She is well-connected within the community and is confident that her business would be profitable within a year or two. She has a strong, charismatic personality and is also connected to Milwaukee's artistic community through her husband's architectural work restoring some of the city's beautiful historic buildings. She has a considerable portfolio, and occasionally sold stock photos or worked as a wedding photographer when she was in law school.
Laura realizes that in the current market, individuals and companies may be cutting back on "luxuries" like professional family and staff pictures. However, she has a range of expertise in architectural and interior photography as well as portrait and event photography. She is willing to diversify her skill set and pursue further education if necessary, although in her field an additional artistic degree would only be desirable for teaching or competing for gallery showings at a national level.
According to her business plan, Laura's start-up costs would be around $60,000. We discussed several different ways to fund this endeavor, and two main ideas arose: she could cash out some of her stock investments and 'repay' herself according to a plan based on projected income from the studio, or she could take out a small business loan (Quinn, 1995). We also considered some combination of the two, or the distant possibility that the couple would be able to sell their summer cottage and this money would serve as the start-up costs for the studio.
In discussing the underlying reasons for this seemingly sudden life change, I discovered that Laura had always wanted a more "artistic" career from her early adulthood, and that this had been compounded by seeing how flexible and interesting her husband's work in architecture appeared to be. Because his employer allowed him to work from home on days when no site visit was scheduled, he was usually able to pick the boys up from school and spend more time with them when she was working late hours on a case. Due to the culture of the legal profession, Laura felt pressured to take the minimal maternity leave and rarely took time off when her children were sick (Sass, Monk, & Haverstick, 2010). In addition, she had the impression that James's work environment was more varied and put him in contact with more interesting people on a day-to-day basis. Social boredom at work may be why Laura is pushing so hard to make a career change, rather than an actual desire to live the life of a photographer running her own studio. Since a financial counselor's most important job is to take the emotion out of decision making, it was important to reveal what emotions were behind such a radical career choice. The day-to-day stress of working long hours at a job she no longer felt attached to was taking its toll on her personal relationships, and it is clear that some change would be necessary, even if it was not the specific change that Laura had set her hopes on. After our meetings, Laura still persisted in her dedication to starting her own business, but the financial considerations led her to decide that a longer timeline would be best for her family and her own financial health. Instead of drawing on the principal of her investments, which have had an average return of 10%, she is investigating small business loans, which can currently be had at a much lower interest rate.
Problem 3: Managing Unused Property
Surprisingly, this last problem was the one that brought up the most emotional reactions from both the client and her partner. Laura and James inherited a beach cottage in Michigan from one of Laura's aunts. Although it is in Laura's name, some of her family members use it throughout the summer and fall. For example, this past summer her brother and his family spent 2 weeks there, and her parents joined them for the last weekend. About every other year over the past decade, James and the boys have gone up to the cottage for a week and Laura joins them on one or both weekends. The cottage was built by Laura's aunt and uncle, who had many nieces and nephews but no children who would inherit. Now that the boys are getting older, Laura and James would like to start traveling greater distances with them, or even doing some international trips. The cottage sits unused except for about 6 weeks per year. Laura is not sure it is worth holding on to, especially if the money from its sale could facilitate her business venture. James, on the other hand, fears that they will regret selling something that is, in essence, a family heirloom that can be passed on to their sons. Also, he has had more experience with it in the past decade than Laura has, although she has fond childhood memories of the cottage as well.
A key question I had to ask my client at this point was who her potential buyers were. In the current fiscal environment, second homes are flooding the market and many of them in the price range in which the cottage fit. She was fairly certain that the cottage would find a buyer within 4-6 months, given its condition and location, and has since followed up with a real estate agent in the area who was more cautious, but confirmed that it could sell within a year if she was willing to be flexible with the price. Another option that she had not seriously considered was renting the cottage through a vacation property management company. Laura had not rented the cottage out because she feared that wear and tear would lower the property's value and managing the property herself would add more stress to her life. However, I was able to advise her to consider putting the cottage on the rental market for this summer through an agency that handles cleaning, payment, and liability insurance for a small commission on the rental fee. In concert with her decision to pursue a small business loan for her photography studio, renting the property out rather than putting it on the market at present was a more financially sound idea.
Summary and Conclusions
Laura's financial story is not so different from many people at her stage in life. She is committed to making changes in her career that will give her more time with her family, and she is also committed to providing for that family to the best of her abilities. She has considerable resources, both personal and financial, that will serve her in good stead as she faces each of these three challenges. During our meetings, we also discussed a redistribution of her investment accounts to include less risk in the short-term. This is appropriate to her decision to start her own business, since she may have to rely on these investments as backup if her business starts slowly or takes a loss before it is fully self-supporting. She decided to convert some of her riskier stocks to funds in order to meet this goal of short-term portfolio stability.
In the discussion of the problems Laura brought to me as a financial counselor, it was interesting to see her thinking evolve especially regarding the financial potential of the family's summer cottage. Getting the perspective of an area real estate professional was grounding and allowed her to see that her extended family were also stakeholders in the property, emotionally if not financially (Hung & Yoong, 2010). The housing market for vacation homes greatly informed this discussion, and I anticipate that it would have gone very differently 10 years ago, or 5 years from now. Fortunately, the property is a resource that they will be able to draw upon profitably as a rental property or, in the future, as a sale to support their children's education. It was also interesting to see how both Laura and her partner were willing to scale back their cash contribution to their children's college education in favor of Laura's pursuit of her photography business. Clearly, this is a keystone for Laura's midlife development, and if she is as dedicated to it as she has been to her legal career, it has the best chance to succeed.
Overall, this client brought three entwined financial problems that were all dancing around one fundamental psychological truth: we cannot sacrifice personal happiness for wealth over the long-term. Fortunately, with adequate financial planning, the Lemming family will not have to make this sacrifice. Laura was able to find solutions to three major obstacles, and is now able to move forward with her life plans, confident that she will not undermine her family's financial future.
College Board. (2010). Trends in college pricing, 2010. Retrieved from http://trends.collegeboard.org/
Hung, a., & Yoong, J. (2010). Asking for Help: Survey and experimental evidence on financial advice and behavior change. RAND Working Paper WR-714-1.
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