All Things Financial Planning Blog


Should I Play The Lottery?

“That’s Too Much!” A lot has been written recently about the lottery. There’s a direct correlation between articles written about the lottery and the size of the payouts and with recent ticket price increases, Powerball and Mega Millions jackpots are more often growing to levels that would make even Jay-Z blush. The news hits, the billboards go up and suddenly, there are lines outside of every gas station and convenience store in the country.

I’m not here to bash the lottery. I can even admit, as personal finance expert and blogger Jean Chatzky did in a recent newsletter that when one of the major lotteries reach these fevered pitches, I’ve been known to buy a ticket. But doing a little more digging into our country’s lottery habit has me a little stunned.

For example, a WebMath study reported than one-third of Americans believe the lottery is the only way to become financially stable. One-third. One hundred or so million people who believe that lottery ticket is their only path to financial success.

We know the lottery is a game. We know it is a long shot. In fact, we probably aren’t capable of grasping just how truly big of a long shot it is. Tara Siegel Bernard of the New York Times did a great job in an article earlier this month trying to define the exact odds. Needless to say, they’re staggering.

There’s even a new website,, that will help calculate whether or not the actual payouts and odds of a given lottery are worth the cost.

The point to all this is, the lottery is often most appealing to those who can afford it the least. The pull of potentially solving all of life’s problems with just 5 or 6 lucky numbers overwhelms the facts, which are simple. We’re not going to win.

I hate to be the wet blanket, but as a financial planner, I’m used to the role. If you play the lottery once in a blue moon or as a social activity in a group when the jackpots really get big and know it’s harmless fun, similar to an occasional latte at Starbucks, proceed. We all spend our entertainment money in our own, unique ways. If that few minutes of fun are worth a dollar or two to you, there are worse things you could be doing.

But, if your lottery behavior is much more frequent; if you’re playing both major lotteries, the scratch offs, the nightly state games, etc. in the hopes of winning big. Stop. Take that money and save it. I know you’ve heard this before, but let this be the time you listen.

Save that money. Look at the rest of your spending and where you can cut back there as well. Pick something that you’ve had your heart set on, something that you’d buy without a care with those lotto winnings. Slowly, but surely, watch your money grow. Reward yourself and buy that item, then pick the next savings target. Consider it your own little jackpot. It’s not winning the lottery, but the entertainment value will last much longer and you’ll be well on your way to being a true winner in the long run.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, OH


The 5 Biggest Changes in Personal Finance over the Last 20 Years

Personal-DebtMy son recently turned twenty and it inspired me to reflect on all of the changes in his life as well as in my professional life. My son’s progression has gone from being a baby, to a toddler, to a growing child, to a teenager, and finally to a young adult. He is now trying to figure out his professional place in life as he just finished his first year of college. During that same timeframe, I’ve seen personal-finance go through its own five stages of maturity. Twenty years ago it was more about buying a product, being transaction focused, little reliance on technology, running massive volume plans, and focusing just on the money aspects, not health and psychological aspects.

  1. Let’s face it, our culture must sell products and we’re pretty darn good at it. The problem is that the marketing and slick ads of all the things we buy in America today, don’t always match the quality and integrity. I think the biggest move that our industry has made in the last 20 years was to go from selling a product to following a process. The process includes a comprehensive financial plan. The financial plan not only talks about investments but also about understanding debt, figuring out a budget, understanding human capital (what we think of as our skills to make money for ourselves), reviewing your insurance for the major risks in life, and understanding that all of these things are linked together in order to get us all to the finish line.
  2. The transaction focus over the years has ebbed and flowed in terms of the hyperactivity in order to get better performance. Back in the olden days, it was about transactions because that’s how many advisers were paid. It was said that advisers are not in the storage business they’re in the moving business. Today the focus is on asset management for a fee, retainers, hourly fees, and project fees rather than commissions. Although I see a bit of a backlash happening in the last few years where it appears technology is getting ahead of the small investor. The advent of massive millisecond transactions have caused us to doubt the integrity of the system which the world of investments is built upon. We had multiple occasions like the “flash crash” and the search for algorithms giving institutions a major-league advantage over the average investor.
  3. For those who need help with their finances, the place to start your search is to ask a friend if they know somebody that’s good. Yet the next step is to get on the Internet and search for someone that appears to fit your standards. Even though it’s like trying to take a sip out of a fire hose every time you do a Google search people are finding most of their initial information on the internet. Today, I feel it’s much more of a collaborative effort between the adviser and the client. The adviser gathers the information needed to better help assist the client in making decisions. The best advisers these days are more of a librarian than a master of many disciplines.
  4. The financial plans that we put together over the years can be extremely comprehensive and lengthy. The problem with that is that planning by the pound doesn’t always get things done because most people are very busy these days and just want to get down to a summary version. I know that because I do a daily radio show commentary and 14 years ago I had 3 minutes to talk, today I have a minute and 10 seconds. A more modular approach works better because it talks about your specific problem at the moment and how you fix it. I feel that the best plan these days is to have one page versus 100.
  5. Probably the most important change that I’ve seen over the last 20 years is that financial planning has gotten much more holistic. It is about looking at the big picture and trying to incorporate wisdom, along with emotions, as we see the springing up of behavioral economics and why we do what we do. Reading a book like Daniel Kahneman’s Thinking, Fast and Slow (he was the first psychologist to win a Nobel Economic prize) should be mandatory for anybody who’s going to invest or put together a financial plan. It’s really critical to try and take health, wellness, happiness, human capital, emotions, relations, and wealth together as they are all part of the playing field.

