How Costco Is Like An R-rated Movie

March 11, 2015

Recently, my teenage daughter wanted to go with some friends to see an R-rated movie but she’s not 17 yet. I had to inform her that the rules are the rules and that she couldn’t go to that movie without an adult. That’s when my wife chimed in and asked if she could apply that adult supervision rule to me when I go to Costco!

Being a good financial planner, I use Costco to save money on items that my family uses frequently and buys in bulk. I admit, however, that one of my challenges is that the TVs are right by the door. Even though I come in with a list of things to buy, I almost always stop and check out the latest and greatest TVs and start thinking about which ones would be the best for sports, which would work better for movies, etc.

That 3 or 4 minutes of distraction sometimes lowers my vigilance and while I haven’t walked out with a new 70 inch TV, I have made a couple of small impulse purchases. Personal finance is just as much or more about our behavior as it is about math. So what are some things that I – or you – can do to avoid the need for adult supervision?

Make a shopping list and stick to it. Remember that if a product is as good and useful as it appears to you at that moment, the supplier will continue to make it. You will be able to calmly and rationally decide at home whether that purchase really would make sense the next time you go or if it was just an impulse buy.
Understand what your triggers are. In my case, I love to watch sports and am always looking for the “perfect TV” to watch a game. Since a large TV is a major purchase, I have avoided the temptation to unnecessarily buy a TV but I have learned that the TV dreaming at Costco triggers my desire to want things that aren’t necessary. Now I make a conscious effort to move past the TVs as fast as possible so that I can avoid my trigger. What is your trigger?
Set a budget for your shopping trip and keep tab of what you’re spending. If you know what you’re shopping for, you should have a good idea of what it will cost. Set a limit – say $200 – and use the calculator app on your phone to keep track of how much you’ve spent so far. That way if you get up to $180 and you still have items on your list, it’s much easier to see that no matter how tasty that free sample was, it isn’t affordable today.

Use these tips to save yourself a substantial amount in impulse purchases, and if you know of any good deals on TVs – let me know.

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What Would You Have Done For a Ticket to the World Series?

November 03, 2014

It’s always fun to sit back and watch others get caught up in a little friendly competition as they support their teams. Unfortunately, some people take their love of sports too far and this can have a drastic impact on their financial future. Take for instance a dedicated Royals fan who recently acknowledged in a post game “fan on the street” interview that he cashed in part of his retirement savings to purchase a ticket to the World Series. I am convinced that at the time of this interview, he probably wasn’t thinking his statement would get picked up by national media outlets and blogs. Perhaps the most embarrassing aspect of his professed fandom was his stated profession- financial advisor.

Most of America knows that prior to this season, the Kansas City Royals suffered a 29-year playoff drought, which left most Royals fans in a delirious state throughout the playoffs. But this financial advisor from the Kansas City area took his loyalty to insanity – he pulled nearly $1,000 from his IRA to get a ticket just four rows behind the Giants dugout. He checked to see if the withdrawal would trigger a penalty, which it would, and did it anyway. (Note: The IRS imposes a 10% penalty on IRA withdrawals prior to age 59 ½ plus these distributions are also subject to ordinary income taxes.)

The first thing many financial planners throughout the country likely thought was this guy must be nuts talking to the KC Star reporter and admitting this. It would be like Dr. Oz saying he eats a gallon of Dreyer’s ice cream in front of the TV every night. As a financial advisor, he should know better, and what’s that about him checking on it? Every qualified advisor helping folks with their investments should know the IRA withdrawal rules offhand – that’s basic stuff! And finally, financial planners tell clients to have 3 to 6 months of take home pay at hand for emergencies and unforeseen life events… like a Royals trip to the World Series. Apparently, some people just can’t eat their own cooking.

So why do seemingly smart people do stuff like this? One might be the sheer excitement of the playoff opportunity – “a once in a lifetime chance.” Psychological research says overspending usually happens in the face of emotional stress – good and bad.

Then there’s the desire to be seen as important and getting ahead. What financial advisor wouldn’t want to be seen four rows behind the dugout by friends or on TV? This guy got so excited by the idea, he let all his financial control gates down.

