Posted on
piggy-bank-1429582_1920Sometimes your teenage children think they know everything. Do they know that if they saved the $6 they spend each day on a super antioxidant smoothie (or caramel macchiato), in 8 years they could buy a 4-door sedan in soul red or titanium flash (1)? Below are 3 lessons you should teach them about the long-term financial impact of decisions that they will soon be making for themselves. Lesson #1: Over time, compound interest can make a little bit of savings grow to a very big amount One of the regrets many of us has, is that we did not start saving soon enough. The idea of compound interest is something that your kids will understand by the time they are in middle school. There are numerous online calculators you can use to show them how deciding to save their money and forego that daily splurge can turn into better investments (like a new car). Lesson #2: College is a very expensive but financially important decision As your high schooler starts to contemplate where they want to go to college, don’t leave them out of the financing discussion. Even parents who expect to cover the entire cost of college need to make their child understand that it is a significant investment in their future, and not a nonstop party. Let them know that by completing college, they will likely earn $1 – $3 million more over their lifetime than their classmates who didn’t (2). Lesson #3: Credit cards are a tool and not a new source of money Credit card debt is rampant among people of all ages, but studies have shown that outstanding balances ramp up quickly after college. Before, during and after college, make sure your child understands that credit cards are not free money. Talk to them about using credit cards only to the extent that the balance can be paid off each month. Revisit Lesson #1 and show them how fast the balance on a 20% credit card can grow out of control. The best way to drive these lessons home is to set a good example. Demonstrate good use of credit by paying off your credit cards monthly. Develop a budget and then communicate how sticking to it serves larger financial goals. It’s very likely that you have made some big financial mistakes in your life. Wouldn’t it make sense to share what you have learned so they don’t make them too? (1) Assuming $6/day, saved for 8 years, earning 6% after fees, the total is $22,403. This exceeds the base MSRP of a 185 horsepower 2016 Mazda 6 4-door sedan with 6-speed manual transmission in Titanium Flash Mica ($21,330). The same model in Soul Red Metallic is $21,630. (2) The Economic Value of College Majors 2015, Georgetown University Center on Education and the Workforce.
Posted on
lemonade-standWhat are you teaching your children that will best prepare them for a successful adulthood? To be polite and say thank you? To believe in themselves? How about that if they save 15% of every check they ever earn, they will retire a millionaire (1). Preparing your child to handle the financial matters that they will face as adults doesn’t require a finance degree from Harvard. Below are some money lessons they can start at an early age. Lesson #1: Life isn’t one big shopping spree I think we have all experienced the grocery store tantrum when that 3-year-old just has to have the cereal with the cartoon character on the box. You can work with your preschoolers to understand that you go to the store for very specific items. Every trip to the store is not an opportunity for them to get a present. It is a lesson all ages could work on. Lesson #2: If you really want something, it is worth waiting for Teach your child about setting purchasing goals and saving for those goals. Have you given them a piggy bank yet? Every time they earn money or receive it as a gift, have them save at least 10% towards their goal. Lesson #3: It is important to spend wisely No one has an infinite amount of money so spending involves making choices. By the time your child is in elementary school, have them start to think about spending money on things they will still value in a couple of days. Here are a couple ways that you can help your child to develop money skills. #1 Give your child an allowance. You could use their age to determine their allowance amount. For example, my 7-year-old receives $7 a week. Make them understand that you take care of their needs and they use the allowance for their wants. An example of this would be when we went school shopping. I paid for my son’s school supplies that were on the teacher’s list. He really wanted a cool pencil box not on the list so he had to use his own money for this. It made him think about how badly he really wanted it. #2 Give them a birthday budget. Determine what you can afford for your child’s birthday present and party, then let your child determine how they want to spend it. Would they like to have the entire amount spent on a gift for themselves and forgo a party or would they like some combination of the two? Having a little skin in the game, really gets them thinking about spending wisely. During these early years, the overriding idea to teach your kids is that there is a difference between the things we want and the things we need. Giving them a little bit of responsibility at an early age will help them to understand this and set them up for a lifetime of healthy money habits. (1) Assuming that they work full-time for 40 years earning an after-tax salary of least $42,000 per year, and that their savings earn an average annual return of 6% after fees.
