Feeds:
Posts
Comments

Financial Health is a Lot Like Medical Health, Everyone Needs It

August 30, 2010 by FPA Guest Blogger

Do you have a doctor, maybe a General Practitioner, who is responsible for your health if you get sick? I’ll assume you do. Does he (or she) take care of all your health issues? How about your nutrition, your exercise and your weight? No. Unless your doc is a family member, he collects physical and personal health data when he examines you, gives you advice and prescriptions to “fix” your problem, and then he encourages you to get help from a nutritionist (or your Mom), a fitness coach (or an exercise class), maybe the WebMD site, and maybe even a specialist. Your doctor is the health pro that monitors, prescribes and refers to others. He’s not your Mom, your coach, your web browsing guide or your brain surgeon.

Well, coincidentally, that’s exactly the way you should use a Certified Financial Planner™ professional (CFP®). Your financial pro examines your financial data and gives you guidelines and prescriptions to improve your financial health and he may recommend a specialist for legal or tax advice, for example. Following your advisor’s advice will help you get out or stay out of debt. It may help you fund targeted savings and establish an emergency fund. But your CFP® doesn’t do a lot of other things that are part of your financial health. Like your doctor, he (or she) will depend on other people and services to help you “get better”. He may set savings goals (and suggest an online banker), suggest employee benefits choices (through the benefits products and services at your job). Your financial planner may also suggest tax savings ideas that you will have to work through with your tax preparer (or with TurboTax on your own) and so forth. You may be able to remove a financial hangnail, but a financial intestinal blockage?, no way. How about a financial health club? Yep, like your doctor, your CFP® will support your participation in that, too. He might suggest Dave Ramsey or suggest you watch an investment TV show like Cramer or check out a financial blog like J.D. Roth’s GetRichSlowly. Like your doctor, your financial planner is helping you create a sustainable environment for future health. 

Do you see the parallels? All of us need good physical health and good financial health. To attain that health, we need a professionally competent monitor/diagnostician who can prescribe the right financial behaviors and perhaps an occasional specialist to get us through a tough transition or just back on track. But with his help, we also need to create the environment that will support establishing financial health and staying financially fit. Without it, we will backslide, and become financially unfit again, unable to pay bills, put kids through college or retire, for example.

Where does the average person find the financial pros with these qualifications and the fee structures to make sure you won’t be pitched commission products? Financial advice providers should be selected to serve you at your present level of financial complexity. When you are young and your financial life is simple, time spent with a wise uncle or even Yahoo Finance or Mint.com may suffice. But, set up a short session with a pro, too. It is said that the difference between a pro and an amateur, is that a pro will panic faster when he sees something wrong. With a wise advisor’s observations and support, you’ll get early warnings about bad habits. Then surround yourself with the practices and tools that will bring long term success.

If you don’t know a pro personally, today there are highly qualified and inexpensive online advisors who will give you a free checkup and charge low flat fees for their services (Editor’s note: A good place to start for a free check up is the FPA’s Starter Road Map. Other sites include Myfinancialadvice.com, a site with which this author is affiliated. Plus,  you can use the FPA’s PlannerSearch to locate planners by compensation model as well.)

These are the types of planners that won’t expect you to be wealthy, and can prescribe tools to put a budget in place that you can follow. They may help you find an investment club to learn about mutual funds, or suggest an online resource to open an IRA or 401(k) plan where you work. They will help you establish the habits you need to reach “financial adulthood” no matter your age. Once you find an advisor who will work for you, check in with them every so often to evaluate your progress.

Attaining and maintaining good medical and good financial health have a lot in common. Both need the advice of a professional, the establishment of good habits, and an environment that supports growth and development, growing, preserving and conserving your resources. Think of these two arenas of your health the same way. Using these approaches together, you can live long and even prosper.

Special to FPA
Kevin P. Condon, Ph.D., CFP®
Partner & Co-founder
Myfinancialadvice, Inc.

Posted in Financial Planning | Tagged , , , , , , , | Leave a Comment »

Bucket List

August 27, 2010 by David Bergmann, CFP®

Most of us are familiar with the term made famous in the 2007 movie with Morgan Freeman and Jack Nicholson, Bucket List, which ‘played out’ the lives of two terminally ill patients and their list of to‐dos before they died. The sad part of the film was the reality of life’s finite certainty while the fun part of the comedy was that Jack’s character had the economic wherewithal to bring those ‘to‐do’ activities to life as quickly as time and health permitted the both of them to do them!

