As usually happens as we head deeper into the summer months, a common conversation begins to arise from our high-achieving families: They begin exploring the idea of a second homes (beach 🏖️, lake 🛶, or mountain 🏔️ houses).
I want to be the first one to tell you, this is entirely possible, and it’s achievable when it’s planned for and fits within your budget and overall financial plan.
We pride ourselves on not being the “No Fun Police.” In fact, few things make us happier than seeing your hard-earned savings and investments put a smile on your face.
Over the years we’ve helped dozens of great families expand their real estate portfolio via vacation homes and we’ve watched them creating amazing family memories.
Recently I watched a couple of Hallmark Christmas movies as part of their Christmas in July coverage and rekindled my desire to enjoy a snow-covered log cabin.
There’s an old school notion toward financial planning where we simply save & invest 15% for 40 years, retire, take a 4% distribution from a portfolio, increase the distribution annually to keep up with inflation, and then we die.
Depressing.
Financial planning doesn’t have to be that way.
In fact, (and if you’re a Know My Plan client, you know this) we try to make it fun, to come to life, centered around your goals, and flexible.
You shouldn’t have to wait until you’re 65 to enjoy the fruits of all your labor.
The big question that you should be asking is: “How do I balance the fun stuff I want to do today with the fun stuff that I would like to do in the future?”
“Okay Nic, we want the vacation home, we think we earn enough to afford it, how do we get there, where do we start?”
There’s no one-size-fits-all roadmap here, however the one commonality is that it all starts with a casual conversation and the formulation of a financial plan.
For most of the high-achieving professionals that we guide, we start by investing in an after-tax (non-qualified) investment account.
This allows for the potential for adequate long-term returns, but also provides flexibility—we’ll have access to these funds at any time without penalty (note that there will likely be a taxable event when selling investments).
In addition, a non-qualified investment account will allow us to use the account as collateral and potentially borrow against it without selling the underlying investments (borrow the banks money at a fixed interest rate i.e.: 5-7% vs. selling your investments and paying ordinary income taxes that are 3-4x that).
We also encourage the families that we guide to apply for a home equity line of credit (“HELOC”) if they have equity in their home. Clearly, we don’t encourage anyone to use their home as an ATM, however, it can be a useful tool as a short-term bridge loan if the home of your dreams becomes available in Beach Mountain or Isle of Palms.
Remember, it’s not “cash is king,” but ACCESS to cash is king.
One of our favorite exercises is helping people achieve their dreams and reach their goals by utilizing all of the financial tools we have available to us to make it as financially efficient as possible.
This is why we stress so hard that you partner with a knowledgeable and qualified financial advisor, because there’s no perfect “Googleable” advice, every family’s situation is unique: goals, resources, timeline, etc.…
The one thing however, that every Know My Plan family has in common, is that they have a written goals-based financial plan that provides actionable steps that will get them from where they are today, to where they want to go in the future.
If you or someone you’re close to is a high-achieving professional that could use help aligning their finances and establishing a financial plan, please reach out to us, we’re accepting new clients and eager to help.
Cheers, Nic
