CFP Board eNewsletter
December 2008
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CFP Board eNewsletter |
| Put Together a Financial Game Plan for 2009 |
It’s almost time to ring in the New Year and say goodbye—or should that be good riddance—to 2008. For many of us, the past year has been a time of painful financial bumps and bruises. But the shocks to the economy also have been a lesson in the benefits of developing and sticking to a financial plan. If you don’t have a financial plan in place, the new year is a great time to get started. Below are some suggestions to help you put a plan in place. But don’t call it a New Year’s Resolution, because statistics show that most people don’t keep their resolutions. Instead, call it a plan, a financial plan, to help you put your financial situation in order. 1. Spend less than you make You can't lose weight if you consume more calories than you burn. The same is true of personal finance: you can't save money if you spend more than you bring in. If you consistently overspend your income each month you can’t increase your savings, make investments, reduce debt or even make wise spending decisions. “Spending less than you make on a consistent basis is the key to reaching financial fitness and financial stability,” says Marilyn Capelli Dimitroff, a CERTIFIED FINANCIAL PLANNER™ practitioner in Bloomfield Hills, Mich. Put together a spending plan and make it one that works for you and your family! 2. Start an emergency fund If you don't have an emergency fund, start one without delay. Your emergency fund should have enough to cover a minimum of 3 months worth of expenses. This is your emergency money for a job loss or unexpected, emergency home or auto repair or medical expense. Keep these funds in a money market account or other high interest, easily accessible account. If you ever have the misfortune of an unexpected job loss, unexpected car repair or appliance problem — you will be far more prepared to weather the storm if you have a little breathing room on your finances, thanks to your emergency fund. That peace of mind makes all the difference. To learn how to establish an emergency fund, see In Case of Emergency, Use this Fund in the September 2007 issue of It’s Your Turn. 3. Save more - at least 10% of your income If you use a credit card, do so only when you know that you already have the funds set aside to pay the balance in full when the bill arrives. Do not carry a balance on your card. It wastes money and ends up costing you a fortune in interest and finance charges. Those airline miles you accumulate with each purchase aren’t worth the price of not paying the card balance off every month. 4. Reduce your debt Here’s one technique to reduce your debt in an orderly manner. Make a list of all your debts and prioritize them in order of interest (highest to lowest) or in order of the number of payments till payoff (fewest payments at the top). Once your first debt is paid off, roll that payment amount into the next debt on your list. Follow the same procedure when the second debt is paid off. You will not only reduce the number of years you will have payments, but you will also save thousands in interest if you follow this principle until you are completely debt free. For more tips on debt reduction see Don't Let Debt Become a Four-Letter Word in the July 2008 issue of It's Your Turn. 5. Calculate your net worth Now is the time for a reality check to ensure you are on the right track. Your net worth should increase each year, even if it is just by a small amount. The exercise of calculating your net worth can be very valuable as well — people often discover accounts or investments that they have forgotten about, or need to update. If your net worth has decreased from the year before, take an honest candid look at where you can make adjustments to improve these numbers. Consider accelerated debt reduction. Consider increased savings. Even consider canceling every credit card you have if it means that you stop overspending and start saving. Be proactive in your efforts to get financially fit. Calculate your net worth at www.CFP.net/learn/SavingsFitness/CalcNetWorth.asp 6. Use credit cards for the benefits, not the penalties If you use a credit card, do so only when you know that you already have the funds set aside to pay the balance in full when the bill arrives. Do not carry a balance on your card. It wastes money and ends up costing you a fortune in interest and finance charges. Those airline miles you accumulate with each purchase aren’t worth the price of not paying the card balance off every month. 7. Make sure you have adequate insurance This means insurance of all kinds: home, life, disability, health, property and even auto. “Consider the consequences on your financial situation if you have no fire insurance and your house burns down. Adequate insurance coverage is part of any sound financial plan,” says Dimitroff. 8. Create or update your estate plan and/or your will Whether you are single, married, divorced, have kids or no kids—you need to have the proper documents to make your wishes known. See Why You Need A Will, Below. 9. Manage your portfolio If you have any 401k accounts from former employers, be sure you roll them over into an account that you control. Consolidation can also make your retirement accounts easier to manage. However, in doing so make sure you don't jeopardize the diversification. 10. Get competent, ethical advice If you want some professional advice to help you make informed decisions amid today’s economic uncertainties, you can locate CFP® professionals in your vicinity through the Search for a CERTIFIED FINANCIAL PLANNER™ Professional page on CFP Board’s Web site. Take advantage of the New Year and get on the path to financial fitness!
