January 30, 2010 11:32:00 PM
Jan Swoope - [email protected]
Flabby abs send Americans to the gym in droves with the dawn of each new year. We resolve to improve our fitness, to feel better, live better. Likewise, almost as many well-intentioned souls commit to improving their finances: Save more, spend less, pay down credit cards, get that will done, review asset allocation — or, in some cases, just pray there is an asset when all is said and done.
Getting financially fit, just like firming those abs, requires a commitment lasting long after the first flush of January. Financial planning isn’t “only for the rich,” as some seem to think. It is, as defined by the Financial Planning Association, “the long-term process of wisely managing your finances so you can achieve goals and dreams, while, at the same time, negotiating financial barriers that inevitably arise in every stage of life.”
“The new year is an excellent time to review your goals, objectives and your timeframe,” says Rhonda Ferguson, a certified financial planner and owner of Financial Concepts in Columbus. “What are the most important issues for you financially, and when are the deadlines?”
Cash management, protection (insurance), investing, retirement planning, tax planning and estate planning are all part of the big picture. While no one article could reliably touch on it all, it’s hoped this one, with insight from a few professionals, might serve as a reminder that there’s no time like the present to begin — or review — your financial fitness routine.
The complexity and scope of any plan will vary depending on the number of dollars and goals involved, but authorities agree they all have the same starting point: Knowing what is coming in and where it goes.
Gary Keller grew up in West Point and now serves as a financial advisor with Wells Fargo Advisors LLC in Sarasota, Fla. In 2009, he was named by Sarasota magazine (for a second year) as a Five Star Wealth Manager, an elite group representing less than 6 percent of the more than 2,000 wealth managers in that city alone.
“Have a budget,” he states. “Everybody hears that, but we all need to look at our spending, see what’s discretionary and what’s mandatory and cut back where we can. Discipline and accountability are major components of a budget.”
Your written budget, of course, is only as good as the numbers plugged into it. To get real figures, experts recommend tracking spending daily for at least several months to discover where income goes. Most people, for instance, are shocked to see on paper the percentage of monthly money swallowed up by eating out for lunch every workday. An inexpensive columned ledger from any retailer and an old-fashioned pencil are enough to get started.
“You need to review your budget annually,” notes Ferguson. “Even if you think you’re doing well, you need to look; there may be an expense that’s gone up, or maybe even down. Maybe you installed energy-efficient appliances, and your electric bill has gone down. If you don’t account for that extra, it tends to fall into a black hole.”
Don’t forget the dog
When calculating what it takes monthly to live, don’t forget to pro-rate periodic costs, including home, vehicle and life insurance, car tags and even recurring, predictable annual medical or veterinary bills. The more known expenses you can enter into the equation, the more realistically you can plan for the unknown.
And there will certainly be unknown.
“When I have people come in, maybe a young couple, saying, ‘We’ve got $500 to invest,’ the first thing I ask is if they have money set aside in an emergency fund,” said Ferguson. “It’s really the foundation; you need to have it set aside for emergencies, or opportunities, or you’ll end up using credit for them.”
While it’s generally recommended to have at least three to six months of living expenses in an emergency fund, in the still-fragile economy, some financial pundits are suggesting 12 months. The figure adequate for each family will depend, in part, on the amount of readily-accessible funds available in other areas of your financial portfolio.
What are they saying about you?
Your credit report contains a wealth of gathered information about your financial history and habits. It heavily impacts how potential lenders of cash, credit or services — and sometimes prospective employers — evaluate you. It should be carefully monitored for mistakes or signs of identity theft.
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies — Equifax, Experian and TransUnion. Request them through www.annualcreditreport.com. Or contact the service by mail at Annual Credit Request Service, P.O. Box 105283, Atlanta, GA 30348-5283. (Others advertise free reports, but this is the only site authorized and sponsored by the reporting companies themselves.)
You can also ask credit reporting companies to exclude your name from lists for pre-approved, unsolicited credit and insurance offers. To find out more, call 1-888-5OPTOUT
The Federal Trade Commission cautions against companies making claims for credit repair. These so-called “credit clinics” do not do anything that consumers cannot do for themselves at little or no cost, according to the Annual Credit Report Web site.
Pay yourself first
When it comes to saving, “It’s very important to pay yourself first,” says Ferguson. First, before dining out, movies and shopping have decimated the monthly kitty. A structured savings plan, no matter how meager the amount, is the first step to creating wealth to weather the storms and sail into retirement.
“You’ve got to take responsibility for your retirement,” Ferguson stresses. “Most people don’t have a pension where they work any more.” She favors maximizing before-tax contributions to a 401K, if it’s available, and then contributing toward a Roth or traditional IRA.
“Before-tax deductions ... are effortless; it comes right out of your paycheck,” she adds. “And money we don’t get is easier to save then money we do get.”
Keller states, “Every person I hear of that’s either in retirement or getting anywhere close to retirement is wondering how the economy will affect their income. The question is: Will we outlive our income? The demographics show we’re living longer, and we’re retiring earlier. We have to take the big picture approach.”
When working with clients, Keller generally employs a teamwork strategy, which incorporates the expertise of the client’s chosen certified public accountant and estate planning attorney.
Wills, power of attorney
Dying without a will — dying intestate — can devastate families. The state, not you, will make decisions for you. No matter how much or little money involved, a will (the original will be required) ensures that your personal belongings and assets go to those you designate. A will also allows parents to appoint a guardian for underage children, in the event of the parents’ death.
Attorney David Dunn of Dunn and Hemphill, P.A., in Columbus, recommends your original last will and testament and other important documents be kept in a safe, fireproof container — either a bank safety deposit box or a fireproof box you purchase yourself and keep at home. Some attorneys hold their clients’ documents in their own fireproof files.
A letter of instruction left for your family can state where documents are located, what money you are owed and what burial arrangements you wish, but it’s not a substitute for a legal will.
Experienced in estate planning, Dunn also stresses the value of another life-altering document.
“A durable power of attorney can be just as important and, in some cases, more important than a will. (Through it) you can empower someone to do anything you can do (except make health care decisions) in case you are incapacitated. It is said to be ‘durable’ if it continues to be effective even after y
Jan Swoope is the Lifestyles Editor for The Commercial Dispatch.