5 Ways To Master A “Super Saver” Mentality.

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“I can never retire.”

never retire

At the wake for a client’s son, in the lobby of a plush funeral parlor, a woman I was introduced to seconds earlier looked at me and confessed four impactful words. I wasn’t aware of her personal situation however I felt the weight of her conviction.

I asked: “So, how will you make the best of the situation?”

I hear this sentiment so often, it no longer surprises me. No matter where I go. As soon as people discover I’m a financial adviser, they’re compelled to vent or share concerns, which I value. I’m honored how others find it easy to confess their fears to me. Unfortunately, I rarely listen to good stories especially when it comes to the harsh reality of present-day finances.

Saving money whether it’s for a long-term benchmark like retirement or having enough cash for future emergencies is an overwhelming task for households and this condition has improved marginally since the financial crisis ended over six years ago.

According to a June 2013 study by Bankrate.com, 76% of American families live paycheck-to-paycheck.

Is that a surprising fact?

Consider your own experience. When was your last pay raise?

no rise office

Wage growth has failed to keep up with inflation and productivity for years. During the heat of the great recession in 2009, you most likely endured a cut in pay from which you never fully recovered.

On top of that, you’re probably juggling multiple responsibilities outside your original job description. To say the least, attempting to bolster savings is an ongoing challenge post financial crisis.

To develop a super-saver mindset you need to first accept the new reality and make peace with the present economic environment. Steady wage growth and job security are becoming as rare as pensions. The below-average economic conditions are more permanent than “experts” are willing to admit.

Before a change in behavior can occur, an attitude adjustment is required as saving is first and foremost, a mental exercise. For example, a super-saver feels empowered after all monthly expenses are paid, and a surplus exists in his or her checking account.

Instead of experiencing a “spending high,” super savers are happier and feel empowered when their household cash inflow exceeds expense outflow on a consistent basis.

You can feel this way, too.

I’ve witnessed hardcore spenders transform into passionate savers by thinking differently and keeping an open mind to the following…

Random Thoughts:

Embrace a simple, honest saving philosophy.

Start with tough questions and honest answers to uncover truth about your past and current saving behavior.

You can go through the grind of daily life and still not fully comprehend your motivations behind anything, including money. Ostensibly, it comes down to an inner peace over your current situation, an objective review of resources (financial and otherwise), identification of those factors that prevent you from saving more and then creating a plan to improve at a pace that agrees with who you are. A strategy that fits your life and attitude.

The questions you ask yourself should be simple and thought-provoking.

Why aren’t you saving enough? Perhaps you just don’t find joy in saving because you don’t see a purpose or a clear direction for the action. Long-term change begins with a vision for every dollar you set aside. Whether it’s for a daughter’s wedding or a child’s education, saving money is a mental re-adjustment based on a strong desire to meet a personal financial benchmarks.

What’s the end game? It’s not saving forever with no end in sight, right? Perceive saving as a way to move closer to accomplishing a milestone, something that will bring you and others happiness or relieve financial stress in case of emergencies. A reason, a goal, a purpose for the dollars. Eventually savings are to be spent or invested.

Recently, I read a story in a financial newspaper about a retired janitor who lived like a pauper yet it was discovered upon his death, that he possessed millions. What’s the joy in that? Did this gentleman have an end game? I couldn’t determine from the article whether this hoarding of wealth was a good or bad thing. I believe it’s unhealthy.

Living frugally and dying wealthy doesn’t seem to be a thought-out process or at the least an enjoyable one. The messages drummed in your head from financial services are designed to stress you out; they’re based on generating fear and doubt.  And fear is a horrible reason to save, joy isn’t.

dead money

Form an honest and simple philosophy that outlines specific reasons why you need to save or increase savings. Approach it positively, three sentences max to describe your current perspective, why you’re willing to improve (focus on the benefits, the end game) then allow your mind to think freely about how you will fulfill your goals. Don’t listen to others who believe they found a better system. Find your own groove and work it on a regular basis.

Much of what you heard about saving money is false and will lead you down a path of disappointment.

The “gurus” who tell you that paying off your mortgage early is a good idea didn’t generate wealth by saving (or paying off a mortgage early). They made it by investing in their businesses and taking formidable risks to create multiple, lucrative income streams.

So before you buy in understand the personal agenda behind the messages. “Worn” personal finance advice like cutting out a favorite coffee drink and saving $3 bucks sounds terrific in theory but in the long run, means little to your bottom line. The needle won’t budge. And you’ll feel deprived to boot.

Financial media laments pervasively how you aren’t saving enough. From my experience, this message is not helpful; it fosters a defeatist attitude. People become frustrated, some decide to throw in the towel. They figure the situation is overwhelming and hopeless.

Don’t listen! Well, it’s ok to listen but don’t beat yourself up.

Saving money is personal. Meet with an objective financial adviser and don’t give much relevance to broad-based messages you hear about saving; it’s not one size fits all. Create a personalized savings plan with the end result in mind and be flexible in your approach.  Appreciate the opportunity to improve at your own pace, to reach the destination for each path you create. Just the fact you’re saving money is important. The action itself is the greatest hurdle. Strive to save an additional 1% each year; it can make a difference. If not for your bank account, for your confidence.

Compound interest is a cool story, but that’s about it.

Albert Einstein is credited with saying “compound interest is the eighth wonder of the world.”  Well, that’s not the entire quote. Here’s the rest: “He who understands it, earns it; he who doesn’t pays it.”

I’m not going to argue the brilliance of Einstein although I think when it comes down to today’s interest-rate environment he would be quite skeptical (and he was known for his skepticism) of the real-world application of this “wonder.”

