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CFP Board's Consumer Advocate, Eleanor Blayney, CFP®
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My Money Valentine: Romantic Bliss Requires Full Financial Disclosure
Chocolates, champagne, roses – time-honored tokens of love, but are they enough to persuade your Valentine to “be mine?” You might consider adding a balance sheet, income statement, and your credit score to the mix if you really want to convince that significant other that you are good relationship material.
Finances may not be the most romantic of sweet-nothings to discuss on Valentine's Day, but ignoring them can create big problems later in the relationship. Fighting over money is the number one source of relationship trouble among couples today,1 but this may be a relatively recent phenomenon. A century or two ago, the divorce rate was considerably lower, perhaps because marriage was viewed not just as a love match but an economic transaction. Brides supplied the domestic goods in the form of a dowry, and aspiring grooms had to convince future fathers-in-law that they would be good providers. Money matters were addressed openly before couples wed, leaving less possibility for financial friction down the road.
Today, partners are more financially separate, having their own incomes, assets, and obligations. Couples may think there is little need to talk about money upfront, since it is no longer a question of one person providing completely for the other. At the same time, full financial disclosure as part of the mating game becomes even more imperative, considering that many individuals carry a heavy bag of financial behaviors and obligations into their relationships. Couples are looking to start a new life together, yet they are shadowed by the ghosts of their separate financial pasts. He may now be a financial Boy Scout and great partner material, but the bad credit from his struggling student days can put that house she loves out of reach. Long before lovers exchange “I dos,” they need to share their “I dids” with respect to money.
So how can couples keep money issues from taking the bloom off the Valentine roses? Many think it is a matter of finding their financial soul mate – someone who thinks about and manages money just like they do. In fact, this is not necessarily the case. Put two financial “free-spirits” together, and trouble may lurk ahead. Or match up two super savers, and the fun and life can go out of the relationship.
It all comes down to communication: upfront, frequent and starting as soon as the love bug bites. If you’re not sure where to start, here are some candlelight topics for true financial intimacy:- Share your childhood perceptions of what money meant to you and the role money played in your family. Knowing that money meant power to him, whereas money equaled love for her, can help a lot when it comes to later disagreements about finances.
- From the past, jump to the future. What are the life goals you share? Children? A high-rise condo in the city? Being able to contribute to causes you care passionately about? What are the priorities for these goals, and how will your financial management incorporate them?
- Think now about your financial contingency plans. How will you work together when the inevitable financial crises arise – for example, a job loss or an unexpected emergency? The best time to plan for the rough spots is while the road is still smooth.
- Discuss the need for some financial separateness in your relationship. What assets will remain hers or his alone, without having to account to the other person? Letting a spender have his own "mad money," and a saver her own little nest egg can prevent later acts of “financial infidelity” where partners start keeping accounts secret from one another.
It’s said that love makes us lose our hearts, our minds and our tongues, but it doesn’t have to make us lose our future financial security. There’s nothing like some joint financial planning to show your Valentine how much you really care.
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Financial Planning for Your Life Now
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CFP Board's Consumer Advocate, Eleanor Blayney, CFP®, Says Owning a Home Comes With Risk
USA Today (01/31/11) Dugas, Christine
People's perception of their home has dramatically changed as a result of the volatile economy, and they "are starting to realize that the American dream of homeownership is not right for everyone," according to expert Kim McGrigg. Many families cannot count on their home value as part of their retirement income any longer. Even those for whom a home is easily affordable are reconsidering, with the size of homes shrinking and multigenerational households enjoying a resurgence, partly because many jobless adult children are moving back in with their parents. An increasing number of people are deciding to rent, even in a buyer's market. Some have no other option because they are not eligible for a mortgage, while others would rather avoid the risks of ownership. "Many who bought homes as investments have gotten quite burned on that," says Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®. Another factor behind some Americans' reinvention of their homes is the desire to be more energy efficient, while still others are seeking ways to make their existing homes livable and safe. Blayney contends that "we need to rethink housing in the 21st century."