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Survey: What is Your Financial Planning Priority for 2009? |
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People often take stock of their financial situation at this time of year. What are the primary goals of your financial plan for 2009? In the October edition of It’s Your Turn, we asked our readers about the impact the recent financial market volatility had on their retirement plans. Nearly half—or 46 percent—said their retirement plans are on course despite the upheaval. Another 21 percent estimate they might have to say on the job another year or two. However, a third said their retirement plans could be set back by three years or longer.
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Why You Need a Will |
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Death and taxes, the old saying goes, are the only two certainties in life. People don’t like to think about either topic, and that’s probably why the subject of wills is so unpopular, too, since a will is mostly about—you guessed it—death and taxes. No wonder, then, that nearly 60% of Americans don't have a will. But a will is a crucial part of any financial plan. Here’s why. A will is simply a document that allows you to determine who gets what after you die. If you want to make sure your grandson inherits your baseball card collection, for example, specify that in your will. Similarly, if you want your niece to inherit your 1970 Ford Mustang, then specify that, too. If you pass away without a will, you die “intestate” and state law will decide how your possessions and assets are apportioned among your heirs. The state will also determine who becomes the guardian of your minor children, if you have any. The only way to make sure your wishes are carried out after death is to make a will. So why don’t more people have one? “Procrastination and denial are the main reasons,” says Michael Rubin, CFP®, founder of the financial education firm Total Candor. “It’s very uncomfortable to contemplate your own death or the death of your spouse, and people understandably don’t want to deal with it. But if you die intestate, your assets are distributed in accordance with state law. So failure to have a will means you have to rely on the will of the state, which may not agree with your wishes.” A will therefore becomes essential, Rubin argues, as soon as you begin to accumulate assets, such as a home, or when you have children. The basic components of a typical will include, among other things:
“A will simply spells out to whom your things should be transferred,” Rubin says, “your investments, personal property, house, and things of sentimental value. It can also designate who gets your things if the original beneficiary dies before you do.” That’s one reason wills can be, and should be, regularly reviewed. Marriage, divorce, the death of a sibling or child, the receipt of a large inheritance yourself—these are all events that could lead to a change in your will, which can be carried out as often as your circumstances change.
Though the basics of a will are pretty straightforward, Rubin recommends consulting a professional to draft a will since it is a legal document. If you expect your estate to be worth around $2 million, the current level at which federal estate taxes are incurred, he advises seeing an estate planning specialist or a CERTIFIED FINANCIAL PLANNER™ professional with a firm understanding of estate planning; at lower amounts, a general attorney should be sufficient. Tax rules are complex and constantly changing, and each state has its own estate tax rules, so it’s always a good idea to seek professional advice from a trusted advisor, such as an attorney or financial planner.
Rubin cautions, however, that it is important to understand what a will can’t do. “If you had a 401(k) before you got married,” he says, “it will still go to your designated beneficiary and not to your spouse when you die. The same is true for IRAs. If you want these types of assets to go to your spouse after your death, you need to change the beneficiary designations. So when making or revising a will, it is always a good idea to review existing beneficiary designations for things like 401(k) plans, IRAs, and life insurance.” And once your will is complete, you’ll have one less reason to worry about death and taxes.
If you would like professional advice on any of the issues raised in this article, you can locate CFP® professionals in your vicinity through the Search for a CERTIFIED FINANCIAL PLANNER™ Professional page on CFP Board’s Web site.