First, Mr. Einstein must have been considering an interest rate with enough “fire power” to make a dent in your account balance. Over the last six years, short-term interest rates have remained at close to zero, long term rates are deep below historical averages and are expected to remain that way for some time. Certainly compounding can occur as long as the rate of reinvestment is greater than zero, but there’s nothing magical about the “snowballing” effect of compounding in today’s environment.

Also, compounding is most effective when there’s little chance of principal loss. It’s a linear wealth-building perspective that no longer has the same effectiveness considering two devastating stock market collapses which have inflicted long-term damage on household wealth. What good is compounding when the foundation of what I invested in is crumbling?

Perhaps you should focus on the “he who understands it, earns it; he who doesn’t pays it.”

I asked a super saver what that means to him. This gentleman interpreted it as the joy of being a lender and the toil of being a borrower. True power to a super saver ironically comes from living simply, avoiding credit card debt, searching out deals on the big stuff like automobiles and appliances.

Super-savers don’t focus much on compound interest any longer. As a matter of fact they believe it’s more a story than reality. They are passionate about fine-tuning what they can control and that primarily has to do with outflow or expenses.

This group ambitiously sets rules:

“I never purchase new autos.”

“My mortgage will never exceed twice my gross salary.”

“I never carry a credit card balance.”

“I’ll never purchase the newest and most expensive electronics.”

I know people who earn $40,000 a year save and invest 40% of their income. Then I’m acquainted with those who make $100,000 and can’t save a penny. Pick your road.

Making tough lifestyle decisions aren’t easy but doable.

I believe the eighth wonder of the world is human resolve in the face of the new economic reality. Not compound interest.

Sorry, Einstein.

einstein half the crap

Place greater emphasis on ROY (Return-On-You).

The greatest return on investment is when you allocate financial resources to increase the value of your human capital. In other words, developing your skill set is an investment that has the best potential to generate savings and wealth. Your house isn’t your biggest investment (as you’ve been told). It’s your greatest liability.

Many workers were required to re-invent themselves during or after the financial crisis. Their jobs were gone. In some cases, the industries that employed them for years were history, too. If you still need to work then you must consider directing as much as your resources as possible to multiply the ROY.

Take a realistic self-assessment of your skills, sharpen those that fit into the new economy or gain new ones to boost inflow (income). If you must stop saving to do it, do it. The increase in your income over ten to thirty years is real compounding.

People are finally beginning to understand that their current job is a dead end for wage increases or promotions. Finally, the status quo isn’t good enough, and that’s a great motivator to a ROY.

Increase inflow, decrease outflow.

Let’s take an example – You earn $50,000 a year. You save 4% annually, that’s $2,000.  If you achieve a 3% return on that money annually after 20 years that comes to $54,607.91. It’s admirable; some goals can be met along the way. However, if you’re looking to retire at the end of 20 years, big changes are necessary.

Super savers embrace the math and take on big lifestyle shifts to increase cash inflow. They’re willing to take on new skills, consider bold career moves, postpone retirement, and downsize to save additional income for investment and add time to work their plan. Everything is open for discussion.

The results have been overwhelmingly positive. Super savers maintain tremendous resolve to stay in control of their household balance sheets. Emotionally this group seems less stressed removed from the chains of debt. They tell me they have achieved control over their finances.

You can’t put a price on that.

To embrace a super-saver mentality peel away habits and lessons you believed were correct and take on a different set of rules; a new, perhaps slightly unorthodox mindset.

Super savers definitely walk in tune with a different drummer.

And they’re happier for it.

no stress beyond

 

Retirement Lessons: Rolled From A Rock.

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A version of this post appeared on MarketWatch.

“How much does your money weigh?”

If people want to engage me and discuss retirement planning, the request I have is for them to take time and think back to their first memories around money. I want them to re-engage with how their views formed in the past, shape their present actions and motivations.

We undertake journeys together – back to the genesis of financial and investment philosophies.

I maintain a passion for client stories. Money plays a significant role in each; it’s a larger-than-life character in the human chapters of life.

Many of the conversations are emotional fire starters; over time, the discussions, although relevant, share commonalities. There are the ones you never forget, too.

I had someone share how adult money attitudes were shaped by spending much of his childhood summers exploring a neighborhood historic cemetery.

So, when I encountered a retiree who learned about handling finances from a rock, well, I anxiously listened.

He said – “everything I learned financially for me began with a rock.”

rock

You see, this 69 year-old gentleman is the seventh and youngest child of a large family from Oklahoma. At 10, he discovered quiet and space and off a rural route. A wooded, gravelly patch cordoned off less than a mile from the homestead.

A perfect (and creative) location to secure his valuables from prying siblings. Over time it became a sanctuary from the vestiges of conflicts that erupt among large families.

From pre-teen to teen, an elaborate system was devised. A natural roadmap outlined on a napkin and changed often to throw off those who may become a bit curious. It was a plan which marked how valuables including baseball trading cards, cash and coins would be secured underneath a labyrinth of various-sized rocks. On a regular schedule, the hiding rocks were changed up, covered or replaced by holes under several dead trees. On numerous occasions, items were lost. Eaten.

Dug up and carried off by small animals.

He employed cigar boxes, plastic sandwich bags with yellow paper covered wire to secure them, empty Wonder Bread wrappers printed with the memorable red, yellow and blue balloons.

I couldn’t imagine what was learned from all this effort. Well, I had ideas, however, I never heard of anything like this before in over two decades helping others make financial decisions.