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CFP Board's Consumer Advocate, Eleanor Blayney, CFP®, Suggests Saving This Year's Tax Cut
Everett Daily Herald (WA) (01/30/11)
Thanks to the tax-cut extension bill that was passed by Congress in late December, workers who make $106,800 or less will see their Social Security contributions drop from 6.2 percent of their salaries to 4.2 percent this year. That means the average worker will see an additional $996 in his or her paycheck in 2011. Financial advisers generally say that workers should use the extra money to boost savings. Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®, says employees should use the extra money to increase their savings or boost their retirement account. Although the federal government has said the cuts will not hurt Social Security in the long term or have an impact on the amount of benefits anyone collects in the future, Blayney notes that "nothing's free," adding, "We all need to be more self-reliant about our retirement. If you haven't maxed out your 401(k) contribution, use that extra $40 a paycheck. Or consider a Roth or regular IRA."
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Plan for Your Life Now
CBS MoneyWatch (01/25/11) Pagliarini, Robert
Traditional financial planning has a number of problems, according to Robert Pagliarini, CFP®. Among them is the unappealing choices some financial planners give their clients: either skimp and save in order to save for retirement or enjoy life now and hope everything works out for the best when retirement arrives. In addition, the traditional approach to financial planning does not work well for someone who is on the cusp of retirement but does not have any money saved. Third, traditional financial planning is focused primarily on retirement rather than helping people live more enriching lives now. Finally, traditional financial planning focuses on trying to cut expenses rather than boosting income. Pagliarini argues that financial planners should help people find ways to increase their income rather than cut their expenses, so that they can achieve their goals and dreams instead of scaling them back. According to Pagliarini, consumers should use their free time to find ways to make more money, including improving their skills so that they can make more in their present jobs and finding ways to make money doing something they love.
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Things to Keep in Mind When Creating Your Budget
Savings.com (01/20/2011) Thune, Kent
Kent Thune, CFP®, provides some reasons why many attempts to create and stay on budget fail. Thune says the success of a budget requires more than just good intentions. First, it is important to observe your cash flow. Most people understand their cash inflow, the money they bring home after deductions, but do not understand their outflow as well because it requires keeping close track of their expenses. Three months is a good time frame to track expenses because it allows for averaging and ensuring anomalous spending is accounted for correctly. One reason why budgets fail is that people are too ambitious with their goals. Do not get frustrated if you do not have a budget that works well in a few weeks or months. Successful budgets are often a product of trial and error. Allow for up to 12 months to create and implement a budget. Plan for incremental success. After tracking expenses one month, acknowledge completing this critical step, and then focus on tracking the second month while finding ways to spend less. Do not confuse creating a budget with trying to save. Saving money for retirement and paying down debt are separate from, but related to, creating a budget. Establish a budget first, then focus on debt reduction and retirement savings. Finally, not everyone is ready for a budget. People experience different scenarios throughout their lives, and the time may not be right for a budget. Keep the goal of having a budget in mind, and take steps to achieve that goal when the time is right.
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Hiring a CERTIFIED FINANCIAL PLANNER™ Professional
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CFP Board's Consumer Advocate, Eleanor Blayney, CFP®, Says Your Advisor Should Provide Services With the Duty of Care of a Fiduciary
Consumer Reports Money Adviser (01/11) Stanger, Tobie
The Securities and Exchange Commission has released a study recommending that anyone who provides personalized, securities-related investment advice to retail customers be held to the same fiduciary standard. Until such rules are actually implemented, consumers who are receiving financial advice should ask their advisers about fiduciary duty, specifically about providing services with the “duty of care of a fiduciary.” Consumers should also understand the planner's compensation and ask for his or her Form ADV Part 2. Recipients of financial advice should also verify the adviser's certifications, licensing, and any violations, and ask them which body licenses or supervises their actions. One good resource to check out can be found on the Certified Financial Planner Board of Standards site -- the Financial Self Defense Guide, written by CFP Board Consumer Advocate Eleanor Blayney, CFP®. One tip: Ask the adviser about fiduciary duty, and specifically if the planner will provide services with the “duty of care of a fiduciary.” Doing so "obligates them to base their recommendations on the client’s best interest (actual, potential, or perceived),” says Blayney. If they can’t answer in the positive, find another planner.