The world of financial planning and investment advisory has moved steadily in the right direction over the last 20 years and I hope that it will continue to do so. There is certainly a lot of room for improvement yet I feel that some of the breakthroughs that we’ve seen in healthcare and technology over the last two decades are going to find their way into a simpler, more comprehensive blend of our money and life connections. Robbers used to say, “Your money or your life.” The next phase of financial planning is going to be “Your money and your life!”

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA


I Don’t Understand My Financial Plan

Get Your Questions AnsweredRecently reflecting on some of cinema’s greatest intellectual quotations, I was reminded of movie Detective James Carter’s infamous query in 1998’s Rush Hour. Chris Tucker’s character eloquently asked Jackie Chan’s character, Chinese top cop Detective Lee, “Do you understand the words that are coming out of my mouth?”

Ok, maybe not one of the most memorable moments on the silver screen, but a funny movie that stands up well fifteen years later. But, that’s not what we’re here to discuss. The quote actually jumped into my head during a discussion about how we communicate with one another, especially in advice-based relationships.

A seemingly infinite amount of information is available on virtually every issue known to humankind, all searchable within seconds from any place with access to the World Wide Web. How we process this information, understand its meaning and filter the good, the bad and the ugly really depends largely on whether or not the information is communicated in a manner we can comprehend.

This certainly has its applications in the world of personal finance. I’d argue the personal finance industry at-large, more often than not, adds layer upon layer of complexity to relatively simple concepts in order to add an air of sophistication and justify an unnecessary amount of cost. I won’t go further on that today except to say that if something sounds too good to be true, you can’t understand it, what it costs and what risks are involved, run away.
Instead, I want to focus on the authentic struggle many financial planners and advisors have in working to develop the right communication strategy based on their clients’ needs.

Scalability allows a company to grow, taking a successful model and increasingly diluting it for consumption by an increasingly growing audience. The problem with scale in the financial planning business is that those seeking advice are all at different points in their lives, with different goals, different resources to meet those goals and different ways to achieve success in meeting those goals.

We also all comprehend things differently, learn through different stimuli and apply concepts to our daily lives at different speeds. Confused? Me too. What does all this mean?

It means that we have a gap in the relationship between financial planning professional and client that both sides have to work to fill. Financial planners need to ensure they have a process in place to help identify how best to communicate concepts and recommendations in a manner that best suits each client involved.

The client, on the other hand, has the duty to speak up when they don’t understand something in their plan, be it an investment recommendation, the path to reach a savings goal or a concept or term used to illustrate a point or answer a question. “I don’t know” or “I don’t understand this” are not only acceptable responses to questions posed or information presented by a financial advisor, but should be a welcome opportunity for the advisor to take an improved approach in helping the client comprehend, thereby teaching the advisor a little more about communicating with their client and challenging them to find better ways to illustrate concepts in the future.