As we met a few times, I began to understand how weathered rocks forged this man’s money behavior. How he rolled along through retirement remembering back so many years. The cold weather, the dirty hands, the lost treasures formed invaluable habits.

So, what were the lessons learned?

Random Thoughts:

Dig deep into your financial foundation on a regular basis. Lift the rock, move earth, start digging. Get dirty, expose what’s been hidden. Before financial planning, it’s time to expose the deepest fears about retirement.  If frozen by fear, your outlook will suffer; you won’t take actions (even small ones) to get you to retirement; you’ll feel hopeless.

The mind has a tendency to head straight for worst-case scenarios which most of the time, are far from reality. I find when people begin exposing what makes them anxious about retirement and progressively talk openly with those they trust, practical habits are started and forged. Stress is reduced. Make a list of what you fear the most about saving for and living in retirement. Move one rock at a time. Work with a financial professional to create a goals-based, fear-minimizing game plan.

Focus on what weighs heavy on your retirement budget. For the majority of people I counsel, fixed expenses are like boulders which press hard on their abilities to enjoy retirement. I’m not going to make it sound easy to lighten up. It isn’t. It takes some tough decisions. It could mean selling a family homestead to downsize, taking inventory of material possessions to gift, sell or donate.

My greatest friend, mentor and best-selling author James Altucher and his wife Claudia recently dug through and discarded almost every physical item they own – family photos, furniture, clothing. Rows of green plastic garbage bags out to the curb for trash pickup (I saw the photos). Ok, I’m not advising to go to this extreme: I was shocked myself. However, the lesson here is to devise a strategy that works for you to minimize overhead expenses; a liquidation and downsizing mindset is empowering. It allows you to take great control over cash flow, relieves the pressure of big fixed costs throughout retirement.

Move mental rocks and check on things. Let’s face it: Many people think of their company retirement plans as dark, mysterious holes. They may salary defer the maximum contribution yet still have little knowledge about available investment choices, how money is currently allocated or they fail to rebalance holdings on a scheduled basis. In other words, to be an active saver is admirable however, once earnings are syphoned into retirement plans, many of us grow passive about digging into them and shifting the location of financial treasure. The money is buried so deep under the rock, it’s forgotten. It might as well be lost.

A company retirement account is most likely your greatest liquid asset, so it makes sense to check on its progress. Make a point to dig under the surface at least annually. Compare your current allocations to choices provided by your employer and examine how investments are divided. Sell down what’s done the best and reallocate proceeds into underperforming asset classes.

For example, in 2014 U.S. or domestic-based large-company stocks and bonds were outperformers. The majority of financial “pundits” were touting how in 2015, domestic-based stocks would continue a winning run. So far, it’s apparent that international stocks are improving due to favorable valuations and aggressive action by the European Central Bank to purchase bonds, much like our Federal Reserve has done in the past.

Get your hands dirty and expose yourself to uncomfortable conditions. I partner with several retirees who refuse to undertake actions that temporarily feel unpleasant. For a few, avoiding proper estate planning (who really wants to deal with their own mortality?), failing to embrace healthy lifestyle choices like annual health physicals, and transferring potential devastating financial risks though the use of insurance, has led to family stress and negative outcomes for retirement portfolios.

A roadmap based on maintenance of health, proper estate planning and use of insurance where it’s needed, can make a tremendous positive impact on the quality of retirement.

Through the years, this gentleman who learned so much from rocks and dirt as a child, started to understand how keeping the location of his buried treasure so secret, was not such a terrific idea. He began to comprehend how secrecy may lead to great loss. He has a trusted partner, his wife, who keeps him accountable for fitness goals, regular meetings with his financial advisor (me), his board-certified estate planner and a physician for annual head-to-toe checkups.

Recently, one of his grandsons, knowing the well-told story of the rocks, began to do some digging at the same location near the homestead (still in the family). After months of work he unearthed a plastic bag. In it was a 1955 Topps Baseball Box made of tin with 10 trading cards inside including one of legendary player Ernie Banks.

There are lessons right in front of all of us. Some we can trip over (literally).

If we dig deep and often, potential dangers can be uncovered, avoided; treasures can be revealed.

The graveled road of retirement can be a blessing or a curse.

A lesson is to unearth early on what concerns you the most and expose them to bright lights from trusted professionals and loved ones.

Your retirement path will be a challenge, but like a rock, you can weather it and remain structurally intact for decades.

And keep rolling…

rolling rock

 

 

Five Financial Sanctuaries that Place your Retirement in Jeopardy.

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Originally appeared in MarketWatch’s Retirement Weekly.

In the AMC smash-hit television drama “The Walking Dead,” a group of road-hardened survivors of a zombie apocalypse seek protection from the undead (and the living who pose greater dangers than cannibalistic walking corpses.)

The fifth-season opener finds the weary characters fighting for their lives against a community of cannibals who lured them to a so-called safe zone called “Terminus.”

terminus

Handwritten signs and maps along roads and rails of rural Georgia guided the crew to a final destination, sanctuary was promised for all who arrived.

Sanctuary

On the surface, it appeared to be a dream come true. Warm smiles, comforting words, hot food.

Underneath, Terminus was nothing as promised or perceived. Victims were lured in to be placed in rail cars like cattle and eventually slaughtered.

rail car

As there is a fine line between fact and fiction, this harrowing situation got me thinking about portfolios in retirement.

 Stay with me.

Think sanctuary and think safety. A false tranquility can disarm and open the gates to great risks without your awareness. What lurks underneath your financial safe havens may eventually place your money and retirement lifestyle in jeopardy.