Interesting concept, Bucket List, don’t you think? Interesting, I say, because it brings us to reflect not only on what our own list might look like but it might just as well make us think about a ‘Pre’ Bucket List, shouldn’t there have been something like that too? Is the Bucket List just what’s left over? Or, is the Bucket List things that are ‘popping’ into our heads as we are approaching life’s finish line? Maybe we just haven’t thought about either List because we ‘thought’ the finish line was soooo far away or it is just another one of those things that can wait until tomorrow.

In a recent editorial, one of our Past Presidents of the FPA, Roy Diliberto, CFP®, wrote about ‘financial planning’ and the need for our profession to define the engagement of  comprehensive financial planning services as being beyond the management of assets – the process is so much more all‐encompassing if you are providing comprehensive services! Dr. Dave Yeske, CFP®, also a past president of the FPA, visually describes the planning process by using his hand and fingers ‐ no, not sleight of hand, you comics, ha ha. He describes each finger as representing one of the disciplines of financial planning, (1) tax planning, (2) investment planning, (3) retirement planning, (4) estate planning and (5) risk management. He then he describes the planning process as being all that that surrounds the digits of the hand, the ‘ether’ around the fingers that then joins in ‘the hand’ enabling those digits to do so much more than they could possibly do independently. As importantly, his thought is that each of those disciplines can be ‘hired’ out or done over the internet but that it is only through the integrated guidance achieved through the planning process can an individual be certain that their resources are appropriately integrated and are most efficiently employed. A third Past president, Elizabeth Jetton, speaks about the melding of the Art and Science of Financial Planning. The ‘Art’ of defining and understanding the unique and individual nature of each of our clients and applying the ‘Science’ of planning techniques in furtherance and support of that individual’s individuality, dreams and visions of their fulfilling and complete life.

A dear friend and client of mine was recently given the news that his prostate cancer had spread through his entire body and that the best doctors could hope for, barring some new found cure or inhibitor, was to keep him as much out of pain as possible by chemo and pain relievers. So far, other than a cane to aid a little bit in walking and a need to turn the lights out a little earlier than in years past, life is still normal, thank goodness! In sitting with my friend and his family it was uplifting to hear him say that his Bucket List had nothing on it – he had ‘been there, done that’! Traveled, raised a family, had grandchildren, hunted every year with his son, motorcycled, you name it, there was nothing left he felt he was ‘missing out on’! His time, he said, was free to spend nourishing and creating his memories with families and friends. What do we have in the end, anyway, ashes to ashes, earth to earth as they say.

My point here is that comprehensive financial planning is really about the Bucket List or, more appropriately, ‘Life’s’ To Do List. When the time nears, if we are or are not aware of our imminent demise, a good or bad thing, depends on your perspective, I guess ‐ will we be writing out a large Bucket List or will we be reviewing it? Unless you plan, you may not have the time or the health to do things on a Bucket List. Seek out the services of a comprehensive financial planner to help you define and accomplish what’s important on your ‘Life’s To Do List’.

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA

Posted in Financial Planning | Tagged , , , , , | 1 Comment »

A Letter to My College Bound Son

August 26, 2010 by Karin Maloney Stifler, CFP®

Dear Colin,

In a few days, you’ll pack the car and leave home to begin your college career. I can’t deny the big lump in my throat as I say this and imagine your empty seat at the family dinner table and your eerily quiet and tidy bedroom. I will miss you, terribly… how your wacky humor makes me laugh, how your unique perspectives on life make me think, and how even in your crankiest moods, you flash those intense blue eyes, full of passionate beliefs and determination that show the promise of a man who will make a difference in this world.

From the moment you were born, I knew the day would come when it’d be time for you to go. That “someday” is now. You’ve grown strong and capable. Like a bird, you’ve outgrown the nest and are ready to fly. 

You’ve been preparing for your “independence day” for some time. You’ve practiced managing your personal life, school, work, and money. Through trial and error, successes and mistakes, you’re figuring out what works for you. 