As retirement savers, we simply can’t afford to be like this guy, especially considering that only 1 in 5 Americans are confident in their ability to retire comfortably. Impulse buys and YOLO moments are a major concern, especially for those with one month or less of cash ready for emergencies. Retirement accounts, even small ones, aren’t to be taken lightly enough to raid for baseball tickets or our guilty pleasures…until we’re actually retired. Doing otherwise risks the fact we’ll never enjoy those ballgames in retirement but instead may have to sell hot dogs at the park to those that DID save enough to go.

Here is some good news for our financial advisor who could benefit from some long term planning. The IRS allows us up to 60 days to pay back the funds from an IRA withdrawal to avoid the 10% early withdrawal penalty. This would be considered a rollover and prevent the distribution from being taxable. Just be aware that this type of IRA to IRA rollover can only be performed once every 12 months.

Better yet, just avoid thinking of your IRA as an emergency fund in the first place. This will help you avoid future tax headaches and preserve your retirement savings and future growth potential. In the case of our determined Royals fan, avoiding early IRA withdrawals can also decrease the likelihood that your peers will question your financial savvy.

Why Millennials Shouldn’t Worry About Retirement

September 30, 2013

Millennials shouldn’t worry about retirement! OK, now that our CEO, Liz Davidson, and the rest of the research team at Financial Finesse are having heart palpitations (and the CFP® Board has started the process of stripping my credentials) I must clarify this statement. I don’t mean that Millennials (a.k.a “Gen Y”) should ignore saving for the future. My point is that as the saying goes, “Sometimes it’s not what you say; it’s how you say it.” When it comes to financial planning, we often give the right message in the wrong way.

Think about any commercial that you’ve seen for retirement planning or investing. Have any of them been geared towards anyone under 50, let alone 40? There is nothing wrong with the retirement and investment industry focusing their attention on the Baby Boomers – they are the ones that are concerned about a life changing event just around the corner and frankly they have money to invest. Unfortunately, if there is any generation that needs to be prepared financially, it is our youngest generation in the workforce.

As the recently released Retirement Preparedness report from Financial Finesse points out, employees under 30 are actually less prepared for retirement than they were last year and will face higher medical costs, longer life expectancies, and the potential for much higher inflation and higher taxes. So how do we fix it? Maybe we don’t talk about retirement. Think about it. When you were 26, were you worried about what you were going to do after your career was over or were you trying to figure out what in the heck you were going to do for a career?

There is a lot of talk about various methods of reaching Millennials – social media, smartphone apps, and SEO marketing, but in the end, it doesn’t matter how we deliver the message if the message doesn’t resonate. What does matter to someone early in their adult life? I would suggest that the motivating factor when I was a young adult was being able to make my own decisions. From the time we are teenagers and get a taste of freedom, we tend to crave all the freedom we can get our hands on.

So what does freedom have to do with retirement? Everything! Think about it. What retirement really means is that you have options: Do you want to keep working or not? Do you want to live here or travel, or maybe relocate to the place you’ve always wanted to live? In many ways, retirement is the ultimate expression of that teenage craving for the freedom to do whatever we want.

So if you are a human resources professional trying to boost 401(k) participation, a financial planner working with younger clients, or a concerned parent talking to your kid about money, there is a key message here when talking to Millennials about financial freedom. Don’t dwell on retirement. Emphasize that money can’t buy you love or happiness (once your basic needs have been met), but it can buy you freedom to live life on your terms.

For all of the doomsday talk about the financial challenges facing Millennials in so many ways, they have the greatest opportunities of any generation. If a young person today takes advantage of their full 401k match and they max out their health savings account and contribute to Roth IRAs for an entire career, they have a great chance to build wealth. In an era with massive student loan debt it won’t be easy, but if we can help young Americans understand that the biggest limitation on them is not their age but their debt, they will find a way to solve it.

It’s what we do as Americans. Then Millennials will be in a position where they can use the money freed up by paying off their student loans and increasing their savings of all types. Many employees also have the opportunity to set up an automatic increase in the percent they set aside in their 401k every year. Those factors could help them accumulate a bigger nest egg than their parents or grandparents could have imagined.

