Get Financially Fit!
Archive for April, 2006
Life Stages
Apr 15th
In my latest article, I will address one of the comments a number of our readers have shared with us over the past week. Several readers have told us that “building wealth” sounds great, but they just don’t have time to think about this due to other life events and priorities.
The way I’d like to respond to this comment is to outline an illustration of the life stages we go through and the various events that will be competing for our attention:
1. Your Roaring Twenties: At this stage, most of us are concerned about graduating from school, finding a good job, and paying down debt if we’ve financed our education. As we start to accumulate some savings, most of us will find a way to spend most of our income stream on discretionary expenses such as eating out with friends, buying a gadgets or wardrobe, and taking an occasional trip / vacation somewhere. If we’re lucky, a few of us may be thinking about saving or, even better, investing this money.
2. The Thirties: By now, you’re either advancing in your career or thinking about what you want to do professionally for the rest of your life. If you’re in a steady relationship, you also may be thinking about settling down if you haven’t done so already. This means you’ll have some big expenses in store if you haven’t dealt with them already such as owning your first home or paying for your wedding. If you’re already past this stage, then you may be thinking about starting a family if you haven’t done so already.
3. Forties and Fifties: I’ve lumped the next two decades together because I haven’t yet seen a specific differentiator between the two. In general, individuals are reaching the height of their earning power. The areas for concern can include but are not limited to retirement and saving for your kid’s college tuition. I’ve also met many individuals who are starting to re-think their investment strategy and their financial goals at this stage. One of the key concerns is, “Will I have enough and what do I need to do to hit my financial goals?”
4. Your Sixties: By now, you should be enjoying the fruits of your hard work over the past three to four decades. If you’re working, you do so because you want to. If not, then you’re working because you haven’t met your financial plan and don’t have enough to provide for your own retirement. Assuming you’re in the latter, there is heightened urgency to build your net worth and cash flow so you’re able to comfortable deal with rising healthcare costs and other similar expenses that will come up over the next two or three decades afterwards.
Even if this profile isn’t 100% accurate to your unique, individual situation, I’ve intentionally sketched a life stage profile to show the types of real-life events that will distract you from improving your financial education and building your wealth.
If you don’t start now regardless of whatever stage you’re at, then when are you going to build your financial plan? You should start today without delay.
Bonus: During this past week, I discovered an incredible offer from Jay Minton at National Training Institute. If you check out his link in the upper left, he’s giving away a free book, DVD, and eBook. All you pay is the shipping and handling. It may be worth your time looking into this especially if all you have to give up is a latte or two or bring a brown bag lunch to work instead of eating out. I am not affiliated with this offer and will not make a penny if you decide to take advantage of this offer. If you decide this isn’t for you, then I encourage you to review my recommended reading list and visit your local library to start building your financial education!
To your wealth and success!
Brion
P.S. If you have any comments about this article or suggestions for a future topic, let me know through our contact form.
Forum Update
Apr 13th
Dear Financial Fitness Pro Forum Readers:
I hope you have enjoyed the content we’ve posted so far. When we first started this Forum, Jean and I had two goals. First and foremost, we wanted to develop an area that contained a “wealth” of personal financial content. Second, I made a personal commitment to write fifty-two articles by April 2, 2007. Since I practice what I write, you can hold me accountable to this commitment.
Starting this week, I will be posting my own original articles on a weekly basis. As I continue to sketch out my ideas for the next upcoming articles, I am also recruiting additional content contributors for this Forum and your personal financial education. I can’t wait to unveil some of the authors and articles we’re lining up!
On a related note, if any of you would like to recommend a topic, article, or guest contributor, let me know.
To your wealth and success!
Brion
How to Discuss Finances with Aging Parents
Apr 12th
by Eric Heckman
Growing up, many of us were taught by our parents to never talk about money. The subject is viewed as being taboo, like discussing your political or religious beliefs. Adult children who grew up with this mindset typically feel uncomfortable broaching this difficult subject with their aging parents. Many adults are in denial about their parents’ mortality and avoid asking questions about their estates and wills. Oftentimes they do not want to appear greedy about their inheritance or controlling of their parents’ personal matters. However, not discussing this vital issue can lead to significant and irreversible problems in the future.
Today we live in an age where planning ahead makes all the difference. The older generation who was taught to save every penny is now experiencing considerable wealth due to burgeoning real estate and smart investments. In turn, they need to preserve those assets to plan for future life changes.
Adult children can play an important role in making sure their parents’ estate is in order, as well as ensuring they are financially capable to take care of themselves for the remainder of their lives.
The American Health Care Association estimates that the cost of a nursing home can exceed $50,000 a year, while assisted-living facilities average $24,000 annually. If elderly parents are not prepared financially for that care, the burden may rest on their children. According to the 2001 “Retirement Reality Check” survey by Allstate Financial, one in six (16 percent) baby boomers currently assists elderly parents or in-laws financially.
The following tips should help to make that conversation easier and more productive.
1. Pick the right time to talk. You want to make sure to have the conversation when you won’t be interrupted and when everyone is relaxed.
2. Maintain a sensitive stance. Remember, this is a difficult subject for them to discuss. You may not agree with their decisions, but keep in mind they are competent adults. A good way to set the right tone is by saying, “It’s important for me to understand your finances in case I need to help you in the future.”
3. Involve an expert if needed. There are many resources available, such as financial planners and certified public accountants, that can help manage later life decisions and financial issues for families.
4. Make a list of assets and liabilities. This is an important place to begin once the conversation starts. You’ll want to note the date and cost of assets, as this information will be needed for tax purposes if any assets are sold.
5. Establish arrangements for financial management. Your parents will want to consider establishing a durable power of attorney.
