How Much Do You Need to Have Saved for Retirement?

December 16, 2016

In many recent conversations, I’ve been asked “how much do I need to save for retirement?” The answer is always “It depends!” Do you want to plan to live until you’re 100 or are you going to project a short life expectancy because of serious health issues? Will you have no mortgage or debt and spend lots of time at the public library reading books or will you have a big mortgage and fly all over the world staying at luxurious hotels?

Your lifestyle choices matter A LOT. Given all the variables and uncertainty regarding how much someone needs saved/invested in order to retire comfortably, it makes sense to have some rules of thumb around that. So here are some varying thoughts on how much you might need to save for retirement:

Fidelity recommends that someone have 10x their annual salary saved by age 67. They also suggests a timeline to use in order to get to that magic number:

By 30: Have the equivalent of your salary saved
By 40: Have three times your salary saved
By 50: Have six times your salary saved
By 60: Have eight times your salary saved
By 67: Have 10 times your salary saved

Aon Hewitt, a benefits consultant, suggests that you have 11x your final salary saved before you retire.

A long established rule of thumb in the financial services community is “The 4% Rule.” What that means is that you can take a 4% withdrawal from your final savings balance annually and increase the amount with inflation each year. If you have $500,000 in your accounts, you’d be able to spend $20,000 in the first year. So for every $1,000 per month you want to spend in retirement, you’d need $300,000 of investments.

Charles Farrell, financial author, recommends saving 12x your final income.

An article in The Street tells Millennials that they will need $2 million in order to retire.

These are just a few of the countless ways that people can calculate their “magic number.” Personally, I don’t believe in magic numbers. How much you need to save for retirement is very dependent upon the lifestyle you want to live.

Conventional wisdom says that you’ll need to replace 70-80% of your current income in retirement to live a lifestyle similar to today’s. I’ve met people who will be perfectly happy at 40-50% because they will have paid off their mortgage and have been aggressive savers who have lived far below their means for decades and won’t spend much money in retirement. I’ve met others who have plans to see the world post-retirement and they’ve saved their whole lives in order to splurge during retirement, so they’ll need >100% of today’s income.

What can you do with all of this potentially conflicting information? Start to think about your retirement picture. Take a look at your current expenses and see what will still be there during retirement and what won’t be. Consider the cost of healthcare and that you’ll need to account for that since you probably won’t have company benefits kicking in a portion of the cost.

Run some retirement calculators to see if you’re tracking well toward a secure retirement or not. Google “retirement calculator” and you’ll get thousands of options. You can also use our retirement estimator as another tool to help you get a gauge on your progress. The next time someone asks me “How much do I need to save for retirement?” I will email them a link to this blog post…

Make Retirement Great Again!

December 09, 2016

Sometimes I need to learn to not open my mouth and make smart alec comments. The other day, I was in a meeting with coworkers in which we were talking about retirement, and I joked that we needed to help people “Make Retirement Great Again.” As a result, I was given the challenge of writing a blog post with that title.

We are living in a world where pensions are being frozen or eliminated, Social Security is projecting a reduction in benefits in the next several decades and the burden of building a secure retirement is now falling on our shoulders – not the government or the employer. Today’s new graduates are a generation that is facing a mostly “build it yourself” retirement platform. So here is my absolutely non-partisan “6 step plan” for every person (from new graduates to grizzled workforce veterans) in this country to “Make Retirement Great Again”:

1. During your remaining work years, know exactly where your money goes. When you know this, you are in a position of power. You can say “I agree with where my money is going” or “I want to change this up a wee bit.” The key is that you then have the power to make informed choices. Whether it’s Mint.com, an Expense Tracker worksheet, a spending log or some other form of organized knowledge, find a tool that works for you so that you know exactly where every dollar goes.

2. Save an increasing amount each year. Many 401(k) plans have a “rate escalator” feature that allows you to increase your contribution percentage at pre-set intervals. For those who work for companies where annual pay increases are predictably timed, that is an amazing opportunity to increase your 401(k) contribution by 1% per year. Over the course of a career, this could mean hundreds of thousands or perhaps even more than a million dollars in extra retirement savings for those who are young enough. If you don’t have this feature, pick a day – either your annual increase date, your birthday, or on January 1^st – to increase your contribution every year.

I promise that you won’t notice the difference in your net paycheck after 3 pay cycles. It will become your “new normal.” However, it may enable you to retire years earlier or move to a lower stress, lower paid job late in your career or position you well in the event of a downsizing.

3. Eliminate debt. In discussing early retirement packages with many dozens of employees recently, one of the key factors enabling those who accepted an early retirement package to walk into life beyond their long term corporate job was the absence of debt. Those who still had credit card debt or a big mortgage were far less confident in their ability to accept the early retirement offer. Most of them couldn’t accept the package even if they desperately wanted to.

If you aggressively pay down debt, including your mortgage, that is a tremendous way to position yourself to go into retirement feeling secure. A zero debt level allows you to have a very low embedded cost of living. It also allows your accumulated savings and investment dollars to last a whole lot longer since they aren’t being drawn down as rapidly.

4. Know your income streams. I’ve talked to so many people who “think they know” how much they’ll get from pensions and Social Security, only to be completely surprised (mostly on the happy surprise side but sometimes on the sad side) by the level of income they can expect from these sources. Knowing your numbers is a huge way to prepare yourself for a great retirement.

If you have a pension, run multiple estimates. Know your monthly payments at age 55, 60, 62, 65, 67 or or any other age that is relevant. See how the benefit changes can help you create your retirement vision.

Do the same thing for Social Security. Use this retirement estimator to see what you can expect from Social Security. Feel free to hit the “create new estimate” button at the end and use various ages.

5. Plan for medical expenses. Fidelity prepares a health care costs for couples in retirement report annually. For a couple retiring in 2016, the estimate is $260,000 in healthcare expenses from retirement through death. This is a pretty staggering level of expenses. How will you prepare for this?

A health savings account is a great tool to build a pool of funds for future healthcare expenses. If possible, max out your HSA annually between now and retirement and try to pay for medical expenses from your regular daily cash flow so that the HSA can build up and grow. Most HSA accounts have investment options as well, so those funds can be invested for growth. In the absence of that option, save even more aggressively in your 401(k) or bank savings account or some other form of savings/investments.

6. Be the opposite of Congress and try to reduce expenses or implement a spending freeze. This goes right back to step #1 and closes the loop. When you know what your expenses are, you then have the power to make changes.

Find small ways to reduce your spending. Even if it’s a couple dollars here and a couple dollars there, it all adds up. After a few months, you won’t miss the reduced spending.

When I’m ready to go into “expense reduction mode” or “spending freeze mode,” I have a cheesy way to keep focused. Every time I pull out my wallet (or log in to an online purchasing platform), I ask “Is this something that I really NEED, or do I just WANT this?” It sounds overly simplistic, but I can’t tell you how many times it’s made me pull out of the Starbucks parking lot before I get out of my car. Give it a whirl and see if it works for you. For every dollar you don’t spend, it’s a dollar that can be added to your emergency fund, paid on debt or invested.

Is Too Much of a Good Thing a Bad Thing?

December 02, 2016

During some recent conversations with employees of a publicly traded company, the topic of company stock was very popular. This company’s stock price has tripled (300% gain, point to point) in the last 5 years, while the Dow Jones Industrial Average has increased over 50% (from ~12,000 to ~19,000). What that has done to employee 401(k)s, for those who contribute to company stock inside the plan, is ratchet up the percentage of company stock beyond the 20% limitation that the firm’s policies allow. For those who have participated in the employee stock purchase plan (ESPP) or who receive some form of equity compensation (restricted stock, stock options), their company stock holdings could even be higher. The question around their building during these conversations was “do I have too much company stock?”

