conflicting priorities

Conflicting Priorities

Setting up and sticking to a financial game plan is hard for most individuals. Adding a child to the mix, makes it even more challenging. Parents have tough decisions to make every single day of their lives and one of the biggest financial decisions they must make is deciding how they want (if they have the desire) to fund their children’s college education. In addition to college planning, most parents also need to make sure they are properly planning for retirement. So, which one is more important?

College is not getting any cheaper and with the continual increases in tuition and fees, parents need to seriously consider the various options they have access to for college planning. The most popular vehicle today is the 529 college savings plan. Aside from the 529 plan, parents can also utilize a Coverdell Education Savings account, UTMA/UGMA, Life Insurance, IRA’s or U.S. savings bonds. Each of these solutions has pros and cons, so be sure to consult with your financial advisor about which option makes the most sense for your situation. If none of these options has ever crossed your mind, there are other methods of funding a college education which most of you are familiar with… loans, grants, and scholarships. With grants and scholarships, the money is just given to you, but loans you must pay back. If you can outright avoid loans, please do, but they are a great source of funding and sometimes they end up being the only option.

Retirement is on the mind of every working adult and when that day comes, hopefully you are financially prepared. If you’re employer offers a retirement account (like a 401K), you should be utilizing it. If you’re employer doesn’t offer such a benefit or you are the business owner, then it’s up to you to take care of your retirement program. Depending on where you work, your company may still offer a pension plan, which means the company is putting money into an account on your behalf to be utilized during retirement. Pension plans are slowly becoming a thing of the past because they are extremely expensive to keep in force, thus companies are putting more of the responsibility on the individual to take care of their retirement needs. In addition to those retirement options, the government will provide some assistance via social security. Social security, by itself, will not be able to fully support you during your retirement years, thus you need to make sure to take full advantage of your retirement benefits through your employer if offered. If those retirement benefits are not in place, then you should pick up the phone or send an email to your financial advisor and get to work.

Have you figured out which one is more important? Your answer should have been retirement and here’s why. With retirement, if you don’t setup a plan and stick to it, there are no loans, grants or scholarships to bail you out. At that point, you only have two choices: (1) retire with less money or (2) work longer. Most people probably don’t like either one of those choices but unfortunately that is going to be a reality for many people. College planning is a huge priority for many parents, but there will always be loans, grants and scholarships available. Such options don’t exist when it comes to retirement, so if you are a parent and you are trying to figure out which one to focus on, choose retirement.

timeless tips

5 Timeless Financial Tips

Most people would agree that discussing your finances can be extremely challenging. The biggest hurdle that plagues us…getting started. Just like with anything else, when it comes to beginning your journey to financial glory, you must set a goal. Once the goal is set, now it’s time to take action.

Of course, there is no “one-size fits all” type of approach, and no matter where you are in your life, you may need to address one or all of the following as it applies to your financial game plan:

(1) Create a spending plan (also known as the budget).

How much do you earn? How much do you spend? How much are your bills each month? How much do you save/invest? Try your best to stick to a spending plan each month and have someone hold you accountable when you do not stick to it. Please do not beat yourself up if you don’t stick to it each month because it’s hard to change your spending habits overnight. Grade yourself on a 3-month basis because if you can manage this over an extended period of time, then guess what, you’ve created a brand new habit! And if the conventional way of “budgeting” doesn’t work for you, consider an alternate strategy, like the 50/20/30 plan.

(2) Pay off credit card debt.

We all know that credit card companies make money off the interest they charge on your account. Here are a couple of tips: 1) Stop spending money that you don’t have; 2) Pay off the card with the highest interest rate; 3) Consider paying off the smaller balance (this will give you the emotional jolt to continue to fight against the larger balance) 4) If possible, pay more than the minimum payment each month. 5) Try the debt-snowball technique

(3) Build an emergency fund.

Make sure to have between 3-6 months worth of living expenses saved at all times. Or for those over-achievers, considering having 9 months to 1 year’s worth. This may be a challenge, but you will never be upset with yourself for saving money when an actual emergency pops up.

(4) Determine personal insurance needs.

Many people may be uninsured or under-insured and this could prove detrimental to your overall financial game plan if the unexpected happens. Consider your situation and see if life insurance and disability income insurance provided by your employer will sufficiently cover your needs. If need be, consider owning personal insurance outside of what is offered through your job. Please note that if you change jobs – or lose your job – typically, you will lose those employer-provided benefits, because the employer is paying the premiums, thus you don’t “own” the policy. Personal policies can help ensure that you’re protected, no matter where you work or what happens with your job situation. Also, your age and health play a HUGE role in how an insurance company will set the price of their policy, so please keep that in mind.

(5) Begin/review your retirement plan.

