CFP Board eNewsletter
April 2009

Plan for Your Financial Health
Survey: How Many Months Can You Last On Your Savings?
Four Things to Do with Your Tax Refund
CFP Board Consumer Webcasts Address Key Financial Planning Topics
Want To Launch Your Own Business? Start with a Financial Plan
Financial Alerts
About This Newsletter
Plan for Your Financial Health

There are nearly 60,000 CERTIFIED FINANCIAL PLANNER™ professionals in this country, but many consumers, especially young Americans, have never met or talked to one. They may think that financial planners are just for older people with money and not for individuals with little more than a car, student loans, and high professional hopes. Or it may not occur to them to reach out to a planner at all, until they are in financial dire straits: divorce, death, or a do-it-yourself investment plan that has done-you-in.

But financial planners, like doctors, are often best consulted when you are not sick, and want to stay that way. Continuing the medical analogy, here are four good reasons for visiting your financial MD:

Every spring, Americans spend considerable effort going through their financial records and preparing their tax returns. But most of their time is spent looking backwards. They want to make sure their income and expense figures for the prior year are reported correctly. What they fail to do, however, is think strategically and plan for the year to come.

Baseline Testing is needed to assess your financial health. Your planner will do a basic triage: balance sheet, cash flow, and risk analysis. Your planner will also help you set your financial fitness goals.

Regular Check-Ups are important for measuring and motivating your progress toward your goals, and for early diagnosis of any incipient financial maladies.

Routine Care may be required to address a special condition. You need to go on a debt diet, your retirement plan needs a regular dose of deferred earnings and employer matches, you need to supplement your tax withholdings. Your planner will work with you to find and adjust the right medicine.

Emergency Treatment or intervention can be necessary when your financial life is at stake. But think how much better you will feel when the professional treating you in the emergency room is someone who has known you throughout your financial life.

Have you avoided making an appointment with a CFP® professional because you are afraid it might cost too much, and there’s no such thing as planning insurance to pay for it? There is a prescription for that problem, too. Go to www.CFP.net to find CERTIFIED FINANCIAL PLANNER™ professionals near you. Call more than one – a second opinion is always a good idea. Discuss with them their services and compensation arrangements. If you are looking for hourly fees and they do not work that way, ask them for a referral to a colleague who does. CFP® professionals see themselves as in a helping profession and they want to help you find a solution, even if they themselves do not provide it.

Eleanor Blayney, CFP®
CFP Board’s Consumer Advocate


Survey: How Many Months Can You Last On Your Savings?


Take Our survey

In February, we asked our readers if they had, or planned to start, an emergency fund. The good news is that an overwhelming number—70.3 percent said they have one. Another 15.3 percent said they plan to start on and a nearly identical number, while 14.4 percent don’t have an emergency fund. Since so many readers indicated they do have an emergency fund, how long do you think your emergency fund could last?


Four Things To Do with Your Tax Refund

Even during the worst recession in generations, there is still some good financial news to be found, such as the tax refunds many people can expect this year. Consumers will certainly welcome the extra money, which can range anywhere from a few hundred to a few thousand dollars. Many of those who filed their taxes early may have already received their checks. As of the beginning of April, individual refunds totaled some $210 billion, according to the Internal Revenue Service. But, given the continued uncertainty about the economy, many consumers may also be wondering—What is the best thing to do with the cash? Everyone has to answer this question based on their own financial situations, of course, but here are a few ideas for getting the most out of your refund.

Start an Emergency Fund
The first thing to do with a tax refund is to shore up your emergency fund, a sum of money set aside for unexpected major expenses. If you’re paying 18% to 29% interest on credit card debt, it might not seem to make much sense to earn 1% interest by putting your refund in a savings account to be used as an emergency fund, and under normal circumstances most financial planners would agree. But these aren’t normal circumstances: If you don’t have an emergency fund and something unexpected happens, then you could be in real trouble.

Most planners advise setting aside six to eight months in living expenses in your emergency fund but, under current economic circumstances, that might be a stretch for many people. Even putting away just one month’s expenses, will give you a little wiggle room. The important thing is to figure out how much you need to pay your bills for a month, and then try to save that amount.

The challenge is to treat the account like a real emergency fund. In other words, if you take money out for an unexpected expense, you have to have a plan for putting that money back. To this end, consider keeping your emergency savings in a separate account, an account not linked to a debit card and so requiring some effort to get to. For more information on how to start an emergency fund, see In Case of Emergency, Use This Fund! in the September 2007 issue of It’s Your Turn.