My answer to that question was almost always “it depends!” Most financial planners will recommend that no more than 10-15% of one’s portfolio should be in employer stock. Employees at Apple or Google would disagree with that, while employees of MCI WorldCom and Enron think that is probably 10-15% too much. While that rule of thumb is out there, it is often misconstrued.

I spoke with one employee recently who had 40% of her 401(k) in employer stock and she was concerned because her financial advisor told her that was far too much to have. When we broadened the scope, from just her 401(k) to her total portfolio, we found that only 5% of her total wealth was in employer stock. She had most of her money in CDs at her local bank and in a portfolio of bonds with her financial advisor. Her employer stock was almost her only growth asset. We did talk about more broadly diversifying her portfolio and about allowing her financial advisor to know that she had the CDs at the bank too so that his recommendations could be with the full knowledge of her situation.

The lesson: When looking at employer stock, look at the whole picture not just one account.

I spoke with another employee who had 15.1% of employer stock in his 401(k) and his plan provider had a big red warning sign on his 401(k) one day. If the stock price fell and the stock became 14.9% of his plan, the red warning sign would go away the next day. He was right on the edge, as he viewed it – and as his 401(k) plan provider viewed it.

He wasn’t too concerned because he is highly optimistic about the company’s future. During our conversation, he convinced me that he totally understood the risks associated with having one stock be too big a portion of a portfolio. When I asked a follow up question about equity compensation and the ESPP, he told me that an amount equal to his 401(k) balance was sitting in company stock through the ESPP and restricted stock grants.

So 65% of his investable asset base was in company stock, and this company is going through a merger that may be wonderful or dreadful for the company stock price. Upon realizing that, I asked “Are you more concerned about your stock price doubling right after you scale back your holdings or the stock price falling by half if you don’t scale back your level of holdings?” He was far more concerned about the stock price falling if the merger didn’t get approved or if the overall stock market tanks after 8 years of increases so he opted to scale back some of his holdings by selling ESPP stock and paying off his mortgage.

The lesson: Be aware of where the overall markets are, what your risks are and the full scope of your holdings.

To answer the question of “How much employer stock is too much” requires a fairly thorough understanding of your financial life and goals, the economy, current events/news regarding the company and your willingness to accept large losses in an attempt to make large gains. I’m certain there are people at Google who wish they could buy nothing but Google stock, and I know for sure that there are people who once worked at Enron who wish they had never owned a single share of Enron stock. Each person is different, but understanding your specific situation and the risks and rewards of your employer stock can help you come to the right answer.

How to Deal With Adversity

November 18, 2016

As I type this, I’m watching protests in the streets of several US cities and hoping that the protests remain peaceful. In my lifetime, I’ve never seen election results trigger this type of reaction. Whether it’s spontaneous or planned and well-funded is something that I’ll let the political talking heads debate. I’m also seeing college students being given the opportunity to skip exams and classes while they process the election results, which I find to be a bit ridiculous.

A huge chunk of life is about dealing with adversity and these kids are being taught by their institutions of “higher learning” that they don’t have to deal with it. As a person who has had to deal with many adversities over the course of my lifetime (it doesn’t make me special, it makes me human!), I have some rules to live by that make sense (to me) to put into place when things don’t go your way. These rules work when your candidate loses an election, when you lose a loved one, if you get swept up in a layoff, or if you tear your ACL pretending to be 20-something and taking on a physical challenge (not that I’d EVER do that):

1) Remember that this adversity is only temporary! If the person just elected doesn’t do a good job, he or she can be removed in 4 years. Most obstacles in life can be overcome, and for those that can’t, we learn to dull the immediate pain and find a new path to our goals.

2) Look at the small picture for a change. When I see something going on in the world that I can’t control, like the events of 9/11, I stop looking at the big picture and start to narrow the things I give time and attention to. I felt helpless to do anything on a large scale after 9/11, so my focus went to being the best father I could be. I spent extra time and attention getting my kids out of the house and into nature and talking about life. Sometimes those conversations got serious, but mostly we told stories, laughed and were reminded that while the world was a bit scary, our little circle was in great shape.

3) Focus on your personal goals, write them down and revisit them frequently. I have a few different “goal lists.” I have them for my work life, my personal life and my fitness level.

When I’m at my best, I look at these goals every day or every 2-3 days at worst. It helps remind me about what’s important in my life and that I can have a big impact on myself. That’s a much bigger level of influence than I can have on an election or similar obstacle. Remembering what’s important and having actionable steps to take in your own life is a great respite from the events of the world.

4) Give yourself a “time out” from technology. Unless your obstacle is a job loss, which requires a lot of the job search to be done via technology, shutting off the TV, Facebook, Twitter, etc is a wonderful idea. Your time is the most precious resource you have, so give the time that you’d normally give to technology back to yourself. Go to a museum, take a walk, read one of the classics that you’ve always wanted to read, sit by the water, hit the gym, ride a bike…do something to change up your routine and you may notice that a vacation from technology improves your view of the world.

5) Do something for others. When things in my life have been far less than ideal, I’ve made an extra effort to find ways to give back to my community. Volunteering at a homeless shelter or school, driving for Meals on Wheels, donating blood, visiting a nursing home with your dog, helping in some way at a children’s hospital — the list is endless. When we put ourselves and our problems away for a minute and help others who have far worse problems, an amazing thing happens. We realize how small our seemingly big problems can actually be.

In my life and yours, there will be days when we wish the day would just end and we see no real solutions to the things creating strife in our world. They can’t be avoided. It’s on those days that I hope you remember reading some financial planner’s blog and decide to give one of his suggestions a shot.

What I Learned From an Early Retirement Package

November 11, 2016

Over the last few weeks, I have been having a whole lot of conversations about retirement with employees of one of our client companies. They are offering an early retirement package (ERP) to a fairly large number of employees, and they have a fairly short window of time in which to make a decision about accepting it or declining the offer. When retirement is no longer something that has a long term time horizon and is suddenly presented as an immediate opportunity, what is important suddenly becomes crystal clear, and that is slightly different for each person.

I have been able to make some observations on the factors that have driven the decision for most of the candidates for the ERP. It isn’t hugely surprising, but these factors are helping people make one of the most important decisions of their lives. So let’s learn from them so that we can be in a great position to make our retirement decisions with a clear head and on our own time lines. Here’s what I’ve found over the last several weeks:

People with very low levels of debt are much more likely to be able to accept the ERP. The people I met who have paid their mortgage off are, with an almost unanimous vote, accepting the offer and moving on to the next phase of life.

What I learned: I want to pay my mortgage off ASAP! Any debt should be eliminated quickly and you’ll be in a better position over the long haul. When all debt is gone, your embedded cost of living is lower for the rest of your life. That can do nothing but extend the life of your asset base.

The cost of health insurance in the future was a factor in everyone’s decision. Some had a spouse who could cover them or had the ability to roll into Medicare. Others are going to price policies on the exchanges or with affinity groups or simply price policies on a few insurer websites. Those with a clear plan for how to handle the cost of insurance had a very good likelihood of accepting the ERP.

What I learned: In order to prepare for medical costs in the future, I’m planning to max out my HSA annually and invest the account for long term growth, while paying most medical costs out-of-pocket. I plan to keep abreast of the ever-changing landscape of health insurance as well. Recently, we saw significant increases in premiums for health insurance in the exchanges so being aware of the landscape is always a best practice.