Posted on
Getty file 523102420 PrinceA will is the cornerstone of your estate plan. It allows for an organized distribution of your assets after you pass. Not only does it make sure that your assets end up with your chosen loved ones, it also reduces the legal and financial obstacles that your family and friends will face after your death. A will does the following:
  • Outlines how you want your property distributed
  • Names an executor to ensure that your creditors are paid and that your property is distributed as you wish
  • Nominates a guardian to care for young children (in situations where needed)
Other documents that are regularly part of an estate plan include:
  • Power of Attorney
  • Healthcare Directive
  • Trust – in some cases
A Power of Attorney gives the person that you designate the authority to act for you on financial matters, if you are unable to make decisions for yourself. Unlike a will, a Power of Attorney form is “in force” when you are still living.  If you become incapacitated in some manner, then the person you designated (the attorney-in-fact) has the power to handle your financial affairs for you. Despite the name, the person you designate does not have to be a lawyer, only someone you trust to handle your financial affairs. Instead of financial matters, in a Healthcare Directive, the person you name is authorized to make decisions about your healthcare when you are unable to do so.  A healthcare directive usually includes directions to your healthcare provider regarding the extent to which you want life-sustaining measures taken in an end-of-life situation. Don’t procrastinate!! Complete your estate plan now.
Posted on
market volatilityThere’s no question that periods of increased market volatility, like we have seen recently, can be unsettling. However, deciding to move to the sidelines versus staying the course can have long-lasting implications. In fact, making emotionally-based decisions in regard to short-term market events is one of the fastest ways to derail your long-term investment strategy. This is because it’s impossible to accurately time the financial markets. Studies have shown that investors reacting to market events tend to opt out at the worst time – when markets have fallen considerably. They then buy back in when they are certain the markets are back on track, but that ends up being a higher price than when they sold. On the other hand, staying the course and remaining invested and focused on long-term investment goals has proven helpful in creating long-term growth. This is achieved by buying at lower prices when the markets are down and selling only to rebalance your portfolio or fund financial goals. A time-tested approach to managing investments through periods of uncertainty is to focus on asset allocation. An asset allocation that is aligned with your financial goals and tolerance for risk allows you to concentrate on your long-term objectives instead of getting sidetracked by short-term market fluctuations. While asset allocation cannot guarantee a profit or protect from a loss, the proper asset allocation can help eliminate the potential for emotional decision-making that could have an adverse impact on your long-term investment strategy. Following a divorce, consider checking in with your financial advisor to make sure your portfolio’s asset allocation is well balanced and appropriate for your risk tolerance and time horizon.
Posted on
iceRecently, a friend told me that a good Samaritan found and returned the wallet he had lost the previous day. The funny thing he said, was that the credit cards and money were still there but his driver’s license and Social Security card were missing. Not finding it at all humorous, I told him he was likely the target of identity theft. I advised him to file a police report and to contact the three credit rating agencies to place a freeze on his credit report. A credit freeze (also called a security freeze) places a restriction on who can access your credit report.  Only your current creditors and government agencies can access your credit report while the freeze is in place.  This makes it hard for identity thieves to open a credit card account or take out a loan in your name, because most credit card companies will check your credit report before issuing a new credit card. To set up a credit freeze, you need to contact all three of the credit reporting agencies; Equifax, Experian and TransUnion.  Each has a credit freeze website that is listed below, along with their telephone number. Equifax: 800-349-9960   https://www.freeze.equifax.com  Experian: 888-397-3742    https://www.experian.com/freeze/center.html  TransUnion: 888-909-8872   https://www.transunion.com/freeze The best way to set up a credit freeze is to request it in writing. Check each of the websites above to see the information they require. Typically, requirements include a photocopy of your driver’s license, Social Security card and a utility bill from the address listed on your driver’s license. There is a charge to set up the freeze, ranging from $5 to $20 per reporting agency. All three credit rating agencies offer protection plans that include credit monitoring, but those plans are an additional monthly cost and are not that useful once you have the freeze in place. Once your credit freeze is established, each of the credit reporting companies will send you a confirmation letter that contains a pin number. Keep these pin numbers in a safe place because you will need to provide them when you wish to lift the freeze. Freezes can be lifted permanently or just temporarily via each of the credit company’s websites. There is typically a $5 charge to left the freeze, even if temporarily. You will need to lift your credit freeze at each of the credit reporting companies each time you apply for credit, such as applying for a new credit card or a loan. You will also need to lift them to get your free credit report from www.annualcreditreport.com, or if a potential employer wants to check your credit history. Identity theft can be costly and take years to clear up, so the time and fees involved in setting up a credit freeze is a small investment for some peace of mind. One last piece of advice – never, never, never carry your social security card in your wallet.
