How Financial Wellness is Like Weight Loss

April 28, 2016

I always like to say that financial wellness is a lot like weight loss. When I came across this article in Vox about “surprisingly simple tips from 20 experts about how to lose weight and keep it off,” I realized just how true that is. Here are the weight loss tips and how they apply to financial wellness:

1. There really, truly is no one “best diet.” Scientific studies have found that all of the various diet plans have about the same modest long term results. What matters is finding one you can actually stick to. The same is true of money management systems and asset allocation strategies.

2. People who lose weight are good at tracking – what they eat and how much they weigh. They tend to count calories and weigh themselves at least once a week. In the same way, you need to track or otherwise limit spending, continually re-balance your investments, and periodically run a retirement calculator to make sure you’re still on track.

3. People who lose weight identify their barriers and motivations. Like with diet and exercise, we usually know what to do with our finances. The hard part is actually doing it. Start with knowing the “why” that motivates you. Then look for the barriers that are standing in your way of taking action.

4. Diets often fail because of unreasonable expectations. People tend to overestimate what they can achieve in the short run and underestimate what they can achieve in the long run. Don’t try to save too much too fast. Instead, set big long term financial goals that motivate you and then see how much you need to save to achieve them.

5. People who lose weight know how many calories they’re consuming – and burning. Similarly, you need to know how much income is coming in and going out. Making sure the latter number is lower than the former is the only way to increase your wealth.

6. There are ways to hack your environment for health. For example, don’t surround yourself with unhealthy foods. Simple things like where your food is served from and what size plate it’s on can also affect how much you eat. For your financial life, don’t put yourself in situations where you’re likely to spend more and try to automate your savings as much as possible.

7. Exercise is surprisingly unhelpful for weight loss. More accurately, exercise alone isn’t very effective since people often eat more to compensate for the calories they burn. Earning more income can have the same effect when we automatically spend more as well.

8. Weight loss medications aren’t very useful. Neither are “metabolism boosting” supplements. Complex, sophisticated, and high-fee investments are the weight loss medications and metabolism boosting supplements of the financial world. Stick to the basics.

9. Forget about “the last 10 pounds.” If they’re that hard to lose, people generally gain them back. Most of the health benefits came from the other lost pounds anyway. Likewise, trying too hard to save more can backfire if it starts to feel like too much deprivation. Allow yourself to splurge now and then too.

So what’s the main thing that weight loss and financial wellness have in common? They are both about making small changes over a long period of time. Instead of looking for the quick fix, find an approach that you can stick with.

 

Choosing Investments is Like Choosing a Pizza

April 20, 2016

When financial planners talk about how to invest your money in the market, we often discuss dividing it up among stocks, bonds and cash (also known as your asset allocation). But then when you actually go to make your investment choices, there’s a chance that not one of the options will have the word “stock” or “cash” in it. One of the most confusing things about investing and financial instruments is the fact that there are so many words that mean the same thing. For example: stock, equity, share, capital, blue chip, mid cap, small cap, large cap …they all generally refer to the same thing: ownership in a public company. Likewise, bonds, fixed income, municipals, T-bills, etc. are all referring to similar debt instruments used by companies and governments to finance operations and projects.

I often think that if more people understood that many of the financial terms we hear refer to the same thing that there would be a lot less stress around investing and everyone would feel more comfortable taking advantage of the growth that investing in the markets can offer. So I thought I’d try instead to describe a metaphor that is near and dear to my heart to try to make it easier to understand the different options out there: pizza. When it comes to pizza, there are four main options for how to get a delicious pie onto your plate (on a sliding scale of cost and effort) similar to the options available for investing for long-term goals:

  1. Make your own from scratch
  2. Buy pre-made frozen
  3. Pay someone to deliver it to you, ready to go
  4. Have it served to you at a restaurant

Each level requires a different amount of money and effort. Choosing how to invest money in the market is similar. Here’s how it compares:

1. Make your own from scratch. Making your own pizza requires skill, knowledge and practice, but once you know what you’re doing, it’s the least expensive and can be the most delicious. My husband has mastered the art of homemade pizza, starting with dough he makes from scratch, but it took a couple of years and LOTS of practice (and worthless pizza) to get it right.

