What 3 Financial Experts Would Do With Your Last $1,000


NEW YORK (MainStreet) — No one plans for emergencies to happen, and perhaps that's the first problem. Living paycheck-to-paycheck on the least desirable seems to be more and more the New American Way, if trends are any indication. Some believe the culprit to be the frenzied American consumer, yet others like CNBC's Leslie Kramer evenly lay blame on the banks, the government and the overall culture of the U.S.:

"We are, in fact, encouraged to spend as much as we are encouraged to save, sometimes by different businesses within the same financial services company. A company can have an investment management arm working to educate American workers on the benefits of saving, while it also has a large consumer credit card and mortgage business."

Whomever you blame, the message is clear: the average citizen is still struggling with finances in this sorry excuse for a post-recession recovery. Therefore, in order to tackle this multifaceted idea of emergency money management, MainStreet gathered some fresh financial perspectives from pros in the sector. Each were interviewed separately and presented with a dire proposition: If one of your clients were in a jam with only $1000 left, how would you advise them?

The Experts and What They Do

  • Personal Financial Planning, Kevin Cimring, CEO Jemstep, an online investment advisory focused on helping people lock in more money for retirement.
  • Business Financial Support, David Ehrenberg, CEO Early Growth Financial Services, a firm that provides finance and accounting support to early stage companies that are not large enough to have their own accounting staff.
  • Investing, Anthony Grisanti, President GRZ Energy and CNBC 'Futures Now' Contributor who keeps track of the whole gamut from hedge funds to users and producers of energy.

Now, the questions...

What emergency situations do you find your clients dealing with?

Cimring: Unemployment, long-term unemployment, someone suddenly gets laid off, and they haven't planned for that. So they don't have an emergency fund, for example, which we recommend. And so ending up in a situation of unexpected unemployment is difficult for folks to deal with.

The other main one is an unforeseen, kind of health situation, an inability to cover health costs is the other main one. So from our perspective, these are two kind of areas that have a big impact on folks which kind of land them in a financial emergency.

Grisanti: I would say it's when a client is late for the game, meaning that the market has already made a move and now the client is starting to think that that's what they want to do, but the move is kind of over with already.

It's hard to anticipate when there's going to be an issue. You know, the financial crash of 2007. A few people could see that coming, but most did not. And I remember when it all started. I had clients, you know after the market was down say 10%, 15% say, 'Well, now is probably a good time to get in.' And my advice was to wait, so it flushed out even more and that's exactly what happened.

Ehrenberg: I think the biggest emergency situation that we see them deal with is running out of money, because most of our companies are early stage and most of them are technology companies, they're very high risk.

Probably a third of our companies get acquired, probably a third of our companies continue to grow and outgrow our services and a third of our companies fail. Which is fairly norm with venture capital space. But it is a high failure rate.

Your client says their down to $1,000 (according to your expertise) what should they do?

Grisanti: Invest it in natural gas. Either you invest it in a producer of natural gas, an explorer of natural gas, but that's the future. Investment in natural gas. That's the future of energy, pretty much.

Ehrenberg: Try and grow the revenue stream and continue to try and grow the inflow of cash. Though over time, you can start layering back in expenses to match revenue as it's coming in. There is an opportunity for funding and there's an opportunity for some type of an equity investment from either a venture capital firm or a private equity firm.

When you get to that point where there's $1,000 left, I think there needs to be a hardcore assessment of, 'Does the enterprise have a realistic chance of moving forward and living as a business?' And if not, closing down the business.... A lot of it depends on, Can the founder continue to go without salary?

Cimring: There's no silver bullet. You know, there's no one thing that could lead to a kind of overnight improvement of their situation...[What] I would recommend is to take that money and giving that $1,000 to something like an FDIC-insured bank account and work on other circumstances...paying off their expense of debt or...contributing to an emergency fund. But until they get themselves to that point, it's a question of really placing that $1,000 in a safe account at that point in time.

What is your best advice for helping clients avoid emergency situations?

Ehrenberg: The solution can be multiple different assets. It can be getting to a place where they are operating in a break-even cash flow point, so where they get their revenue high enough so that their revenues are matching their cash coming in [with]...cash going out. It can be creating another round of equity funding from venture capitalists. It can be securing a bank loan. It can be reducing the actual expenses and their cost so that their runway will be longer and that they will last longer.

But that whole process starts with financial planning and understanding the numbers and understanding the timing, so that you could build in a plan to deal with the eventual emergency. So that when it comes, it's expected and they have a solution in place.

Cimring: I think a lot of this comes down to some of the really sound, common principles of financial planning. And I think [the] first and foremost is: don't live beyond your means...put money away for a savings emergency fund if you can. I think the other important factor is to pay off expensive debt...And also, diversify a variety of asset classes that optimize your return while reducing the downside risk.

Grisanti: I would say that they have to be nimble. Be very nimble. Don't get married to something just because it looks good. Be willing to change your opinion, change your views because these markets can turn on a dime on you. So I would say that would be the biggest thing.

--Written by Jean-Marc Saint Laurent for MainStreet

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