When making financial decisions and monitoring progress based on those decisions, you need to accept when the environment changes; make a move when safe havens turn to Terminus.

Here are five financial sanctuaries that can place a secure retirement at risk right now.

 Random Thoughts:

1). Stocks. Market sanctuaries can turn unrecognizable and hostile very fast. As the stock market reaches new highs there’s an ominous feeling of complacency among investors. It’s been over three years since the S&P 500 hit an official correction or greater than a 10% drop from a previous closing high.

Consider October’s volatility a wake-up call as early in the month, the S&P 500 was rapidly moving into correction, small-company stocks and international stocks were officially there and bond yields moved lower (100% of economists predicted that bond yields would be higher by fourth quarter 2014). October concluded much different than it started – with domestic markets headed to new highs.

Underneath the surface of stocks it looks nothing like a sanctuary – Large and mega-cap indexes have outperformed, a sign of a late-stage bull market phase, small-company stocks are recovering but underperforming, which points to risk abatement. It shouldn’t be ignored how cyclical stocks like energy, or those considered beneficiaries of economic expansion, are lagging defensive stocks (think utilities, consumer staples), currently. The outperformance in defensive sectors is usually indicative of market tops and economic peaks.

The Federal Reserve’s conclusion of quantitative easing  (bond purchase) program in October signifies a reduction of central bank liquidity that can increase volatility as investors and traders seek to figure out what the next tailwind for stocks is going to be.

The S&P 500 is 24.5% above its three-year moving average (36 months) -one of the widest dispersions from the moving average since fourth quarter 2007. Like a rubber band, over time market returns will stretch far above and below long-term moving averages. Although it’s impossible to know when the band will snap back to the moving average, historical downside going back to 2000 shows when the market does contract, the process is damaging. The worst contractions were 38% and 40% in 2002 and 2009, respectively.

Stocks are protection against inflation until they’re not and you’ve lost 5 years making back what you lost and inflation becomes the least of your problems. By then, you’ll feel trapped and look to re-pave the path of retirement. Whether it’s returning to work, reducing household expenses, cutting how much you withdraw from investment accounts – you’ll be prepared to do whatever’s necessary to preserve capital and slow the bleeding of investment assets.

Create an allocation to stocks that won’t cause you to panic when the bear market arrives (and it will). Don’t be overconfident. Remain vigilant and make sure to follow rules-based rebalancing where you trim gains on a periodic basis. The fourth quarter of the year is a good time to tax harvest – sell positions with capital losses in brokerage accounts to offset capital gains.

2). Index funds. It appears that index fund enthusiasts will stand strong and proudly absorb the blow as their stock sanctuary turns against them. Indexers believe that losses are temporary because in the long-term, stock markets always recover; paper losses aren’t real, they’re perceived as a bump along the path, par for the course. Like the befallen travelers who arrive at Terminus, they are not in touch with the reality of the situation they’re up against.

behead

A sequence of anemic returns or losses in the face of periodic withdrawals can dramatically decrease the longevity of a retirement portfolio. In other words, index funds are no protection against increased drawdown and market risks. At least fees make the losses less painful (or do they?).

The battle among “passive” indexers and “active” fund advocates is growing more heated as the fourth longest bull market in history continues.  I consider most of the discussion noise; the headlines are a distraction from the real perspective investors in retirement should maintain:

No matter what you hear out of most financial professionals, stock index funds are not passive. Every investment should be treated as active as soon as it is added to a portfolio.

Look beyond the attributes of stock index funds (and there are quite a few) like low fees, wide industry and company representation, tax efficiencies, and face the traps that will eventually put you in a position to fight or perish.

For example, index funds will experience the full brunt of a bear market attack (because generally they represent the market) which means you as the manager must decide the degree of loss you’re willing to accept. Staying invested is an action; reducing exposure to a losing index investment is an active decision. You are always in control, you always have a choice.

The preachers of passive seem willing to stand by and hope for the best. After all, you can’t control or predict the direction markets. That’s true. However, the amount of capital destruction you’re willing to absorb, is in your control. Consider the potential damage and recovery rate. Your back is against the wall. Are you ready to fight? If your portfolio suffers a 20% drawdown you’ll require 33.33% to break even.

Specific purchase and sell rules must be attached to each investment under consideration. Risk management never ensures against all portfolio losses, it minimizes the damage so you can come back and fight another day. It’s all about survival when it comes to the end of world (and your money).

Also, when you invest, depending on stock market valuations, is extremely relevant to future returns.

According to market historian and writer Doug Short, $1,000 invested at the peak of the market in the S&P 500 on March 24, 2000 would be worth $1,248 (adjusted for inflation) as of November 2, 2014, which equates to a 1.53% annualized real return.

Despite the mainstream marketing message (especially among indexers) designed to convince you that “time in the market” is a sanctuary, there have been many periods in history where you simply “ran out of time.” When adjusted for inflation, there are several 20-year periods in history where market returns have resulted in either low or negative outcomes.

Index funds have most likely outperformed your managed investments on the upside during this bull market; that doesn’t mean they’ll hold up better through market declines. And when you buy, based on market price/earnings, has a significant impact on future returns. At nearly 26 times earnings based on the cyclically-adjusted P/E ratio, “time in the market” may not be as beneficial over the next 20-years. It just may be a Terminus for your portfolio.

3). Retirement account withdrawals. The 4% withdrawal strategy is too generic to be effective yet it’s treated like a universal rule and preached in mass to new retirees seeking comfort after a long journey of employment. It’s as worn as the warped, wooden signs guiding The Walking Dead survivors to a place they perceive as refuge, but really is a trap.