To me, this is similar to researching individual stocks and mutual funds and buying them through a discount broker. You have to know what you’re doing or you can end up with nothing, but people who know what criteria to look for and how not to take too much risk can really grow their money. For investors looking to learn the art of DIY investing, start with money you can afford to lose and start reading. The book “Grande Expectations,” was what brought home to me how the stock market really works and why buying the hottest name stock or fund isn’t necessarily the best investing strategy.

2. Buy pre-made frozen. Putting a frozen pizza in the oven and knowing exactly when it’s done (and exactly how long to let it cool so that it doesn’t burn the roof of your mouth) requires some skill and it’s still a pretty cheap way to go. The investing equivalent would be using index funds or ETFs to create your own investment mix. This requires that you understand how to create an asset allocation that is appropriate for your timeline and risk tolerance, but with a little understanding of what the different indices are, it’s pretty simple to put together a decent mix. The trick is knowing when to make changes as time progresses and also knowing when NOT to make changes (for example, not selling when the market tanks and re-balancing even when the market is hot).

3. Pay someone to deliver it to you, ready to go. Minimal effort but a little bit more money. You have to pay to get it to your door, after all.

The investing equivalent would be target date funds. You don’t have to do anything but pick one and let it ride. No pizza or investing knowledge required, you just pick the one that fits you the best (for target date funds, that’s the year that you expect to need the money such as your retirement age).

4. Have it served to you at a restaurant. Paying for someone to make your pizza and serve it to you piping hot along with beverages is similar to paying a financial advisor to manage your investments for you. You can describe what flavors you like and your server will help you pick the best pizza combo.

It’s the same thing with your financial advisor. She’ll listen to your goals and risk tolerance and then suggest an investment mix that is appropriate for you. Along with that, your financial advisor should look at how your investments fit into your overall goals and make suggestions for any changes to support those goals, much like a server at a restaurant might suggest the best beer pairing or salad to start. This is definitely the most expensive option, but if you want a little more hand-holding with your investing, it’s worth it.

In my experience, most people are delivery-types (target date funds will do the trick) but because they’ve heard you should diversify and not just hold one thing, they often think that means they need to choose more than one fund. It’s important to know that a target date fund is already diversified. Just like a pizza is the perfect assembly of crust, sauce, cheese and toppings, a target date fund can be broken down into the perfect mix of large cap, mid cap, small cap, international, fixed income, money market and sometimes even commodities – the fancy way of saying stock, bond and cash funds. But instead of you having to figure out how much of each to select, that decision is made by experts who specialize in asset allocation – just like the pizza chef knows the best mix of ingredients according to the type of pizza you ordered. Now, who’s hungry for pizza?

What The New Fiduciary Rule Could Mean For You

April 07, 2016

You may have heard by now that the Department of Labor announced a new rule requiring any advisor of a retirement account like a 401(k), IRA, and even an HSA to act as a fiduciary, putting their clients’ interest above their own. The good news is that this will drive out many glorified salespeople selling high-priced investments for a commission from “advising” people on their retirement accounts. The bad news is that many people who need advice may not be able to meet the asset minimums required by many fiduciary advisors or may not be willing to pay their asset management fees. If you’re in one of those camps, here are some options for you:

Target Date Funds

Since these funds aren’t providing personalized advice, they aren’t affected by the new rule but they can substitute for an investment advisor in many ways. All you need to do is pick the fund with the year closest to when you plan to retire. You can put all of your money into that one fund (in fact, they’re designed for that so adding more funds can actually throw off the balance of the fund) and set it and forget it. That’s because they are designed to be fully-diversified “one stop shops” that automatically become more conservative as you get closer to the target retirement date.

This doesn’t mean that all target date funds are the same. While they each have slightly different investment mixes, it’s been found that low fees are actually more important than getting the best mix (which no one can know in advance anyway). To minimize your costs, look for target date funds made up of low cost index funds.