We all work extremely hard, but what do we have to show for all our years of service? Many companies are doing away with pension plans, thus the responsibility of putting money away for retirement falls on our shoulders. Take advantage of your employer-sponsored retirement plans like a 401(k) or 403(b) because these plans allow you to invest monies tax-deferred. A nice advantage of these plans is that they take money out of your check before you get paid. There are also ways to save for retirement outside of an employer-sponsored plan. Consider opening an IRA (traditional or Roth) or a brokerage account. An annuity or life insurance contract could also be an option. If you decide to save for retirement outside of or in addition to your employer sponsored plan consult with a financial professional as you’ll need to be aware of contribution limits, tax treatment, and how the accounts work.

soon to be parent

5 Planning Tips for the soon-to-be parent

The best time to get money-wise about parenthood should be before a child is born. Most soon-to-be parents are probably thinking about all the glorious elements of being a parent…the snuggling, the baby baths, the feeding, or changing diapers. The last thing newly minted parents are thinking about is making sure their family is setup for financial success. If you are a parent-to-be, preparing ahead of time will enable think through all your options and create a solid financial plan.

1.      Create a (parent) budget

When a child arrives, your family budget will change dramatically. Make sure to factor in the cost of diapers, baby formula, child-care, clothes, toys and the list goes on.

2.      Start an emergency fund

Start saving three to six months of household expenses in an account that you can readily access. For those who wish to be a bit more aggressive, aim for six to twelve months.

3.      Review your insurance coverage

The primary goal is to make sure your family can continue to keep the household going financially if something unexpected were to happen. This will involve conducting a thorough analysis of your life insurance, along with short- and long- term disability insurance.

4.      Think retirement before college

Students have options for funding their education…grants, scholarships, loans and any savings or investments you’ve put aside. You don’t have such a variety of options to fund your retirement, nor can you make up for that time lost. It’s understandable that you want to provide proper funding for your child’s education, but your own financial independence should be the top priority.

5.      Make an estate plan

Make sure your family’s wishes are carried out in the event something happens to you. Your family’s details will end up in court with a judge deciding what he or she thinks is best if you don’t have documents such as a will, trust or power of attorney.

Please make sure to speak with a financial professional as it relates to these tips. Doing so will ensure that you and your family will have peace of mind as it relates to your financial decision making.

you need a planner

You Need A Financial Planner

Financial planners were put on this earth for one reason, to help people get and keep their financial houses in order. But so many people avoid financial planners. Why exactly is that? Are you one of those people who thinks you’re better off on your own? Perhaps. Are you the person who says you don’t make enough money, therefore there’s no need for you to meet with one? Or maybe you’re the person who says “I don’t want someone all up in my business.” Whatever your reason, you should seriously consider having a conversation with a financial planner because the data doesn’t lie! As a society, we are seriously failing at financial planning.

If you have some time, go research this piece that the National Association of Personal Financial Advisors published back in 2012. The findings are quite disturbing. In that piece they reference an organization, the National Foundation for Credit Counseling, who conducts an annual consumer financial literacy survey. Take a look at their survey from 2013 and 2014. It should come as no surprise but year after year, the numbers continue to be extremely disappointing. And, if you’re wondering how things are going today, not much has changed. On the flip side, this should encourage any financial planner to continue to reach out to and follow up with their clients, ask those tough questions and challenge their clients to be a better financial stewards.

Financial planning shouldn’t be something that we fear, but something we should embrace. If you are someone who doesn’t have a plan, you need one. If you’re someone who already has a plan, maybe you’re overdue for a review. No matter your situation, having a financial game plan will most certainly guarantee you financial independence (however you define it) at some point in your life. And just like that old adage says, if you fail to plan, you plan to fail.

taking inventory

Taking Inventory

Getting your financial house in order is a goal that most people set for themselves. Of course, not everyone will gets things in order at the same stage in life. Like anything else, most people will do things when they are ready, not when some financial professional tells them to do so. Or they will decide to take action as a response to a life event. Here are a few examples. Let’s say you have a friend (who has young children and a spouse) that passes away unexpectedly. After witnessing that, you then decide to get serious about having adequate life insurance to protect your family. Or you have a co-worker who is getting well into their golden years but still HAS to work because they didn’t save/invest appropriately for retirement. Only then do you decide to start taking retirement planning seriously.

No matter your excuse or fear around financial planning, you must take it step by step. You have to crawl before you can walk and you must walk before you can run.

Completing a personal balance sheet is the “crawl” step that everyone should take. This document, which can be found pretty much anywhere on the Internet, is really easy to do. It’s going to require you to list everything that you own (assets) and everything that you owe (liabilities). And, with some basic math (assets – liabilities) you will be able to determine your personal net worth.

Taking this “inventory” enables you to focus on where you need to start as it relates to your financial plan. Plus, as you continue to move forward with your financial plan, this can serve as your barometer of financial fitness. The goal is to continue to grow your assets, while decreasing your liabilities.

