All Things Financial Planning Blog


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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, ShouldIPlaytheLottery.com, 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


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Are You Better Off Today Than Four Years Ago?


Every day we get bombarded with reminders that we are not better off than we were four years ago. Obviously, if we have been unemployed during some or all of that time then we are not better off than we were four years ago. Having someone close to me in that situation I am able to see first hand how that has played out.

But what about the rest of us? Are we better off than four years ago? As a financial planner, I have opportunities to have that type of discussion frequently with clients or potential clients when we discuss their financial history. I thought I would make this blog a discussion of how some people have responded to this type of discussion or question.

Here is what the big picture is when I ask this question of people I interact with – if it is a recent observation then they probably do not feel good about the way they look at things. If, however, we discuss the issues over the entire four year spectrum, then they start to realize that things are probably better. Let me share how these issues come about.

Things that are better than four years ago:

  • Their mortgage rate is lower because they refinanced and significantly lowered their interest rate – one client went from 6.6% to 5% and the payment was lowered by $1,000 per month.
  • They stayed the course with their investment portfolio during the entire period. One client had $50,000 at the start that dropped to $35,000 and has since grown to $63,000 as the markets recovered. This does not include new money they invested.
  • That same couple continued to contribute to their 401k plans and they see that the per share prices for new contributions were lower in the early part of the four years so they have more total value today than they would have if the market had not recovered as it has.
  • Another couple was able to pay down their credit card debt faster than they have in the past, in part because they had refinanced their mortgage and used the extra money to apply to the outstanding credit card balance.
  • Several clients now had jobs versus being unemployed four years ago. During that time they used up much of their savings but now they had a new job, new career and things looked brighter.

What about the people who do not feel better off today than they were four years ago? In many cases the issues cited were based on more current observations:

  • They use their car a lot and the price of gas is much higher so they are spending a lot more of their weekly paycheck for gas.
  • They had credit card debt that they are struggling to pay off and the interest rates are very high so not much is going to reducing the principal amount owed with each payment.
  • The ones with credit card debt are also not able to get an equity loan on their home or to refinance the first because the first mortgage is higher than the current value of the property. In a few instances, the interest rate on the first mortgage is also higher than what it could be if they refinanced.
  • For some who have been scared off from investing in the stock and bond market, they see no growth in their investments because they have it all in cash. They are very afraid to get back in the market because they in some cases were burned from the earlier downturns in 2000 or thereabouts.

As you review this blog and the issues cited, how have you reacted to the issues in your specific situation? Are you thinking that things are going to be better or worse four years down the road? If you think they are going to be better, has that changed the way you look at how you save and invest for your future goals? If you think they will continue to be worse, does that make you even more conservative in how you invest for those future goals?

I would be interested in hearing from those who read this blog to get your insights.

FrancisStOnge

Francis St. Onge, CFP®
President
Total Financial Planning, LLC
Brighton, MI


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We’re Married. Now What?


With six wedding ceremonies to attend this year, 2012 has been the year of marriage celebrations for me. It’s an exciting time in many of my friend’s lives and I couldn’t be happier for them! However, as the months after the ceremony roll on, questions have been popping up as to the best way to merge finances, what debt to pay down first, what steps to take to change names, and what else is out there that they haven’t even considered. In hopes of assisting my friends along with the many other newlywed couples out there, below are some items to consider in the days and weeks after your marriage:

Name Change: Post wedding, make sure you obtain at least 3 copies of your official marriage certificate from the county clerk, which is where your name change will be indicated. You’ll begin the name change process by first obtaining a new social security card (visit http://www.socialsecurity.gov for more information). From there, visit the DMV to update your driver’s license and then move on to your passport, employer, voter registration, bills, bank accounts, etc. It may be helpful to make a list of all the accounts you’ll need to update.

Taxes: You and your spouse may begin to file your taxes as “Married Filing Jointly” in the year that you are married. Be sure to check in with your accountant as to if that is the best route for you two and update your withholding elections through your Human Resources department if appropriate.

Money Mergers: Hopefully you and your spouse had more than just one conversation about money pre-nuptials. Some things to consider in the days ahead are whether or not to open a joint account. If you decide to go this route, also discuss if you will maintain separate accounts or if everything going forward will be deposited into your joint account. Work out a detailed spending and savings plan and ensure the two of you are on the same page with how your money is being managed and spent.

Assets & Liabilities: Create a list of all of your accounts, including Roth IRAs, 401(k)s, checking, savings, and any other personal cash or investment accounts. Decide if any accounts (aside from retirement) should be consolidated and if you’d like to add each other to titles of cars, property, or any other assets. In addition, review your investments and take some time to adjust your allocations so that it is appropriate based on your combined goals. Also create a list of any outstanding debts such as: credit cards, student loans, mortgages, and car loans. Prioritize your debt re-payment plan by focusing on those balances with the highest interest rates first – likely your credit cards.