Healthy money behaviors have come naturally to you. You do a good job balancing spending to enjoy today and saving for the future, being a smart shopper, and avoiding debt. You are willing to work for what you need and want. Remember those 5am alarm bells and how hard you worked in the warehouse this summer? Easy money? No way! I know you’ll spend your money with care and make it last through the coming school years.

Reaching agreement about what to expect from each other is one of the most important ways we have prepared for this life transition. Putting things in writing is sometimes more powerful than speaking the words. So here it is. Let’s both promise to keep our word.

What you can expect from us:

  • Our love and moral support.
  • Financial support in the ways we have discussed.
  • Respect.
  • Room to grow – no helicopter parenting.
  • Won’t change your bedroom (at least for now).

What we can expect from you:

  • Your Job:
    • Value and appreciate this investment in your personal growth and your future.
    • Attend all classes, do the work to your best ability and on time.
    • Be engaged and get involved on campus.
    • Handle things on your own; get help immediately when you can’t.
  • Your Money:
    • Give yourself a weekly allowance and stick to it. 
    • Pay with cash or debit card.
    • Use your credit card for emergencies in the ways we have discussed.
    • Check your bank account online at least once a week.
    • Monitor automatic banking text and email alerts.
    • Don’t lend or borrow money from friends. 
    • Protect your valuables – most of all, your identity.
    • If you lose or break something, replace it at your own expense.
  • Your health:
    • Eat healthy, get enough sleep, and exercise.
    • See a doctor when you must.
  • Communication:
    • Check in at home once a week – email, text, phone, I-Chat.  (More is okay too.) 

Aside from our agreement, I also want to share my highest hopes as you take this big step towards creating your own future. Thanks for listening just a minute longer…

Own it.
It’s your life and you’re in charge. How to spend your time, talents, energy and money is up to you. Do it with purpose. When in doubt about what to do, ask yourself: How does this impact my life? How will it make my life better? Will I be happy with this decision later? Can I live with the consequences if I make a bad call? Remember that independence comes with rewards and responsibilities.

Be your own person. 
Be true to who you are. I know you’ve heard this a million times. Sure, it’s good to appreciate differences and diversity, as long as you don’t get caught up in other people and lose yourself. Continue to be your own man. You’ll respect yourself and others will too. Remember that you cannot buy happiness, and that money has nothing to do with the value of a person. There will always be people who have more and less than you. Comparing and trying to keep up with others is a waste.  Manage your money and your life on your own terms.

Dare to do great things. 
Your childhood hero, “Woody”, from the movie Toy Story, said it best,”Reach for the sky!” This is your time to discover all you are capable of becoming and contributing to the world. Now, more than ever, believe in yourself and explore your passions. If you do, success will come—in the ways that you will choose to define a successful life. At the same time, expect challenges. Life is difficult! Have confidence that when you struggle, you’ll be stronger and smarter than if you succeeded on the first try. To get through life’s inevitable challenges, trust yourself and the support of your safety nets, including those who love and care about you— most of all, your family. 
Your Dad, Nate, Ryan, Toby and I love you, Colin. Let our love give you roots and help you find your wings. Fly!

Mom

karinMaloneyStiflerKarin Maloney Stifler, CFP®
President
True Wealth Advisors
Hudson, OH

Posted in Education | Tagged , , , , | 6 Comments »

Making Good Decisions

August 25, 2010 by Dave Caruso, CFP®

Part Four of my Four Fat Financial Fears!

We are in the fourth and final fear after tackling topics of volatility, outliving our income, and getting organized. It’s time for our last installment; making good decisions in our finances.  I’m sure you’ve heard the analogies like “paralysis by analysis” or “decision by denial.” Yet I feel the more prevalent type of decision these days is actually “execution by emotion.”  That’s all part of the whole brain thing that sucks when we all use left brain (very logical and calculating) and right brain (more emotional and creative) patterns to try and make good decisions.  I’m not pretending to be a psychologist here, even if I did marry one!  In fact my wife and I usually come to the same conclusion on most issues, although we go about it in very different fashions. I read an article or talk to someone whom I respect and I am usually ready to make a decision and in a very short period of time. My wife on the other hand will read a book on the situation, have a long discussion with me, or surf the net for hours to get information in order to make her feel more comfortable in making a final decision. If you’re single it becomes a little harder in terms of whom you bounce your ideas off of, but the final determination is that you should decide what’s right! In the case of a couple, I feel that there has to be a unanimous decision. If not then it becomes a divide and conquer situation, where one puts their money here and the other goes someplace else. Unfortunately that can end up having a winner and a loser, which has the potential to cause some harsh feelings in the future.