Pay Down Some Debt, Then Work Towards Your Goals
“The gut reaction [to getting a refund] is to pay down high-interest debt," says Michael Kitces, CFP®, director of financial planning for Pinnacle Advisory Group in Columbia, MD. “Otherwise, paying double-digit interest on a credit card, for example, can be so damaging over the long-term. It feels good to knock your debt down a bit, and it encourages you to pay down a little more. It's a healthy, self-reinforcing cycle.” For more on how to manage your credit and minimize credit card debt, see Credit Where Credit Is Due in the August 2006 issue of It’s Your Turn.

Kitces argues that, while paying down debt can be a priority, it can also make sense to use some of your refund money to get closer to short- or medium-term financial goals. “These days we are always told that spending is wrong, that any extra money has to be squirreled away for decades,” he says. “But there are many in-between goals towards which people are quite willing and prepared to save. Americans do have a severe savings problem, but we should not present it as if each and every dollar has to be put into an emergency fund or an IRA and you can’t have any other goals. Maybe you want to buy a house, for example, and take advantage of the great real estate prices. It's not an all-or-nothing situation.”

Some refund money could even go towards discretionary spending, Kitces suggests, if those outlays are part of a disciplined approach to budgeting. “The question is not just, ‘What should I do with my money,’” he says. “It's, ‘What behavioral changes do I need to make?’ It’s a psychological as much as a numerical process. If you want to do some spending, that’s okay but pick a dollar amount and stick to it. Put that spending money—$25, $50, or whatever it is—in an envelope and don’t spend anything else. The attitude used to be, ‘As long as my credit card is not declined, I can buy it.’ Now it's, ‘If I have enough cash, I can buy it.’ That’s a very different behavior.” For tips on taking control of your financial situation, see Managing Your Money in Tough Economic Times in the March 2008 issue of It’s Your Turn.

Invest To Save
Elaine King, CFP®, vice president, Wealth & Well-Being Director with Gibraltar Private Bank & Trust in Miami, agrees that spending some refund money now can deliver greater returns down the road. “Look at your spending plan item by item,” she advises. “Look for opportunities to invest the refund to generate more savings. For example, if you buy light bulbs that are a little more expensive but a lot more efficient, you could save money on your monthly electric bill and help the environment, too. New tires make your car run better, so you save on gas. Your car is working less hard on new tires, too, so there is less chance of wear and tear that might require expensive repairs. You could also overpay some monthly bills, like your mortgage, to shorten the length of your debt, which will help you achieve financial independence sooner.”

King also suggests there may be ways to use some of your refund to save on home insurance premiums and property taxes. An inspection of your home, known as a mitigation form, costs about $100 but can save you much more than that on premiums. The inspection examines things like the condition of your roof and whether you have proper locks on doors and windows—all of which can help reduce your risk of making a claim, and therefore can potentially lower your monthly premium.

If house prices have dropped significantly where you live, King thinks a home valuation might be a good idea, too. A home valuation, which costs a couple of hundred dollars, estimates the current worth of your home; if the value has fallen enough, you could qualify for a reduction in your property taxes that corresponds with the lower value. “Don’t be short-sighted about your money,” King says.

One of the best investments you can make, according to King, is in financial planning itself. She suggests investing in financial literacy skills or services that will help you develop a financial plan. “Studies have shown that people with a financial plan have a 50% better chance of reaching their financial goals than those who don’t.” Learning the skill of balancing a budget will give you an awareness of where your money is going. And taking time to identify your life goals and coordinating your financial resources to meet those goals can pay off in many ways. And there’s nothing to lose. “In the stock market, the worst that can happen is that you lose your money,” King says. When you invest time and money to learn more about financial planning, “the worst that can happen is that you develop better savings habits.”

For tips on how to trim costs and prepare a budget, see Preparing Your Financial Fire Drill in the April 2007 issue of It’s Your Turn. For more information on your credit score and how to improve it, see How to Keep Score of Your Credit in the September 2008 issue of It’s Your Turn.

Stick To The Plan
One final bit of advice comes from Douglas Rice, CFP®, who teaches personal financial planning at Golden Gate University in San Francisco. And this tip applies whether or not you're receiving a refund this year. “Stick to the plan,” Rice says. “Decisions about what to do with the refund should have been made well before the check arrives. If you are just now thinking about what to do, it’s a sure sign of a lack of a comprehensive financial plan, which invites poor decision-making. Before you pay off your debt, start an emergency fund, or buy that new gizmo that you just can’t live without, create a plan for yourself that takes into consideration your overall situation. The decision will be far easier—and the results far better—than stray thoughts based on rules of thumb or standardized ideas.”

