Hiding Purchases From Your Husband is So 1950

March 29, 2017

When I was a little girl, I remember my great aunt sending my mom money with a note that simply said, “Please don’t send a thank you note. I don’t want my husband to know.” My great uncle was a bit of a curmudgeon and my aunt would have suffered for her generosity. I also remember my grandmother taking me shopping for back-to-school clothes but telling me to leave everything in the car when we went back to her house so my grandpa wouldn’t know she was spending money. Sound familiar?

A lot of us grew up with this example and continue to exhibit similar behavior in our lives today. Have you ever rushed to put purchases away in the closet before your husband could see or stuffed your Lululemon purchases into your purse before walking into the house to avoid a potential fight about overspending on perceived wants versus needs? How about hiding a Target splurge on stuff for your kids?

While these actions may have been slightly justified back in our grandma’s day, these are all examples of financial infidelity. Just like if you were deleting texts between you and a male coworker to avoid a fight with your husband, hiding purchases from him is the same behavior. It’s a violation of trust. What do you really have to hide?

Back then, women didn’t have as many choices when it came to careers and having their own money or even sometimes in choosing a life partner. I will never forget the day I nervously broke the news that my first marriage was ending to my grandmother. Her response surprised me.

She said, “Good for you. You will do just fine. If I’d had a career and options like you, neither one of my marriages would have lasted.” And while I didn’t relish the thought of anyone I love feeling “stuck” with someone else I love, I understood what she meant and she was right. The big difference between back when my grandmother had to sneak spending behind my grandpa’s back and today is that if you find yourself in a marriage where you truly don’t have economic power, you have the choice to work it out or leave.

I’m not saying you shouldn’t have the autonomy to make your own purchasing decisions – quite the opposite. You may never get on the same page with your spouse about the value of spending on certain things like clothes or wine or electronics or name the thing that causes money fights in your marriage. But there are ways to solve that without hiding purchases such as having separate spending accounts where you agree that you each can do whatever you want with that money with no judgment and no arguing. The kicker is that you both have to stick to the agreement where you only spend that money and not other money that’s allocated towards your family’s goals.

It may be a challenge to arrive at an amount you both agree on for your spending money. When a spender marries a saver, the saver will always want to spend less, but there are logical ways to arrive at that number. Start with your shared goals like retirement, paying off debt, saving for college, etc. Assign a number to those goals and calculate what it will take to get there and agree together whether that amount is reasonable or if you need to modify the goal. Getting on the same page about this helps you both feel responsible for your part in achieving that goal and should help the saver partner relax a little bit about spending on things they don’t perceive as necessary.

Kelley Long is a resident financial planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.

Why and How to Have Weekly Money Talks

March 28, 2017

When I first got married, money talks in my home looked something like this: I brought out my spreadsheet and the four other programs I was working on to have a financial summit with my husband. He mentally tuned out the second he saw the first version of the budget and was in another place (I suspect it was at a college football game) by the time the meeting was over. Over the years, I learned to simplify my budgets and my husband brought both his mind and body to the meeting. My colleague Steve offers great insight into how to make couple money meetings work that I wish I knew from the beginning:

I have a confession to make. For over a decade in my professional career, I was the pot calling the kettle black. Almost 20 years ago, I followed the advice of a fellow CFP® professional and started advising clients to schedule a weekly 30 minute money meeting to focus on their finances, but I wasn’t doing these myself. Then about 7 years ago, I started having those meetings with my spouse and guess what? They work.

The basic idea is this. Many of us can go a month or longer and not spend any time thinking about our investments or whether we are spending our money on what is important to us instead of where we have always spent it. We pay our bills but don’t think about our spending plan.

On a side note, I hate the word “budget.” It sounds like “diet” to me. They both are limiting and negative.

A friend of mine told me “Steve, you’re a financial planner. Don’t think of it as a diet. Think of it as an eating plan.”

That works for me. I don’t think of my spending as a budget. I think of it as a spending plan.

