Chances are you’ve thought about your financial future and might be wondering how to formulate a short-term or long-term plan and what you can do to reach those goals. I’m here with Vanessa Jilot at Terra Blue Wealth Management. We talk about how and when, with the help of a team like Vanessa’s, you can reach those goals maybe faster, and with a really precise plan. Our discussion includes making home ownership in San Francisco a reality and how to write more compelling offers.
Yesenia:
Welcome Vanessa.
Vanessa Jilot:
Thank you so much for inviting me.
Yesenia:
Yeah, of course. So Vanessa has helped a lot of my clients prepare for a home purchase and major life events. And not all of my clients have a financial advisor, but I find that the ones that do really come prepared. They are a step ahead and have a really clear understanding of how much house they can afford, and really the why behind that. They cover their bases, asking questions like does it work for you right now, but can it also work for you in the future as well?
Yesenia:
So you have a specific approach in how you get clients there. Can you tell us about that?
Vanessa Jilot:
I do, yeah. So first off, working with a financial planner can really help make sure that there’s somebody on your side of the table that’s looking out for your best interest. One of the ways that we go about that is looking at what’s affordable to you, more importantly what will be affordable to you down the road. Today we know it’s affordable, but what happens tomorrow. Life changes and we all have changes in mind.
Vanessa Jilot:
One of the ways that we tackle this is through what I’ve coined as a bottom up cash flow approach. This really looks at all of your goals. So you have those competing goals like sending the kids to college, retiring early, and all of those good things. How do we get you there? And with that said, how much house can you afford today to make sure you’re still on track to meet those goals?
Vanessa Jilot:
You also have life changes. Many times people reach out that are looking for a career change. A lot of times we’re starting to work with a couple or an individual that may have this high-powered career but they might not want that same career five years down the road. So what’s affordable on a house level to them today is very different than down the road. So we need to look at the whole picture together.
Yesenia:
Got it. So really honing in on, “This works for you today and it still could work for you with any life changes, we are buffering those potential life changes into that price.”
Vanessa Jilot:
Yeah. And essentially creating, I call it a financial timeline; if this is affordable to you today, we want to make it happen. How do we make sure that you’re servicing that mortgage to get the price down in the future and so forth.
Yesenia:
Got it. That’s amazing. In San Francisco, most people have heard it’s a crazy market. It’s very, very competitive. Oftentimes, you are competing with cash offers. There are a lot of tips and tricks that we can pull on our end to kind of help a client write a more compelling offer. But there are some other assets that a client can leverage to help their offer be more compelling.
Yesenia:
I know that you kind of help walk your clients through that ahead of time. Can you tell us a little bit about what are some of the ways you help a client write a stronger offer?
Vanessa Jilot:
Yeah. So first off the San Francisco market is so crazy. One of the things I usually tell my clients is if you’re going down this path, it might be the most stressful thing you ever go through, but we’ll be there for you. But one of the areas that I like to start before somebody is even to the offer stage is around the base education of how does your money work for you. Your money in a 401(k) works very differently than your money that’s in the savings account.
However, there are ways you can utilize all different assets. You just have to be strategic with it. There’s age requirements that we need to talk about as well. But to create that really robust offer, there are ways that you can leverage your IRAs, where you can pull money out over the course of 60 days or less, and put it back in and it’s not a taxable event, as long as you stay within those parameters. There’s also ways you can use your 401(k) through 401(k) loans, or if you’re self-employed, it gets even more interesting there.
Vanessa Jilot:
And then of course, if you’re using taxable assets, so after tax assets that are in the market, we have to look at what’s the ramifications for short-term or long-term capital gains, and what puts you into that best situation. But we’ve spent a great amount of time going over how each account works, and what accounts are sort of up for grabs, if you will, if we need to go in with an all cash offer, we will be more competitive there.
Yesenia:
Got it, got it. Yeah. That’s definitely something that we talk about kind of at the offer stage, but it’s so useful to have those conversations up front, because oftentimes when you’re getting to that offer stage point, you have to make fast decisions and it’s really tough to make those. There’s so much that goes into it, right, versus just pulling money from here and there?
Vanessa Jilot:
It can be uncomfortable. The whole process in general can be uncomfortable. But you really need to know the ins and outs of what’s within your ability to perceive and have sort of all your ducks in a row before you find that perfect house.
Yesenia:
That’s right. And so, for someone who doesn’t own a home yet, but is preparing and saving for that home purchase, but also wants to build their financial profile, is their money safer in a bank account or is it advantageous to maybe play with some of that money in the market to potentially grow that down payment faster? Or how do you generally advise your clients who are in that position?
Vanessa Jilot:
That’s a really good question. It’s hard when the market keeps going up 30-40% per year to justify leaving money in cash, especially if we have inflation issues. The general CFP rule of thumb is that if you’re purchasing a home within the next two years, cash is king. There’s no point in taking on any sort of market risk or interest rate risk with that money. You should really be looking at just a high yield savings account. By high yield, it’s still relatively small given our interest rate environment, but we tend to look for online banks for the best deals there.