For more information on how having a financial plan can help you meet your goals, see When the Going Gets Tough, Stick to the Plan in the October 2008 issue of It’s Your Turn. If you want some professional advice, you can locate a CFP® professional in your vicinity through the Search for a CERTIFIED FINANCIAL PLANNER™ Professional page on CFP Board’s Web site.


CFP Board Consumer Webcasts Address Key Financial Planning Topics

The current economic situation has countless Americans wondering where to turn for unbiased, ethical guidance and advice. To help consumers deal with the current turmoil, Certified Financial Planner Board of Standards, Inc. has developed a new a Consumer Webcast Series featuring CFP® professionals addressing key financial planning topics.

Each webcast discusses a specific area of financial planning and includes practical information and tips that consumers can apply to their personal finances in today’s tough times. The topics include: Managing Debt: From Credit Cards to Foreclosures; Planning for Your Financial Goals; Young Professionals: Launching Your Financial Plan; and What to Know When Choosing a Financial Planner.

The 50-minute long videos are available in English and Spanish and include synchronized PowerPoint slide shows that make it easy for consumers to follow the presentations.

“We hope these webcasts will help consumers navigate the current situation and get an insight into the benefits of professional advice from CFP® practitioners who can help you make decisions based on your personal life goals and financial situation,” said Marilyn Capelli Dimitroff, CFP®, Chair of CFP Board’s Board of Directors.

The webcasts were recorded during educational workshops conducted at CFP Board’s Financial Planning Clinics in 2008 in Washington, DC, and Miami. At those workshops, hundreds of consumers came away with valuable information and advice on a wide range of financial planning topics.

CFP Board will continue to update and enhance its Consumer Webcast Series Web site, which is available at www.CFP.net/learn/webcasts.asp. Consumers can also explore the www.CFP.net web site for a variety of articles and information on personal financial planning and for help on finding a CERTIFIED FINANCIAL PLANNER™ professional.


Want To Launch Your Own Business? Start with a Financial Plan

Last month, the U.S. unemployment rate hit 8.5%, a 26-year high. More than five million people have lost their jobs since the recession began in 2007. As more and more workers are laid off, and with fewer firms taking on new staff, many people are deciding to start their own businesses.

Starting your own business can be extremely rewarding, but also extremely daunting. When you are your own boss, you have much more flexibility and independence. You don’t have to deal with the bureaucracy of a big organization, so you can move more nimbly and quickly. And building your own firm from the bottom up—whether it’s a restaurant, a Web site, or a corner store—can be a very satisfying experience. But the failure rate for small businesses is high, and once you start down the entrepreneurial path you take on more and greater financial risks. That’s why, if you’re thinking of launching your own firm, the place to start is with a sound financial plan. Here are four key steps along the road to self-employment.

Step One: Prepare a good business plan
“Small businesses often fail because they are undercapitalized,” says Dan Candura, CFP®, president of the Massachusetts investment advisory firm PennyTree Advisors and a former member of CFP Board’s Board of Directors, “so a well-funded business plan is a key ingredient. The business plan should ensure that you have sufficient assets so you don’t have to depend on success right out of the starting gate. There are lots of start-up costs for a new business, so be careful about the amount of debt you’re taking on. The debt is there even if the cash flow isn’t. Most businesses take time to succeed. If you don’t need to worry about the lack of a paycheck for a while, then you won't have the added pressure of making your business an immediate success.”

The U.S. Small Business Administration (SBA), the Federal agency that helps Americans start, build, and grow businesses, offers a comprehensive guide to writing business plans. The Write A Business Plan feature on the SBA Web site lists everything you need to know, including step-by-step instructions on how to write a plan, examples of actual business plans, and a FAQ of the most popular business plan questions. There is also an online Business Plan Workshop that walks you through the process (registration required).

Step Two: Protect Yourself
“When you start your own business,” Candura says, “you leave behind the life insurance, health insurance, and disability insurance you may have previously received through your employer. Now, you need to make sure you have that protection in case anything should happen to you. You should purchase disability insurance before you start your business, since it can be more difficult to obtain afterwards because income verification is more difficult at the beginning. You may not be able to demonstrate your earnings for three or four or even five years. If your business is successful, then it gets easier.” (For more on the most essential forms of insurance, see Don’t Scrimp on Your Insurance Coverage in the March 2009 issue of It’s Your Turn.)

If you are running a business out of your home, Candura suggests taking out additional insurance, since standard home insurance won’t cover losses to computers and other business equipment in the home. “You should run your business like a business,” he says. “Make sure you have the right coverage for you personally and for your equipment. Keep your business finances distinct from your personal finances; maintain separate bank and checking accounts and charge cards. That’s the only way to track and report your business income and expenses.” Separating your personal and business finances is also essential, Candura points out, should your firm run into trouble. By keeping strictly separate accounts, you ensure that business setbacks don’t affect your personal credit history.

