Just Like Our Parents Told Us
Robert J. Brown
Certified Financial PlannerTM
Stone House Investment Management, LLC
There have been many articles in the past several months lamenting about the price of natural gas. In fact, we have written a few. How about we move on now to topics that will allow us to go to that next stage of our lives without weeping over what could have been. Instead let’s focusing on how much our financial picture has changed; and where it may go from here.
Some things never change. Never. Why is it that our parents shared so much wisdom with us, yet we refused to listen to them? How painful is it to see our own children go through their own set of growing pains? Oh how we wish we could just make them understand that we’re only trying to help keep them from making mistakes and provide them with a better experience. Then they would surely listen, right? Probably not. Why would they? We didn’t and we think we’re pretty smart! When it comes right down to it, some things you just have to experience for yourself.
Marcellus Shale has created a repeat of this scenario for many local residents in which legal, tax and financial professionals have been advising landowners to proceed with caution and purpose. Even landowners from other parts of the country have forecasted that there would be times that interest in our area would ebb and flow. Yet, some of us revert back to our teenage years when we justified our actions with no actual proof but, instead, the defiant statement of “that won’t happen to me, I’m the exception”.
Strictly from a financial perspective, I’ve seen huge disparity in the spectrum of wealth that natural gas has produced for some over the past four to five years now. I have been talking with clients in various stages of development; preaching about managing expectations and reigning in overzealous budgeting. Now we can begin to see why some of that caution was so engrained in my thoughts. This is one heck of a volatile industry and as a landowner who has leased his/her property, you have signed on for that ride, so rather than getting upset or unnerved when things go in a different direction, take the necessary steps to move forward.
Don’t Dwell on Things… Keep Moving
Is the deflated price of natural gas getting you down and lowering your monthly check? Has the energy company you leased with dramatically reduced its local development efforts? Is there still no completed pipeline to carry your gas to markets? Don’t spend your time worrying about these things… you have no control over these macro, or company-specific issues. Move on to the issues with which you do have some level of input, such as responding in a timely manner to correspondence from the energy company… or simply understanding your lease and its terms which will give you the confidence to watch closely what goes on with your property. If something looks to be inconsistent with what you signed up for, inquire about it. These are excellent reasons why you should have a strong relationship with an attorney whom you have confidence in and who can partner with you to navigate various legal matters.
Moment of Zen
Now let’s talk about what you can control; that moment of Zen when you open your mailbox to find your first royalty check. Once that check is cashed and in your account, only then are you in total control. At that point, you can feel the shift of control as all the hype suddenly transforms into reality. Now you can call the shots and all of the decisions are yours to make. No need to call the energy company or ask permission from anyone. You are the Chief Financial Officer. So… what do you do with it?
Listen to Advice
Many of us wish for another shot at our youth. We long for a chance to go back to the days when we first started working and maybe this time make better decisions with our money and our focus. For some of us, this is that second chance. An opportunity to listen to those who might have valuable insight in matters of estates, legal rights and taxation where you might not have as much experience. There’s a reason that any prudent financial planner or accountant will suggest some common, boring things like paying down bad debts, building up an emergency reserve, funding your retirement accounts to the maximum, etc… It’s because they usually make sense! They lower your taxable income, secure your retirement and eliminate wastefulness. It’s because these are the actions you can take which will result in what’s best for you.
There’s little doubt that buying a dream car or building a dream house is a lot more exciting than building an emergency reserve account; but what happens if/when the “music stops”? We’ve seen it stop, or at least dramatically soften in some scenarios around here. Will you be prepared to move on and will you be in a position to still have capitalized on what did come through your door and into your wallet? Even at current gas prices, this is still life-changing money to most of us and certainly worth sitting up straight and paying attention.
It’s in the Details
There is a steady stream of people each month who stride (or run) out to their mailbox for the dramatic experience of opening up the envelope to see what amount it will be; if it will be higher or lower. By the time they’ve reached their own doorstep they’ve already thought of several reasons why it is what it is. And with that, they’ll cash that check into their checking account; not thinking about whether or not they might be over the $250,000 FDIC limit per registration at their bank.
They’ll sit down later that night in front of the TV with the stub report and look at the confusing piles of information printed on it, understanding some of it but not all of it; hoping and trusting that the gas company has it all correct and then filing it away somewhere in the bottom of a cabinet. What if those numbers are off? What if there was a simple, honest mistake when a lease was transferred or units were combined or data was entered and your royalty rate was changed from 15% to 12.5% or your acreage slipped from 87.5 to 85. Add those up over a decade and you could be missing out on a huge amount of royalties.
During tax time, like we’re in now, will your accountant say that you owe more than you thought you’d owe? Will you think back to that conversation with your financial planner who suggested that you may want to max out your retirement contributions at work in order to lower your taxes this year AND build a stronger retirement? Even though it’s too late for 2011, will you make those adjustments in 2012?
Find the Right Resources
Look around and find professionals in the legal, financial and accounting areas with whom you can have confidence. Friends, family and neighbors are wonderful to have and can help provide a sense of comfort and unity by leading you down a similar path that they took; but they may not have taken the path that’s right for you. Doing what everyone else does will not ensure success. There are many foreclosures in our great nation right now as evidence to those who fell victim to doing what everyone else around them was doing.
Ultimately, this is a second chance for all of us to prove that we’ve learned some things from our childhood past. This is truly a great financial opportunity for many and I wish each of you the best in seeing it through.
Robert J. Brown, CFP®
Stone House Investment Management, LLC