6. Know where important documents are kept. Make a list of all important documents, including birth and marriage certificates, wills and trust agreements, Social Security records, burial instructions, insurance policies, bank and investment statements, mortgage and real estate deeds and auto ownership records.
7. Review estate planning and investments. If they haven’t done so already, encourage your parents to develop a plan to maximize their legacy for their heirs. Also be sure to discuss their investment strategy so you have an understanding of their financial well-being.
8. Understand your parents’ healthcare wishes. You’ll need to know where your parents stand on healthcare issues should they ever become incapacitated.
It’s difficult thinking of the possibility of needing care in our elder years – not only when thinking of parents, but also when thinking of ourselves. What is most important to think about is how to plan ahead to avoid disagreements over care and finances. The rewards are endless and the experience will help you prepare for your own future.
About the Author
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU and brings over 13 years of experience to the field of financial planning. You can contact Eric at (408) 297-9800.
Facts Every Couple Should Know
Apr 9th
By Eric Heckman
When couples decide they want to get married, often one topic of discussion is finances. How will the wedding be paid for? How will the honeymoon be paid for? Who will pay for what? After the honeymoon is over, many couples realize that they failed to discuss many other important financial details.
It’s hard to think about what you would do if something happened to you or your spouse, or worse, both. What’s even scarier is what could happen if you don’t discuss your finances while you’re together. The harsh reality is every marriage eventually ends in divorce or death.
You and your spouse should be able to answer these 10 questions about your finances. If there are questions you can’t answer, take the time to sit down as a couple and figure out where you stand.
1. How much do you have coming in and going out? The story for many couples is that more money is going out than coming in, but the first step to overcoming overspending is to recognize it.
2. Do you have a set budget? After you realize exactly how much is coming in and going out, create a budget. Start by listing all the fixed expenses you have, like your mortgage, car payments, credit card bills, utilities, etc. After you deduct all the fixed expenses from your income, take a hard look at what’s left. You should not be spending more than this on unfixed expenses, like entertainment, shopping, vacations, etc.
3. Where do you rank on the credit scale? Your credit history is one of the most important aspects of your finances. There are three primary credit-reporting agencies: Equifax, Experian and TransUnion. You should regularly request a copy of your credit report to see where you stand and make sure you haven’t become a victim of identity fraud.
4. What assets do you own? If your car is only half paid off, you do not fully own it. Don’t forget about long-lost investments you might have made before you were married. Keep all documents together in a file.
5. How much debt do you have? At least once a year you should assess how much you owe to creditors. Are you leaving your loved ones with enough to cover your expenses or a huge financial headache?
6. What future expenses do you face? Make two separate lists of needs and wants with estimated costs. Now look at your budget and this list of possible future expenses and try to determine how much you can afford without going into future debt.
7. Whose name is on what? Review all of the assets you own and do a status check on all that require a beneficiary, such as life insurance policies, pensions and other retirement savings. If an ex-spouse is still listed, they will receive the benefits even if you are remarried.
8. Do you have a will and/or power of attorney documents? If you have small children, you should have a guardian and trustee named for them as well. You should also look into establishing powers of attorney for healthcare and finances. A living will is necessary to ensure that your family and doctors know your wishes should you become incapacitated.
9. Where are all financial documents kept? Being able to find these critical documents quickly can make difficult times a bit easier. Of course your spouse should know where these documents are kept, but it’s also a good idea to let children or other family know as well.
10. Who are your financial advisors? Trusted advisors who are familiar with your finances can steer you through difficult times. Make sure he or she is one that makes an effort to contact you on a regular basis.
These questions cover topics that are not easy to discuss. Making an appointment with a financial advisor might help you and your spouse discuss these topics. The topics that are the least fun to discuss are often the most necessary.
About the Author
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU and brings over 13 years of experience to the field of financial planning. You can contact Eric at (408) 297-9800.
Building Wealth through Teamwork
Apr 8th
On April 5th, Jean wrote about several steps you can take to increase your chances of financial success. Building on top of her article, you can really accelerate your financial success through teamwork.
Generally speaking, it’s very difficult to do everything yourself and be an expert on all topics. If you agree, then the notion of building wealth and making money through teamwork makes perfect sense. In fact, the notion of building a team can be applied several different ways.
- Couples / Partners - A husband and wife, life partners, or even business partners working off the same financial plan can really accomplish more in a shorter period of time than an individual.
- Trusted Advisors – Chances are, you are already surrounded by these experts but do not leverage their knowledge to accelerate your financial success. Examples of trusted advisors could be your lawyers, financial advisors, realtors, etc.
- Mentors – Finding someone who has significant experience in your area can really help you get ahead. Why learn everything the hard way when you can have your own personal coach to help you get ahead faster?
- Networking – This is one of my personal favorites and an area I wish I had developed sooner. It is also an area I personally have to work harder at since I am more introverted by nature.
- Friends and Family – While this can be a rich source of experience and advice, I would tap into this area carefully. Not all of your family or friends will necessarily understand or support your financial goals. Also, your friends and family members may not necessarily have the right experience in the areas you are pursuing. If this does not apply to you, even better!
- Your “Staff” – Have you ever seen a CEO of a Fortune 500 company run the entire show? In your personal life, your staff could be a gardener, the drycleaner, a housecleaner, a nanny or babysitter, automated bill payments, your CPA during tax season, etc. If you have help in the right areas, you can free up to work on achieving your financial plan.
A team can help you work smarter instead of having to work harder. In fact, once you have your team in place, you’ll see the difference almost immediately.
To your wealth and success!
Brion
Co-Founder, Financial Fitness Pro