Based on work by Sam Pittman Ph.D. and Rod Greenshields, CFA of Russell Investments, the first step to creating a retirement withdrawal that protects against longevity risk, is to calculate the ratio of current assets to the present value of forecasted retirement spending. This is called your current funded ratio. It’s a popular method pension administrators use to determine the fiscal health of their expected payouts for participants. Few advisers will consider this method and go straight to a withdrawal rate calculation that doesn’t account for an individual’s overall financial situation or household balance sheet.

The current-funded ratio method requires matching assets to liabilities to determine whether there’s adequate coverage over living expenses and inflation throughout retirement. A ratio of 100% or greater, especially during the first decade of retirement, is indicative of a greater chance of avoiding outliving a nest egg. If the present-value funded ratio is estimated to be less than 100% in ten years, adjustments to withdrawal rates or living expenses can be made before withdrawals occur. The ratio should be calculated every three years or after a sequence of below-average portfolio returns.

The strategy is called adaptive investing. Ask your financial partner about it to see if makes sense as part of your retirement planning process.

4). Company stock concentration at the beginning of retirement. Many retirees are hesitant to manage their net worth tied up in company stock, especially in the early years of retirement. Their human capital may have left the company and enjoyed the retirement party but the emotional attachment to the stock continues strong, and is possibly dangerous.

More than 25% of liquid net worth in company stock, leaves a retiree either “the butcher or the cattle,” a philosophy the tenured residents of Terminus believe. It’s a great tailwind to net worth and retiree psychology when an overconcentration to company stock is performing well hence the butcher. When the investment is performing poorly, a vulnerability to the retirement plan arises which becomes an emotional and financial drain to the retiree and others in the household.

A formal plan should include an exit strategy for company stock within 5 years of retirement. Work down to a 10% allocation which will satisfy your attachment need but won’t derail the early years of retirement. In addition, it can allow you greater diversification potential and liquidity to meet living expenses.

5). Your broker. Someone asked me once – “Are you a broker?” I replied – “No. I’m not here to break anything, I’m here to help.” Joking aside, you may be very comfortable with your current financial relationship; consider if you have an understanding of the motives behind your adviser’s employer. Perhaps you never gave it a thought.

 Ask this question: “What is your sales goal and how do I fit in?”

Yes, most in the financial services business are salespeople. Nothing wrong with it as long as your needs are met and full disclosures are made. However, maybe you’re looking for something more. I believe this question gets to the heart of a financial firm’s true motivation. Then ask: “How do you feel about your sales goals?” Are they perceived as fair by your financial partner? Ask another: “How much time will you spend with me, my planning needs and investment accounts?”

Get specifics. Ponder the answers, then consider: Are you a one-time sale or an ongoing relationship, or a bit of both?

In a recent podcast interview with self-help author and investor James Altucher, success coach Anthony Robbins shared candid insights from the experiences writing his new book, “MONEY Master the Game: 7 Simple Steps to Financial Freedom.” He explains how the financial system is designed to prosper the needs of shareholders, not investors.  My take: A key is to know what questions to ask and seek answers that are simple and transparent.

“There are 312 names for brokers, today,” Tony mentions. “I’m so supportive of people that are fiduciaries, people that are trained and who are legally required to look out for you. I’m looking for people who are fiduciaries and sophisticated.”

I believe disclosure of sales goals is important. Understanding if your adviser is a fiduciary and focuses on your interests first, or a broker that has his or her employer’s objectives as a primary focus, will help you find the right long-term partner or clarify a relationship you currently enjoy (or question).

The investing climate for retirees can be scarier than fleeing from flesh-eating zombies.

Even worse are times you believe you’re safe; conditions change, you fail to acknowledge the shifting environment or realize that a financial sanctuary has turned hostile.

 It’s always better to be the butcher than the cattle.

butcher or cattle

Perhaps that fiendish Terminus crew were on to something after all.

 

 

 

Six Money Habits Of Unhappy Couples.

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We’ve all heard the horror stories of couples suffering in a toxic money mix.

Married or unmarried – it doesn’t matter.

screaming married

Financial harmony is crucial to a couple’s long-term synergy with money.

From my experience, the ones with cohesive financial strategies are the most successful.

Over the years, I’ve documented several unfavorable money behaviors exhibited by couples. In greater than 95% of the cases observed, the relationships ended on bad terms.

The top six:

1). They disrespect each other’s credit. One of the worst fiscal violations I’ve witnessed is how credit is misused in a relationship which causes a party’s credit score to falter as credit card balances are increased leaving the trusting partner in a relationship, on the hook for the bills. I have seen otherwise smart individuals allow a partner to use their credit and turn a blind eye to misuse. Until it’s too late and they’re in a hole financially – spending years paying back big debts.

Rule: Never permit a loved one, including a marriage partner to take advantage of your available credit and perhaps ruin your credit score, whether it’s intentional or not. It’s not a matter of trust; it’s a matter of control. You must be the steadfast gatekeeper of your available credit and scores. If it’s true love, the other party will appreciate your discipline. If you do share credit, make sure to carefully examine all credit card statements and access credit reports annually for free at www.annualcreditreport.com.

2). Lack of communication. Especially when it comes to life-changing financial decisions or big purchases. It’s ok if you fail to mention lunches or an occasional discretionary purchase. When it comes to large expenditures like expensive durable goods or making big decisions that may affect both parties like a new job offer or decision related to retirement, it’s best to share all relevant information with a partner or spouse before moving forward. Even if it’s a wise decision, the action of sharing and receiving feedback is crucial to the health of a relationship you cherish.