Robo-Advisors

If you want a portfolio more customized to your particular risk tolerance, consider a “robo-advisor,” a new breed of automated online investment advisors that design a portfolio for you based on a questionnaire you answer. They already act as fiduciaries so they won’t be negatively impacted by the new rule. However, they tend to have much lower minimums and fees than human advisors.

Flat Fee Advisors

If you’re looking for more comprehensive financial advice or just prefer to work with a human being, another option is an advisor that charges fees that aren’t based on how much they’re managing. Instead, they may charge an hourly, monthly, or annual fee. However, these advisors are relatively rare so the number of local options may be limited.

There will be lots of changes as a result of the new fiduciary rule. Many investors will pay less in fees but if you’re currently working with a non-fiduciary advisor for your retirement account(s), you may have to find a new one. Fortunately, there are a lot of good alternatives if you know where to look.

 

5 Areas That May Need Some Financial Spring Cleaning

March 31, 2016

With Easter weekend behind us and spring officially in the air, it’s time for some spring cleaning. Don’t forget about cleaning your financial life too. While it’s much easier to see the clutter in your home, the clutter in your finances could have much bigger consequences. Here are several areas that may need some cleaning up:

Your expenses. If you’ve never taken a look at what you spend money on, it can be a real eye-opener. Start by gathering at least 3 months’ of bank and credit card statements and record each expense. You can also use a tool like Mint or Yodlee MoneyCenter to track your spending online for free.

Then go through your expenses and see what areas of waste you can cut. Are there things you’re spending money on that you don’t really need? If you do need it, can you get it in a way that costs less? You can get some ideas for savings here.

Your credit report. It’s been estimated that about 70% of credit reports have errors that could be hurting your score. If you haven’t done so in the last 12 months, you can order a free copy of each of your 3 credit reports (TransUnion, Equifax, and Experian) at the official site: annualcreditreport.com and report any discrepancies. You can also improve your score by getting current on your bills and paying down debt. Just be aware that old debt falls off your credit report after 7 years and making a partial payment or even acknowledging the debt to the creditor can restart that clock so if it’s getting close and you’re past your state’s statute of limitations for being sued by a creditor, you may just want to wait it out.

Your retirement account. Do you have retirement accounts that you left at previous jobs? If so, your overall retirement portfolio may not be properly diversified or you may be paying more than you need to in fees. Unless you have employer stock or are taking advantage of some unique investment option in the plan, you might want to roll those accounts to your current employer’s plan or into an IRA to make them easier to manage.

Your savings and investment portfolio. Many people have accounts they’ve opened or investments they’ve bought for different reasons over the years and now their savings and investments are a cluttered mess. Having 10 different bank accounts or 5 US stock funds isn’t diversification. Here are some simple ways to make sure you’re properly diversified.

Your legal documents. Tax documents only need to be kept for 7 years at the most. After that, you might as well just shred them. Estate planning documents should be checked to make sure they’re still up-to-date. Once your spouse finds out that your ex is still listed as your beneficiary or your youngest child wasn’t included, it may be too late.

How about you? Have you spring cleaned any of your finances? If so, share your experiences in the comments section below.

 

Why You Need to Start Saving Money RIGHT NOW

March 30, 2016

Pretty much every personal finance resource will tell you that the earlier you start saving, the better off you’ll be due to the effect of compound interest. It’s a bit of a, “well, duh,” thing, but there’s more to it than just the fact that you’ll have longer to save if you start early. The thing is, the earlier you start, the earlier you can actually stop saving if you want to. Continue reading “Why You Need to Start Saving Money RIGHT NOW”

Quiz: Do You Have Landlord Potential?

March 21, 2016

[fusion_text]Online or on cable these days, you’ll find many self-described real estate experts who want to teach you their systems for finding and financing great real estate deals.  According to these self-described millionaires, people can make money in real estate if they think like an investor and have the right system. The temptations they offer are many: inflation-adjusted income, rising home prices, leverage and avoiding stock market risk.  I’m a rental property investor myself, so I know firsthand both the benefits and the challenges.