The folks who were confident in their ability to land another job before the severance package ran out were also much more likely to accept the offer. With a relatively generous severance package, those who could get jobs relatively quickly could “double dip” for a while. With income from two jobs, they can work on paying debt off or invest a sizable portion of their income.

What I learned: Having an updated resume and refreshing your LinkedIn profile periodically is always a best practice. One never knows when the employment market will turn into the next batch of good (or bad) news, so being prepared at all times is a very worthy endeavor. Keep your contacts organized. Stay in touch with former coworkers, as well as current ones. Use your internal network to help find opportunities.

The lessons I learned over the last few weeks will provide more benefits to me than the benefits I provided to the individual employees. I will consider all of these factors and work to make sure that when the time comes for me to consider retiring, I have all of my I’s dotted and T’s crossed. You should too.

Do You Really Know What You’re Investing In?

November 04, 2016

My kids, some coworkers, and it seems like the whole world around me are big fans of Twitter. In fact, some of the podcasts I listen to mention Twitter as the hosts’ #1 source for breaking news. I guess I haven’t ever seen that platform as one that works for me and when Twitter became a publicly traded company, I chose not to buy the stock because I couldn’t figure out their revenue model.

I also thought “speaking” in 140 characters or less was a way to degrade the way people communicate. I already despise “text speak.” Character limitations have given us degradations of the English language like UR, BRB, LOL and the worst of all possible things…emojis! (And while I’m at it, get off of my lawn!)

I am a big fan of words and grammar and punctuation. There’s a huge difference between “Let’s eat, Grandma” and “Let’s eat Grandma.” Punctuation can save lives!

With this mindset, I have been watching the world of technology companies and see that Yahoo was for sale recently and the price paid was far less than it would have been when Yahoo was one of the kings of the technology hill. Now Twitter is for sale and potential bidders keep opting out of the deal. There are fewer suitors as time moves forward and the potential sale price keeps dropping. The moral of the story for me is that just because something is cool and trendy and “everyone loves it”, it doesn’t always translate into a wonderful business model.

I’m a huge fan of Sirius satellite radio and have it on constantly. Just because I’m a loyal customer, doesn’t mean I want to be an investor. Again, cool stuff is awesome as a consumer, not always wonderful as an investor.

As you think about investing your hard-earned dollars, be very aware of the “cool effect” (not a real term, I’m making it up for this blog). Sometimes in situations like Apple and Google, a “cool effect” translates well into a cool investment that produces great returns for an extended window of time. But those are far more the exception than the rule.

One of the rules I use when evaluating if I want to invest in a particular company (which I rarely do anymore) is that I absolutely MUST understand what the company does and how they earn their money. I’m still mystified by Facebook! Do people really buy that many ads or pay for that many games? No one I know has ever spent a dime on that platform, so either I know the wrong people or I just can’t grasp what they’re doing to generate revenue and profits.

Do you know what you’re investing in? Most people I meet don’t really know where to begin to answer that question. Even at the top level of stocks vs. bonds vs. cash, most people I meet are unaware of their asset allocation. Many have no idea what it “should be” for their stage of life and goals.

If you’re like me and don’t understand how Twitter makes money and why anyone would want to buy it, let that thought make you dig into what you really do own and invest in. I’ve heard the phrase “no one will care about your money more than you” used a lot recently. Take a few minutes over the next several days and figure out what your current asset allocation is and what you’d like it to be and then take a look at your current holdings to see if there are investments that might not fit with your goals.

This investment risk profile can help you determine where you might want to be from a top level asset allocation standpoint. To dig a layer deeper, here is a fairly technical article and a practical one as well to help you evaluate your investment holdings. Remember, you aren’t investing to own the “cool stuff.” You invest for one reason and one reason only: to make your money grow over time.

Are You Disheartened By This Election Season?

October 28, 2016

After watching all of the political debates, I am both disheartened and encouraged. As much as I am disheartened at this point, I’ve always been a big fan of finding reasons for hope and optimism. Don’t let obstacles outside of your control impact your life. Here’s why:

Stock markets rise. Stock markets fall. We know this (or we should).

Yet every time the stock market has a rough week, I field calls from nervous investors. People who see their 401(k) balance go down every day for a week or two tend to want answers. We talk with them about their long term goals and their current asset allocation. At times, they are invested in a way that is either way too aggressive for their stage of life and their goals and at other times (and fewer in frequency), they are invested more conservatively than their stage of life and goals would indicate is appropriate.

Most of the time, though, they are invested in a way that is perfectly suitable. In those cases, we talk about patience and allowing the market to do the rising and falling that it always does without getting too emotionally invested. They can’t control the markets, but they can control how they react to changes in the markets.

Similarly, whether the economy is great (remember when that used to happen?) or lousy or just muddling along like it has for the last 7-8 years, no one individual (not even Janet Yellen) can control the overall US economy. Even less control can be exerted over the global economy. The one thing that we can control to a large extent is our “personal economy.”

How much are you contributing to your 401(k)? How much are you saving in other accounts on a regular, automatic basis? What’s your level of spending in relation to your income? These are things we can totally control.

Those who examine their financial habits and lifestyle will find that their personal choices control a great deal of their financial life. The great thing about choices is that they aren’t permanent (kinda like elections) so if we’ve chosen to spend 102% of our income over the last few years, we can decide to spend less, move to lower cost housing, drive a lower cost car, cut the cable cord, etc. If we haven’t saved enough in our 401(k), we can increase our contribution every year. If we don’t have a solid emergency fund, we can direct deposit $5, $10, $20 or more to our savings account with each paycheck. The amount isn’t as important as the momentum.

So let’s use this season of disheartening political shenanigans to focus on our own personal economies and make progress on our goals. My challenge to you is to pick one area in your financial life, one where you DO have control, and before election day, make one change to your current habits. We can’t change the national economy, but we can change our own.

Don’t Let Open Enrollment Go to Waste

October 21, 2016

It seems like when I start hearing people talk about pumpkin spice lattes, open enrollment season is right around the corner. And in the last several weeks, I’ve talked to a lot of people going through the process of selecting benefits. Here are some quick thoughts regarding open enrollment that you may want to consider as you select your benefits:

Contribution rate escalator: This is a great time to sign up for the rate escalator feature of your 401(k). If you increase your contributions by 1% per year, you will be building ever increasing momentum toward a financially secure future.

Automatic re-balancing: While you’re in your 401(k) to enroll in the rate escalator, it makes sense to sign up for the re-balancing feature as well. There are lots of studies that indicate that re-balancing your portfolio can increase your rate of return anywhere from ¼% to 1% per year. I prefer it as a risk management tool, rather than a growth tool. By never allowing one asset class to run wild and dominate your portfolio, you stand a lower risk of getting devastated if the markets in that asset class collapse.

Life insurance: Most companies allow an increase of 1x salary without evidence of insurability. I’ve talked to a number of people who have developed some health issues that make purchasing life insurance either impossible or very cost prohibitive. It may take a number of years, but if you have any issues with securing life insurance, use every annual open enrollment to increase your company-sponsored insurance benefit by 1x salary.

Disability insurance: Disability insurance is, in my opinion, the single most important insurance coverage anyone can have. At each open enrollment, make sure that you have the absolute maximum disability insurance coverage allowed.

Pre-paid legal benefits. I’ve seen articles saying that between 50% and 75% of adults don’t have a will and advance healthcare directives in place. Pre-paid legal plans are becoming more common in benefits packages and for usually under $20/month, you can get coverage that would allow you to draft these important documents. If you sign up for one year and get your documents drafted, you will experience a tremendous return on the money spent for that benefit.