Insurance Needs: For items like car and health insurance, evaluate each of your plans and pick the better of the two. Your car insurance should provide the best coverage for the most reasonable price. For health insurance, ensure that your current doctors are available under your spouse’s plan or that you’re okay with making a change if necessary. With life insurance, first determine the amount of coverage needed by considering outstanding debt and the loss of household income that would occur should something happen to either you or your spouse. For young couples just starting out, look into term coverage, which should provide coverage at the most reasonable rate.

Beneficiary Update: An item that is commonly overlooked by newlyweds is the updating of beneficiary information. If you and your spouse determine that you’d like to name each other as beneficiaries, be sure to contact your HR department at work and any companies that hold a life insurance policy or retirement account for you to make necessary updates.

Estate Planning: In the months ahead, consider establishing Durable Power of Attorneys for finances and health care and creating a Will that addresses your combined assets and wishes.

The list above won’t address all of your financial concerns as newlyweds, but by taking the time to go through each item together and consulting your accountant, financial planner, or attorney, you will start your new marriage on a financially healthy road to success.

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


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The Affordable Care Act Upheld by the High Court


On June 28, 2012, by a Supreme Court vote of 5-to-4, President Obama’s much debated landmark health care bill signed into law on March 23, 2010, known as the Affordable Care Act (ACA), was found constitutional. The majority opinion, including Chief Justice John Roberts, upheld the individual mandate, (the requirement for all Americans to purchase health insurance), under the provision of the government’s right to tax people who chose not to purchase insurance. What will this mean to you?

As a financial planner I know the financial risks associated with health care costs. Increasing health insurance premiums, lack of adequate insurance due to unaffordable premiums, and most critically – the inability to purchase any insurance at all due to a pre-existing medical condition have all led to financial strain or possibly bankruptcy for many American families and individuals. A 2009 Harvard study found that medical expenses contributed to over 60% of US bankruptcies. Within my practice I have personally counseled a client who was considering a possible bankruptcy due to medical expenses and felt frustration with another client in her early fifties who simply could not buy insurance after her deceased husband’s plan would no longer insure her. She remained uninsured for several years until she qualified for Medicare. Most financial planners are intensely aware of the need to consider substantial health care costs within a financial plan. Will the Affordable Care Act provide a level of financial security and medical coverage that so many currently do not have?

There are many provisions to the law as detailed at www.healthcare.gov. Several provisions that have been most popular have already been implemented such as…….

  • Young adults can stay insured on their parents’ health plan until the age of 26. It is estimated that this provision has insured approximately 3 million young adults.
  • Children with pre-existing conditions cannot be denied coverage.
  • Insurance companies cannot rescind your coverage due to an application error or other technical mistake.
  • Lifetime limits of coverage are eliminated. A family will not have to worry about exceeding their benefit limits in the case of a catastrophic or long-term illness.
  • Small business tax credits have been established to help employers provide insurance coverage for employees.
  • A menu of free preventative services is now available.
  • Prescription drug discounts for seniors.

Many additional consumer protections will be implemented over the next 18 months. The final provisions effective on January 1, 2014 will include prohibiting discrimination due to pre-existing conditions or gender and eliminating annual limits on insurance coverage. Learn more about the timeline of the Act’s provisions.

With the Supreme Court decision, Americans will be required to purchase health insurance or pay a tax for non-compliance. Individuals of limited means will receive assistance under the law. Some may call this personal responsibility; others may say this provision of the Affordable Care Act is unconstitutional, – but no matter one’s opinion, it seems that the ACA is law.

As a financial planner, I am anxious to see how this law may impact the financial lives of my clients. Will health care become affordable and easily obtainable for American families – will insurance claims be paid when submitted – will buying health insurance really translate into “health care”? I am optimistic. Our current system has left many behind – I hope this new Act will actually provide “Affordable Care”.

Pamela SandyPamela Sandy, CFP®
Founder
CONFIANCE, LLC, Financial & Investment Advisors
Cleveland, OH


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Insider’s Guide to Finding a Financial Planner


“Hi, I think I’m interested in a financial planning but I’m not sure of the scope of a financial planner. My priorities are reducing my personal debt, planning for retirement and planning to support an aging parent. Would a financial planner design a debt-reduction budget as well as a long-term financial plan?”