Vanessa Jilot:
So Ally bank, things like that, Barclays. But of course, that’s the rule of thumb. And again, it’s hard when you see the market increasing so quickly. It’s hard to look at this large cash position and justify keeping it there. One of the things to consider though, is the duration of your goal. So if it’s a short-term goal and you’re looking at investments, you’re usually looking at a conservative portfolio. What that means is you have more in the way of bonds, less in the way of stock exposure. It would be slow growth, but of course would hopefully outpace what your savings account is doing.
Vanessa Jilot:
The caveat here is with a conservative portfolio, you have more interest rate exposure which is not a good place to be in today if we know that rates are going to increase in the future. So it’s a big conversation to have. Where I usually like to start is just going over those pros and cons and showing historical returns of a portfolio, and what that means, and just going through those questions of if the market’s down 10%, are you willing to lose that in your portfolio, given your duration.
Yesenia:
Right. So it sounds like in the shorter term, shorter term like a year, two years, or?
Vanessa Jilot:
Yeah, so I mean, we really push our clients if it’s going to happen in the next two years, you need to keep that in cash. And many times, if somebody says it’s going to happen in two years, it happens sooner. So that’s really where we’ll push people. But if we get that pushback, then we are looking at historical returns and how that works and start going through those questions.
Yesenia:
Yeah. That makes sense. And so at what stage should someone really kind of start to consider employing the help of someone like you? I think there’s a vast majority of people who like to DIY their finances and kind of take bits and pieces from when they learn online and kind of employ that. But at what point are you finding that your clients are getting to a stage where they’re reaching out to you and really employing the help?
Vanessa Jilot:
Yeah. So when people reach out to us, there’s usually a trigger event, they have something they want or something’s about to happen. So in your case, it would typically be if somebody’s starting the search for a home. I would urge people to look before then. We really need to talk about the financial plan before you decide you want to buy that big house, to see if it’s even doable.
Vanessa Jilot:
But where I see financial advising adding value is I see us as the people that help answer the questions. There’s so many different things that everybody plans for financially in their life. How do you figure out what’s the most important? Where do you start? How do you map out that financial timeline? And I can see that as really adding value before you start that search for the home, or before there’s a major trigger event, so that we can help guide you through the way.
Yesenia:
Yeah, that makes sense. So it’s really kind of the first step, right, before even diving into Zillow or contacting the lender, it’s really getting clear on what your financial picture is today and then down the road, even several years.
Vanessa Jilot:
I would say so. Yeah. And a lot of it, again, is on the base education. How do you make a competitive offer? What assets are available to you? What’s the appropriate house size given where you are now in 5-10 years down the road? And just going over that base planning before you even start that search.
Yesenia:
That’s right. So it’s a no willy nilly thing to get into. And really understanding the full picture is super important. And so your firm focuses on sustainable investing. Can you tell us what that is?
Vanessa Jilot:
It’s amazing. Our firm, Terra Blue Wealth Management, only does sustainable investing. And our goal is to work with people that are active in their communities, that care about the impact of their money. I’ve been in this industry for about 14 years, specializing in sustainable investing. It’s a wonderful position to be in, because I know from my side of the table, with every dollar we’re investing, we’re having a positive impact on the community and the environment at large.
Vanessa Jilot:
And it’s one of the areas that I do urge people to think about, especially if they’re new investors. It’s understanding if there’s causes that you care about, or if there’s issues in society that you care about, let’s make sure that your portfolio’s in the proper alignment. Many times when investors come in and want to start using our services, we’ll do an analysis into their portfolio and find it’s very unequal when it comes to gender equality, or there’s a huge carbon footprint, or there’s weapons or prisons within the portfolio. It’s very common.
Vanessa Jilot:
So it’s something that I urge people to think about; to do a deep dive into where they are today and what’s important to them. What do they want to have an impact on?
Yesenia:
Yeah. So aligning with those things that you’re passionate about in line with your building that financial wealth, and it’s just a lot more sustainable in the long run it seems.
Vanessa Jilot:
It is, and luckily in the past few years, sustainable investing has outpaced traditional investing in returns too. So it’s good on the bottom line.
Yesenia:
You beat me to it. Okay. And where can people find you, Vanessa?
Vanessa Jilot:
You can look us up TerraBlueWM.com. You can always Google my name, Vanessa Jilot. We’re in Sausalito.
Yesenia:
Awesome. So it sounds like if you’re getting ready to prepare for a major life event, it doesn’t need to be just buying a house, there’s many other things like selling a house, buying before you sell, having a baby. There’s so many other major life events that one is preparing for all the time. And so getting started with someone like you will help kind of build that picture a lot more precisely. And so you’re in a really good place kind of moving forward.
Vanessa Jilot:
Exactly.
Yesenia:
Awesome. Well, thanks Vanessa. This was fun.