Some experts will recommend that you update your balance sheet once a year. However, if you are the type that needs more frequent feedback, perhaps you should consider updating your balance sheet quarterly or twice a year.

how can a planner help

How Can A Financial Planner Help Me?

Having a conversation about financial matters is a struggle for most people. We all understand that it’s imperative to have your financial house in order, however, most people typically don’t. The fear that you face around this issue will never subside until you decide to take action. You either need to do-it-yourself (which most won’t commit to doing) or enlist the aid of a financial planner.

Financial planners don’t get a ton of fanfare, but they should. The issue stems from the fact that people don’t understand the value that a financial planner can provide. People don’t understand that a financial planner may be the solution to all of their money woes. People don’t understand that a financial planner needs to be cherished just like your barber or hair stylist. Wait…like your barber or hair stylist? Yes!! When you need your hair done for an event or before you go on a trip, you will move mountains to get that appointment. Or if your person doesn’t do appointments, you will wait as long as it takes. Why?? Because looking good is non-negotiable!! However, when it comes to financial matters, you’re okay with NOT taking immediate action and continuing a life of financial misery. There isn’t a sense of urgency when it comes to interacting with a financial planner, nor is there typically an immediate (there are exceptions) outcome received. Thus, people tend to shy away from meeting with a financial planner or they constantly reschedule their appointment.

Now that we’ve addressed the psychology behind why people avoid financial planners, let’s move on and take a look at what you need to consider when you are ready to find your go to person. For starters, whoever you decide on, you actually need to like them. It doesn’t make much sense to do business with someone that you don’t like. Next, it’s recommended that you should interview 2-3 candidates before making your decision. Before finishing that first meeting (which is typically the free consultation that most will offer) you should know exactly how they get paid and what they are capable of doing for you.

Here’s a menu (of sorts) that you should consider when walking into that first meeting. A financial planner usually works in one of 3 ways:

Transactional-based business (Needs Analysis):

Think of this level as the basic package. You need a solution and this planner can sell it to you. The planner will capture the necessary information as it applies to your need, conduct an analysis and will conclude with recommending a solution(s). It doesn’t require much follow up after the transaction is complete. The planner will be in touch at a minimum annually to do a review or may be in touch periodically for service related matters. The planner earns a commission on the solution that is sold.

Managed money (Wealth Management):

This can be considered the “I’m in it with my client” level. You are entrusting the planner to manage a certain amount of money for you. The services at this level may involve the following as it relates to your money: 1) how your portfolio is allocated amongst the different asset classes 2) managing risk within the portfolio 3) enhancing (growing) your portfolio and 4) tax planning. You will probably meet with your planner on a quarterly basis to review your account. The planner will charge a quarterly fee based on the solution chosen and the account size. A fee-based relationship requires the planner to act in the best interest of the client because their compensation is tied directly to performance. Good performance, better pay, poor performance, less pay.

Comprehensive Financial Planning:

This level is like the deluxe service at the car wash. The planner is going to assist you with an in-depth analysis of some or all of the following areas: Net Worth and Cash Flow, Investment Planning & Allocation, Risk Management, Retirement Planning, Income Tax Planning and Estate Planning. At this level you will meet as necessary to help ensure that you understand your financial plan. At a minimum, you will conduct an annual review of your plan. Compensation at this level is two-fold. First, there will be an agreed upon fee for the financial planning service. Second, a commission and/or fees will be earned by the planner if you decide to purchase any solution(s) to implement your financial plan. Some people choose to only have the planner produce their financial plan, pay the fee and opt to implement a solution(s) with another planner.

bw challenge write up

The #BuildWealth Challenge Results Are In

How did this #buildwealth challenge come about? Simple…I was trying to determine what financial areas were causing the most issues for people. Was it a lack of understanding of the complexities of the various insurance and investment related products? Or was it dealing with basic money management skills and credit. I set out to see if I could get 500 people (ended up with 510) to respond to my brief survey.

Please note that I am not an academic and this research project wasn’t as thorough as I would have liked. I didn’t capture any detailed demographic information (got plenty of feedback about that), however the respondents of this survey come from a variety of age ranges, ethnic backgrounds, educational backgrounds, professions, etc. Despite all of that, I think the results we very revealing about the relationship people have with money. I do have plans for future #buildwealth challenges and I will most certainly do a better job of capturing more detailed information.

Without further ado, let’s jump into the results!

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I know some may argue that they track their financial success some other way, but I felt strongly that someone’s net worth tells the “real” story. You can determine your personal net worth by using a simple formula, Assets – Liabilites = Net Worth. This formula can be found on an important financial document called a balance sheet. Please familiarize yourself with this document because it’s a great first step to getting your financial house in order. By its very nature, completing a balance sheet will require you to gather all of your financial information as it applies to what you own (assets) and what you owe (liabilities). Think of this (taking inventory) as the all important first step on the road to financial rockstar status.