My personal bias is that many of the clients that I’ve worked and collaborated with over the last 30 years make their decisions based on logic, numbers and reasoning when things are going well. I believe the court reverses when times get tough, as we go back to our emotions and the basic human instinct of fight or flight.  You have to see the April 27 2010 Nova/ PBS show Mind over Money, which talks about how we make irrational decisions when it comes to money.  Harvard psychologist, Jennifer Lerner, Nova PBS money decisions talks about how our emotional states like fear, anger, or sadness affect our decisions. She talks about how taking more risk can actually lead to better decisions when people are angry. Even though I’ve read a lot of economics books over my career, I feel that some of the most relevant are about behavioral economics, which really got its roots when a psychologist, Daniel Kahneman, won a Nobel Prize in economics!

So here’s my checklist of five things that are important to make good money decisions:

  1. Who is going to do it and what do they want?  The 2009 Spectrem Group study on the mass affluent showed that 39% of the people make their own financial decisions without the assistance of a financial advisor, 26% choose an advisor for a particular situation or event, 20% regularly consult with a financial advisor, and 15% are totally advisor dependent. If you are part of that 61% that may seek help, the top five items that were the most important were:  96% said properly responding to inquiries and questions, 91% said good credentials, designations and licenses, 79% said regularly outperforms the markets, 76% said offer products with a variety of different companies, and 72% said they want to work with the advisor because they had a long history of dealing with them.
  2. Is it a big decision or a little decision?  Examples of big decisions are divorce, bankruptcy, taking a new job, buying a new house, choosing a new advisor, establishing an investment policy with specific investment guidelines, retiring, major health issues, caring for family members, major legal issues, or big-ticket purchases. Each one of these probably requires he/she have some type of expert to help you figure out the complexities. Time should be taken with all of these items because they can have a dramatic effect on your lifestyle. Don’t sweat the small stuff though. Struggling over whether to buy particular investments should take less effort, especially if they are less than 5% of your total net worth.  I like to follow the 10% solution, which says it if it’s less than 10% of your net worth and is liquid (you can sell within a day or two) than 10 business days or two weeks is enough time to make a decision.
  3. The 1 to 10 rule!  Try and figure out how much impact this would have on her life on a scale of 1 to 10 and try and rate it accordingly with how long you can take to make decisions. Everybody moves at their own pace, whether sometimes it’s at lightning speed or sometimes at glacial. So figure out where you are on the scale. As an example if it takes you 3 to 6 months to make big decisions,  then use that  time for the 8’s, 9’s & 10’s. The flipside is to not spend more than a couple of days on the 1’s, 2’s or 3’s.  It seems when we have to make a lot of decisions we forget to prioritize.  So clear your mind of the clutter and get the little things out of the way first because they should take less time and effort. That will allow you to focus on me 8-10’s and even get help if you need with those important decisions.
  4. What’s your motivation? I think the why questions of decisions are more important than the what questions. This gets back to the premise of what is your emotional state when you’re making big decisions. If you’re under stress, then it’s probably better to put it off. If you’re relaxed and feeling rational and calm, then decisions can be quicker and easier.
  5. No decision is a decision! I remember back in my college days when I was taking a management concepts class called MBO (management by objectives,) one of the options was always to do nothing. Some of my best decisions have actually been to do nothing! I also find that it’s interesting that some of those no decision things come back to be much bigger decisions and warrant much further analysis.

So now I’ve finished giving you my four fat financial fears that I feel people face. I will remind you that when it comes to your financial fitness, I’ll bet just about every day there is some financial situation or decision that you will worry about.  All I ask is that you try and prioritize those fears and know when to ask for help from a peer or professional. We all need help at sometime whether it is about the facts or the feelings. Remember that asking for help is why every three-year-old gets what they want!

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA

Posted in Values | Tagged , , , , , , , | Leave a Comment »

Never Let a Good Crisis Go to Waste

August 25, 2010 by Chip Workman, CFP®

Over the last several years, we’ve heard this slogan numerous times, most famously by White House Chief of Staff Rahm Emanuel. While the slogan has its positive and negative attributes, there’s one area where we all need to take heed.