The ideal time to have a conversation about money is not when you’re late for work, trying to get the kids off to school and have a deadline that is consuming all of your mental energy – been there done that. The Weekly 30 Minute Money Meeting can either be with yourself or with your partner. The rules are the same:

1.You cannot change the past. It is a waste of time to argue about or beat yourself up about things that have already happened. Learn from your mistakes (we have all made them) so you don’t repeat them in the future.

2. Be thoughtful and focus on the future. With my eating plan, if I choose to have a 1,500 calorie breakfast (which is delicious), I’d better plan on eating a lot of salad with little dressing for the rest of the day. If I choose to spend my future paychecks now (think credit cards), I’d better plan on not spending any other money.

3. Hold yourself accountable. Notice I didn’t say hold your partner accountable. We are adults and need to hold ourselves accountable. If you make a mistake, own it and try hard not to repeat it.

4. Schedule the meetings when your energy is high. I am an early morning person. I wake up at 5:30 am every day no matter the time zone or if it’s a weekend.

The ideal time for me would be 6:00 to 6:30 on Saturday morning. My wife’s response to this suggestion is not fit for publication. We meet from 11:00 to 11:30.

These are some tricks to make the most out of your meetings:

  • Put them on your calendar and if you think about something, pull your phone out and add a note to this week’s meeting. That way you don’t forget it.
  • Use the meetings to develop a spending plan. Your spending plan needs to get you, not the other way around. Look at your bank’s online tools, other online tools like Mint, our Easy Spending Plan, a custom made Excel spreadsheet or paper and pencil. Try different ones until you find the one that gets you.
  • Find an item in your spending plan that you buy because you have to but don’t enjoy spending money on and see if you can cut that cost.  Think of auto insurance and electricity. Any money you can free up from those is money you can save or use for something you want.
  • Run a retirement estimator calculator and make sure you are on pace to retire. Update this at least once a year.
  • Run a DebtBlaster calculator and make sure you are paying off your debt as efficiently as possible. Update this every 6 months or when you pay something off.
  • Review your investments at least once a quarter and make sure you are taking an appropriate amount of risk.

As someone who has done this for a while, the benefits of these meetings include reduced financial stress, you and your partner having a plan and fostering honest, direct and sincere conversations about money. Start now. Don’t wait a decade…like some people.

 

 

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.

 

 

How To Save Money on Your Homeowners Insurance

March 08, 2017

When my husband and I shopped for homeowners insurance back when we bought our condo a couple of years ago, I knew from my CFP® training that all homeowners policies are required to cover the basics. I also knew that if we wanted coverage of things like flooding from a backed up toilet or frozen pipes, we’d need to ask for those. But beyond that, we wanted to make sure we were adequately covered without over-paying.

Now as our premiums go up about 6% per year, purportedly to account for the increase in what it would cost for the insurance to cover a loss (if only wages kept up with this supposed increase in costs!), we are shopping around to make sure we’re still getting the best value for our money. If it’s been several years since you’ve shopped your homeowners insurance policy around, it could be a great place to find some extra money in your budget. Here are some tips from my colleague Teig Stanley on how to go about doing that:

First, you’ll need your “DEC page,” which is short for “declarations” page. Then, take the following 5 steps:

1. Use a broker to shop for coverage. There is no need for you to go through all the time/effort yourself. Ask the broker to provide three quotes compared side by side so you can compare apples-to-apples.

2. Make sure the quotes have the same criteria:

Deductible – This should include the separate deductible for wind/hail/water or other events that are geographically specific.

Home Value – If it’s been several years, this probably needs to be adjusted since your home has probably increased in value. Most insurance companies’ software will assign a value automatically based on actuarial data specific to the address.

Cost – Is the payment quoted monthly, annual, quarterly, etc?

Replacement Cost Coverage – Some policies replace up to 100% of the benefit for which they’re written. Others replace 125% – 150% if the home is a “total” loss.

