is calculated by adding up all your assets (house, cabin, 401k, IRA, investment accounts, etc.) and subtracting your liabilities – amounts that you owe others (mortgage, student loans, credit card debt, etc.). For example, if your assets equal $800,000 and you owe $200,000 in mortgages and other debt, your net worth might be $600,000.

At $600,000 you would owe $0 in Federal or state estate taxes.

Don’t forget life insurance.

When calculating their net worth, most people forget to include their life insurance. Generally, the proceeds you receive from the death benefit of life insurance also get included in the value of your estate. In the example above, if your assets minus liabilities add up to $600,000 and you have $1.0 million in life insurance, you have an estate that would be valued at $1.6 million upon death. Since this exceeds the current exemption amount of $1.4 million, $200,000 of your estate would be taxable at a rate of at least 9%.

Most pay no tax.

According to the MN Department of Revenue only about 2% of all deaths in Minnesota will result in the estate being taxed by the state. However, I would take that statistic with a huge grain of salt. If you are the kind of person that reads financial planning blogs and/or works with a financial advisor, odds are pretty good you may subject to a future estate tax.

In the example above, a MN resident who dies with an estate valued at $1.6 million would owe about $18,000 in estate tax. With some basic estate planning, those taxes can usually be avoided – especially if you are married.

In my next post, I will tell you how you can avoid most of these unnecessary taxes.

Save It or Shred It? Know what documents to keep and for how long.

shutterstock_121141942 (2)I have a confession to make. I am not as organized with my personal documents as I would like to be. At work everything is locked up, securely filed away or shredded. At home not so much.

In a previous post, I wrote about how I protect the information and documents that go through my office. We have strict rules regarding data storage and information that must be complied with. At home, no one stands over my shoulder making sure that I am smart about how I store my personal documents.

Admittedly, I am not an expert on this topic, but I know enough to know that getting organized starts with properly destroying any documents that are no longer needed.

On May 5th, Focus Financial is hosting a shredding event in which clients — and advisors — can bring their personal documents to be shredded by a professional shredding company. Shred-it of MN provides “secure document destruction” services to over 300,000 customers around the world, as well as community Shred-it events like the one we are hosting.

If you are a client, you have already received a notice with all the details and are encouraged to come. If you are not a client, here are some tips on what documents to keep and what you should destroy.

Keep forever. This is by no means a comprehensive list, but at a minimum the following documents should be kept in a secure place forever.

• Birth and death certificates
• Social security cards
• Pension plan documents
• ID cards and passports
• Marriage license
• Insurance policies
• Wills, living wills, power of attorney, and other legal documents
• Titles to vehicles you own
• House deed and mortgage documents

Tax returns. You may have noticed that tax returns aren’t on the above list. Most experts recommend keeping your tax returns for up to seven years. However, once your return is organized and stored in a safe place, I say keep it forever. Odds are your tax returns aren’t taking up that much space. Besides, there are some situations in which the IRS can go back and audit you indefinitely. The owner’s manual for the old appliances in the house you used to own? Those you can toss.

Other documents. Unless you need them for tax purposes, most receipts can be shredded after you have cross-referenced them on your credit card statement or the window for returning that item has expired. Other documents should be kept for a longer period of time, then destroyed. How long depends on the type of document.

For a list of what documents to keep and for how long, check out this article by Consumer Reports. Published in 2010, the article is a little dated, but the content is “evergreen” as they say and as valid today as it was then. Bankrate.com also has a handy chart that should help you sort it out. For a direct link, click here.