What is a 403(b) Plan?

March 21, 2023

What is a 403(b) Plan?

If you have ever worked for a nonprofit organization, you likely have heard the term 403(b) retirement plan. While not as common as the 401(k), a 403(b) shares many of the same benefits that make it a very powerful retirement tool for those working for public schools and other tax-exempt organizations.

The Details

As noted above, 403(b) plans have much in common with the 401(k) plan, which is very common in the private sector. Participants that may have access to 403(b) include:

  • Employees of public schools, state colleges, and universities
  • Church employees
  • Employees of tax-exempt 501(c)(3) organizations

The 403(b) plan has the same caps on annual contributions applying to 401(k) plans.

Employers can match contributions based on the specific plan details, which vary from employer to employer. 

Employees may also be able to contribute to a pre-tax 403(b) and/or Roth 403(b), as both options may be available based on the plan details. A traditional 403(b) plan allows employees to have pre-tax money automatically deducted from each paycheck and deposited into their retirement account. The employee receives a tax break as these contributions lower their gross income (and income taxes owed for the year). The taxes will be due on that money only when the employee withdraws it in retirement.

A Roth 403(b) is funded with after-tax money, with no immediate tax advantage. But the employee will not owe any more taxes on that money or the profit it accrues when it is withdrawn (if they are 59 ½ and have a Roth for five years).

Pros and Cons

Being able to save for retirement automatically is a tremendous benefit of the 403(b) construct. The tax-deferred (pre-tax) or tax-free growth(Roth) nature of these savings is also a huge incentive for employees to save as much as possible – not to mention the free money an employer match may provide. Many 403(b) plans will have a shorter vesting period relative to their 401(k) cousin, which allows. This means employees will have access to the matching funds quicker should they change employers.

On the downside, withdrawing funds before age 59 ½ will likely result in a 10% early withdrawal penalty. And many 403(b) plans offer a more limited range of investment options than other retirement plans.

Other Considerations

While not common, some employers may offer a 403(b) and 401(k) plan. In that instance, employees are still restricted to the current year’s limit for both plans combined. For example, if the limit is $22,500 and $10,000 is contributed to the 401(k), the max 403(b) contribution is $12,500.

Another unique, but not necessarily common, feature that may be available in additional catch-up contributions. Employees with 15 or more years of service with certain nonprofits or government agencies can contribute an additional $3,000 yearly. However, regardless of age, there is a lifetime limit of $15,000.

Summary

Like the 401(k), the 403(b) retirement plan is critical to retirement planning and saving for individuals with access to them. The automatic saving nature of the plan makes it very convenient to save for the future. Saving early, often, and as much as you can afford will set you up for your coveted retirement. Happy Saving!

How to Change Your W-4 and Increase Your Take-Home Pay

February 15, 2022

Are you looking for a quick way to increase your savings or find some extra money to pay down debt? If you are like millions of other taxpayers currently overpaying your income taxes to the IRS each year, you still have time make adjustments to how much you are sending Uncle Sam. The average refund was $2,827 in 2020 with over 125 million refunds issued. This is a substantial amount of money to be loaning out to the IRS at zero percent interest. Continue reading “How to Change Your W-4 and Increase Your Take-Home Pay”

How We Are Deciding Which Spouse’s Insurance Plan To Use

September 10, 2021

My husband recently changed careers and is starting with his new employer at the end of this month. We’re all very excited about the transition as a family, but we have a very important decision to make: are we going to stay covered under our current health insurance plan that I have through work or are we going to move over to his plan? Or should the kids join my husband on his plan while I stay on my own? Decisions. Decisions.

How do you decide whose health insurance to use?

When both partners have benefits through work, it’s a good idea to re-examine your family coverage each year. Here are some of the things that we are considering as we decide which benefits to choose. These questions might trigger some points that are important to you and your family as well as you make your decision whether to stay put or move on to your spouse’s plan:

Questions to ask

  1. Are our current doctors considered in-network under my husband’s plan (especially the kids’ doctors)?
  2. Do my husband and I like the primary doctor options who fall in-network under his plan?
  3. If my husband has employee-only coverage at work, does his employer cover his monthly premium? (mine does)
  4. How do the monthly premiums and deductibles compare to what’s available under our current plan?
  5. Once we hit the deductible, how much is our coinsurance (the percentage we are responsible for paying)?
  6. Is a high deductible health plan (HDHP) an option with his employer and how much, if anything, does his employer contribute to a health savings account on his behalf?
  7. Are there any upcoming specialists we’ll need to see? Surgeries any of us will need? If so, are they covered? And how much would we be responsible for paying?
  8. Are there any specific medications we know we’ll need that are not covered under my husband’s plan?