Posted on
tightropeBeing a single parent demands so much of a person’s time and energy that taking care of longer-term financial concerns often take a back seat. So many single parents face financial restrictions that make it seem they are constantly on a financial tightrope. Getting off that tightrope and onto solid financial ground should be a priority for every single parent. Finding solid financial ground starts with determining your financial goals and monthly cash flow. Determine your financial goals  The first step on the path to a more secure financial future is to determine your financial goals. Your financial goals should include short-term, medium-term and long-term goals. Short-term goals may be to reduce spending and not rely on credit cards to make it to the next paycheck. Medium-term goals could be paying off your credit card(s) and creating an emergency fund. Long-term goals may be saving for your children’s college expenses and retirement. Figure out your cash flow  All of your financial goals require one thing – saving money. To do so, you need to figure out how much you spend and then create a budget that incorporates saving. Tracking your spending can be pretty easy these days with online account aggregators like Mint.com. To better understand your spending habits when using credit cards, you may need to go old school and save the receipts to review your purchases.  This is particularly helpful if much of your shopping happens at Walmart, Target or Costco, where your shopping cart could include groceries, video games and clothes. One way or another, figure out how much of your spending is essential and how much is unnecessary spur of the moment buys. Create a budget that accurately matches your essential spending and replaces most of your unnecessary spending with savings. Be mindful of not only what you buy, but also how you buy it. Using high interest credit cards are an impediment to meeting your financial goals. Paying off high interest credit cards is a financial goal that improves the odds of meeting your other financial goals. Save the tax-free way  Tax-deferred investment accounts such as Investment Retirement Accounts (IRAs) for retirement and college-funding accounts, such as 529 accounts, are a good way to meet those long-term goals. These accounts often can be opened with a couple hundred dollars. Setting up automatic monthly contributions from your bank account to these accounts can be done for amounts as low as $25. Both types of accounts grow without being taxed until the money is withdrawn. For 529 accounts, there will be no taxes if the withdrawals are spent on qualifying college expenses. Figuring out your budget shouldn’t be a chore done after the kids are in bed. It should be a family project. Developing good financial habits that lead to meeting financial goals is an essential skill that all parents should share with their children.
Posted on
124129198While we financial advisors need to know a lot about numbers, we often use some shortcut “rules-of-thumb” to make quick estimates.  Two of those rules-of-thumb are the Rule of 72 and the Rule of 115. The rule of 72 is a shorthand way to figure out how long it will take an investment to double in value, if one knows the annual rate of return or interest rate.  The equation can also be switched around to figure out the annual rate of return if one knows how long it took for the investment to double. It is called the rule of 72 because the doubling time is figured out by dividing the rate of return by 72.  For example, an investment earning 6% per year will double in 72/6 = 12 years.  An investment earning 8% will double in 72/8 = 9 years. Flipping the equation around to determine the rate of return is done as follows.  If an investment doubles in value in 10 years, the annual rate of return is 10/72 = 7.2%. The rule of 72 is an approximation that is based on annual compounding.  The true results will differ slightly. Many investment returns are based on continuous compounding which grows a bit faster than annual compounding.  For situations involving continuous compounding, use 69.3 instead of 72. The Rule of 115 is used to figure out how long it will take for an investment to triple in value.  It follows the same process as the Rule of 72.  If an investment earns 7% per year, it will take 115/7 = 16.4 years for the investment to triple in value.   As with the Rule of 72, the Rule of 115 is an approximation.  There are some practitioners that learned this as the Rule of 114.  115 slightly overestimates the time it takes for an investment to triple and 114 slightly underestimates it. If you have REALY big aspirations… use the Rule of 144 to calculate, your investment will quadruple!
Posted on
Determining who is best qualified to help you reach your financial goals, understanding what they can do for you, and getting clarity on how they get paid for their services may be a challenge if this is all new to you. Here are some useful tips to find the right financial professional to help guide you through your financial matters. Designations The finance industry excels at creating financial designations for every conceivable financial situation.  If you are looking for a financial planning generalist who can help you with most issues, look for someone with either a CFP®, ChFC® or CFA® designation. A Certified Financial Planner® (CFP®) is the dominant designation for financial planners. The Chartered Financial Consultant® (ChFC®) designation is similar to CFP®. A Chartered Financial Analyst® (CFA®) is an expert in investment management, but has also studied the basics of financial planning.  In addition to one of these designations, many financial advisors who work in the divorce area also have a CDFA™ designation (Certified Divorce Financial Analyst®). Background Check Once you find some candidates with the right credentials, do your homework and check out their website to see how much experience they have and if they indicate any specialty. You should also look into whether they have had any disciplinary issues with regulators, by performing a FINRA BrokerCheck® search. The Financial Industry Regulatory Authority (FINRA) has a file on every advisor working with a FINRA-registered brokerage firm at www.finra.org/Investors/ToolsCalculators/BrokerCheck Initial Meeting Questions Most financial planners will be happy to sit down with you for an initial meeting at no cost or obligation.  The initial meeting is your chance to learn more about the financial planner and their business, to explain your situation and learn what services the planner offers. The following are some essential questions to ask at the initial meeting. What experience do you have? The financial planner may have significant financial experience but it is the experience they have counseling individuals that really matters. What is your approach to financial planning? Ask what types of clients and financial situations the advisor typically works with.  For example, a planner that specializes on working with business owners may not be the best choice if you are newly divorced and in need of budgeting help. What services do you offer?  Some financial advisors may focus on helping you with your investment needs, where others will also provide comprehensive financial planning (i.e. retirement, education, estate, tax and budget planning). Many planners expect to manage your portfolio along with the other services that they offer.  Financial planners may also be good resources for and work closely with tax accountants and attorneys. Do you work alone or with a team? Financial planning is often done with a team approach where several specialists will assist the lead planner. When your financial planner is in meetings, it is good to know if there is someone else in the firm who can answer your questions or take care of basic requests in a timely manner. How much do you typically charge? How do I Pay for your services?  Financial planners may charge for their services in several ways. If they are only creating a plan for you, it may be a set project price or by the hour. If they are will be managing your investment portfolio on an on-going basis, they may earn a commission on the investments or a charge a fee based on the size of your portfolio. There are numerous questions that you should consider based on your own situation.  Remember that you are under no obligation in this meeting. If you intend to work with this planner over the long-term, it may take more than one meeting to determine if they are the right fit for you.  Whatever planner you decide to work with, make sure you know what services will be provided and how the planner will be compensated.  