The bottom line is, we all need to be more vigilant about what we understand about the decisions we make and are made for us in our daily lives. When it comes to an advice-based relationship, the more we question, challenge, and discuss, the deeper, more rewarding the relationship will be. Wowing someone with the ability to use big, complicated words to make a point isn’t a talent. Effectively communicating in a manner that gives your audience the best opportunity to understand is.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, OH


Take Charge of Your Financial Literacy

End 2010 with a “KISS”As you may have seen on this or other sites, April is Financial Literacy month. While some people go back and forth as to whether or not literacy is the right term, the fact is it’s never been more crucial to have a good grasp of your own personal financial situation and to educate yourself and your family as to how they relate to money.

Movements to include more financial education at all levels have cropped up across the country. Many states have passed laws mandating some level of financial education in state curricula, but funding has not followed. Many business leaders have called for an increase in awareness and education, but concrete solutions have not been realized. I attended the RISE Conference at the beginning of the month where even Federal Reserve Chairman Ben Bernanke referenced the need for financial education as a key pillar to improving the long term economic picture for our country.

So, what does this mean to me and my family?

Efforts by federal, state and local governments, school boards and other institutions to determine how best to increase personal financial education amongst all Americans is an admirable goal, but one likely to take a generation or more to truly have an impact.

That’s not to bemoan those efforts. Shifting how a population thinks about something as fundamental to our lives as money is a big job. It’s simply to suggest that perhaps it’s time those of us that are so inclined pick ourselves up by our proverbial boot straps and take charge of our own financial education.

How do I do that?

It all depends on your current personal financial knowledge, what areas need some improvement and who you are. No matter where things stand in your life, there are countless tools available to help. Yes, the internet can be a bit of a gamble as to the quality of information available, but that’s no excuse for not taking the time to seek out free or inexpensive resources that could dramatically change your financial future.

Giving specific examples of where to go to find great resources for all the various stages of life is a whole series of blogs for a different day. For now, I’ll just give you a quick list of some of my favorites.

Starting Young
For teaching children some of the basic tenets about respecting money, there’s a new website called The Secret Millionaire’s Club. The club was partially developed by Warren Buffett who acts as the mentor in the animated series to a group of entrepreneurial kids. Guest appearances by Jay-Z, Shaquille O’Neal and other celebrities add to the fun. The website features information on how to access videos, related games and other tools to help kids embrace strong financial values.

Establishing A Budget
Ah, the monthly budget. A process loathed by many and fully embraced by few. Yet, we know it to be one of the best ways to keep spending in line. There are lots of tools out there to help make this process a little less of a chore. My current favorite is You Need a Budget or YNAB. YNAB is great because it’s not just a way to track spending, but a whole philosophy shift in how you approach your month to month needs. The software comes at a cost, but the related education tools around spending, taxes and other financial areas add lots of value.

If you’re more interested in just seeing where the money is going and keeping track of your assets and liabilities, Mint offers a free service through their website which is widely established as an industry leader.

Saving For College
Surprisingly, the College Board administers much more than just the SAT. It’s also a great resource for learning more about financial aid, college scholarships and the college planning process. If you’re just looking to get over that shock of how much you might need to save to help pay for a child’s education, Bankrate has a great calculator that allows you to add multiple dependents, choose between in-state, out of state and private schools and include savings you’ve already stashed away.

This is far from an exhaustive list, but just a way to get you started thinking about different ways you can improve your financial IQ on your own. None of this takes the place of finding a trusted adviser to provide one-on-one advice when you want to get serious about your specific situation, but a lifetime of improved decisions about your money starts with the first step.

Don’t wait another month or for another reminder about how important your personal finances are to your life. Take that first step today!

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, OH


Protect Yourself Against Identity Theft

Young Adults Should Learn to Manage Money Without Credit CardsIdentity theft is an increasingly worrisome topic for many. With more than a million people affected by identity theft each year, the below are some steps and strategies you can implement to ensure you and your family are protected:

Check Your Credit Annually. Visit a website such as for a free copy of your credit report and verify all information is accurate. For an extra layer of protection, consider enrolling in a credit monitoring service which can monitor all 3 credit reporting agencies in real time and alert you of any unusual activity.

Review Credit and Debit Card Statements Monthly. Take time to ensure all transactions are legitimate. If you see a questionable charge, contact your bank or credit card company immediately.

Keep Your Personal Information Secure. Don’t share personal information such as your full name, date of birth, SSN, address or phone number over the internet unless it’s a site you’ve initiated contact with and you’re certain it’s secure. Refrain from posting personal details such as your birthday or address on social media sites.