3. See if you can apply any special discounts – military, occupation, no recent claims, alarm systems, etc.

4. Contact insurance companies that don’t broker out (like USAA) if you qualify so you can obtain a quote to compare.

5. Give the broker a copy of your current DEC page and cost (don’t worry, they can’t do anything manipulative with the premium) as well as permission to pull your credit so they can get accurate quotes. It’s a “soft” credit hit, so it won’t have a negative effect on your credit score.

Finally, you can find some additional insight and tips in this post from another colleague, Greg Ward. He shopped around himself and found a much better deal. Of course, I would be remiss if I didn’t point out that any cost savings you realize from this process should be used to either increase high-interest debt payments or bump up your savings rate toward your emergency fund, retirement or other goals.

 

Kelley Long is a resident financial planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.

What To Do Before You Say “I Do” Again

October 11, 2016

As I anticipate all of the upcoming marriages, I think about two of my friends who are getting married for the second time. Second marriages make up 1/3 of weddings. One of my recently engaged friends getting married for the second time told me the first time she went into her marriage blinded by love. This time, the blinders are off and she wants to walk into her second marriage with her eyes wide open. I told her that this means having a tough, but loving financial conversation with her fiancée.

One caveat my husband asked me to include is this: I live in the south where the men eat and sleep college football so please respect the football or whatever your fiancé’s favorite sport season is and have the meeting at a time when he or she will not get distracted by scores. When you find the best time for a meeting consider reviewing the following:

1. Consider pulling up each other’s credit reports using websites like Annual Credit Report.com so you know what you are financially marrying. Ask about his or her plan to repay debt and their thoughts about the debt. Do they consider the debt to be a shared responsibility or just yours to take care of separately once you marry?

2. Review each other’s spending plan or at least your ideas on how you will spend money once you get married. If you are coming into the marriage with children, what financial obligations or promises do they have towards your child that will affect the household income now and in the future? Will you keep everything separate, together or have one joint account and two separate spending accounts? Discuss current and future financial obligations and a plan for how these obligations will be met.

3. If you have assets you are bringing into the marriage, consider a prenuptial agreement that can state how the assets will be divided in case of a divorce. As optimists, we want to believe our second marriages will last forever, but the fact remains that the divorce rate for second marriages is higher. Your EAP or prepaid legal plan may provide legal benefits to help you create your documents.

As you think of remarriage, remember that you are bringing a lot into the second marriage. Assets, kids, a credit history and money management habits can make or break your future marriage if they’re not discussed. Taking a few hours to talk about your finances with your future spouse can go a long way to building a strong foundation for your marriage.

What I Wish I Had Known When I First Started Working

September 06, 2016

I don’t know about all of you, but the older, I get the faster time seems to go by. I feel like yesterday I was babysitting my kid’s friends and today I am watching them graduate from college. After one of my friend’s kids graduated from college, I went to a party celebrating the achievement. While at the party, I was listening to a conversation with my friend’s daughter and her friends, most of whom are also recent college graduates.  Luckily for them, we are in a better job market and almost all of them are either employed or getting ready to start new jobs.

As I listened to their conversation, I started to feel a sense of dread at the direction their conversation was going in. Their discussion was focused on getting paid the most money, moving to a “hot” new city (whatever that means) and what car they are going to buy themselves. I told them that the decisions you make your first working year will lay the foundation of their future financial success or demise – their choice. At that point, I had their undivided attention and I started talking to them about some of the things I wished I would had known when I first started working.

The best job is more than the highest salary. When I looked for my first job, the only thing I considered was the salary. I never stopped and considered that a lower salary that pays more benefits could net me a higher total compensation than a higher salary with crappy healthcare benefits. As you consider your next job, think carefully about the offer. How much will your new employer cover for healthcare benefits?

I also never considered my ability to grow my career. A higher future salary could easily outweigh a lower starting one. Consider how many opportunities you may have to progress in your future organization.