Your benefits are a key part of your total compensation. Open enrollment season is a great opportunity to make sure you’re taking advantage of them and getting your financial ducks in a row. Don’t waste it.

What’s Your Lifetime Medical Expense Plan?

October 14, 2016

I got a phone call from my daughter (senior in college) not too long ago, relatively late at night, asking me if I could text her a photo of my HSA card. I figured she was heading to the pharmacy to pick up some antibiotics for a sinus infection. But when I heard Nick & Danny (two of her roomies) screaming in the background to get towels and try to stop the bleeding, I learned that her calm exterior was masking something bigger. It turns out that she eventually needed a whole bunch of staples and some glue to close up the large gash in her leg acquired when opening a box with a large knife when she couldn’t find her small scissors. She’s back to walking normally now so the crisis is over and she’s back to her normal daily activities.

It’s amazing to me how many different bills can come in from one injury. There were bills from the hospital (supplies, etc.), the ER department, the physicians group who treated her and a few others that I’m sure I’ve forgotten. The incoming mail probably hasn’t come to a complete halt just yet.

While I have an emergency fund set aside for emergencies (what else would it be for?), in the heat of the moment, I wasn’t thinking “let me pull money from my emergency fund so that she can get treated at the hospital.” I was thinking “Holy ****! My daughter’s roomies are screaming and she’s got the calm “something’s wrong” demeanor. I need to get the hospital paid right now so that they see her.” So I used my health savings account card to pay for the trip to the hospital.

I deviated from the logic and reason that I use in my normal budgeting process. In the heat of the moment, I “messed up.” But the good news is that I had my health savings account there as a backup. That wasn’t consistent with my long term plan, but I’m not going to look back with any regret.

My long term plan with my HSA is to build a pool of $100,000 or more before I retire. I plan to make the maximum contribution every year, pay for medical expenses from either my checking account or my emergency fund (if it’s a big one) and invest the balance for growth. Once I retire, the HSA will be there to pay for medical expenses for the rest of my life…or at least a good portion of the rest of my life.

What’s your plan to pay for medical expenses for the next 20, 30, 40 years or more? I have an outline of what I plan to do. I encourage you to come up with your own personal “lifetime medical expenses” plan. Here are some ways that people have told me that they plan to pay for medical care:

Health savings account – that’s the one that I’m planning to use.
Emergency savings – building up a large emergency savings fund, well beyond the 3-6-9 months of expenses, is what several people have told me that they plan to do to pay for their healthcare in retirement.
Large income streams from Social Security, pension and investment accounts while minimizing expenses – that’s the game plan for a few folks I’ve talked to recently.
Moving to Costa Rica, Panama, or some other foreign country where healthcare quality is good but costs are significantly lower.

These are just a few of the many ways people have told me that they are planning to cover medical expenses over the rest of their lives. I’m sure there are others. What’s your plan?

What Are You Willing to Spend Money On?

October 07, 2016

As I write this, I’m surfing the web looking for my next “gym” to join. I use quotation marks because I most likely won’t join a traditional gym. I have a pretty functional gym in my basement where I can do all the strength training and cardio I care to do.

I’m looking at gyms that are a bit more specialized. One is a Brazilian Jiu-Jitsu gym, one is a MMA gym, one is an indoor rock climbing gym and one is an American Ninja Warrior obstacle course gym. I like to switch up my fitness routine periodically and take on new challenges. Worst case scenario, I try something new and either don’t like it as much as I think I will (that rarely happens) or I end up taking on a pretty tough physical challenge and end up with a battered body that requires either rest or surgery. (That happens more than I care to admit.)

I’ve noticed that with gyms, pricing is all over the place and it doesn’t make sense to me. Some of the places with longer hours and more diverse offerings are lower priced than some of the ones with more specialized offerings and fewer hours. That befuddles me. Lately though, I’ve been befuddled by more and more things as I go out and look around at ways to better spend money. Here are a few examples:

A new car: My son is driving now and not that long ago, he, my ex-wife and I all chipped in some cash for him to be able to buy his first car. Within our budget, he and I did a pretty thorough search of a few car search engines and narrowed the field down. We saw a huge disparity in the years and mileage of vehicles.

The beautiful part about shopping for cars online is that you can sort in various ways. We sorted by newest, we sorted by lowest mileage and we sorted by lowest price. Eventually, we found the right combination in a car that he absolutely loves.

Cell phone plans: Do I need to say any more than that? With several iPhones on my plan, pricing with various carriers is a complete hodgepodge of choices. Minutes, data, texts, price of new devices, contract length (or not) — there are a lot of variables that make picking the right plan a bit complex.

“Cutting the cord” television plans: I’ve been contemplating being a “cord cutter,” but as a self-avowed sports and news junkie, I’m having trouble finding a combination that gives me what I want at a price that makes giving up what I currently have feel worth it.

What’s my point in talking about these different products/services? A lot of financial blogs and articles and “experts” will talk about how to cut costs and save a few bucks on various products and services. I’m not a big believer that the lowest price is always the best thing though.

When looking for ways to save money, make sure that you aren’t doing yourself a disservice. Do you REALLY want to drive a car on a bridge built by the lowest bidder? Do you want the lowest cost heart surgeon to operate on your loved ones?

Figure out which of the many variables in the pricing decision is the most important to you. I rank the features from most important to least important and focus my search on the top two or three variables. With the TV, it’s having an ample supply of news and sports channels. It’s not just about cost. That’s how I stay current with what’s going on in the world and with my favorite teams.

For cell phones, it’s about having enough data for my kids and I to do our work, school and fun stuff without needing to worry if we are exceeding our limits. With us often being in different cities (me on the road for work, my daughter away at college, and my sons at home), our data usage is how we all connect at various times. With cars, here is my thought process.

Take a look at your monthly expenses. See which ones you want to take a look at replacing with a lower priced option. Then determine the top two or three variables and go out to make a decision that best fits your lifestyle and your budget.

Do You Really Need to Spend That Much on Entertainment?

September 30, 2016

As the baseball season winds down, and my beloved Baltimore Orioles are in a downward spiral and may fall out of playoff contention, the big story on local sports radio is about the lack of attendance at Orioles games in the midst of a playoff race. When Oriole Park at Camden Yards (the best ballpark in the country in my opinion) opened 20+ years ago, it was sold out every night. 14 years of losing baseball, as well as some questionable business practices, drove attendance down over the years.

Several seasons ago, the O’s made it to the playoffs for the first time since the late 90’s, and the town went nuts. It was tough to get a ticket at the end of the year, and playoff tickets were being sold on the secondary market for outrageous sums of money. This year, I’m almost embarrassed to say that I haven’t made it to a game yet, and tickets are available on the secondary market for next to nothing. My kids haven’t expressed interest this season. Friends that I normally go with haven’t been all that enthusiastic.

It’s weird. If I don’t go in the next week or two, I will go a whole season without going to a game. That may not have happened since I was 2 or 3 years old, and I’m questioning why I haven’t. It hasn’t bugged me until today. That’s an answer that I’ll wrestle with on my own, and as I write this, I’m checking the O’s home schedule and sending a message to friends to make sure we at least get to one game.

While I wrestle with this question, it also raises the larger issue of how I spend my entertainment dollars. Along with the cost of housing, cars and food, entertainment is one of the big line items in most family budgets. Vacations, cable TV, movies, sports tickets, concerts, shopping, going out for dinner – there are a lot of dollars being spent on entertaining ourselves. When we are having a tough time making ends meet, the entertainment budget is usually the first to go. When it doesn’t, credit card bills can mount.