These are some of the things we’ve started to consider. Thinking through your situation and coming up with your list of questions like these, or points that you want to be sure you address, will help you choose the coverage that best meets your needs. Be sure to break down the costs and compare apples to apples when choosing the right health insurance plan and steer clear of common mistakes that are often made during enrollment.

When you need to switch mid-year

It’s important to note that our decision happens to fall during my open enrollment period at work, but if it were outside of my company’s open enrollment period, my husband’s change in employment status (and thus his new eligibility to be covered under a health plan) would be considered a qualifying life event and we’d have a short time frame (typically 30 days) to make changes to our health plan.

How To Choose A Financial Planner

January 21, 2021

Before you set out to find a financial planner, take some time to think about what you want a planner to do for you. Once you have determined what you’re looking to get out of a relationship with a planner, it is easier to find one who offers the services you desire. So before you start contacting planners, take a moment to think about what you want to accomplish – investment help, retirement planning, or a comprehensive financial plan.

You’ll probably want to interview at least three planners before you choose the one to work with. You may want to consider asking people you know if they work with someone they would recommend. Ask your other advisors as well, your CPA or attorney may have a few planners that they work closely with.

To assist in your search, we have provided the following links to make finding a financial planner easier.

Find a CERTIFIED FINANCIAL PLANNER (CFP®) (800) 487-1497
Certified Divorce Financial Analyst (CDFA) (800) 875-1760
National Association of Personal Financial Advisors (NAPFA) (888) 333-6659
Society of Financial Service Professionals (ChFC® and CLU®) (800) 392-6900
Find a CPA Personal Financial Specialist (CPA/PFS)

When you call each planner, here are ten questions to ask:

1. What are your credentials?

While there are no formal requirements to practice as a financial planner, there are several financial planning designations that will assure you of a minimum level of education and experience. A person holding the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation must pass five college-level courses that cover topics such as retirement planning, estate planning, tax planning, investment analysis, and employee benefits. Then they must pass a rigorous certification exam. Planners also must have a bachelor’s degree and meet experience requirements set by the CFP Board.

Another credential is the Certified Public Accountant/Personal Financial Specialist (CPA/PFS). These are CPAs who are members of the American Institute of Certified Public Accountants (AICPA), have at least 3 years of experience in financial planning, and pass a comprehensive and rigorous personal financial planning exam.

For a more complete description of different financial planning designations, check out: www.investopedia.com/articles/01/101001.asp

2. Can you tell me about your experience?

It’s important to know how long the planner has been in practice, and with what companies. And you’ll want to know if they have experience working with clients who have financial issues like yours. If they have been with a number of different firms in a short period of time, ask why.

3. What services do you offer?

Find out what financial planning services they offer, as well as other services they provide. Some stockbrokers or insurance agents may earn a financial planning designation to appeal to more clients. Other planners may be fee-only, providing advice that may be limited to your planning needs, but they may not be able to provide specific investment options. Make sure you choose a planner that will meet all of your needs.

4. Do you specialize in a particular area?

Some planners work only with a particular type of client. Others focus on one or two planning areas, such as retirement or education planning. Because planners offer different services and have various fee structures, it’s a good idea to know what type of services you want so you can find out if the planner is a match.

5. Will others in your office be working with me?

Depending on the size of the planner’s practice, there may be other planners, paraplanners or other professionals you will also work with. Be sure to find out who will handle the maintenance of your account and who else will be involved in your financial planning relationship.

6. How are you compensated?

There is a wide variety of ways that planners get paid. It’s important to ask this question upfront, so there are no misunderstandings. A financial planning agreement, or engagement letter, should clearly spell out the compensation arrangement. Planners can be paid as fee-only, commission-only or fee-based, which is a combination of fees and commissions. Fee only arrangements can include a flat fee, hourly billing, or a fee based on a percentage of assets under management.

7. Do you recommend specific investments?

There is no right or wrong answer to this question, but you need to know if you will get this type of advice. Whether the planner receives a fee or commission for recommending a specific investment is less important than the quality of the advice. Ask what criteria they use to screen investments and if most of their clients hold the same stocks or investments.

8. Have you ever been disciplined for unprofessional behavior?

A number of regulatory agencies keep records on disciplinary actions of financial planners. These include the Financial Industry Regulatory Authority (FINRA), CFP Board of Standards (if the planner has a CFP® designation) and your state securities and insurance departments.

9. Can you give me references to some of your clients?

Many planners are happy to let you speak with a few of their clients to find out how their experience has been working with that planner. Other planners do not provide client references due to confidentiality issues. If you are able to check references, find out how often their planner calls them, how easy is it to get an appointment, and whether or not they would recommend their planner.