Rule: Before financial decisions bigger than $100 bucks are executed, think twice and open up beforehand. Take to heart information shared through open dialogue. Get an objective third party involved in the mix to listen to both sides and weigh the evidence.

3). Little consideration for the blueprint. Deep in you is a money DNA. Since a small child, you have handled money based on experiences. You also learned from observation and communication – parents, grandparents. If your money mindset conflicts with a partner, that’s ok. There are methods of compromise. If your money mindset is disregarded or even ridiculed, then it’s time to question the viability of the relationship.

Rule: Whether you’re a deep saver or big spender, be receptive to the manner you’re treated if your partner disagrees with your money DNA. The couples who endure are the ones who find a working medium or a hybrid DNA strategy. The key is to watch for language of judgment and money behavior that jeopardizes the current situation or the health of the future household balance sheet.

4). Multiple bailouts are acceptable. You know the type. They mess up with money and then seek others to bail them out like parents or partners. Then the same reckless behaviors are repeated and bailouts continued. It’s bad news. Rarely do I observe couples last long traveling this endless loop. Usually, an observant partner is suckered in more than once and leaves the relationship financially and emotionally fragile.

Rule: A one-time bailout, depending on your financial situation is acceptable. No excuses or money provided when similar mishaps are repeated. It’s a hard rule and it will save you financially. Perhaps you leave with your self-esteem intact, too.

5). Financial success is resented. According to a Pew Research Study from May 2013, a record 40% of all households with children under the age of 18 include mothers who are either the sole or primary source of income for the family. To keep it in perspective, the share was 11% in 1960.

Since the financial crisis I have witnessed women taking additional charge of their finances (and the families) and men in the relationship growing increasingly resentful.

I have worked with couples where women have become increasingly unhappy when partners have taken on additional work responsibilities and time away from their personal activities.

Resentment is poison to any close relationship and detrimental to elevating finances to the next level.

Rule: A resentful attitude over a partner’s success requires thorough and truthful self-reflection. Instead of wasting precious energy on negative emotions, objectively witness and attempt to find ways to mirror the good habits of a successful partner. Ask for guidance. Be open to criticism if it’s positive and leads to self-improvement.

6). Fractured retirement planning and savings goals. Couples who are hesitant to blend retirement goals and fail to align their efforts to meet jointly-created goals, ostensibly fall behind or at the least, miss out on the synergies that accompany working together toward a comfortable retirement.

Rule: Retirement planning is a partnership objective. Coordinating retirement account salary deferrals, examining company retirement plan allocations as one and periodically reviewing progress together must be mandatory for couples who are serious about the quality of their retirement years.

Random Thought:

Couples can be a galvanized force to greater wealth or rapidly deteriorate their combined net worth.

Ongoing financial drama can ruin a relationship.

Be open to the signs, fix them.

walking away

 

Or walk…

Four Ways To Overcome Financial Inertia.

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Five years after the financial crisis and those who cross my path tell me it feels like the recession never ended. They are stressed over personal finance, investing and debt management.

I get it.

dear ki

The concerns are valid. The stock market is up close to 200% since March 2009 so who wants to chase it; housing is sloppy but recovering. In several pockets of the country, real estate is expensive and prices are out of reach for many individual investors. Wage growth is dead (you receive a raise, lately?), we are spending more time in our death cubicles and missing soccer games. The masses burned out three years ago and saunter around today like the living dead hoping they can make it home to collapse in front of the television.

Sort of blows.

burn out

However, there are ways to take smart steps and overcome fear and procrastination:

To feel alive and in control again (remember that?)

Random Thoughts:

1). Go beneath the fears. Sure, I bet you can banter on about what concerns you. Until you use pen and paper to list what’s heavy on your mind, you’ll never completely weigh the implications of doing nothing. You may be surprised to discover that what really frightens you is merely a misunderstanding.

For example, I have a friend who was hesitant to save for retirement but his true dilemma was frustration over the limited choices in his current employer’s retirement plan; he failed to understand other retirement account choices were available outside his job.

Documenting fear will narrow down to issues you may explore with professionals or confidantes. An action plan outlining milestones will provide a sense of accomplishment and embolden you to accelerate positive behaviors.

2). Push ahead mentally 20 years to feel the pain enough to make one move. Who says you need to walk huge steps at once? Take small steps and move already. A way to create a urgency is to imagine what your life will be like two decades into the future if you remain in finance neutral.

What will your life be like 20 years from now if you don’t begin saving for retirement? Forget all the financial industry bull that makes you feel like if you don’t start socking away money from the age of 25, you’re permanently doomed to a life of poverty. It’s like me saying – “Hey, you’re 40. Too late to improve your health through diet and exercise, so just forget it. “

fat guy eating

I’ve worked with many accumulators who have hit their stride late, made changes to reduce debts and increase savings at a time when they believed – “why bother?” Along with an investing strategy they have caught up. They’re in a better place, financially.

So you’re late getting off your ass: Big deal. Just start.

3). Do some research. Knowledge is power. As you learn, fear will fade as you engage. A lack of knowledge will stir up uncertainty and freeze you in place. Sort of like what happened to us immediately after the Great Recession. Who the heck thought we could suffer another devastating economic collapse?

Don’t succumb. Dig in, a piece at a time until you feel less uneasy about the topic. Nobody expects you to be an expert; don’t be too hard on yourself. Gather opinions from professionals. Know the rewards AND risks.