Limit What You Carry. Don not carry your social security card and limit the number of credit cards you have on hand.

Purchase a Micro-Cut Shredder. This machine ensures that your documents cannot be pieced back together. Use it to turn old financial statements, bills, credit card offers and any other secure or personal information into paper confetti.

Opt Out. You can opt out of prescreened offers for credit cards, insurance and more by calling 1-888-567-8688 or visiting

Keep Your Snail Mail Safe. Instead of leaving your outgoing mail in your mailbox, drop it off at a secure USPS center. In addition, if you know you’ll be out of town for a few days, request a vacation hold on your mail.

Keep Your Passwords Safe, Secure and Unique. Make sure your passwords are strong and get creative with them. Use a combination of letters, numbers and symbols and update them every few months. Think you’re already unique? Check out this list for 2012’s most common passwords:

Bulk Up on Security. Safeguard your computer with firewall, antivirus and spyware protection and update them often. This will protect your computer and files against intrusions.

Be Cautious of What You Click. If you receive an e-mail from a stranger or even a friend with links and attachments, know that opening them could expose your computer and files to a virus. Ask yourself if any part of the e-mail looks suspicious before clicking on links or files.

The above are just a few smart steps to ensure your identity is protected. Remain vigilant about how you share your personal information and who you share it with. Do your research and take necessary precautions to ensure your identity remains with you and you only.

Mary Beth Storjohann, CFP®, CDFA
Senior Financial Planner
San Diego, CA


Paragliding Off the Fiscal Cliff

Asset-Allocation-in-a-CrisiWell the fiscal cliff, much like the Mayan calendar, and much like Y2K, was just another non-event. A lot of buzz with even a lot more fizzle. The sun has risen, aircraft are safely landing and football dominates the thinking of sports minded folks as we all enjoy the first day of the New Year and the rest of our, hopefully long, lives! Not to downplay the significance of what could have happened had all things remained unsettled and all provisions of previous tax and budget agreements been exercised, just a comment on how often we hear that the World is coming to an end only to find that through all the huffing and puffing nobody’s house was blown down.

Soon we will learn more about the specifics of the 11th hour agreement and we will then hear lengthy discussions from the media and others about how ‘the can just got kicked down the road’! Yes, there are components of the bill that will be ‘permanent*’ but there will still be budget deficit ceiling negotiations, tax reform* discussions and entitlement reform to deal with in the next two months before we can say we have our fiscal house in order, whatever that may look like, remembering that there are differences in opinions about balanced budget management requirements versus budget deficit flexibility, etc., etc. etc.

The Tax Policy Center has estimated, as a result of the Taxpayer Relief Act of 2012, an average annual ‘pocketbook’ hit depending on the following levels of taxpayer income …

$20,000 to $30,000 $297
$30,000 to $40,000 $445
$40,000 to $50,000 $579
$50,000 to $75,000 $822
$75,000 to $100,000 $1,206
$100,000 to $200,000 $1,784
$200,000 to $500,000 $2,711
$500,000 to $1,000,000 $170,341

[Chart courtesy of LA Times, author Alana Semuels]

Taxes on Earnings
Payroll. Everyone will feel the loss of the 2% payroll tax holiday starting January 1, 2013. If you make more than $200,000 (single) or $250,000 (married filing jointly) you will also feel the PPACA (Obamacare) 0.9% additional ‘health care’ tax taken from your paycheck.

‘Ordinary Income’
Wages and interest income (as well as short term capital gains) will be taxed at the ordinary tax rate brackets which will remain the same as prior years (Bush tax cuts) except for individual taxpayers earning over $400,000 or married taxpayers earning over $450,000. Those taxpayers will see their tax rates go as high as 39.6%. For individuals earning more than $200,000 and married couples earning more than $250,000 there will be a 3.8% ‘health care’ tax added to the taxes paid at ordinary rates for interest income earned (and short term gains but not for wages).

‘Capital Gains and Dividends’
The good news here is that capital gains (long term) and dividends will both still get favorable capital gains tax rate treatment of 0% or 15% if your income is under the $400,000/$450,000 level. If your income is over those amounts, a capital gain maximum rate of 20% will apply. Let’s not forget, however, that the 3.8% ‘health care’ tax ($200,000/$250,000 income levels) comes into play here as well making the potential capital gains rate for those making more than the $400,000/$450,000 a maximum 23.8%.