10. What questions do you have for me?

A good planner wants to know what your needs are, your work and family situation, and what kind of advice you are seeking. If a planner does NOT ask you a lot of questions when you call to interview them, it could be a red flag. You want a financial planner that focuses on your goals, not theirs.

After asking these questions of three or more planners, you may find one that clearly fits the bill. If not, don’t be afraid to keep looking for more referrals. As you talk to these planners, get a feel for their style – you want to make sure you’ll be comfortable revealing personal information to your planner.

How to Be Financially Independent in 5 Years

January 21, 2021

One of the things that makes the lives of financial planners so difficult is that we usually have to get people to do what they don’t want to do, so that they can get what they want. In other businesses and professions, you’re generally either providing a good or service that will provide some immediate pleasure or alleviate some immediate pain.

Financial planning is more like dieting and exercise. Almost all the pain (saving money, taking a little more investment risk, diversifying out of your favorite stock, or taking the time to draft boring estate planning documents) is upfront for a gain (being debt free, having enough money to retire, or making sure your family is taken care of in case something happens to you) that seems so distant and far away.

Find one goal that really motivates you

Most of us know that financial planning is something that we need to do, but it’s easy to procrastinate because it’s rarely urgent (and by then it’s often too late to do much). So how can we overcome the challenge of our own inertia? I think it begins with finding at least one goal that really motivates you.

Becoming financially free in just 5 years

One of the things that has inspired me is a blog called earlyretirementextreme.com, which shares stories and tips from people who were able to retire in their early 30s, not through get rich quick schemes, but by “extreme” saving. The math works out so that if you save 75% of your after-tax income, and earn about 8% a year on those savings for 5 years, you’d have enough to maintain that standard of living indefinitely by withdrawing a sustainable income of 4% a year from those savings. Imagine being financially independent 5 years from now and being able to do whatever you’d like to do for the rest of your life?

I also know this is possible firsthand because I have a very good friend who will be financially independent, and essentially able to retire, this year at the ripe old age of 32. He did this without ever earning a six-figure income or making any noticeable sacrifices (he doesn’t make his own clothes or go dumpster diving). In fact, you wouldn’t notice much different about his lifestyle at all.

Why aren’t more people doing this?

So why don’t more people do this? Obviously, it’s quite difficult to live on only 25% of your after-tax income but the blog is full of more real-life examples of individuals who’ve been able to do just that with middle-class incomes of $30-70k. The most important thing is changing your perspective on money and how much you really need to live a happy and fulfilling life.

As an example, I read an article about how many wealthy technology executives and entrepreneurs live incredibly modest lifestyles. Warren Buffett, the second richest man in the country, is also notorious for his frugality. When you really think about it, you may discover that you need a lot less than our consumer society would lead you to believe.

Just try some of the ideas

That all being said, saving the full 75% may not be realistic for most people, especially if you’re used to a certain standard of living or have a lot of financial obligations that are hard to get out of. But, if you could apply just a few of these ideas to your life and save, say 30% of your income, it could still make quite a big difference, whether your goal is to pay off debt faster or retire a few years earlier.

I’ve actually been able to save and invest about 75% of my income. Does that mean I’m planning to retire in 5 years? Not necessarily. I enjoy my job and can’t imagine not working at all, even when I’m well into my golden years. To me, it’s more about the security, freedom, and peace of mind that comes from not being dependent on anyone else for my livelihood.

Where you are in life matters

A final point is that the younger you are, the easier, more necessary, and more beneficial these changes will be. It will be easier because young people tend to have fewer financial obligations. For example, recent graduates often just need to maintain the lifestyle they’re already used to in college (and have enjoyed quite a bit) instead of automatically increasing their spending to match their higher incomes once they start working.

At the same time, it will be more necessary because younger generations won’t be able to count as much on government entitlement programs that are going bankrupt and defined benefit pension plans that are going the way of the dinosaur. The good news though, is that they will benefit more from having a longer time for their savings to grow and compound and for them to enjoy the freedom that comes with financial independence.

How To Make Financial And Life Decisions in Uncertain Times

March 19, 2020

If you are a planner like me (full disclosure, I am not a CERTIFIED FINANCIAL PLANNER ™, but a planner in the generic sense), who likes to analyze all of her available options before making a thoughtful and well-informed decision, you may feel frozen from action in the current environment. New developments on public health recommendations, personal health recommendations, and the general state of the economy are being broadcast daily. How can we make the “right” decision when the situation may be entirely different tomorrow?