Posted on
182478021-cashflow-gettyimagesOne of the challenges of divorce is separating income that used to be joint income, along with separating into two households versus one. This is a recipe for cash flow drain for most couples.  All of the sudden the same income(s) that supported one household must now support two households. I want to share an example of how cash flow solutions can be achieved through the collaborative divorce process.  Assume we have a couple struggling to make their cash flow positive which is often the case with divorce.  A substantial strain on their living expenses is secondary private school tuition for two more years for their child. This amounts to approximately $15,000 for tuition the first year and another $18,000 for the second year.  They are attempting to make these payments from existing income.  The strain of these payments coupled with divorce has become unbearable.  The parents are both determined to keep their child in this private school through the eighth grade. Additional assumptions include this couple having a small first mortgage on their home.  This mortgage requires a monthly payment of approximately $1600.  In our example, we would research refinance options including home equity loans.  After researching options an acceptable bank loan could provide them with the flexibility needed to lower the monthly cash flow shortage from over $1300 to approximately $220.  While this does not completely cover the entire cash flow shortage, it improves it significantly. The parents could draw from other savings if needed to make up this shortfall or look to further reduce some expenses.   An agreement could include that each parent would pay one-half of the cost of the second year private school tuition.  They both would have the flexibility to pay their share of the tuition from income sources, from savings, or some combination of the two. Structuring this part of their plan allows them to accomplish several goals.  One is to keep their child in the private school for the two additional years until graduation.  Secondly, it allows one spouse to stay in the home until the child enters the public school system and graduates from high school.  At that time, the spouse retaining residency in the home could either buy out the other spouse’s interest in the home or the home could be sold with sale proceeds being shared between the two spouses. Not all cash flow challenges can be so easily resolved.  What makes this situation work is everyone knowing what the goals are and everyone working together to help the couple find solutions that are in the best interest of the family and their children. Collaborative divorce, with the use of selected experts in their fields, can help divorcing couples navigate difficult issues with money, children, relationships, and emotions.  To learn more about collaborative divorce visit www.collaborativelaw.org and be sure to check out our blog site on a variety of topics at www.collaborativedivorceoptions.com.
Posted on
172399714Did you know that there is a National Financial Literacy Month?? Well, there is! The powers that be have selected April to be the Financial Literacy Month. Why April rather than July probably goes to the fact that so many people are acutely aware of their financial situation as they write out a check to the IRS. So, what is financial literacy and how does one become more financially literate? Financial literacy is about taking control of your finances by fully understanding the impact of your spending, saving and debt obligations on your financial well-being.  It is about making well-informed purchasing decisions and understanding the difference between wants and needs.  A financial literate individual understands the importance of saving for the long-term. They are committed to the budget that they created, which includes saving for specific large purchases, as well as longer-term financial goals such as a comfortable retirement. Financial literacy involves understanding the pros and cons of debt and being proactive about managing one’s debt obligations.  A financial literate person knows the importance of maintaining a good credit score and gets a copy of their free credit report annually at www.annualcreditreport.com.  Financial literacy is about recognizing when you have a problem managing your debt and getting assistance to help you manage the situation. Financial literacy is also about communicating openly with your significant other about financial matters. It is about teaching your children good financial habits such as saving for big purchases, starting a retirement account early and not getting in over one’s head in debt. So, now that you know what financial literacy is, go to www.financialliteracymonth.com to see what tools and information they have to help you be more financially literate.