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Women aged 50 and over are among the healthiest, wealthiest segments of the U.S. population. That’s the good news. The less good news is: They are also among the most concerned about the financial challenges they face in later life. A recent study published by Hartford Financial Services and MIT's AgeLab research group found that 64% of women surveyed were worried about outliving their retirement assets (compared to 46% of men) and 87% were worried about increasing health care costs (compared to 77% of men). Some 36% of women were concerned about managing their retirement funds (compared to 19% of men). Unfortunately, these worries are well founded. Women tend to earn less than men; they often interrupt their careers to care for children or other family members, thereby decreasing their earning potential further; they tend to live longer on average than men but are less likely to take part in an employer-sponsored retirement plan, so they have a greater chance of falling into poverty in old age. Plus, the recent turmoil on the stock markets will have done nothing to ease any of these concerns. All the more reason, argues Jenna Mitchell Everett, CFP®, an advisor with Everett & Associates in St. Joseph, MI, and author of 50 & Forward: A Woman’s Journey of Financial Awareness and Self-Discovery, for wise women to “value security over any ‘thing’ money can buy. They want to know their financial affairs are in order and well managed, so they can go on to what matters most—the rest of their lives and the legacy they develop and leave for others.” The process of taking control begins with an investment policy statement, a document that sets out an annual return target as well as an acceptable level of risk and volatility. Everett argues that putting these guidelines down on paper brings crucial discipline and informed decision-making to the investment planning process. But an investment policy statement is more than just a list of financial goals, Everett says: “It is also a values-based statement expressing your unique emotional and spiritual thoughts, viewpoints, and desires. Do you want to be socially aware in your investments? Then the statement should specify looking at green companies, like solar power firms. It should also talk about your financial legacy, the lessons you want to pass on about money, emotions, or physical fitness. It should provide you with the means to pursue your goals and dreams, while simultaneously building and leaving a loving legacy that reflects your core values.” Since women often start out at a disadvantage compared to men—one recent survey found that on average women had almost $47,000 less in their 401(k)s than men—it is all the more important for them to save more and to start saving earlier. Putting just a little extra money into a retirement account, for example, can add up to a significant sum over time, and postponing retirement by just a few years can allow your investments and Social Security benefits to grow even further. It is therefore crucial, Everett says, to think ahead: “Wise financial planning can make all the difference between choosing to work [in later life] and needing to work. Failure to plan causes many people to spin their wheels when they ought to be rolling along pursuing the rest of their lives.” For more information on the financial challenges facing women in later life, see Everything You Always Wanted to Know about Women, Money, Divorce and Retirement but Were Afraid to Ask in the March 2007 issue of It’s Your Turn. Everett is passionate about the benefits that a CERTIFIED FINANCIAL PLANNER™ professional can provide. “Finances are more complex than ever, and most consumers simply are not equipped with the expertise to manage their own affairs without professional guidance. A seasoned planner, someone who has seen the good and the bad markets, can help fit all the pieces of the financial puzzle together. They bring the knowledge to help you make informed decisions, and to help you realize how any decision affects other parts of your financial plan.” For information on choosing a planner who is right for you, see How to Choose a Planner on the CFP Board Web site. The Checklist for Interviewing a Financial Planner provides some helpful tips on questions to ask a prospective planner. To find out what distinguishes CERTIFIED FINANCIAL PLANNER™ professionals from other types of advisors, see Why Are the CFP® Certification Requirements Important? “The most highly qualified financial professionals will first and foremost seek to build a relationship with you based on mutual respect and understanding,” Everett says. “Your advisor should take the time to listen carefully to your concerns in order to design a plan that takes into consideration your values, emotional needs, dreams, and end-of-life wishes.” For more information about what to expect from a financial planner, see Your Rights as a Financial Planning Client. Ultimately, Everett says, “Financial planning is more than just about money. It’s about life and giving you the means to live the life you want.” For women of any age, that is a fruitful way to move forward. Online Resources
Wider Opportunities for Women
Wi$e Up
Women’s Institute for Financial Education
Women’s Institute for a Secure Retirement
Women’s Institute for a Secure Retirement
CFP Board Report
Part I: What’s Biology Got To Do with It?
Part II: Dealing with Divorce
Part III: Reckoning with Retirement
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Financial Alerts |
Watch Out for Ponzi Schemes
Don’t be Duped by Credit-Repair Scams Read more financial alerts.
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About This eNewsletter |
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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.
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