We all must make daily decisions, and in uncertain times, the importance of those may feel amplified as we try to control the situation as much as possible. To clarify, when I refer to “decisions,” I am referring to both the smaller things in life –Should I still plan a summer vacation? –and the bigger life event-related ones –Should I have another baby? Should I switch careers? These questions can be applied to all decisions, including financial ones.

One option is to freeze all decision-making until things have stabilized. For a lot of decisions, this strategy could work. However, what if you have a time-sensitive decision or an opportunity that may not last long? Below are a few questions to ask yourself as you navigate a decision in an uncertain time:

Do I really need to decide now?

When you are close to a situation, it can feel like you must decide right now. However, for most things in life, that’s not the case. Consider whether waiting to gain some perspective will help you make a better decision, and one that you feel more at peace with. Try to avoid letting fear and panic guide your decision making. Write a date on the calendar to revisit the decision, to hold yourself accountable to deciding and not putting it off indefinitely.

What is the best-case, worst-case, and most likely scenarios for each option? What are the potential upsides and downsides of each scenario?

This is something that I do a lot at work, when making my own decisions or helping a colleague make a decision. But I find that most of us are less likely to do it in our personal lives, and especially around our finances. It can be easy to get emotionally invested in a specific outcome rather than looking at all outcomes. If you’re not sure of the upsides and downsides of a financial decision, call a financial coach to help you identify them!

What is my back-up plan if things go poorly? What does my support system look like?

Contingency planning is critical here, and your support system plays a huge role in what your worst-case scenario looks like. Are you thinking of switching careers, moving across the country, or buying a house right as we head into a recession? Your age, your savings, your income streams, your partner, and your risk tolerance will all impact how the worst-case scenario looks for you.

Every day we make a multitude of choices, and ultimately our lives become the sum of these choices. Do what you can to set yourself and those around you for success, but know that there’s no such thing as a “perfect” decision

Are You Financially Immune From The Next Emergency?

March 17, 2020

The following post is an excerpt from the Financial Finesse Personal Finance FORBES Blog. You can read the original post in its entirety here.

In many ways, emergency planning is the Rodney Dangerfield of financial planning. It gets no respect. The typical advice is to simply stash away enough cash savings to cover 3-6 months of income and then move on to more exciting topics like investing and retirement planning.

However, an event like the coronavirus has shown that merely having emergency savings is not enough. Just like an investment portfolio, a properly diversified “emergency portfolio” requires more than just savings in the bank. Here are the elements you’re going to want to make sure you have before the next big disaster:

1) An emergency kit

No, you don’t need to become a full-on “doomsday prepper.” You just need some basic tools, first aid supplies, and enough food and water to last at least 3 days. You can get checklists from the Department of Homeland Security and the Center for Disease Control. You can then supplement it with supplies for those types of disasters that are most common for your area.

2) Food reserves

If the emergency lasts more than 3 days, you’ll still want to be able to eat. Rather than purchasing specialized “emergency rations,” you can simply bulk up on long-lasting food that you already eat. At the very least, it’s something you know you’ll need and can benefit from even if no emergency ever happens. In fact, you’re likely to save money this way. Simply replace the items as you use them and perhaps add items when they’re on sale.

A food reserve can also be part of your regular emergency fund, thus reducing the amount of savings you need. After all, you can eat it when you’re unemployed too. Sure, you would miss out on the less than 1/10th of a percent (minus taxes) you’d otherwise be earning with that money in the average savings account. But according to the most recent CPI release, the inflation rate of food at home over the last 12 months ending in January was about 0.7%, so you’d actually be saving a little more than what you likely would have earned keeping that money in the bank.

3) Physical cash

No matter how adequate your emergency supplies are, you never know what you may need to purchase from someone else in an emergency. That’s why they say “cash is king.” Although the financial world refers to bank deposits and money market funds as “cash,” in a true crisis, banks may be closed, ATMs may not be working, and money market funds may not be available if the stock market is suspended (as it was after 9/11). Some preppers like to keep gold coins for this reason, but people may not know how to judge their value in a crisis. Instead, consider keeping at least a few hundred dollars in physical cash (even if it’s under the proverbial mattress).

4) Emergency savings

None of this means you won’t still need some savings in the bank. You can’t exactly use food to replace items damaged in a storm or fire. Nor is credit a good substitute for savings since lines of credit can always be cancelled, which is all the more likely during tough economic times or when you’re unemployed—the two times you’re most likely to need it. For this reason, you may want to use any low-interest (below 4-6%) credit available to you before your cash reserves so you can preserve them as long as possible.

How much do you need in savings? Even so-called “financial gurus” don’t agree. Dave Ramsey suggests a starter emergency fund of about $1k until you’ve paid off all your high-interest debt. Suze Orman recommends having 8 to 12 months’ worth of expenses in savings before paying off debt. What you decide to do may depend on your personal comfort level, the availability of other sources of financial support, and how risky your income is. You can use this calculator to get an idea based on your expenses and how difficult it would be to replace your income.