Your location will determine how far your money will go. One of the young women I spoke to was currently working in Georgia and thinking about a lateral career move to New York City. Being from Brooklyn, I told her she has to consider the difference in income and encouraged her to do a paycheck calculator to see what her net pay may look like with a move.  She was shocked at how much her net pay decreased.

Next ,I encouraged her to use a cost of living calculator to compare how far your income will go in one state or city vs. another. She needed almost a $30,000 increase in salary to maintain the same lifestyle she had in a small town in Georgia in New York City. If you are deciding on a move, consider doing a paycheck calculator and a cost of living calculator so you won’t go into sticker shock when you move.

The lower you keep your lifestyle now, the better quality of your lifestyle in the future. Remember that where you live now may not be where you will live in a few years so keep your home expenses to about 25%-30% of your net income so you have money left over for other goals and possibly a move. I pretty much went stupid when I got my first professional job. I convinced myself that I had to look the part and spent thousands on a wardrobe. You can look professional without going broke by shopping for high quality professional clothes at consignment shops.

Fortunately, I kept my old car though. This was probably one of the best decisions I made. I was easily able to make the move for a great career opportunity because I kept my expenses so low. If you end up getting a loan, consider following the 20/4/10 rule – put a 20% down payment, finance for no more than 4 years, and make sure the total monthly vehicle expenses (principal, interest and insurance) are no more than 10% of your gross monthly income.

Understand that good money management equals financial success. I wish I would have prioritized my finances better. I would have created a monthly spending plan that outlines ALL of my spending (including car maintenance, vacations, and gifts), saved 3-6 months of expenses, contributed at least enough to get my 401(k) match and attacked debt sooner. Use calculators like the Debt Blaster to come up with a game plan.

If you’re just starting your career, you have a tremendous opportunity to shape your financial future. Taking these steps before making a financial decision can go a long way to building a lifetime of financial success. You can do it!

 

 

 

What Our Planners Would Tell Someone Just Starting Their Career

September 02, 2016

Last week, I wrote about conversations I had with some newly hired recent college graduates. That post was about steps I talked about with them in our one-on-one coaching sessions   (all good stuff, if I must say so myself…and I must!) After I had written that and before it went live on our blog site, one of our other financial planners sent an email to the planning team to ask what advice they’d give someone starting their career today – a “what would you tell your 22 year old self” kind of email. Here are some of the responses from our planning team along with some of my editorial commentary (in italics):

Create a budget. I despise the word “budget.” I prefer “spending plan.” Figure out how much money is coming in and develop a spending plan that comes in well below the cash inflow.

Create a plan to move up or out of your current position in 3 years to stay relevant and in control of your career and salary. Always improve your skill set and fight for your own career. No one else will do it for you.

Start a side business based on your passion to help accelerate your debt payoff, increase savings and fund other financial goals that your salary might not cover. That side business could turn out to be what becomes your full time pursuit and source of greatest wealth in the long term, but you won’t have that chance if you don’t ever start it.

There is no need to show off to your friends because you are the one that landed the new job with cool title. The people with the flashy cars and lifestyle are usually either getting support from family members or are fueling that lifestyle with lots of debt.

Build friendships with those that are financially like-minded and encourage each other. It’s hard to be the only one that orders water instead of drinks almost every time you go out because you are the only one that has a spending plan. Don’t let peer pressure cause you to lose your spending discipline.

Use the same creative mindset you had in college as it pertains to money. If you could figure out a way to have a great weekend and only spend five bucks back in school, why should it change now that there is income. I joke that I had more cash flow when I was a starving college student than when I was a professional financial planner with a great job.

Get on a plan ASAP to pay off any student loans. It definitely needs to be a part of the budget. A time frame for them to be paid off would be best. Don’t just elect deferment or forbearance because it’s an option. Truth.