If there are any silver linings to the economic downturn, it’s the spotlight that has shown on our society’s embarrassingly lacking understanding of basic personal finance. Our children are encouraged throughout their educational lives to become well rounded, critical thinkers, and that’s certainly important, but at some point, be it at the collegiate, high school or even elementary level, we need to find a few hours to devote to practical conversations about money. If kids were more educated on basic budgeting, banking, credit and investing skills, you probably wouldn’t need a law protecting them from credit card pushers on college campuses. Students should be able to understand that risking their credit score at such a young age isn’t worth a t-shirt or beach towel.

More and more, this discussion is being had all across the country. Some states are taking the admirable step of requiring some personal finance in school curriculums, albeit without a lot of definitive requirements or resources to back the mandate. In addition, private programs have started popping up, encouraging all of us take an active role in educating the next generation on how to avoid these issues in the future.

Where better to start these conversations than at home. Personal finance expert and author Jean Chatzky has teamed up with the Council on Economic Education & American Express to do just that. The result is National Money Talk Night, coming up on September 16, 2010. National Money Talk Night is being promoted all across the nation as an opportunity for parents to sit down with their children, regardless of age and have “the talk”. No, not about the birds and the bees, but about age-appropriate money issues and how to balance the pressures of using money wisely. She’s even created a website with three toolkits for children of middle school, high school and college age.

Check out the website, http://www.moneynighttalk.com and pledge to talk to your kids about money, spread the word via Facebook, LinkedIn & Twitter, and encourage your children’s teachers to discuss it in class, assign it as homework or tie it to themes throughout the semester.

The need is clear and it’s time to not let this crisis go by without standing up and doing something to correct some of the behavior that led us here in the first place.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, Ohio

Posted in Kids and Money | Tagged , , , , , | Leave a Comment »

Kids and Money

August 25, 2010 by Gelasia Steed, CFP®

Every summer, my nephews spend a week with me – we call it Camp Aunt G – and I’m always shocked at their blatant disregard for money. They lose games and toys with no care. “Aunt G, we can just buy another one, duh!” They leave half empty cokes all over the house and just go crack open a new one.  They are constantly begging me to buy them this and that, but when I do break down they play with it for just a few moments, then it’s on to the next gotta have it item. I honestly don’t know how my sister puts up with the constant badgering! I stopped taking them to the grocery with me because we end up with food for a small army. I pack their days with lots of fun – tubing on the lake, baseball games, museums, zoo, water parks, 6 flags- if it sounds like fun, we do it. Yet, they really have no idea what anything costs because at each spot I hear “can I get this?”

It’s not easy to teach kids how to save and budget – it’s not easy for parents to save and budget! How can you teach your kids the value of money? Well, Jean Chatzky can help with National Money Talk Night on September 16th. Why not take the pledge to have “the talk” with your kids, about money that is! And let Jean help guide you through it. Saving and budgeting is all the rage and debt and impulse buying is so out… I’m just saying! 

Check out the website for details, tips and a toolkit to get you started!

Gelasia Steed, CFP®
Founder
Steed Investments
Ft. Worth, TX

Posted in Kids and Money | Tagged , , | Leave a Comment »

Financial Issues for Your Children

August 24, 2010 by Francis St. Onge, CFP®

We all spend time dealing with our personal financial and tax issues and these can be overwhelming at times that we sometimes forget about these same issues for our children. We start a savings account (an UGMA perhaps where we are the custodian for our child) when they are born and we put all their gift money in it. Or maybe we set up an educational savings account for them in the expectation that they will go to college when they graduate from high school. And then we sort of put it on cruise control for a number of years.

This blog will deal with some of the things we should be aware of that may get in the way of good financial management of our fiduciary responsibility to our children.

Notice, I said fiduciary responsibility. That means we are supposed to be the custodian of this money for our children until they reach adult age of 18 in most states. At that time, the child is legally entitled to take over the use and management of this money that we thought was for college. This may not be what your child wants to do, so this is where it becomes important to have done our homework on instilling good financial skills earlier.

One of the important financial skills that every child needs is to understand how our income tax system works. In the early years, the accounts we have established for them will be earning interest or dividends each year which helps the accounts grow. This income, by itself, may not be significant enough to warrant a tax return to be filed; then suddenly she gets this super job at age 16, has a W-2 with taxes withheld and wants to get the refund of these taxes.