Most of the people I’ve talked to who are in deep credit card debt will tell me that they spent the money on “stupid stuff” (their words, not mine). A lot of times, it was because times were tough, and they felt that all they did was work, so they wanted to “reward themselves” with a little bit of fun. That fun usually ended up on a credit card, and a $100 expense turned into a $300 payoff amount after many months of minimum payments and high interest rates.

Here’s my challenge to you: Take a look at how much money you’ve spent on entertainment over the last 3-6 months. Are there ways you could have just as much fun while spending less? Hikes, bike rides on local trails, and a kayak rental at a local lake are all very low cost ways I’ve replaced my fairly expensive baseball habit. Rather than eating stadium nachos (now I’m hungry!) and drinking expensive yet lousy beer, I’ve been sweating and spending way less money while drinking water and eating protein bars.

If I can do it, you can too. Find one habit/entertainment source where you think you might spend more than you’d like. Pick a fun and free (or close to free) activity to replace the more expensive one. Spend the next 30, 60 or 90 days re-configuring your entertainment habits. I have a hunch you’ll find the change of pace enjoyable, and you might even be able to REALLY reward yourself in the long run.

Where Would You Keep Something Very Valuable?

September 23, 2016

I saw the play Wait Until Dark last night, and it was very entertaining. I have not seen the old movie with Audrey Hepburn, so I wasn’t sure how it ended. As a result, my son and I jumped and were shocked by what was happening on the stage during a pivotal scene at the end of the play. While decompressing over a beverage in the theater afterwards, we were laughing at ourselves (and being laughed at by our dates) for not seeing the “jump scare” coming. But we are much bigger fans of comedies and dramas than we are of thrillers.

In the play, a key part of the plot was a frantic search for a doll. The doll’s contents were worth killing a few people over. The whole play was about the lengths various people would go to in order to retrieve the contents of the doll. That raised the question after the play – “if you had a physical object that was incredibly valuable, where would you keep it and why?” I’ve raised that issue with some friends, and here are some of the responses I’ve gotten:

A safe deposit box at the bank

Why? It’s safe and only I would have the key.

Drawback: One downside is that if the valuable thing were something thing that I’d want to see (like jewelry or art), that would be a lousy place for it.

A safe bolted to my basement floor

Why? It’s here at home, and I don’t have to operate on bank hours if I need it. I can also buy it one time and not have to pay a bank an annual fee. If the safe is big enough, I can put way more stuff in it than I could ever put in a safe deposit box at the bank.

Drawback: The price of safes is high, and there’s some serious labor involved to properly bolt it into a concrete floor. It’s also not ideal if you are renting, living in a tiny house or a boat or have very limited storage space.

Keep it at home and simply insure it.

Why? The real risk of theft is statistically very small. I’ll keep the valuables around so that I know where they are and they add to my quality of life. For art, I want to see it. For jewelry, I want to wear it.

Drawback: There is a risk of theft or vandalism or natural disasters (floods, hurricanes, tornadoes, etc) as well as the cost of the insurance to cover the loss.

All of my valuables are on paper, so I scan them and store them in my external drive with a password protected backup in “the cloud.”

Why? Why not?

Drawback: My kids and I have become fans of the show Mr. Robot, which has NOTHING to do with a robot but everything to do with the world of hacking. Anything that is online is at risk of being compromised. If you doubt that, ask Debbie Wasserman Schultz or Hillary Clinton or Colin Powell about their online security!

For the things in your life that you consider valuable or irreplaceable, do you have a plan or, like me, do you have a scattershot approach to this and have a few things secured and a few things unsecured and other things that you put somewhere and just have to remember where so that you can figure out what your game plan is for them? My personal goal, spurred on by the play, is to have a coherent plan for my valuables and have that plan implemented by this Halloween. If I don’t put a date on it, it won’t happen.

So, what’s your plan? What’s your deadline? If you don’t have answers to those questions, spend the next 5 minutes writing down what’s valuable/irreplaceable in your life and develop your plan, complete with a deadline. Then get busy implementing it!

How to Be Better With Money

September 16, 2016

The NFL season is underway, and I’ve seen more purple in Baltimore recently than I have in months. Everywhere I go, I’m seeing enthusiastic fans getting ready for the upcoming season. Before the first game of the season, fans of every team believe that THIS is the year that their team is going to win the Super Bowl. 31 of 32 fan bases will ultimately be disappointed. But at this time of year, hope springs eternal everywhere (except maybe Cleveland!)

I see the same “Let’s Get Started” level of enthusiasm from people who tell me that they have been a bit of a mess financially in the past but are ready to make progress now. I’ve heard countless people say “I’m bad with money” or “I have no clue what I’m doing financially.” I refuse to believe that they can’t, in a few quick and easy steps, develop lifelong habits that will take them to a place of financial security. I refuse to allow them to speak poorly of their financial habits.

I ask if they have ever played an instrument or a sport or any type of art. Almost everyone has tried something like that at some point in their life. I ask them to go back to their very first day of playing the clarinet or saxophone or whatever it is, and they laugh at just how terrible they were on that first day.

After I get them to talk about how they went from horrific to actually having a clue about what they’re doing, they understand that managing money is merely a skill that they haven’t practiced yet, and today is day 1 of their new talent coming to the surface. At that point, there is an enthusiasm that tells me they are ready. When I see and hear that level of enthusiasm, I know that they are serious about making progress.

The secret to building a foundation of financial success is keeping things simple and automating as much of it as possible. With automation, simplicity and just a little bit of work, managing your personal finances is rather easy. Here are some steps to take:

Step 1: Get some basic facts together so that you have a starting point.

This financial organizer will help you see the aerial overview of your financial life on one page. What do you own vs. what do you owe?
This expense tracker can help you see how much money comes in during the month and how much goes out. With these two worksheets, you have a lot of useful data, and if you update these quarterly, you will start to see progress.

Step 2: Automate things.

Contribute to your 401(k) at an amount at least up to the company match. Then, enroll in the rate escalator feature to increase your contribution by 1% annually – either on 1/1 or on your anniversary or your birthday. Just pick a day and enroll in it.
Open a savings account at a credit union or online bank, one that is NOT where your checking account is and get a direct deposit going there. The amount isn’t important. A $5, $10, or $20/pay deposit will suffice. It’s the momentum that’s important and the speed bump! When you have your savings account at the same bank as your checking account, it’s way too easy to log in and slide money from one account to the other.
A great tool for “accidental savings” is the Acorns phone app. It rounds your transactions up to the next dollar (so if pay $1.86 for a coffee, it adds $.14 and slides it over to Acorns, where you can invest in a very conservative portfolio). I “accidentally saved” a couple thousand dollars that were used as a part of my down payment on the house I just bought.

Step 3: Stay alert and updated.

For your credit score, CreditKarma.com and CreditSesame.com are great free tools to stay on top of any changes in your credit file.
AnnualCreditReport.com allows you to get a copy of your credit reports at no cost once/year. Make sure that everything there is actually yours!
Mint.com can show you on a daily basis all of the transactions in all of your accounts from the prior day. (I launch that app from my phone every morning while I’m still half asleep and before I hop out of bed.) This is a great way to make sure that no one is accessing your accounts without your knowledge.
The financial organizer and expense tracker above are excellent tracking tools. Keep a binder full of reports that you can look back on in the future to see where you started and where you are. You’ll be shocked at the progress, and when you see it, you’ll want more of it.