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For starters, the fact that two people skipped this question is kind of crazy. I’m not really sure what to make of it. And, for the 9% who put “neither”, that intrigued me because it says a couple of things; 1) they don’t have the slightest clue about where their money goes on any given month or 2) they just don’t care about knowing where their money goes. The question is simple…who is control, you or your money? People feel like they are living check to check because they haven’t taken the time to do some form of a budget, which would provide some level of control. If the old school way of budgeting doesn’t work for you, try the 50/20/30 plan or some other budgeting method. The key is to figure out what method works for you and stick to it. Also, don’t be so hard on your self if you can’t master the budget right away. Keep in mind that you have to crawl before you can walk.

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Understanding the importance of credit is critical to living a decent life in this country and I was happy to see that over 60% of the respondents were in the good/great category. For the small percentage who stated they have “no idea” about their status, my hopes are that they at least excercise their rights by obtaining one free credit report (no score) from each of the three credit bureaus once a year. The interesting thing about credit is that you can screw it up, then clean it up, then screw it up again, then clean it up again. And you can repeat that for as long as you would like. But, once you clean up your credit, unless there are some unforeseen circumstances (i.e. job loss, divorce, becoming disabled) it should not be that hard to maintain a positive credit standing.

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This question wins the prize for “most skipped” and that wasn’t a big surprise. The way the question is phrased probably has something to do with it, as I didn’t specify what type of insurance. Plus, most people don’t truly understand why insurance is the cornerstone of their #buildwealth plan until something goes wrong. Let me ask a question. If you were going to build a house, where would you start? If your answer was anything other than the foundation, we need to talk! When it comes to building a home, a solid foundation sets the tone for the remainder of the house. In regards to your #buildwealth plan, not having a strong insurance foundation may jeopardize your saving, investment and retirement plans. If you were to get seriously sick or injured, your bills don’t stop just because you’re not working. Unless you have adequate savings, I seriously hope you have the proper amount of disability insurance. How about if your spouse/significant other (who happens to be the breadwinner) dies unexpectedly? Again, unless you have savings or some other assets that you can liquidate immediately, I seriously hope you have enough life insurance. I’ll stay away from medical insurance because I know everyone who has medical coverage is grateful. Clearly, the insurance conversation isn’t a fun one to have but hopefully I’ve shed some light on how insurance can affect your overall financial well being.

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There’s going to be a day when you don’t want to get up and go to work. When that day occurs, hopefully you have more than enough money to survive. Retirement, whether you’re just starting your career, a seasoned professional or your winding things down, should be on your radar. The younger you are, the more time you have, the older your are, the less. It’s scary to know that some people have worked 30 or 40 years and have nothing to show for it. Or they are in their early 70’s or even 80’s and they “have” to work because they can’t afford not too. Having your retirement plan in order is of the utmost importance. Back in the day, your employer typically took care of retirement planning for you, however, the responsibility now falls on your shoulders. Many companies have done away with pension plans (because they are expensive to manage) and the long-term viability of social security seems to be an issue, but I’m optimistic that our government will figure out how to make it last. There are some employers who don’t provide a retirement account, and that’s okay, because there are plenty of avenues for you to open one up on your own. There isn’t a good excuse as to why you shouldn’t have an account (be it with your employer or on your own) that’s dedicated to retirement. And if you are one of those people who is struggling with the question of “how much should I save for retirement”, the answer is simple…A LOT!

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Risk is another area that more of us need to discuss when thinking about our #buildwealth plans. Let’s get one thing clear, there is risk in every single type of account that exist. The big question when it comes to risk is how much can you tolerate? If you’ve ever worked with an investment professional or opened any type of investment account, you’ve taken a risk questionnaire. Some experts will say that if you’re young, you should be aggressive and if you’re older, you should be more conservative. And of course there is everyone else in between. The theory makes sense because if you’re young and you’re investing aggressively for the long-term, despite the ups and downs of the market, you will probably be satisfied with the growth in your account. Just search any historic data about the long-term performance of the stock market and you will understand. On the flip side, when you’re older, you may be relying on those funds to live, thus it’s all about preservation. You might not be able to live comfortable if a major dip in the market occurs and your account balance is cut in half. Managing risk will ALWAYS be a work in progress for everyone. Life will cause you to think differently about risk. When you’re young and single, you make different choices in relation to someone who is older and has a family. When you’re salary is $150,000/year, you’re investment decisions are different from someone who is earning $80,000/year. When you are an educated investor, you’ll tend to make more riskier investments as opposed to a novice investor. I could go on with examples, but you get the point. Be mindful of the risk that you’re taking and make sure you are the one that’s driving your decisions on risk and not your emotions or some outside influence.