These savings should be somewhere safe and accessible like an insured bank or credit union account. If you want to maximize your interest, consider a rewards checking account. They can pay over 5% in interest, and many will reimburse your ATM fees as long as you’re willing to bank remotely, use direct deposit and electronic statements, and use your debit card 10-15 times a month.

5) Adequate insurance

No matter how much savings you have, it probably won’t be enough to cover some of life’s biggest financial disasters. That’s why you need adequate health, auto, renter’s or homeowner’s, disability, and life insurance. If you’ve accumulated a lot of assets, you may also want to consider enough umbrella liability and long-term care insurance to “CYA”: cover your assets.

Whether it’s the current threat of a possible pandemic or potential terrorist attacks, natural disasters, or financial crises, many experts fear that our world is only getting more dangerous. No one knows when the next disaster will be. The only question is whether you’ll be ready.

How To Choose An Estate Planning Attorney

January 01, 2020

Decide what you need

Before you set out to find an Estate Planning attorney, take some time to think about what you want an attorney to do for you. Once you have determined what your estate planning needs are, it is easier to find an attorney who offers the services you desire. So before you start contacting attorneys, take a moment to think about what you want to accomplish – setting up a basic will, living trust, or a comprehensive estate plan.

Finding the right person

You will probably want to interview at least three attorneys before you choose the one to work with. Consider asking people you know if they work with someone they would recommend. Ask your other advisors as well; your CPA or financial planner may have a few estate planning attorneys that they work closely with.  Find out if you have an Employee Assistance Program (EAP) at work.  If so, your EAP may offer attorney referral programs that help you find an attorney and receive a discount on their services.

To assist in your search, here are a few databases to help make the search easier:

American Academy of Estate Planning Attorneys

(800) 846-1555

AAEPA Member Directory

National Association of Estate Planners and Councils (NAEPC)

(866) 226-2224

Search for Estate Planners

When you call each attorney, here are eight questions to ask

1. How much of your law practice is devoted to estate planning?

Some attorneys work with their clients in different areas of the law. Others focus on one or two specialized areas, such as estate planning or elder care. Because attorneys have various levels of expertise in different areas of the law, it’s a good idea to know what level of estate planning you want so you can find out if the attorney is a good match.

2. What are your credentials?

While every attorney must have passed their State Bar exam to practice law, there are no formal requirements to practice as an Estate Planning attorney. However, an attorney can attain a “specialization” in the specific area of estate planning. An attorney who specializes in estate planning must have taken and passed a written examination in their specialty field, demonstrated a high-level of experience in the specialty field, fulfilled ongoing education requirements, and been favorably evaluated by other attorneys and judges familiar with their work.

Another credential is the Accredited Estate Planner designation (AEP). This designation is awarded by the National Association of Estate Planners & Councils to certain professionals who meet stringent experience and education qualifications.

3. What types of estate planning do you offer?

Find out what estate planning services they offer, as well as other services they provide. Some estate planning attorneys may offer basic services such as will formation and the construction of simple trusts, while others may have more comprehensive services that include more complex trusts and charitable giving programs. Make sure you choose an attorney that will meet all of your needs.

4. How long have you been handling wills and other estate planning matters for clients?

It’s important to know how long the attorney has been in practice, and with what firms. And you’ll want to know if they have experience working with clients who have estate planning issues like yours. If they have been with a number of different firms in a short period of time, ask why.

5. Will other attorneys be working with me?

Depending on the size of the attorney’s practice, there may be other attorneys (or paralegals) you will also work with. Be sure to find out who will be working on your estate plan and inquire about his/her educational background in addition to actual work experience with estate planning issues like yours.

6. How are you compensated?

There is a wide variety of ways that attorneys get paid. Attorneys can be paid with a fixed fee, an hourly rate, or on a contingency basis. It’s important to ask this question upfront, so there are no misunderstandings. A written fee agreement should clearly spell out the compensation arrangement. The fee agreement should define what you want the attorney to do, what the attorney has promised to do and what it will cost.

7. Have you ever been sued by a client, reported by a client to your state’s attorney licensing board, or subjected to disciplinary action by your state attorney licensing board?

Generally, each State Bar will post on their website any disciplinary actions that have been placed against a practicing attorney. Check with your State Bar’s website to verify that the attorney(s) you work with do not have any current or pending actions against them.

8. What questions do you have for me?

A good estate planning attorney wants to know what your needs are, your wishes and family situation, and what kind of estate planning you are seeking. If an attorney does NOT ask you a lot of questions when you call to interview them, it could be a red flag. You want an estate planning attorney that focuses on your goals, not theirs.