For anyone who has ever said “I’m lousy with money,” I say “You are no longer allowed to say that! EVER!!!” Your new phrase is “I’m always learning to be better with my money.” With that new phrase and these tools, you can transform your financial life in relatively short order.

Don’t Get Blamed For What You Didn’t Do

September 09, 2016

Lately, I’ve become addicted to podcasts. It seems like I always have my headphones on or my Bluetooth speaker going (when no one else is at home) and there’s either a crime, financial or MMA podcast playing. It all started with Serial Podcast and continued with Undisclosed and then Serial Dynasty (later re-named “Truth and Justice”). All of those podcasts started with the Adnan Syed case, when he was convicted of murdering his ex-girlfriend, Hae Min Lee, in Baltimore back in 1999.

As a Baltimore resident, I ever so vaguely recalled that case, but the podcasts took the listeners deep into the details of every aspect of the crime, the trial and everything that’s happened since. The latest news is that Adnan is getting a new trial because it appears to me and the legions of listeners that he did not commit the crime. And one of the major players (Rabia Chaudry) has written a book, and I’m taking my daughter to her book signing in a few days!

All of the podcasts have moved on to other cases, and I’m still listening to all of them in Season 2 or 3 now. The fact that it started with a local case made me dig into all the details a bit more than I might have otherwise. Most of the podcasts deal with someone who is wrongfully imprisoned…or thought to be wrongly imprisoned. I can’t imagine spending 15 or 20 years in prison for a crime I didn’t commit like some of the people profiled in these podcasts. I’m not sure how one finds the strength to carry on with life and not just wallow in despair in situations like these.

While it may not be as dramatic as being in prison for a crime you didn’t commit, there is a serious chance that something in your credit history will be from a situation where you weren’t even remotely involved. This could be something as simple as an address being on your credit report for a place you’ve never lived or as sinister as a full scale premeditated identity theft. Regardless of where it is on that scale, there are some things you can do on a regular basis to either prevent or minimize the impact of incorrect data impacting your credit report, credit score or quality of life.

Check your credit reports on a regular basis. Through annualcreditreport.com, you can get one free copy of your credit report from Experian, Equifax and TransUnion. If you order Experian in January, Equifax in May and TransUnion in September, you’ll never be more than 4 months away from your next new credit report. When you get your credit report, make sure that all addresses listed are accurate and all accounts and any other names are actually yours. With my name, I almost ALWAYS have 3 or 4 “other Michael Smith” data on my reports so I have to correct my credit report a few times per year.

Stay on top of your credit score. Two great sites that I use, each with an app for smartphones, are Credit Karma and Credit Sesame. Each service (and both are free) will alert you when your credit score changes or if information on your credit report changes.

Recently, I applied for a mortgage in the morning, and I got an alert from Credit Sesame in the afternoon. It was lightning fast! Imagine if someone, not me, had applied for a mortgage in my name in a premeditated identity theft. I would have known well before the theft was fully in place and devastating to my life.

Shred your personal data! When you get a new debit card/credit card, shred the old one. When you get bank or 401(k) statements in the mail, either store them for a few years or scan into a PDF file and shred them. It’s an indictment on where we are are a society that we have to think about stuff like this today, but it’s where we are. Anything that would help a hacker hurt you should be shredded and destroyed before anyone can use it against you.

So if you find yourself in jail for a crime you didn’t commit, start a podcast, and I’ll listen. But if you happen to find yourself not incarcerated wrongfully, protect your identity! As they say, you’re better safe than sorry.

My Advice to Recent College Grads

August 26, 2016

At one of our client sites, I was able to meet with about a dozen new hires, all of whom are very recent college graduates. They are starting their first “real jobs” and want to get their financial lives off on the right foot. During training, it was suggested that they sign up for a one-on-one financial coaching session, and many of them took HR up on that suggestion.

I had a blast during those sessions because most of the kids (yeah, I’ll call them that because I have a daughter roughly the same age) who came in said that they had no idea how to handle their new income. They were fine while in college, working summer jobs or some part-time jobs during school for spending money. But being out in the real world, with real responsibilities like bills to pay and student loans coming out of deferral, was a wee bit scary for many of them.

While they all had different incomes and amounts of student loan debt, there was a lot of common ground with this group. My daughter is only a year behind them, so I can already see the conversation we are going to have next summer when she lands her first job. In that discussion, I’ll ask her to do a few of the things that came up in the sessions last week. For recent college graduates or anyone looking to get their financial life started on the right track, here are some principles and tools that I think can help build the foundation of the financial life that should lead to long term financial security.

Spend less than you make and know where your money goes.

Mint is a great free tool to track spending. With the alerts feature, get a text message when you hit your monthly budget for one or two “hot spots“ in your budget (where you think you might overspend). The Mint app on my phone is how I start almost every morning. You can also go old school Excel with this Expense Tracker. However you do it, understand where your money is going and make sure that you spend less than you make.

Automate your savings.

Make sure that you are contributing to your 401(k) in an amount that is equal to or greater than your employer’s match. If possible, get your contribution plus the match to be 15-20% of your compensation. If you can’t do that right away, enroll in the rate escalator feature of your 401(k) or make it a habit to increase your contribution by 1% every time you get a pay increase.

Set up a savings account in a bank or credit union that isn’t your primary bank. The goal is to create a speed bump between you and your money so that the savings grow all the time. Once the account is set up, get a direct deposit (something small like $10, $20, or $50 per pay so that it’s not a burden) going into that account with each paycheck. That’s going to be your long term emergency fund and perhaps the down payment on your first house.

Always know your credit score.

No one should ever have to pay for their credit score. That’s a sentence that I firmly believe. The good news is that with free services offered by Credit Karma and CreditSesame , you can track your credit score and see your credit reports at any time. (Checking your own score is NOT going to count as an inquiry and have a negative impact on your score.) Both sites also have great alerts, phone apps and tips for how you can increase your credit score over time.

Pay down debt rapidly. Debt is NOT your friend.

Use this Debt Inventory to keep a record of who you owe and how much. Enter your current debts and save it as “August 2016” debt. Then when you get your next batch of statements, update the sheet and save as “Sept 2016.” Update until they are at $0. Print them out so that you can track the progress you’re making on a monthly basis.

Pay only the minimum on all debts except the one with the highest rate of interest. Circle that one with a red pen and consider it your enemy. Throw every ounce of financial energy you have into eliminating that debt. When it’s gone, lather – rinse – repeat.

As the foundation of a long term secure financial future, these steps will help get you to a place where you’re never really worried about money. While they look very simple (because they ARE!), most people that I meet with are not doing these very basic steps. If you start your career with them, you will get your financial life well ahead of most of America and of your peer group.

Build Your Own Financial Olympic Team

August 19, 2016

As I write this, Michael Phelps is about to hop into the pool in search of his last Olympic gold medal. He has one race left in this Olympics and has been as dominant in this Olympiad as he was 8 years ago. Throw in Katie Ledecky who has been smoking the field in her races, Chase Kalisz and Jack Conger (other Maryland Olympians who have medaled) and my home state has more Olympic medals than every country except the USA right now.

If Maryland were a country, we’d be #3 in the world in Olympic gold medals. That’s astounding that so much talent is concentrated in one area. I hardly think it’s coincidence. Kids here grew up wanting to be Anita Nall or Beth Botsford or Whitney Phelps or Michael Phelps, hometown kids who made the Olympic team and came home and encouraged others to work hard and follow their dreams, and some dedicated kids and parents put in the work required to continue the tradition.