Be wary of too much knowledge. Yes, you read that right. In other words, those who immerse in a subject begin to feel invincible. It’s at that point, dumb mistakes are made. You must remain humble in your quest to avoid overconfidence bias. Pompous asses usually don’t win. Don’t be a pompous ass. It takes too much energy for nothing. And nobody will want to help you reach your goals.

pompous

4). A little fear is healthy.  When it comes to money I find fear to be a motivator if used in controlled doses. Slight discomfort is healthy and will push you ahead. It’s through time and experience that fear will be perceived as friend. You should never get too comfortable when it comes to handling your finances. Discomfort breeds curiosity. Curiosity leads to awareness, especially of risk.

Eventually, inertia will be a memory; it will no longer prevent you from making improvements, seeking opinions and basking in accomplishment.

Household financial stagnation is still with us.

Doing nothing is detrimental to your long-term accumulation of wealth.

It’s time to get off the pot.

And unlock the potential.

Who knows?

You may even make new friends, get dates.

And reduce inertia, gain energy, in several areas of your life.

And get your head out of the urinal.

toilet guy

 

 

 

 

 

 

 

 

 

 

 

Baby Boomers and Their Spending: Four Things Retirees are Thinking Now.

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Baby Boomers are known for their penchant for spending. They were not hesitant to take on debt to enhance their lifestyles as they built successful careers and accumulated assets.

The post-financial crisis Baby Boomer retiree is constantly rethinking how to direct discretionary dollars or their “fun” money.

I recognize and document the changes I observe: There’s a deliberate thought process behind discretionary spending. The mindset is a clear path to personal enrichment and a generous nature when it comes to providing knowledge and positive experiences to those they love.

Here are a few of the more interesting random observations:

“We crave memories.”

dog hump

A majority of Baby Boomers are directing discretionary dollars toward experiences, especially with close friends and former business associates.  They would rather focus on creating memories. The desire to make large-scale expensive purchases is on a very noticeable decrease.

There’s a passion for atypical trips – wine tours in exotic locations, extended-stay vacation spots, off the beaten-path locales where time is made for conversation. Physical and mental challenges are important, too. Hiking, skiing, scuba diving, mountain climbing are high up on the bucket list. Learning new skills like painting or ethnic cooking have replaced a desire to own goods. If anything, Baby Boomers are releasing the shackles of material goods and downsizing.

And they’re on to something:  Research by Elizabeth Dunn and Michael Norton, authors of the book “Happy Money: The Science of Smarter Spending,” outline how spending money on experiences can stretch “happiness bucks.” Memories outlive the short-term excitement of a purchase like new automobile.

An emerging trend has been the growing demand for off-site wine storage venues. Here, Boomers with a passion for wine can house their inventory in a climate-controlled environment and have access to comfortable lounges to share their collections with friends and others who share their passion. Those who participate in this activity advise me it’s more about socializing and the overall experience than the wine.

“We seek self-awareness.”

disturbing

Baby Boomers are passionate about learning more about themselves and willing to spend money to do it. Much of their mental resources and daily hours were spent building long, stressful careers and raising families. Several have expressed to me how much they regret not spending more time going further down a spiritual path. An increasing share of the discretionary budget is being directed toward classes, books and travel that result in methods of heightened self-awareness and inner wellness.

Boomers have experienced hardship within their households; they know of immediate family members and close friends who have gone through difficult financial episodes. Striving for inner peace and ostensibly communicating what they’ve learned with others is of greater important than showing off new, expensive toys.

“We want to share with family.”

horsey

The Boomer desire to leave a big inheritance is not a priority. The trend is to share the wealth in retirement, especially through activities that include family. The addition of travel with children and grandchildren is a popular goal and from a financial planning perspective, has morphed from a want or wish to a strong need.

They’re called “multigenerational vacations.” Whether cruises, theme parks, or scenic road trips, a strong desire exists for Baby Boomers to be travel partners with loved ones.  And picking up the tab for the group is not a concern. They possess a desire to etch good memories in the minds of their families and to actively participate in the fun. They seek to leave a strong presence after death. A living legacy.

Boomers are readily sharing newfound hobbies with family. For those on a more limited budget in retirement, pre-scheduled gatherings to show off cooking skills are popular. Any activity that creates an opportunity to bond with family (and they don’t need to be over-the-top expensive) is approached with the same energy retired Boomers applied to building careers and businesses.

“We are collectors of unique items.”

GI Joe funny

Unique collectables are popular with Boomers. Scouting resale shops and antique stores have become a formidable leisure activity in retirement. The most popular collections are tied to vintage pop culture products owned or remembered as children.

Baby Boomers are diligent when they purchase collectables. They’re patient and will wait until the “perfect” item crosses their path. Since they disdain clutter, homework is important, and they’re extremely selective. Budgeting for these purchases is important, too.

Toys, magazines, comics and vintage books from the 1950s through the 1970s are the most prominent collectables.

Roughly 25% of discretionary budgets are allocated to unique items -up 30% from five years ago.

The spending behaviors of Baby Boomers in retirement are fascinating to observe and document.  They’ve changed over the last five years.

As a Boomer retiree said to me recently: “I’m focused on my return on life.

If I can maximize that all the rest will fall into place.”

falling flat

 

Happy Financial New Year – Five Different Paths to Money Success.

Media is flooded with pundits spouting 2014 financial resolutions. Heck, I’m on radio and television talking up the same.

talking head

Increase savings in retirement accounts, pay down credit card debt, check your insurance coverage for gaps – all good advice.

But.

We already know this stuff. It’s drilled into our heads.

Every year.

It’s fine to be reminded of the healthy financial actions we should take.

Yet, what stops us from following through?

Before you ponder money improvements for 2014, think outside the box – deviate from the worn financial paths you have attempted to walk before.