After asking these questions of three or more attorneys, you may find one that clearly fits the bill. If not, don’t be afraid to keep looking for more referrals. As you talk to these attorneys, get a feel for their style – you want to make sure you’ll be comfortable revealing personal information to your attorney.

How To Evaluate Your Financial Advisor

January 01, 2020

A good financial advisor can be an invaluable member of your financial team (along with your tax professional and estate attorney). They can help you pull all the pieces of your financial lives under one comprehensive plan, offer investment advice/management, make sure your family is protected when unexpected things happen, and can help you work toward all your financial goals.

However, there may come a time when you’re wondering whether it’s time to move on from your financial advisor. Whether you feel like you’re paying too much, not getting what you expect from the relationship or even just feeling intimidated by jargon and a fancy office, how do you really know if that’s how it’s supposed to be or not?

Having a framework to evaluate your advisor will give you the confidence to ask the right questions and the peace of mind you have the right person on your team. Know that a good advisor will not mind you asking questions – if they seem upset or defensive, that may be a red flag.

What factors to evaluate

Criteria: Fees

This is probably the biggest area of scrutiny when it comes to deciding whether your advisor is worth it or not. What’s most important is having an understanding of ALL the fees you’re paying — not just the ones you may see coming out of your account, but also any fees within the products your money is invested in.

For example, all mutual funds have expense ratios. Make sure you’re factoring that in when calculating your total fees.

An example: Many advisors charge 1% of your account value to manage investments – this is very common. If your account is invested in mutual funds and you’re also being charged a percentage fee, you should make sure that your account is invested in institutional shares of the mutual fund and/or index funds, which tend to have lower expense ratios.

Let’s say the expense ratio of the funds you’re invested in is .10%, another common rate for index and institutional funds. That makes your total fee 1.1%. If you have $100,000 invested with your advisor, that means your annual fee would be $1,100.  Are you feeling like you’re getting $1,100 worth of support?

When it’s ok: Nothing good comes for free, so it’s absolutely reasonable to pay some fees for the service your advisor is providing you. What you need to consider is value. Are you feeling like what you’re getting from your advisor is worth what you’re paying?

When it’s not ok: If your advisor is being dodgy about providing you with a total fee amount, or you’re paying over 1% but not getting any type of service beyond stock picking, it may be time to move on to a better advisor. It’s also a red flag if your advisor points you toward more expensive products such as annuities or insurance contracts when what you were originally seeking was advice on investing in the stock market.

The best advisors are up front and comfortable with the fees they charge, and they are confident that they are providing you value.

Criteria: Performance

This is another area that is often scrutinized by investors, but sometimes through the wrong lens. It’s perfectly acceptable to expect your advisor’s investment advice to help your investments to match or exceed the benchmark you’ve set, but many people chase performance without the correct context.

An important part of a financial advisor’s job is to understand your personal goals and risk tolerance, then recommend the appropriate investment mix AND explain to you how it should be evaluated.

When it’s ok:The stock market goes up and down, so low returns WILL HAPPEN. Just because your account shows a negative return over the near past does not mean your advisor is failing – it depends on what else is going on in the world. As long as your performance is in line with or better than the benchmark you’re using, it’s ok if your account is down a little bit or even not up as high as your friend’s, as long as it’s matching or bettering its benchmark.

In other words, if you’re a conservative investor, comparing your account’s performance to the S&P 500 or the Dow Jones is unfair – those are 100% stock indices, and not appropriate for a conservative investor. On the flip side, if you are an aggressive investor, you wouldn’t be comparing your portfolio to the US Treasury yield either.

When it’s not ok: If you’ve told your advisor you have a high risk tolerance and the market is going gangbusters but your account is floundering, you may need to find a new advisor. Likewise, if you’re a conservative investor and you’re seeing wild fluctuations in value, your advisor may not be heeding your preference and could be taking too much risk.

Another red flag to look out for, believe it or not, is if you never see a negative return or you are seeing great performance despite hearing that the market is down. In order to have great performance over time, a legitimate investment portfolio is bound to have down times. If your account performance only goes up and it’s up by an amount that’s notably higher than current interest rates, that could be a sign of fraud. (Bernie Madoff’s clients never saw losses in their accounts, despite being invested with him through bear markets – a huge red flag)

Criteria: Could you do this yourself?

Obviously the reason you’re hiring a financial advisor is to give you financial advice so that you can invest your money to meet your goals. It’s a good idea to take a look at how they are investing your money to see if that’s something you could’ve figured out for yourself.