What are some of the issues that this raises?

What you first want to do is help her to understand that she had some choices when she was hired and filled out the Form W-4 withholding request. If her income was not going to be high enough to require taxes to be paid when she filed her return, she could have checked Box 7 that indicates income taxes are not to be withheld because she expects to have no tax liability. This may eliminate the need to even file a federal or state (similar form W-4 for the state) tax return.

If a federal return needs to be filed to get the refund, she needs to be sure to add the interest income and dividends from those saving accounts and mutual funds that you established many years ago. Those 1099s are coming to the house, right? Oh, and don’t forget about the grandparents who may have established an account for the grandchildren with the grandchild’s social security number on the account. Even you may not be aware of these, but the IRS has a record of the income under that number and will adjust the return accordingly if the income is not reported with the return. So check with your parents about this issue.

There are times when the child’s income and related taxes are impacted by your tax situation and vice versa, so you need to be aware of those issues as well. One of those issues is called the “Kiddie Tax”. This occurs when the child has investment income greater than $1,800. The amount above $1,800 will be taxed at the parents’ tax rate unless the child’s tax rate is higher. For the amount below $1,800, the first $950 is not taxed and the next $900 is taxed at the child’s tax rate. Investment income above $950 for the child will require a tax return to be filed. This does not mean that the child has to pay taxes; just that a return has to be filed.

In addition, if the child had earned income of more than $5,700, the child must file a tax return. For earned income, the child will be taxed at her tax rate using the Single filer tax rate schedule.

If the child is filing her own return, then Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,800, must be completed and attached to the Form 1040.

If you have more than one child with investment income subject to the Kiddie Tax, investment income of all such children must be combined with the income of the parents to determine the tax rate to be used. This requires the parents to have completed their return before completing the child’s return to determine what tax rate to use.

For most taxpayers, including children, earned income is what is reported to us on a W-2 form. However, a child could be earning income by being self-employed (cutting the grass in the neighborhood or babysitting), in which case they would be reporting this income on Schedule C. This would entitle them to claim expenses of generating this income, perhaps subject them to Self-Employment taxes, and maybe qualify them for contributing to tax-deferred retirement plans that would reduce their taxable income subject to income taxes.

If the parents have a business and they hire the child to work for them, the parents can reduce their business income by the payments made to the child for actual work performed thus lowering their tax liability. In addition the child may pay tax at a lower rate or have no tax liability, can contribute to a retirement program, and may be able to claim the Hope or Lifetime Learning Credit that the parents may lose because their income is too high.

As can be seen from these examples, the child does have income tax reporting requirements if she is creating income from earnings or investments but may not have income tax liabilities.  In the process the child may be able to get other tax advantages through savings or reducing the tax liability of the parents. So be sure to check with your tax adviser before the end of the tax year if any of the above items may impact you or your children. By doing so now, you can do the effective tax planning needed and fulfill your fiduciary responsibilities to your child.

FrancisStOnge

Francis St. Onge, CFP®
President
Total Financial Planning, LLC
Brighton, MI

Posted in Kids and Money | Tagged , , , , , | Leave a Comment »

Caution: Simple Reminders Can Improve Finances

August 23, 2010 by Robert Schmansky, CFP®

My post this week is inspired by the book Remove Child Before Folding: The 101 Stupidest, Silliest, and Wackiest Warning Labels Ever by Bob Dorigo Jones. In his book Mr. Jones makes light of the use of labels in our society. Labels, the book proclaims, are often overused, unhelpful, and outright bizarre.

The title refers for a folding baby stroller which sports a label making sure parents don’t pack away the baby with the stroller. Other crazy label examples include a go-cart with warning “this product moves when used” and a heavy-duty washing machine that advises “do not put any person in this washer.”

One has to agree with the author when reading the above examples that the amount of labeling is often excessive and silly (does a lacrosse helmet need to let the user know they are participating in a rough sport?).

As I often do, I thought about how the topic could relate to personal finance. In my world I wonder if we haven’t missed the boat on the best use for labels – pointing out the inefficient and ineffective ways we sometimes treat our finances and planning.

For example, would clearer labels (or, reminders really) help us avoid behaviors we know are harmful in times our will or nerves are a little less than sturdy?