If you are in the Millennal generation and you are burdened with student loan debt, imagine having your student loans paid off in 5 years. What if you could buy a house and still be debt free by 45? What would life look like if you had true financial freedom (a.k.a. “kiss my back side money”)?

It can happen if you make small changes to help fund the big picture, but it starts with believing it is possible. The reality is that Millennials need to seriously focus on creating and following a plan that will give them financial independence. However, the traditional retirement messages of previous generations needs to be re-framed or Millennials could become the “lost generation” when it comes to retirement.

So go to iTunes , download some of my favorite 80’s rock and Don’t Stop Believing that you can take control of your financial present and future! (Yes, many of us Generation X types are as cheesy as an Adam Sandler or Vince Vaughn movie.)

http://youtu.be/aH0EBpRXixM

Oh No, I Forgot to Check My Line-up!

September 02, 2013

If you are a sports–obsessed, fantasy football player like me, you’ve probably been mortified as you said those dreaded words at some point. If you are a football widow like my wife, you’ve probably heard that before and wished it happened a lot more often. Why does someone need to check their fantasy team line-up? Didn’t they spend a bunch of time in August putting together the greatest draft strategy in the history of man or at least the history of football? With super star players dominating at every position, why should you bother with something as mundane as checking your line-up before each game?

Well, I guess someone could get hurt. Of course, every team has a bye week so you wouldn’t want to start Tom Brady if the Patriots are off. If you really want to reach the playoffs, then I guess you might not play a lot of Broncos wide receivers if Peyton Manning couldn’t play.

Of course, then there is my team. If usual form holds true, my quarterback will be crippled by week 3 (Sorry to all Matt Ryan and Julio Jones owners), I will not realize that my back-up quarterback, tight end, kicker and defense have the same bye week and my can’t miss rookie running back will be buried somewhere below whale dung on the depth chart. In short, stuff happens.

The same is true in our financial life. It always amazes me to see how much time, effort and money people will devote to putting together a financial plan and then rarely if ever re-visit the plan. In my own life, I’ve seen multiple changes in the last year, let alone the last 5 – 10 years. Sticking with the old plan would be a quick trip to the losing locker room. While as any of the guys in my fantasy football league will tell you, I’m the last person who should give fantasy line-up advice, here are a few tips for how and when to check your financial line-up:

Set a time each year for an annual review of your plan

Have it coincide with the start of something like New Year’s or the start of the school year

Resources: Financial Planning Checklist Financial Goals Worksheet How to Check Your Family’s Finances (9-minute checkup) E$Planner (Retirement Calculator)

Re-balance your investments

If you aren’t in funds that re-balance automatically, this should be done at least once a year
When you do your annual review you can choose another memorable day like April 15^th

Resources: Beginner’s Guide to Asset Allocation, Diversification, and Rebalancing Guide to Rebalancing (WSJ) Create an Investment Policy Statement

Review your home and auto insurance

Having inadequate coverage could leave you in a huge bind, or you could be paying too much
Start this process about 60 days before your annual policy renewal so you have time for changes

Resources: Cars and Auto Insurance Homeowners Insurance Homeowner’s Checklist

Update your budget

This is really the most basic and most crucial. Probably good to do with those resolutions, but if you don’t remember when you last updated your budget, do it NOW!

Resources: Budget and Net Worth Worksheet Mint You Need a Budget How Do I Create a Budget?

Re-evaluate your estate plan

This is definitely one that everybody puts off because it just isn’t any fun and can be depressing to think about. Consider doing this on every 5^th birthday, for example 40, 45, 50. A lot can change in 5 years from tax laws, to your income, to kids being in the home or not and even your health situation. You probably will do something fun anyway for that milestone birthday so that can cheer you up after thinking about this.

Resources: 5 Steps to Estate Planning A Simple Estate Planning Checklist For a Challenging Topic

Last, obviously if God forbid your star quarterback really does go down with a season-ending injury (please stay healthy Matt Ryan) you need to reassess your fantasy team immediately. If you have a major event in your life, good or bad, it is always a good time to do a top-to-bottom review of your plan to make sure that it is still relevant for you and your family. Please, pay attention to your financial line-up and if you have any ideas on back-up running backs leave them in the comments section ASAP!