This time you’ll succeed if you take five different paths.

1). Don’t save everything for retirement. You read it right. It’s been drummed into you how a secure financial future depends on maximizing contributions to tax-deferred options like 401(k) accounts.  But how important is it, really?

A.J Leon, writer, motivator, world explorer, big thinker, in his book, “The Life and Times of A Remarkable Misfit,” outlines 16 simple steps to make money and lose respect – Step 4 is: “Never invest in yourself. Instead sock every last penny in a 401(k) that may or may not be there to greet you when you turn 65.”

Many employers have a difficult time understanding retirement plans. From the hundreds of plans examined, I notice an overwhelming trend of bland choices coupled with high fees.

For some it’s best to settle on government-approved choices called “target-date” funds. They’re the prevalent cookie-cutter choices in your company retirement plan. Basically, they’re an all-in-one mix of mutual funds packaged and wrapped in another mutual fund, thus called a “fund of funds.” The mix of stocks, bonds and cash is designed to match up to the year you decide to re­tire.

For example, it’s 2012 and you’re 40 years old. You are planning to retire at 65 (good luck). You decide on the “BlahBlah Fund 2037.” Easy.

The logic behind a target date fund is simple even though underneath, the design is com­plicated and investment philosophies can deviate dramatically depending on the mutual fund family your employer utilizes. In other words, the returns of the Blah-Blah Fund 2037 compared to the returns of your buddy’s La-La Fund 2037 will most likely differ, some­times radically.

Let me clarify: Each fund creates a “glide path,” which means the blend of investments should gradually become less aggressive the closer one gets to retirement or the target year.

Per research by Zvi Bodie, the Norman and Adele Barron Professor of Management and Jonathan Truessard, Lecturer, both at Boston University in a 2007 paper “Making Investment Choices as Simple as Possible: An Analysis of Target Date Retirement Funds,” target date funds are approximately following the well-known rule of “100 minus your age,” for the stock portion of the mix. And this smelly piece of financial dogma needs to be abolished. Now.

Target-date funds require refinement. For those who invested their tax-deferred dollars in 2008 target-date options, hoping to begin withdrawing the money in 2008, were in for a rude awakening when their accounts suffered by over 21%.

Consult an objective financial advisor; select a balanced fund. If your choices are limited to the target-date variety, cut the “maturity” date in half.  Your estimated retirement date is 2020. That’s six years away.  Go for fund 2017. Be prepared for a 2008 surprise.

Contribute up to the employer match. Don’t leave free money on the table regardless of choices, either.

According to Federal Reserve data, the average U.S. household maintains an outstanding credit card balance of over $7,000. Based on numbers provided by www.bankrate.com, the average annual percentage rate or APR for variable-rate credit cards stands at 15.37%; fixed-rate cards stand at 13.02%.

Maybe, just maybe, your 401(k) account returns exceeded 13-15% in 2013 so it was worth carrying a credit card balance. Long term, it’s a bad financial choice. Instead of maxing out saving for retirement right now direct financial resources to pay credit card debt off in full.

2). Consider your human capital. Quantify your worth. You are your greatest investment. I know it’s tough to think this way, to choose yourself, but it’s true.  Return on self-investment is wealth yet to be achieved.

How will you increase your value in a challenging marketplace? Perhaps it’s a new skill necessary to move ahead and above a nascent U.S. economic recovery.

If a continuing education opportunity exists or improvement options are available to increase your income, do it. You’re probably never going to retire anyway and when you do decide, it’ll be much later than age 65 so maximize the ROY (return on you) today.

Check out a Human Capital Calculator here.

3). Get your head straight.  My friend Shanna and I discussed this topic, recently.  If you are jealous of those who have prospered financially and you communicate negative sentiment to others, you’re digging a toxic mindset hole that will be tough to escape.

Don’t talk yourself out of empowering money habits. It’s the lazy way out. Jealousy is an energy sucker, a cash drainer. Change your mind set in 2014. Your brain will believe what you repeat to yourself, to others.  Ask more questions of those you “envy:” How did you meet your goals? What are the daily habits you follow to gain greater financial independence? What did you learn from your mistakes? Learn from others, don’t push them away.

jealousy

Teacher, mentor, investor, best-selling author James Altucher advises:

“You have a house. You need to keep the house clean so the right guests can arrive and feel comfortable. If you clutter it with anger or envy or scarcity or fear then abundance won’t feel comfortable moving in. I say this not from a position of comfort but because when i was dead and buried, i had to clean the clutter to make my life work. And it was hard because when the house is cluttered, your mind gets depressed and lazy.”

4). Stocks are not an end-all investment. Don’t be pushed into believing stocks are the panacea the financial industry tells you they are when it comes to fighting inflation. According to Jim Otar, creator of the Retirement Optimizer and author of several books on retirement planning expanded on this topic for a recent interview:

“Many advisors are under the assumption that stocks always beat inflation. This is not true. Equities beat inflation only during the long-term bullish trends, which occupied 43% of the last century. During the remaining 57% of the time, equities did not beat inflation.”

Rental properties, oil & gas interests, angel investing (can be RISKY), inflation-linked securities, deferred-income annuities can also battle inflation and diversify a stock portfolio.

5). Stop the competition.  I hear it often: My friends are the same age and they have: More cars, more savings, more stuff.

Stop.

First, friends embellish.

It’s called the endowment effect.

Second, your best financial life begins today.

Don’t look back.

It’s never too late.

Third, forget the stuff.

Travel lighter.

Down five alternate paths.

And discover long-lasting financial success.

financial success