When it’s ok: There are advisors out there who will invest their clients’ money in index-based mutual funds, which is definitely something you can do for yourself using discount brokerage services. However, if your advisor is also providing you with comprehensive financial planning services including areas like retirement, education savings, taxes and life insurance, then it’s probably worth it to stick with them.

When it’s not ok: There is no need to pay an advisor to help you select an asset allocation fund such as a target retirement date fund, which may be available inside your workplace retirement plan. The whole reason you hire an advisor is to customize the distribution of your investments among different areas of the market based on your personal goals and risk tolerance. If you’re paying an advisor and only see one or two funds inside your account, you’re probably better off doing it yourself.

Criteria: Your relationship with the advisor

One of the frustrating things about the investment world is that in order for financial advisors to make a living, they either have to have a lot of clients and accounts, or they have to find a select number of clients with a lot of money. That means that unless you have more than 7 figures to invest with your advisor, chances are that he/she will have thousands of clients. That doesn’t mean you shouldn’t work with them though.

When it’s ok: You should always expect your advisor to return phone calls and emails within a reasonable amount of time, even if he/she simply says, “I’ll get back to you on this shortly.” You should also expect your advisor to be transparent and honest with you. That means that they sometimes may tell you things you don’t want to hear, such as letting you know you’re spending too much or sharing bad market news. A great advisor addresses the uncomfortable stuff in an empathetic but firm way.

When it’s not ok: If you only hear from your advisor when he/she is trying to sell you something, that’s a red flag. Another one is if you ever feel like your advisor is being patronizing, impatient or pushy.

There are far too many great people out there in the industry who would love to provide you with help in a transparent, friendly way that works toward your best interests. If you’re getting the feeling that your advisor doesn’t value your business or is up to something shady, trust your gut and move on.

What Do You Owe You?

March 24, 2017

As someone who loves a good “pregame speech” and has heard and given fiery speeches before and during games, the field of motivational speaking is one that I enjoy. It turns out that one of our newest planners, Vekevia, shares a love of a good fiery speech. We talked about this recently and she shared this with me:

I love listening to motivational/inspirational speakers. They remind me of why I’m working towards a particular goal, which is what helps keep me going when things are tough or just not running as smoothly as I’d like. They drive me to keep pushing forward when what I am seeing doesn’t necessarily look as promising as I envisioned.

That helps in life goals and is especially true with financial goals. I heard one motivational speaker, Eric Thomas, ask the crowd a series of questions to get them to self-reflect. His message was “You Owe You” and I want to share the questions he asked:

“Know ‘what do you want’. What do you want in your marriage? What do you want with your son and your daughter? What do you want in your health? What do you want financially? How much money do you want to make a year?

What do you want to drive? How do you want to live? Stop just waking up like an accident. What do you want? And then, once you find out what you want, spend the rest of your natural life waking up and going after it.”

Managing your finances/financial planning is a life-long process. You don’t get to just plan today and then that’s it. You’re done.

For some, that can sound like a daunting task, especially if you don’t enjoy the process. I think that’s what makes it even more important to know why we have the financial goals that we have. Here are some tips to figuring that out.

Identify the ROOT of your goal. Know your big picture.

How to do it:

Go beyond your need to save to send your kids to college, pay off your student loans or buy a house. Do you want to give your kids a life full of better opportunities than you had when you were growing up? Do you want to be debt free and create or continue growing wealth in your family or simply gain a sense of freedom? Do you want to move into another neighborhood to surround yourself and/or your family with better opportunities? Do you want to live more comfortably?

Determine WHAT has to happen for you to get to that goal.

What to consider:

Do you have to stop spending as much on eating at restaurants or other forms of  entertainment? Do you need to get a handle on how much you swipe your credit card? Do you need to sit down with your spouse and get on the same page about your finances?

Tools:

Easy Spending Plan

Expense Tracker

Debt Inventory

Create a clear plan of HOW you’re going to make it happen.

How to do it:

Get Smart About Your Financial Goals

Include some goals that are short-term so you have small wins and give yourself some “atta boys” along the way. Include long-term goals as well so you are always planning for consistent progress. Take advantage of resources you have through your financial wellness program at work. Find out what assistance is available through your employee assistance program (EAP) at work.

Do something daily and make it a HABIT.

How to do it:

List small steps you can take every day or every week to get you to your long-term goal. I live by my calendar. Work tasks are included. Workouts are included…everything. If it’s in my calendar, it’s getting done.

Self-reflect.        

What does that mean?

At times, taking a minute to “stop and smell the roses” makes sense. It allows us to reflect on where we are, where we’ve come from and where we’re going. Pausing for a moment to experience the “now” and be grateful for all that we have provides a meaningful context for pushing forward.