Step Three: Don’t Forget Your Retirement
“When starting your own business, you also leave behind the retirement plan you may have been part of through your employer. That means it’s up to you to set up your own pension. “You need to provide income to support you and your retirement so you should start a retirement account soon,” Candura says. “People seldom do this when they launch a business because there are so many other things to do, then they just never get around to it. But at some point, you have to start putting some of your profits into a retirement account. And you should do it sooner rather than later, since you can’t get back the years in which you didn’t contribute.”

Candura suggests that it might be acceptable to have a one- or two-year gap as you get your business off the ground. But a one- or two-year gap should definitely not become a five- or ten-year gap, and any missed years in the beginning should be made up through heavier funding later on. And self-employed people should contribute more to their retirement funds than people in salaried positions, Candura says, since they won’t benefit from any employer match. “Whatever you do, do not borrow from your retirement money to fund your business,” Candura says. “That money should stay as retirement money. You could get a double whammy if you do that: If your business falters, you could lose your income and your retirement, too. And it can be very difficult to get that money back in place.”

There are a number of retirement plans available to the self-employed and owners of small businesses, including Keogh Plans, Simplified Employer Pensions (SEPs), and Savings Incentive Match Plans for Employees of Small Employers (SIMPLEs). Before making a decision about which retirement plan is right for you, you might want some professional advice. You can locate a CFP® professional in your vicinity through the Search for a CERTIFIED FINANCIAL PLANNER™ Professional page on CFP Board’s Web site.

Step Four: Don’t Go It Alone
Starting your own business is definitely not a 9-to-5 job. The experience of running your own business can be extremely stressful, so make sure you have the proper support network in place, starting with your significant other. “If you’re in a relationship, make sure your partner is 100% behind you,” Candura says. “Starting a business is difficult enough without a Doubting Thomas or Thomasina behind you. Your partner has to be as convinced as you are. There are lots of sacrifices, especially in the beginning, and the business will be constantly competing for your attention and time. Don’t do it all on your own.” SCORE, a non-profit dedicated to educating entrepreneurs, could be a good place to start looking for support. SCORE has more than 11,000 volunteers, working and retired executives and business owners, who donate their time and expertise to offer mentoring and advice both in person and online. You can search for nearby SCORE counselors and workshops via the Find SCORE Locations Near You feature on the organization’s Web site. You can also find guidance and support through the Local Resources page on the SBA site. The SBA also offers Online Training through The Small Business Training Network (SBTN), a virtual campus designed to help prospective and existing small business owners.

“The key difference between successful and unsuccessful entrepreneurs is the ability to be self-directed,” says Candura. “You have to be able to live with ambiguity and uncertainty, to get out of your pajamas in the morning and thrive on independence. You’ll also need to be able to deal with the isolation that comes from leaving the corporate world. In the first few years, it might be just you, or maybe you and your spouse. Starting your own business is a very difficult challenge, but it can also be very rewarding.”


Financial Alerts

Consumer Alert Information from the Federal Reserve
Various fraudulent solicitations are being directed at consumers, with the Federal Reserve Board or Federal Reserve Banks being mentioned as a party to the "loan" or transaction. Among other things, these solicitations promise consumers access to large sums of money after the consumer sends personal information to a designated address. Consumers are then told that they can contact a Federal Reserve employee who will assist them in accessing the money. The Federal Reserve is advising consumers that it does not endorse these solicitations, nor does it have any involvement in them. The best protection is awareness. Visit the Federal Reserve's "Find an Answer" area for more information about spotting frauds or scams.

Going Green for Homeowners: What insurance Questions Should You Ask?
From recycling to solar panels, the green movement is taking over the nation as Americans are doing more to help protect the environment. For many homeowners, that includes plans to make their home more green with renovations. If you are considering environmentally friendly updates to your property, it’s also important to understand how those modifications are covered under your homeowners insurance policy. The National Association of Insurance Commissioners (NAIC) provides these tips to help make your home – and your insurance – more green.

Read more financial alerts.


About This eNewsletter

CFP Board's "It's Your Turn" eNewsletter is sent monthly to those who have subscribed through CFP Board's Web site, www.CFP.net/learn. CFP Board exists to make people aware of the benefits of financial planning and to encourage people to seek out individuals who can help them apply the financial planning process to improve their financial lives. This eNewsletter is designed to provide information about financial planning, financial planning tools and resources, consumer alerts and more. Suggestions and feedback are welcome at mail@CFPBoard.org.