Lots of talent, all in one place, performing at a high level – that sounds a lot like the team I’m a part of at Financial Finesse and the team I try to help people build in their personal financial lives. One person can’t know everything about the world of personal finances, so as I work with people to improve their financial lives, I want them to view the people in their “financial family” as Olympic-level advisors. If they can’t imagine the people around them as high-level performers, then maybe it’s time to find a new financial team! Here are some of the positions you should have on your high-performing financial team:

Primary care physician: I can hear the “What??? A doctor isn’t a part of a financial team!” thoughts going through your head. But if you’ve talked to as many people as I’ve talked to who are in financial distress because of serious medical bills, you might see your physician as a key to preventing financial disaster down the road. As a guy, I am not always the best at getting myself into the doctor’s office on as regular a schedule as I perhaps should. So I have people in my life who periodically remind me to take care of myself. Focusing on your health and having a relationship with your physician where you can ask questions, challenge “conventional wisdom” and manage your health in a way that works for you is a key step, and the physician is a critical part of your financial team.

Insurance advisors: This doesn’t have to be an insurance salesperson but someone (or someones) who understands the importance of insurance coverage. Auto insurance – what coverage matters? How high can a deductible be and still be effective? What factors drive pricing?

Life insurance – for your life, is term or permanent better? Why? How much should you have?

Health insurance – which plan is appropriate for you and should you have a health savings account compatible plan? Long term care – is it appropriate, and what factors drive pricing? This is just a small sampling of the types of questions your insurance advisors should be able to guide you toward answering.

Investment coaches: This can be a financial advisor who manages your money, a financial planner you hire on an hourly basis, or a friend or family member who knows their stuff and will put your interests first. While most people who discuss investments want to talk about which stocks are going to be amazing, that is not the most important investment conversation to have. The big driver of your overall investment picture is the very boring question: What percentage of your portfolio is in stocks vs. bonds vs. cash?

For those who were all cash in 2008, they earned a positive return of around 1% when those who were 100% invested in stocks lost about 40%. Top line asset allocation matters! If you can work with your investment coach, whoever that is, to be sure that your asset allocation is in line with your goals (here’s a quick risk profile for you), you will be better off than most of the individuals I meet who have no clue what their overall asset allocation is.

Estate planning attorney: For your estate plan, I’m a big fan of working with an attorney who specializes in trusts and estates. Even if you don’t have a large estate, it still makes sense. In fact, I recently wrote a blog post about why I left my estate planning to a professional, so I’ll let you read that rather than restating the case here.

If you put together your Olympic financial team and work with them on a regular basis, I’d give you greater odds of becoming and/or staying financially secure for the rest of your life than if you opt for a 100% do-it-yourself model. After all, few of us are Olympians in all areas of our financial lives. As I get older, I’m learning that sometimes it’s not just okay but preferable to ask for some help in an area where you don’t feel like your knowledge level is where it should be.

Why I Do What I Do

August 12, 2016

As my kids and friends are far too familiar with, I’m a bit of a news and political junkie. That’s why it’s so surprising to everyone I’ve shared this with that I didn’t watch a single minute of either the Republican or Democrat conventions this year. I saw some “highlights” the next day on the news and heard people talking about highs and lows from each convention (depending on which side of the aisle they most consider their political home). I just couldn’t do it this year.

So many people that I talk with (and judging by the scroll on my Facebook home page, most of America) will be upset with our next President regardless of who wins. Both candidates from the major parties have greater than 50% negative ratings. A recent poll had Clinton disliked by 55% of voters and Trump disliked by 63% so either way we slice it, over half of the country will be unhappy on the day after Election Day. The overwhelming sentiment on my Facebook scroll is “THIS is the best we can do???”

One of the other areas of life where there is overwhelming agreement that we need to do better is in the world of banking and financial services. There is a lot of distrust of the big banks. Wall Street is unpopular with Main Street and criminals like Bernie Madoff give the financial advisory world a big fat black eye. When I look at the world through the political lens right now or through the lens of how most of America feels about the overall financial industry (painting with a very broad brush here), it’s easy to feel like there isn’t much positive to hang on to. But then I get up every morning and do what I do for a living, and my soul gets restored. Here’s why:

I’ve spent the last 3 weeks on the road and have spent only a sparse few nights in my own bed in the month of July. I’ve been at our client company sites and at our home office in California for some internal meetings on how we can do what we do better. While the travel and hotel beds had me a bit out of my workout rhythm, I’ve been able to meet dozens of individuals in one-on-one settings at their employer and talk about their lives.

I wasn’t there to sell them anything, manage their money, or offer them a loan. I was there simply to talk to them, hear their story and suggest a few ways that they can get closer to their goals. Some have been in great shape financially, others on the verge of disaster. But the thread that weaves them all together is that they were all in search of progress.

In the last several weeks, I’ve heard about engagements that are about to happen (before the future fiancée is in the loop!) and have recently happened, weddings, births, job changes, promotions, significant pay increases, and happy retirement decisions. I’ve also heard about massive credit card debt, huge student loan burdens, ugly divorces, and layoffs. It’s been a time of highs and lows emotionally.

Regardless of the issue, it appeared to me that each person I met was truly happy that their employer offered a financial wellness benefit. The feedback I’ve gotten via email has made me realize how much they valued a person who was there to help them and not sell them anything. It’s also made me realize that I am doing exactly what I was meant to do. The ability to help people, see them change their lives for the better and be there along the way to coach them as they hit speed bumps is about as close to perfection in a role that I’ll ever find.

I usually like to close out a blog post with a bit of a financial lesson, so I’ll give you this: At different times in our lives, we are going to need help. Knowing where to go for that help before it’s a crisis situation can be incredibly valuable.

Line up your experts and trusted advisors now. If you don’t have access to a financial wellness program at your employer, ask them to investigate one. If you don’t have someone that you can trust to help you reach your goals and coach you along the way without their interests coming before yours, ask your family, friends and colleagues if they do. You can also search for a financial advisor through the CFP(R) Board, and here are some questions you can ask any prospective planner. Most importantly, find someone who loves what they do for the right reasons.

If It Sounds Too Good to Be True…

August 05, 2016

The Consumer Federation of America (CFA) and the North American Consumer Protection Investigators released a study based on complaints to local consumer organizations. This article discusses the top 10 categories of complaints. At number 10 is “Scams.” To quote the article, here are some of the top scams:

Tech support: A caller claiming to be with a well-known company such as Microsoft seeks access to your computer, warning you will lose files or suffer other harm if you don’t allow it.
The grandparent scam: A “grandchild” calls an older person, claiming to need quick cash for an emergency in another state or country.
CEO email: An email that appears to be from your company CEO asks employees to wire money to a foreign supplier for a deal that needs to close immediately — promising you’ll be reimbursed, of course.
IRS scam: A caller “from the IRS” wants money you owe, now, often in the form of a prepaid card (iTunes gift cards are also being used this way). The caller may warn that you’ll have to pay even more or that law enforcement officers will come to your home if you don’t comply.
Tax ID theft: In this case, the scammer poses as you and scoops up your tax refund. In many cases, taxpayers don’t find out about it until they can’t file their tax returns because someone beat them to it.

The common thread in these scams is that the scammer preys upon one of two emotions – fear or greed. By either promising something for free or using fear and pressure, the scammer hopes to use your emotions against you and in his favor. I’ve talked to quite a number of people who have fallen victim to a scam and have seen the financial distress that it caused.