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CERTIFIED FINANCIAL PLANNER™ Professionals Can Help You Succeed
CNBC.com (01/19/11) McLaughlin, Mark
A large number of people are opting to go it alone when investing their money. A survey of investors last January by ING Direct found that 45 percent of investors had scaled back or eliminated their relationships with a financial professional, while 57 percent said they could handle their money just as well as a financial professional could by making their own investment decisions. But while it is possible for investors to succeed on their own, most investors face an almost certain likelihood of failure, says author Larry Swedroe. As a result, most people should utilize the services of some type of financial adviser, Swedroe says. CERTIFIED FINANCIAL PLANNER™ professionals can be particularly helpful because they have received a great deal of training on markets and investments, and because they have access to tools that investors do not have access to. There are other reasons why consumers should seek out the advice of financial professionals, including the fact that advisers can help them learn about the historical risks of various asset classes and determine their comfort level through both good and bad markets. Financial advisers can also help consumers to not make financial decisions based on emotions. Financial advisers do not necessarily have to be expensive. No-load mutual-fund firms that are targeted toward individual investors offer access to CERTIFIED FINANCIAL PLANNER™ professionals and customized accounts with a minimum investment of $50,000 and at costs that are similar to those charged by fee-based advisers.
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CFP Board Calls for Enforcement of Fiduciary Duty
Cincinnati.com (OH) (01/19/11)
The Certified Financial Planner Board of Standards Inc., the National Association of Personal Financial Advisors, and the Financial Planning Association joined forces two years ago to advocate for legislation to establish a national oversight board to impose standards and enforce a "fiduciary duty" for financial planners. A fiduciary duty standard would require planners to put their clients' best interests first when dispensing advice on investments, insurance, estates, taxes, and other issues. "Under our current laws anyone could put themselves out as a financial planner without any type of requirement for competency or an ethical standard," said Marilyn Mohrman-Gillis, managing director of public policy and communications for the Washington, D.C.-based CFP Board. While some services rendered by financial planners are regulated by state and federal laws, such as the sale of insurance or securities, the integrated service they provide is not, Mohrman-Gillis explained. Roughly 28 percent of Americans use a financial planner, according to a CFP Board study released last July. More than 150,000 people call themselves financial planners said Mohrman-Gillis; however, just 62,000 are CFP® certificants.
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Make Sure Your Financial Adviser Has Your Best Interests at Heart
SmartMoney (01/25/11) Andriotis, AnnaMaria
Some financial advisers do not have the best interests of their clients at heart, and are instead more concerned with trying to maximize their own income. For example, financial planners that receive commissions from selling products sometimes try to sell variable or equity-indexed annuities that usually carry high commissions. According to Sheryl Garrett, CFP®, planners can quadruple their commissions by selling their clients a variable annuity rather than investing the money in mutual funds. However, buying such an annuity is usually not a wise decision for consumers. Consumers that invest $3,000 a year in an index fund with a net return of 6.75 percent will have $40,000 more after 25 years than if they put the same amount of money in an annuity at 5 percent net yield. To protect themselves from financial planners that are primarily interested in boosting their commissions, consumers should ensure they understand how the fees and performance of the funds they are being sold compare with other funds with similar exposure. Consumers can also ask if the fund they are being sold is owned by the company selling it or if the broker receives more money for selling the fund, though there is no guarantee they will get an answer. Some insurance agents also try to maximize their commission by selling consumers products such as child life insurance. However, child life insurance is not necessary as life insurance is intended to protect the salary of a household's breadwinner, and children do not bring in income. Consumers should also be careful not to let mortgage brokers talk them into taking out a bigger loan than they can afford. Finally, consumers should be wary of claims by college aid advisers that they can obtain more financial aid for them than they could on their own. Such claims are not true.