Set up an intentional savings account, even if it’s just $25 to start. Set up a transfer of at least $25 a paycheck to get in the habit of seeing how painless it is. Then boost it to get to $2,500 within the next year. An emergency fund can prevent the need to tap into credit cards when the car needs brakes and tires.

Don’t take on a deluxe apartment or mortgage until the student loans have been dealt with. They’re a mortgage in their own right. Live way below your means. Americans spend way too much on housing as a rule.

Get the match at work at the very least if you have student loans and try for 10% or more deferral if you don’t have student loans or after they’re under control. Early saving is HUGE in your financial future.

Be thoughtful about what you spend your money on. You work hard for it. Set a 30 minute weekly money meeting with yourself to go over your finances. Whether you’re just starting out or have been in your career for decades, this is just flat out solid advice.

This is a lot of info, but it’s an especially useful list for recent grads just getting started. The decisions they make now will have a huge impact on the rest of their financial life. My daughter is beginning her senior year of college so in less than a year, she’ll be graduating, and I’ll be printing out this blog post and last week’s to help her get her financial life started in the best way possible.

 

 

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.

 

Can a Computer Replace Your Financial Advisor?

June 30, 2016

If driverless cars can replace your Uber driver, should a computer replace your financial advisor too? This isn’t just speculation. Automated investing services called “robo-advisors” are becoming more popular and even your 401(k) plan may offer an online investment advice program. Let’s start by taking a look at some areas that computers do well when it comes to personal finances:

Expense tracking. Many people use computer programs like Mint and Yodlee MoneyCenter to track their expenses. This can be very helpful if you don’t have the time or inclination to do it yourself.

Insurance needs. Since there can be a lot of variables, a computer program can be very helpful calculating how much insurance you need, especially with life insurance.

Debt payoff. Computers programs can also calculate how long it would take to pay off your debt and the effect of making additional payments.

Credit analysis and monitoring. Online programs like CreditKarma, Credit Sesame, and Quizzle can provide you with a free credit score, advice on improving it, and free credit monitoring.

Retirement and education funding projections. As long as the inputs and assumptions used in the calculation are reasonable, a computer program can do an excellent job here too. In fact, any human financial planner will probably NEED a computer program to calculate whether you’re saving enough for retirement or education expenses. Of course, there are a lot of unknowns but a good program can help you determine if you’re in the ballpark and allow you to measure your progress over time.

Asset allocation. Deciding how to optimize your investment mix is another task that financial planners typically use a computer for. It’s also the quintessential service provided by robo-advisors. The ability to customize your investments around not only your time frame but also your personal risk tolerance and possibly even to minimize your taxes and complement your other investments is one of the advantages of a robo-advisor over a more simple asset allocation fund.

Investment management. A robo-advisor can also add value to a portfolio by automatically rebalancing it periodically. Some robo-advisors even sell losing investments in a taxable account so you can use the losses to offset other taxes.

Simple tax preparation. Programs like TurboTax, TaxAct, and TaxCut are widely used for tax preparation. However, I would suggest using a professional tax preparer if you have a rental property or a business since there’s some judgment involved in knowing which category to classify various incomes and expenses.

Basic estate planning. If you just need basic estate planning documents like a simple will, a durable power of attorney, and an advance health care directive, you can use a computer to draft these documents and even store them online at little or no cost. If you have a more complex family or estate situation, you may want to hire an attorney to draft a trust though.

Account aggregation. Finally, if your financial life involves a lot of the above, you might want to use an account aggregation program to compile all the info in one place.

So what are computers NOT good at?

Getting you to use them in the first place. For example, our research shows that 76% of employees who are not on track for retirement haven’t even run a retirement calculator at all. The fanciest workout equipment won’t do you any good if you don’t actually use them. A financial planner can be like the personal trainer that gets you to go to the gym.

Motivating you to take action after the calculation. Many people run a retirement calculator but then never actually increase their savings enough to get on track. Some programs use a gamification model that can turn action steps into a game, but they aren’t always effective. A good financial planner can both get you to the gym and make sure you actually do the workouts.