Alter your plan if it’s not working.

What to consider:

Why isn’t it working? Do you need to make a simpler goal? Were the steps unrealistic or too ambitious? Do you need an accountability partner? Make changes to your plan accordingly so that your next steps take you closer to your goals.

Reward yourself.

Really?

I’ve found that people who are always pushing toward a goal without acknowledging their own success have a tendency to backslide or mentally break after a period of time. Reach a goal and congratulate yourself in some small way. One of my coworkers is working toward some fitness goals and is watching his food intake and his exercise routine. When he hits a milestone, he allows himself a “go crazy day” without working out and eating a gigantic plate of nachos, knowing that the next day, it’s back to the grind. Knowing that a small reward is ahead allows him to stay focused in between milestones.

It’s up to us to live up to our full potential. We have goals and we have to find a way to make them happen. We have to find a way to work around what we can’t control and do everything in our power to find a way to win.  You owe it to you to become financially secure. If this blog post isn’t enough to motivate you toward your goals, watch Dr. Eric Thomas and he’ll light a fire that will help you get started toward your goals.

 

 

Why You Need Emergency Cash Reserves

March 18, 2016

Recently, Financial Finesse was fortunate enough to hire Steve White – a bright and handsome gentleman from Texas. If you doubt the handsome part, just ask him…he’ll tell you! Steve shared his view with me of why an emergency fund is critical for your life, and it sounded like something I should share with you. Continue reading “Why You Need Emergency Cash Reserves”

The Insurance Move I’m So Glad I Made

March 15, 2016

If you ever read any of my posts, you probably know that I am a “drive a car until the engine falls out” kind of girl. Unfortunately, that is exactly what happened. I was coming home from the gym, wondering why I keep competing with women half my age, and a car came out of a fast food restaurant without stopping and hit me. I was unconscious for a few minutes and when I came to and was able to think, I thought it was a little strange that the driver of the other car did not get out. When I noticed the car starting, I tried to get the license plate number but it was too late, the car had driven off. Continue reading “The Insurance Move I’m So Glad I Made”

Do You Need Financial Earthquake Insurance?

March 07, 2016

Think of a financial shock that could totally knock you off your feet. That’s a financial earthquake. Unemployment, an illness, divorce, the death of a spouse, the loss of a home or a business – a financial earthquake is unexpected, unpleasant and unwelcome.   Continue reading “Do You Need Financial Earthquake Insurance?”

5 Reasons Not to Put Off Your Taxes

February 04, 2016

By now, you should have received the documents you need to file your taxes. I know it’s easy to procrastinate though. After all, I’ve had my share of late night runs to the post office on April 15th. (You actually have until April 18th to file your taxes this year because the IRS will be shut down on April 15th for “Emancipation Day.”) But there are some very good reasons not to put off filing your taxes: Continue reading “5 Reasons Not to Put Off Your Taxes”

Is That Advisor Really Fee-Only?

January 26, 2016

A few months ago, I was in a coaching session with a woman who was very confused about how her advisor gets paid. Her advisor worked for a major brokerage firm and insisted that he was “fee-only.” She felt uncertain if this was the truth so I asked to look at one of her statements. Continue reading “Is That Advisor Really Fee-Only?”

What If You Won the Powerball Lottery?

January 15, 2016

As I type this, the Powerball lottery jackpot stands at $1.1 billion. Yes…that’s BILLION with a B: 1,000,000,000 – nine zeroes. As a CERTIFIED FINANCIAL PLANNER(TM) professional, I can attest to the fact that that’s a whole bunch of money! It’s fun to listen to the radio and hear what people would do with that kind of windfall. As with almost everything, there is both good and bad to what could be viewed by most people as an all good scenario.  Continue reading “What If You Won the Powerball Lottery?”

How Would You Take the Powerball Winnings?

January 14, 2016

What would you do if you won yesterday’s $1.5 billion Powerball jackpot? Before you start thinking about how to spend a billion and a half dollars, understand that you won’t get it all at once. Instead, it’s paid out in 30 installments over 29 years. If you want the money now, you only get $930 million. Then there’s taxes. Continue reading “How Would You Take the Powerball Winnings?”

Thinking of Adopting a Pet? Read This First

January 13, 2016

If you’re thinking that it’s time to give in to your kids’ begging or your inner Dr. Doolittle and join the ranks of pet parents, make sure you’re prepared financially to deal with your new fur baby. There are ongoing costs and other things to consider. The cost of a pet, particularly a dog or cat, extends well beyond the adoption fee, which is relatively small when you add up all the other costs that come along with pet ownership.

Continue reading “Thinking of Adopting a Pet? Read This First”