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Financial Planning for Your Retirement
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Steps Baby Boomers Can Take if You Are Unprepared for Retirement
KABC-TV (01/19/11) Romero, Ric
Although members of the baby boom generation will reach retirement age over the course of the next 19 years, many are not prepared to stop working. Of the baby boomers that have 401(k) accounts, the average person has a balance of just $150,000, which is not enough to cover the medical expenses they are likely to pay during retirement. However, it is not too late for baby boomers to start saving for retirement. Baby boomers, and people of all ages, should begin by making a financial plan. According to expert Tetsu Tanimoto, consumers should work to pay off their debts, even mortgages. In addition, consumers should not give so much money to their children, Tanimoto says. Adult children who are still living at home should be asked to pay at least enough in rent to help cover expenses. Consumers who want to travel should take shorter trips that are closer to home to cut down on expenses. Finally, consumers should delay their retirement if they need to give their savings more time to grow.
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Financial Planning for Your Children
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529 College Savings Plans Are Not the Only Option
Wall Street Journal (01/22/11) Kim, Jane J.
Providers of so-called 529 college-saving plans have reduced their fees, reexamined their asset allocations, and have added more products after many families suffered losses and wrote them off following the financial crisis. Although providers are making strides in addressing the limitations of 529 plans, advisers say families should consider spreading their college-saving bets around to other investment vehicles and different asset classes. Advisers say expanding college-savings options will help protect families from market volatility and will give them more flexibility if they need money for other purposes. Families could use Coverdell accounts to grow their education savings free of taxes, but there are income restrictions, contributions are limited to $2,000, and the current tax benefit has only been extended for two years. Savings accounts can be helpful to families who plan to tap their funds within two years, and Treasury inflation-protected securities (TIPS) and zero-coupon bonds are savings bonds that can provide solid inflation-adjusted returns over the longer term. A regular brokerage account gives families complete control over their investment decisions but they have to pay taxes on growth and withdrawals; a Roth IRA generally allows investors to withdraw original contributions without taxes and penalties. Other options include insurance plans, which are likely to charge an annual fee of more than 3 percent and generate a hefty fee for the adviser; and taking out a federal loan, which is likely to be more expensive than saving.
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You May Want to Consider Selecting a More Conservative College Savings Account
The Street (01/21/11) Luxenberg, Stan
Two years ago the average 529 college savings plan lost 24 percent, says Morningstar. In the wake of the financial implosion many plans have shed expenses, and some funds have reduced risk by offering families safer investment options. The decision to open a college savings account depends on whether you think your child will go to college. If you do decide to enroll, be mindful that you do not have to enroll in your own state's plan. Some of the most popular plan investments vary their asset allocation according to the child's age, and the portfolios begin with large stock allocations and then move to safe fixed-income choices as the student approaches college age. The fund firms figure that if a portfolio takes a hit in the early years, then there is still time to rebound--but there would be no time to recover from losses sustained at later stages. However, some firms invest conservatively, shifting assets to fixed income by the time the child is 11 years old, in one example.
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Financial Planning for Women
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Money Advice for Women and Their Families
WGN-TV (01/31/11) Castagnier, Stephanie
Women must effectively develop a business plan for marriage, says personal finance expert Stephanie Castagnier. "No matter what stage you are in ... it is important to gain access and review credit scores, financial statements, balance sheets, and more ...," she advises. "Better still, review them with a financial planner." Job skills should be kept fresh and resumes updated even for stay-at-home moms, Castagnier suggests. Keeping track of your money habits is a wise move, and Castagnier advises women to start saving immediately. She also emphasizes the need to budget, recommends the use of credit cards with rewards/points and zero annual fees, paying off card debt every month, and writing down all your monthly income and expenses. Pop culture can greatly influence your children's views about worth and lifestyle expectations, and taking lessons from last year's high-profile fiascoes -- such as the failed Kardashian credit card -- can help prevent their perceptions being skewed. When your kids reach age 12, Castagnier recommends that you regularly talk with them to explain credit and debt, starting with fundamentals such as credit cards and eventually progressing to knowledge about credit scores, fees, interest, and penalties. Daughters should especially be conditioned to comprehend finance, because big brand marketers know that the household's consumer purchase power typically resides with women. Finally, Castagnier says families should repay their community by volunteering, sponsoring events, or backing a cause.
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