While single family homes, commercial properties and multi-family units may be good investments for some people, they are not for everyone. The truth is, rental real estate investing may seem safer than it really is. Each property investment has unique risks.  A rental real estate investment that remains vacant or results in large, unexpected maintenance costs could be financially devastating. 

Still, real estate evangelists aside, rental property investments can contribute to your income diversification, net worth and financial security if you choose wisely and at the right time. How will you know when you’re ready to be a landlord? Take this assessment to find out if you have landlord potential. Give yourself one point for each “yes” answer: 

My financial position:

____I have zero credit card and other high interest debt

____My credit score is 740 or higher.

____I have enough cash to put down 20% of the value of the property

____I have enough cash to pay for any necessary renovations

____I have enough cash to cover vacancies and maintenance on the target property for a year

____I am already contributing the maximum to my retirement plan at work ($18,000 plus $6,000 catch up contribution if 50 or older)

____I am already contributing the maximum to a Roth or Traditional IRA ($5,500 plus $1,000 catch up contribution if 50 or older)

____I am maxing out other work-sponsored employee benefits that fit my financial situation (e.g., HSA, FSA, etc.)

____I have enough other income to pay the rental property mortgage if there’s a sustained period of vacancy

____Total financial position score

Did you score 8 points or higher? Then you can move on to the next round. 

If you scored 7 or lower, you aren’t yet in a strong enough financial position to be a rental property investor. Without sufficient cash reserves, a real estate investment that turned out badly could send you into bankruptcy. If you carry balances on your credit cards, the most important investment you can make is paying them off. Before you even consider diversifying into individual rental properties, make sure you are on track to meet your retirement goals and maximize all your tax-advantaged benefits at work.

Real Estate Knowledge:

____I’ve read some basic guidebooks on rental real estate investing and landlording, such as Nolo’s First Time Landlord

____I’ve done a review of rentals in my target neighborhood and I know average rents, time on the market, crime and school statistics

____I have owned my own home for more than three years, so I have a very good idea of how much time is needed to take care of one

____I don’t yet own a home, but I plan to buy a multi-unit property and live in one unit

____I have enough time to manage the property myself

____I’ve run the numbers, and the gross monthly rent on my target property is 1% or more of the total property value

____I can afford a property manager and the investment is still profitable

____ I like to fix things and do home improvement work around the house

____I understand that one or a few properties in the same area are not a diversified investment and that means there is higher risk

____I have run income and expense projections for the property for a year, including worst case scenarios

____I have researched the pros and cons of different legal entities in my state to hold the property, such as a limited liability company

____I have spoken to a mortgage lender and am confident I’ll be approved for financing

If you scored at 8 on real estate knowledge and 8 on financial position, it looks like you have landlord potential. Happy property hunting!

If you scored 7 or lower, take some time to rethink this. Will this be a profitable investment? Do you have the time to manage the property yourself?  Are there risks you are not comfortable taking? What additional steps are needed before you move forward?

How did you do on the quiz? Do you have landlord potential? Email me at [email protected] or follow me on Twitter @cynthiameyer_FF. 

[/fusion_text]

Why You Need Emergency Cash Reserves

March 18, 2016

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

Don’t Make These Common Investing Mistakes With Your 401(k)

March 17, 2016

In our CEO’s new book, What Your Financial Advisor Isn’t Telling You: 10 Essential Truths You Need to Know About Your Money, Liz Davidson writes about how the best place to invest your money is often where you made that money: your workplace. While most people generally understand the value of contributing to their retirement plan, there’s a lot of confusion about how they should choose investments. Here are the biggest mistakes I see people making: Continue reading “Don’t Make These Common Investing Mistakes With Your 401(k)”

Don’t Make Jeb Bush’s Mistakes…With Your Investments

March 03, 2016

A couple of weeks ago, former Republican presidential front-runner Jeb Bush tearfully exited the race. The self-described policy wonk’s economic proposals may not have won him the election, but they might actually help him with his investment portfolio. Here were some of his policies during the campaign and how they might apply to his finances: Continue reading “Don’t Make Jeb Bush’s Mistakes…With Your Investments”