Stopping you from sabotaging yourself. How many of us are tempted to overspend on something we don’t need, to make a risky bet with money we can’t afford to lose, or to bail out of our investments during a temporary downturn in the market? Just like a personal trainer can keep us from breaking our diet or over-training to the point of injury, stopping you from making costly mistakes is one of the most important functions of a financial planner. Even the most sophisticated investors can benefit from at least having a second opinion to bounce ideas off of.

This doesn’t necessarily mean that everyone needs a financial planner. You do need to be honest with yourself though. How disciplined and motivated are you when it comes to your personal finances? If you just need the right information to make decisions, a computer can certainly provide that. If you need more, you might need an actual human being.

 

 

3 Numbers That Matter More Than Your Credit Score

June 22, 2016

While knowing your credit score and the elements that impact it is important to your overall financial well-being, I sometimes find that people are overly concerned about it at the peril of other more important financial measurements. Your credit score only really matters when you’re applying for a loan, certain types of insurance and increasingly, when applying for a job. If none of those things are on your horizon, then your score is more like your high school ACT scores – perhaps a point of pride, but pretty irrelevant for the time being. Here are three more important numbers you should be focused on instead:

Net Worth

What is it: Assets (bank accounts, investments, home, car – basically cash or anything you could turn into cash) minus liabilities (credit card balances, car loans, student loans, mortgages, 401k loans – anything you owe).

Ideal number: As high as possible.

Why it matters: Your net worth is the ultimate measure of your ability to weather financial storms and maintain financial choices in life. The higher your net worth, the more financial freedom you can afford. There are countless cases of people who were millionaires on the asset side but broke on the net worth side as cautionary tales of neglecting this important number. Many of these people suffered during the last recession when their debts were called.

How to track it: I calculate my net worth on a monthly basis using Google sheets at the same time I sit down to set up any bill payments for the month. Here’s a snapshot of what it looks like:

Net worth snapshot

One nice side effect of this is the fact that I’m checking on all of my accounts at least once a month, so I can also do a quick check for anything fishy.

Worth noting: I pay all my credit cards off each month, but I include them on this sheet because that’s money I still owe that is reflected in my checking account above. It’s the only way to have a truly clear picture of what I have. I keep things like my student loan and Mini Cooper loan on there both for historical accuracy as well as for the psychological thrill of seeing a big fat ZERO under old debts. It’s a little, “Yay me! Look how far you’ve come!” moment each month.

Retirement Readiness

What is it: The best way to measure whether you’re saving enough to retire comfortably when you want to, especially if you have many years to go until retirement.

Ideal number: On track to replace about 80% of your current income, unless you’re within 5 years of retirement (when you can be more specific about how much you’ll need each year).

Why it matters: Retirement, which really just means transitioning to living off your savings one day, is one financial goal that pretty much all of us share. Whenever anyone asks me what to do with extra money or if they can afford to take on an additional debt payment or savings goal, my first question is, “are you on track for retirement?” Even though it may be one of your longest-term goals, it should be in the top 3 in terms of priorities.

How to track it: There are countless calculators out there, but for people with a 401k or other workplace savings plan, I prefer this Retirement Estimator.

Worth noting: Many people who say they aren’t on track to retire have never run a calculator. Knowing is the first step!

Emergency Fund

What is it: A cash cushion in place to tap into in case of an unexpected loss of income due to job loss or extended illness or injury.

Ideal number: 3 months of expenses, minimum. For single income households or career fields that aren’t as certain, at least 6.

Why it matters: Life happens and when it does, having cash that’s easily accessible takes away much of the financial stress and allows you to focus your energy on finding a job, healing or adjusting to the new normal.

How to track it: If you’re starting from zero, start with a goal of setting three months of rent or mortgage aside. Then tack on three months of your next highest expense and so on until you have all essential expenses covered. Once you’re at three months, make sure you adjust for any changes such as a new home, new baby, etc.