Alternative Minimum Income Tax (AMT)
This is a break, if you can call anything about AMT a break. For each of the past several years tax preparers have had to wait until the last minute for Congress to come up with a statutory AMT exemption amount (it is like our standard deduction that we have for regular tax purposes) so that we would know who would or would not become subject to AMT. If Congress had not upped the 2012 exemption amount to $78,750 for married couples and $50,600 for individuals, a married taxpayer could have had to pay, perhaps, as much as $8,775 more in taxes in 2012 [$78,750 – $45,000)(.26)].

Itemized Deductions and Personal Exemptions
A couple of years ago there was an income phaseout employed to reduce the benefit a higher income earning taxpayer would get from itemized deductions and personal exemptions. That phaseout for itemized deductions is being brought back for 2013 and will start at $250,000 for individuals, $275,000 for head of household and $300,000 for married filing jointly. Personal exemptions will have the same phaseout dollar filing status threshold amounts, again, for tax years 2013 and thereafter.

Extended through 2013

  • Tax free distributions from IRA to charity
  • Educator expenses
  • State and local sales tax deduction
  • Debt relief income recognition exemption for qualified residence indebtedness
  • Variety of energy tax credits for energy efficient homes and energy-efficient appliances.

Extended for five years

  • Enhanced earned income credit
  • American opportunities credit

Extended permanently

  • Child tax credit of $1,000

Estate tax

  • Estates that exceed $5,000,000 will see the estate tax rate increase to 40%
  • Annual gift tax exclusion amount is $14,000 per individual for 2013

Again, the good news is that we didn’t end up like Thelma or Louise and we didn’t experience the thrill of a bungee-cliff-dive, both very good things. The bad news is that we seriously need to bring all sides together to address long term fiscal soundness through tax, entitlement and budget reform. All in all this Taxpayer Relief Act of 2012 is very modest in tax law changes and tax savings so a lot of work will need to be done in the next two months. Let us hope that this year’s group of elected officials can get the job done! Happy New Year to All!

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA

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Why I’m Thankful for Financial Planning

This week is Thanksgiving, my favorite holiday of the year. My day will kick off running 10k with thousands of my closest friends in Cincinnati’s 103rd Thanksgiving Day Race, widely considered one of the nation’s oldest road races. The rest of the day will include relaxation, a little football and plenty of turkey. No gifts or undue stress, just a day to reflect on what’s important and that for which we’re so thankful.

I want to borrow from fellow blogger Lee Baker, who shared his Top 10 Reasons I’m Thankful post ( one year ago today, but with a financial planning twist. Many times each week, I’m reminded why I’m fortunate to have found my calling in this business. As I thought about my Top 10 list, I realized that what I do and why I feel so fortunate likely differs from what the average person thinks about when they think of financial planning.)

So, rather than create a list, I want to share the part of my work I enjoy most and believe provides the most value to those I’m fortunate enough to serve. I’ll be careful to speak for only myself, but I’m certain there are many more advisors that echo these thoughts.

Planning to me is not managing an investment portfolio. Sure, that’s a skill most of us have and a crucial tool in carrying out a successful plan, but it doesn’t get to the “why” of what we do. What does is when we are able to truly understand our clients’ beliefs, values and goals, help them assess where they are in reaching them and then provide real world, practical advice around those things they can control.

A good example is talking to clients about saving for college. It’s not developing the numbers behind an optimal college savings strategy. There are lots of online calculators that can provide that data. It’s talking with clients about helping their goal to help a child earn a degree without monstrous debt, but not allowing them to take their education for granted. Understanding a client on that level ensures that I’m not just projecting expenses on a spreadsheet. It means I’m helping them use their financial resources to instill the values they wish to share with their children. No online calculator can have that conversation or share that understanding.

There are many more examples for all areas of a thoughtful financial plan. There’s no question that these are the toughest areas of our business to put numbers to, but I am confident that it is these discussions and the decisions that follow that ultimately lead to a successful experience for clients. It can sound hokey, but developing those relationships and helping an individual or family achieve even more success that they otherwise might gives me the greatest joy.

Wherever you find yourself tomorrow, I do hope you have a safe, happy and reflective Thanksgiving holiday and that you’re able to share it with close friends and family.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, OH