5 Ways You’re Messing Up Retirement in Your 20’s

February 17, 2016

I know how far off retirement seems when you’re bogged down with student loans and credit card debt while being more concerned about buying a house and having kids (let alone putting THEM through college) in the coming years. Retirement seems more like something your parents and your boss should be worried about. I’m right there with you! But I also know that whether or not you are actually able to retire in that distant-feeling future can be a direct result of your financial behavior in your 20’s. Here are the 5 things that I see 20-somethings do that can really mess up their chances for a comfortable retirement. Continue reading “5 Ways You’re Messing Up Retirement in Your 20’s”

3 Ways to Make Market Volatility Work For You

February 15, 2016

Does the recent market volatility make you afraid to look at your 401(k) statement? Maybe it’s time to think about adopting a portfolio rebalancing strategy. Rebalancing is the process of periodically selling or buying investments in your portfolio in order to maintain your target mix of investments over time. It helps you keep the level of risk in your portfolio stable by taking some profits from those funds that are now taking up more space in your portfolio than originally intended – usually because they grew in value – and buying more of the funds that are now taking up less space than you intended, possibly because they fell in value. Since stocks, bonds and other investments tend to move up and down at different times, implementing a regular rebalancing strategy with a diversified portfolio mix helps you “buy low, sell high” over the long haul. Continue reading “3 Ways to Make Market Volatility Work For You”

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”

Financial Lessons From a Rugby Field

December 11, 2015

As I write this, I have clothing in the dryer and when it’s done, I’m throwing some of it in a bag and hitting the road. The university where I played rugby is playing in the college national championships this weekend. Some of my old teammates are the coaches and I’m still involved with the team in various capacities. I will probably be watching game tape of our Saturday opponent in the round of four and if we win (yes, I still say “we” when talking about a group of college kids playing rugby), I’ll spend part of Saturday night breaking down tape with the coaches for our Sunday opponent in the National Championship game. I’m pretty excited and can’t wait to hit the road to see the boys play with the prospect of a national championship trophy in reach. Continue reading “Financial Lessons From a Rugby Field”

The Five Biggest Myths About Saving Money?

December 10, 2015

When one of my colleagues recently sent me an article titled “The Five Biggest Myths About Saving Money, According to a Millennial,” I was intrigued. After all, it can be fun to bust myths, especially about something as important as saving money, and hearing a Millennial perspective is interesting, both because I might be one myself (I was born in 1979 and Millennials are sometimes described as being born in the late 70s and other times in the early 80s so maybe I’m actually something called an Xennial) and because they (or we) are the future. The article features the views of Ethan Bloch, the 30-yr old founder of Digit, an online financial company. Here are the “myths” about saving that Bloch aims to correct: Continue reading “The Five Biggest Myths About Saving Money?”

What Are Your Funds Really Costing You?

October 16, 2015

In one of my recent conversations with an employee preparing for retirement, we covered a lot of territory over a number of sessions. In running his retirement projections, he was WAY ahead of the curve. He had his estate plan prepared by an excellent attorney. Continue reading “What Are Your Funds Really Costing You?”

Passive Income Strategies For Retirement (And Now)

September 28, 2015

Last week, I had lunch with my good friend Brian who just happens to be a local realtor. Normally when we hang out, it is on the soccer field so as a result, we don’t get to discuss business too often. However, our recent discussion was a little different because we actually had time to talk about some passive income strategies. Continue reading “Passive Income Strategies For Retirement (And Now)”

How To Talk To Twenty-Somethings About Money

September 22, 2015

I recently was having a conversation with my niece and nephew about their future again. Have you ever tried to have a meaningful conversation with a 20 and 22 year old about finances? After about 5 minutes into the conversation, I could still see their physical bodies but I knew their minds were on another planet. So after what was a 5 minute conversation to me but probably felt like a 3 hour lecture to them, I stopped. Then I asked what it is that I was saying that rendered them brain dead. Continue reading “How To Talk To Twenty-Somethings About Money”