Worth noting: It can be tempting to keep a credit card on hand instead of the cash or want to invest the cash for higher earnings, but resist. Should something happen, consider the probability that it could be due to an economic downturn when credit may not be as easily accessible and/or the stock market could be down. The best place for your emergency fund is in a high yield savings account.

These are the three numbers you want to focus on. Even if you’re not at the ideal numbers yet, you’ll be well on your way to financial freedom if you can find a way to track them on a consistent basis. And you just may find your credit score improving as well.

What Philosophy Can Teach Us About Our Finances

March 14, 2016

I recently asked my fellow planner, Brian Kelly, CFP®, to tell me about his personal financial wellness story. I expected a compelling tale. Brian has a dry sense of humor, a big heart and strong opinions, and I wasn’t disappointed. What I didn’t realize until he sent me this post is that Brian is also a philosopher who connects the dots between financial wellness, a 19th century movement and eighties music sensation The Talking Heads.  Here’s what Brian shared with me: Continue reading “What Philosophy Can Teach Us About Our Finances”

Is It Better to Rent or Own?

February 09, 2016

One of the biggest questions I get when I talk to people is, “Is it better to rent or own?” I tell them that it is not as simple as a yes or no answer. The cost of living in your area, your area’s housing market, and your financial stability are all factors in deciding if renting or owning is the better decision. For some, renting temporarily is a better option but no matter what I say, I normally get the following rebuttals from those determined to buy a home now: Continue reading “Is It Better to Rent or Own?”

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?”

The Less Than 2 Hours a Week Money Prescription

December 17, 2015

Our newest blogger, Cynthia Meyer, wrote an excellent blog post on Monday about a “two hour a week money prescription.” While I think her suggestions can work perfectly for many people, others may find that even two hours a week seems like an unrealistic amount of time to be spent on finances. If you’re in that camp, don’t worry! Continue reading “The Less Than 2 Hours a Week Money Prescription”

My Declaration of Financial Independence

December 07, 2015

As I take over Financial Wellness@Work on Mondays (following in the very big shoes of Dr. Scott Spann, who is bringing Financial Finesse wisdom to the retirement planning pages of About.com), I thought I’d take some time upfront to tell you my story so you know my perspective. Twenty years ago, I declared financial independence. I remember my Financial Independence Day very clearly… Continue reading “My Declaration of Financial Independence”

Financial Rules Of Thumb: Saving For College

October 07, 2015

Have you ever heard the rule of thumb that says you should wait 30 minutes to swim after eating? Or don’t leave your Christmas lights up past Martin Luther King, Jr. Day? Perhaps you’ve read some of the arguments both for and against the edict to drink 8 glasses of water per day. And of course, there’s the rule that gets a lot of kids in trouble: question authority. But while these rules may not always ring true, generally speaking, they are good guidelines for getting you through life a little easier. Continue reading “Financial Rules Of Thumb: Saving For College”

10 Ways To Celebrate Financial Planning Week

October 05, 2015

Did you know that this week is the Financial Planning Association’s® 14th annual “Financial Planning Week?” The purpose of the week is to raise awareness of the financial planning process and to enable individuals and families to make prudent financial decisions. You can visit FinancialPlanningDays.org to see if a one-on-one financial planning advice event or educational workshops is being offered in your area. In the spirit of smart financial decision making, here are 10 ways to celebrate Financial Planning Week along with some of our thoughts on how finesse your personal finances: Continue reading “10 Ways To Celebrate Financial Planning Week”

4 Financial Ground Rules For Everyone

September 23, 2015

Figuring out how to prioritize the various things you could do with your money is one of the key quandaries of individual financial planning. Should you use extra money to pay off your car loan, boost college savings for your toddler or finally take that trip to Australia? There are countless options, depending on your individual values and goals. But before working toward any of those goals, there are four aspects of your finances that should be in place, no exceptions: Continue reading “4 Financial Ground Rules For Everyone”