Answer –

Finding a financial planner is, in many ways, similar to finding a family doctor. Many characteristics that help define a “good” doctor also apply to a good financial planner. A good financial planner should be able to understand your needs, desires, and fears, and be able to distill all that information down to an understandable and actionable financial plan. 

Of course, financial planners come in many different forms and it is extremely important for you to understand your options. Are you looking to work with a financial planner on an on-going basis? Are you looking for someone to analyze your current situation and provide you with an action plan? Or are you looking for someone to help you review your situation annually once the plan is set up? You should first have a clear understanding of your needs before contacting a financial planner as it will help you narrow down your search quite a bit. 

Keep in mind that financial planners are paid in several different ways, including commission-only, fee-only, salary, or a combination of these methods. In general, you may receive more objective advice from a fee-only planner who doesn’t have an incentive to steer you toward a particular investment or insurance product. The only downside is that the fee you pay a fee-only planner might be higher than what you’d pay to a commission-based planner. Financial planners typically work with you in person, but also may be able to consult with you over the phone

It is also important to keep in mind that many planners specialize in different areas of financial planning. Some may specialize in retirement planning, while others may focus on insurance planning. Some financial planners might even have expertise in college planning or elder care planning. It is important to ask plenty of questions about the planners’ expertise and qualifications before engaging them in an on-going relationship. 

Here is a list of things that a qualified financial planner can help you do –

  • Set realistic financial and personal goals
  • Assess your current financial health by examining your assets, liabilities, income, insurance, taxes, investments, and estate plan
  • Develop a realistic, comprehensive plan to meet your financial goals
  • Put your plan into action and monitor its progress
  • Stay on track to meet changing goals and circumstances
  • Keep you informed of changes in the industry, markets, and tax laws that may affect your plan.

So how do you get started? You can start by asking for names from friends or business associates that you trust. You can also approach your attorney, accountants, insurance agents, bankers, or other trusted advisors. You can also obtain a list of financial planning professionals through the Financial Planning Association website.

Best of luck in your search for a financial planner who can help you meet your goals.

Andrew B. Chou, CFP®
Senior Portfolio Manager
Westmount Asset Management, LLC
Los Angeles, CA


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Finding a Financial Advisor Who Complements Your Style


To enjoy a successful financial advisory relationship, both the client and financial planner have expectations and styles that need to fit like a glove. This article is intended to help you identify your expectations, so you can match with an advisory style most beneficial to you.

 Advisors often profile prospective clients as “delegators,” “validators” or “do-it-yourselfers.”

Delegators want little involvement in their financial affairs due to a lack of time or interest. Delegators are happy to give up control and authorize their financial advisor to implement strategies on their behalf, either with or without prior approval. Delegators may work with brokers or high-touch fee-only financial advisors who charge based on assets under management. Delegators with significant wealth may also use family office services for bill-paying and personal financial bookkeeping. 

Validators often have a vision of their financial future and are simultaneously uncertain exactly how to reach their destination. Their financial acumen may range from very limited to experienced, yet they often feel confident in their decision-making ability. They also recognize that, as a professional with wide experience, a financial planner can supplement the valuator’s own knowledge and understanding. Validators are willing to pay reasonable fees for services. They want both advice and the ability to maintain control over their finances. Validators are eager to learn and participate in the planning process. They typically chose fee-only (no product sales) financial advisors who may or may not charge a percentage for assets under management. 

Do-it-yourselfers (“DIYers”) are highly involved with the details of their personal finances. They regularly comb through the financial news and publications. They may even read prospectuses! DIYers often feel they can captain their own financial ship better than anyone else. They keep good records, often track their spending and prepare their own financial forecasts. A DIYer foregoes the following benefits of financial planning services: uncovering “blind spots,” objective feedback and advice free of emotion, access to cutting edge knowledge through continuing professional education, and experience based on working with many clients. Financial advisors recognize that DIYers are not willing to accept help at any fee. DIYers may interview many financial professionals, yet ultimately decide to rely on themselves.

As well, financial planners and advisors come with a variety of educational backgrounds, certifications, philosophies and fee arrangements. You can find descriptions of many types of advisors.  In addition, there are checklists for interviewing potential financial planners and a summary of how planners charge.

CFP® practitioners and members of the Financial Planning Association (FPA) are distinguished from other financial advisors by adhering to a required fiduciary standard. In essence, this means the advisor must always place the client’s interest first and fully disclose any potential conflict of interest. This is higher bar than the suitability standard required for brokers and other sales representatives. Their recommendations need only be suitable for you as a client. 

If you’re looking for the right financial planner, be sure to check out PlannerSearch!

Constance Stone, CFP®
Co-Founder, President
Stepping Stone Financial, Inc.
Chagrin Falls, OH