As I am not above tricks to help improve our clients finances, I pondered – should financial products or planning come with labels?

What if all credit cards came in a carrying sleeve with the reminder, ‘Warning – Earn Money before Spending.’

Or for those with their savings all on the sidelines in the bank savings account because of fear of investing in today’s markets… ‘Caution – Savings Accounts Do Not Increase At the Same Pace as Your Living Costs!’ (Of course, most banks will courteously let you know when they feel your accounts have too much cash they could invest for you so this reminder isn’t altogether missed).

My dream label however would be a scrolling reminder on the business news channel that the opinions of the guests were just that – opinions – and their ideas may not be useful for your personal investment plan, or a good predictor of the future of the economy. Their stories for the ‘Top Mutual Fund You Need to Own Today’ in my world would have the disclaimer, “The top mutual funds you need to own may not be suitable for your asset allocation, risk tolerance, or financial plan. Owning these funds may not be necessary to meet your dreams and financial goals.”

While my dreams of labeling our investment statements and financial products may not be practical (or I admit we may become used to seeing them and lose their effectiveness), there are tricks you can use as reminders for whatever your personal financial issues are. 

In the past I have used a photo of a 3¢ postage stamp from the 1930s to remind clients about the nature of inflation and why sitting in cash was not helpful to their long-term ability to grow enough to help them meet future spending needs.

A few ideas for making the easy act of charging your purchases I’ve come across in the past include wrapping your cards in paper that you must open at the register in order to use, or creating a sleeve for your cards with your own reminder label about how this purchase may not be necessary. An extreme measure some have used is to freeze their cards in ice, requiring time to consider a purchase while the ice melts (though this method may cause damage to the actual card).

Don’t feel below reminders or tricks to help yourself make more prudent financial decisions. Just like forgetting to remove the baby from the stroller, financial mistakes cause actual harm. The difference being the harm isn’t always obvious or noticeable immediately so it is easier to rationalize or minimize.

Are there any tips you have for helping your finances through reminders or trickery? Feel free to add them to the comments below.

robertSchmanskyRobert Schmansky, CFP®
Financial Advisor
Northern Financial Advisors, Inc
Franklin, MI

Posted in Spending | Tagged , , , , , | Leave a Comment »

Austerity

August 20, 2010 by Gelasia Steed, CFP®

Austerity has become quite the buzzword recently. What does it mean and how does it affect you?

According to Wikipedia, austerity is when a government reduces its spending and/or increases taxes to pay back creditors because its fiscal deficit spending is believed to be unsustainable.

Debt is “out” and frugality is “in” post financial crisis. Your home is no longer an ATM. Your credit card limit has been reduced and interest rates increased costing you more each month and making it harder to pay off your balance. You are trying to spend less and save more. Governments around the world are facing similar problems. Tax revenues are down due to the recession. Debt costs more due to their weaker financial state. After massive spending programs to stimulate the economy during the recession, some governments are now implementing austerity plans to cut spending and raise taxes in order to avoid defaulting on their debts.

But, is austerity wise given our weak global economy? On the one hand, deficit spending cannot be sustained at these levels and if they do not cut spending and raise taxes they might default on their debts causing a domino effect around the world as their bondholders are forced to write off the defaulted bonds and lose income they relied on to pay their bills/debts. On the other hand, spending cuts and higher taxes take money out of the economy and could cause a double dip recession making current debt woes much worse as tax revenues contract further due to another recession.

Sounds like governments are “too big to fail”. Well, forgive the political sidebar, but Margaret Thatcher said it best “The problem with socialism is that eventually you run out of other people’s money.”

This is quite a predicament which explains why the market has been negatively impacted and so volatile over the past couple months. Personally, I believe cutting spending and lowering taxes (particularly corporate and investor taxes to encourage business investment and spur job growth) along with continued loose monetary policy would be an effective way to handle this problem. Strong economic recovery will generate more tax revenues as businesses and individuals earn more. As for your portfolios, I continue to look for ways to be defensive and protect your principal. Over the long term the stock market will rise, but short term volatility can be a bit nauseating.

Gelasia Steed, CFP®
Founder
Steed Investments
Ft. Worth, TX

Posted in Spending | Tagged , , , | 1 Comment »

Older Posts »