For example, one of my friends has been out searching for a new job recently, and he was telling me about an offer he received from a company. They were offering a much higher salary than other companies he had interviewed with recently and definitely made him feel special throughout the interview process. It was almost as if they were telling him exactly what he wanted to hear. They offered him a role, and he was strongly considering accepting it, but there was a nagging little voice in his head that said something didn’t add up. He was contacted by a recruiter and hadn’t known much about this firm other than what they told him.

So we broke out the laptop and started doing some research. What we found was not spectacular. The leaders of the organization had a very checkered past, and while they treated their employees well, their customers were overcharged and charged for services never performed (at least in prior companies). He politely declined their offer, but he nearly accepted it because they used his emotions against him. It was the same modus operandi of the scams but with a different end goal.

If confronted with a situation like these scams, don’t ever give personal identifying information to anyone over the phone. Take a deep breath and a mental step backwards. Break out Google and do some research. Call your local consumer protection agency to see if others have reported scams.

As you go through your life and engage in potential transactions either as a consumer or a potential employee, remember to try to strip emotions from the deal (if it’s significant) and don’t allow anyone to manipulate your emotions against you. No one will be or should be as protective over your money as you. And remember the old phrase, “if it sounds too good to be true, it probably is.”

Are You Taking Good Things Too Far?

July 29, 2016

The latest craze that has swept my family is the Pokémon Go app. My kids run around trying to “catch” Pokémon at different locations. I’m happy they are outside and active, but I have to admit that I don’t have the foggiest idea why they consider this even remotely fun. They walk around and occasionally ask me to take them to a nearby neighborhood so that they can catch these things. (I use “catch” liberally because it’s all virtual, with no one really catching anything.)

They can catch their Pokémon thingies while I sit at an outdoor table at a local coffee shop. I find it a little strange, and in a horrible twist to this silly game, criminals are now setting up shop near Pokémon characters and robbing unsuspecting game players. What started as a fun thing has turned into a fun thing that needs to be used with caution because of some unanticipated consequences. A lot of things that start out as a purely positive have some unintended consequences that create some negativity.

I’ve seen that with a few people recently. I’ve had two meetings with people who are doing a wonderful job of saving for retirement. They ran retirement projections and learned that they needed to pick up the pace as it relates to saving for retirement. They cranked their contribution percentage WAY up so that they could catch up to where they think they should be. That is 100% admirable, and they are operating with the best of intentions.

Their unintended consequences? Both of them are saving so aggressively in their 401(k) that they are struggling with day-to-day cash flow. One is depleting his savings account on a monthly basis just to cover basic living expenses, and the other is using a credit card for groceries in the last few days before her paydays. A noble effort to save for retirement has taken a somewhat sinister turn in these examples, and I’ve had to have a few “I applaud your effort, but maybe it’s one step too far….” conversations.

The good news is that they realized that they may have gone a bit too far, and when we talked about bringing the 401(k) contributions down just a bit in order to make day-to-day cash flow a bit more manageable, they were completely receptive. In each conversation, we had a nice laugh at how some good things can be taken too far. (If you don’t believe that, see how many chocolate chip cookies you can eat before you start to feel like it’s been one too many.)

The lesson here for all of us is that after a few cookies, it makes sense to stop and catch your breath. The other lesson is that some great financial behaviors can be taken to an extreme. Are you saving so much for retirement that you aren’t able to enjoy the here and now? I’ve heard so many stories about people depriving themselves of life experiences in order to save for retirement, only to die just prior to retiring. Are you spending so much in the here and now and enjoying life experiences that you are woefully behind the curve for your retirement goals?

Neither is a good place to be. What’s the old phrase? ”In all things, moderation.”

Even good financial behaviors should be used in moderation! If you’re wondering if you’re taking something just a bit too far, chances are that you are. Whether you ask a financial professional or just hit our Facebook page and ask, get another perspective on your situation to make sure that you have all of the moving parts in your financial life working together.

Anatomy of an Investment Mistake

July 22, 2016

I saw an email from a soon-to-be-retired employee recently, saying that he thought that he made an investing mistake and was looking for some help in correcting it. Here’s the mistake he made. When the stock market tumbled for a couple days because of the British exit from the E.U. (Brexit), he jumped out of the stock market. He moved his portfolio from 60% stocks/40% bonds and cash to 100% stable value because he was afraid the market would continue to drop like it did in 2008.

Well, after two days of going down, the market went back up and within two weeks, it was higher than it was the day before Brexit. The question he asked was “When should we get back in: when it drops to the level when we got out or lower?” There are a few flaws in his thought process.

Issue #1: Selling (or buying for that matter) based on emotions and news events usually ends poorly. In not too distant memory, we have seen the dot-com bubble burst, 9/11, Enron, the housing market collapse, the stock market collapse of ’08 and an economy that is 7+ years into one of the most lackluster recoveries ever, and the stock market is near all time highs! Markets go up. Markets go down. But over time, there has historically been an uptrend given enough time.

One of the things I tell people when they are worried about how the market will respond to a news event is “emotions are the enemy of good decision making.” Yeah, it’s not inspirational. It doesn’t rhyme, and it’s not all that compelling as a standalone statement. But it’s true, and I’ve seen it have horrible consequences for people time and time again.

If you are thinking about changing your investment mix based on a news event, don’t! Go take a nice walk, turn off the TV, play your favorite tunes and let some time pass. Markets overreact…in both directions. If there is a huge sell-off on Monday, chances are that logic and reason will come back into the market, and there will be a few up days after a massive sell off.

Cool your jets and maintain your long term asset allocation. Talk with a financial professional if you have one in your life. Don’t let your emotions be the enemy of your decision making process.

Issue #2: In his question, he assumes that the market will, one of these days, be lower than when they sold off the stock portion of their accounts. It may never be that low again. People who sold in ’08 and wanted to buy back in when the market got that low again are still sitting around waiting for that to happen. Their wait may be eternal (or not).

The logical flaw in this argument is a lot like the “sunk cost fallacy.” You’ve already made the sell decision and are now tied to the results of that decision emotionally. Looking into the rear view mirror isn’t helpful in this case. Look forward. It’s a difficult skill to apply, but don’t allow yourself to fall into the sunk cost fallacy.

Issue #3: The reason he sold off a big chunk of his 401(k) and went to stable value is that he is considering retirement in the not too distant future. It makes sense to want to be more conservative in that case but it’s too drastic of a change. If he had been considering retirement for some time now, maybe a few years ago would have been an appropriate time to start making small changes to his long term asset allocation.

For instance, I meet annually with someone who has a retirement goal of 12-15 years. She was 100% stocks and 0% bonds and cash when we first met 5-6 years ago. Rather than selling her existing holdings, she changed her future 401(k) contributions to 75% bonds/cash and 25% stocks. She recently moved future contributions to 100% bonds/cash, and when she hears that the stock market hits a new high, she moves 1% of her account to stable value. Her goal is to be at 50% stocks, 50% bonds/cash at and during retirement.

Do you know your long term asset allocation preferences? Do you have a plan in place to shift from where you are now to where you want to be when you’re 98 years old? Review your asset allocation today, see if it’s consistent with your investment risk tolerance and then develop a plan to get from point A to point B over the course of time. Remain patient and don’t let emotions get in the way.

Over the course of time, we all make mistakes. I have, you have, and the odds are high that we’ll make even more in the future. But some mistakes are preventable, and we can hopefully learn from the mistakes of others so that we don’t make them as well. If you can remain emotionally detached from your investments when bad news is happening, avoid the sunk cost fallacy and have a clear vision about your long term investment strategy (and stick to it), you will put yourself in a great position for long term financial success.