As the weather begins to heat up, many Americans start to dream about going away on vacation. Unfortunately, soaring fuel and airfare costs have a lot of Americans wondering if they can afford to travel this summer. Summer revelers can still have a relaxing vacation away from home by using creative financial planning to save money and have a great time.
You can keep vacation costs reasonable with a little creativity and a lot of planning. Given that there may be no getting around the higher costs of travel – whether by car, train, or plane – you need to focus on all the other expense items of your vacation for opportunities to save.
Here are a few ways to make travel more affordable this year:
• Plan your every move before you start. Map out how you will spend each day of your vacation – where you will eat, what you will do, what you will buy – and approximately what each activity will cost. Knowing your costs beforehand is a powerful budgeting tool, whereas leaving everything to chance, proximity, and hunger pangs can get expensive. What’s more, planning can heighten and extend the fun of the actual excursion, as any ten-year old getting ready for a trip to Disney World can tell you.
• Get everyone in on the act. If you are taking a family vacation, give everyone – even school-aged kids – budget responsibility for one aspect of the trip. Have that ten-year old manage the snack or bottled water expenses; a teen can be responsible for lunches or sightseeing expenses. You can even make it a contest: best budget manager gets a “splurge allowance” (which, of course, you have already planned for!).
• Consider a home swap or hospitality exchange. In the first case, you actually trade homes for a specified time with a person or family living in the area you wish to visit. In the second case, you host travelers in your home, and then are hosted by them in return. These arrangements are generally far less costly than hotels or vacation rentals. The internet has greatly facilitated and broadened the market for home exchanges, particularly in the case of foreign travel. Just exercise caution and do your homework before entering into any agreements.
• Return to a favorite place rather than someplace new. Similar to the benefits of advance planning, going back to a place you have visited before provides important pre-travel information you can use to keep your expenses in check. You will already have a good idea of the places to eat, to stay, to visit and to shop, and can make cost-effective choices accordingly.
Now I certainly recognize that even if you take this cost-saving advice, you still may not be able to balance your vacations plans with your budget, so here’s an alternative.
Remember that getting away can be more a state of mind than a matter of geography. Become a bona fide visitor in your own city or town. Stay at a local hotel, and plan your days as a tourist, seeing and doing things you assumed you could always do later.
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Financial Planning for Women
Twenty-two Percent of Women Now Out-earn Their Husbands, Says CFP Board's Consumer Advocate, Eleanor Blayney, CFP® Digested from: The New Normal Wears Lipstick Forbes (04/19/11) Eleanor Blayney
Some people call the economic downturn a “Mancession,” as more working age men than women are unemployed—10.4 percent versus 8.8 percent as of October 2010—and women are increasingly responsible for the dominant income in a household, writes Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®. Indeed, the number of women with higher salaries than their husbands has quadrupled since 1970, to 22 percent; however, those same women have a 38 percent higher divorce rate than those couples where the man earns more. Some worry about the effect of their success on their husband’s ego, while others resent the burden of being the primary provider. Much of the problem is that while women are taking on more of the traditional male role, men are not taking over the traditional female role to compensate. Childcare and housework still tend to be the woman’s responsibility, even if she is also the only one working. When the recovery does finally emerge full-force, it is unlikely that these women will give up their jobs and slip back into the female role, and in fact economic growth will only make them more powerful. Women need a better work-life balance, and what needs to change is the definition of masculinity, so that it includes more domestic and childcare responsibilities. According to data from Stony Brook University’s Michael Kimmel, when men take on more household duties the health of their entire family improves, their children do better in school, and there is an increase in sexual and marital satisfaction.
CFP Board's Consumer Advocate, Eleanor Blayney, CFP®, Recommends Budgeting Your Taxes as Closely as You Can to the Amount You'll Owe Digested from: Dear IRS: Where Is My Tax Refund? Reuters (04/15/11) Linda Stern
The Internal Revenue Service (IRS) reports that this year's average tax refund is close to $3,000. Many financial advisers say very large refunds may be detrimental, noting that the money loaned to the IRS fails to earn interest. "My gripe with large tax refunds … is two-fold," Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®, recently stated. "First, they make mincemeat of any attempt to manage your cash flow. Second, they often go unplanned." Blayney recommends that consumers budget their taxes as closely as possible to the amount they will actually owe when the year ends. The extra amount not being sent to the IRS should be incorporated into a reasonable spending and saving budget. That said, a beneficial way to use a large refund is to pay down credit card debt. Bankrate.com says the average credit card interest rate is 14.43 percent, so paying $3,000 will save a consumer $432 in interest annually. A large refund can also be used to garner more tax savings, such as through investing in an individual retirement account or 529 college savings plan. Both options will generate tax savings in the future. If the money is used for continuing education or donated to a charity, it may be deductible.
Don't Spend Your Tax Refund on 'Things That May Be Out of the Norm', Says CFP Board's Consumer Advocate, Eleanor Blayney, CFP® Digested from: Big Tax Refund? Consider Adjusting Withholding Associated Press (04/07/11) David Pitt
Getting a large tax refund may not be a good idea because people may view it "as a bonus and they spend it on something fun or a vacation, things that may be out of the norm," observes Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®. Taxpayers are more prone to spending a significant amount of money on purchases that they would not have made had they received the money in smaller increments during the year. In such a situation, it may be worthwhile to adjust the withholding so that the refund is not so large. Of the 82 million tax returns the Internal Revenue Service received by March 25, nearly 70 million were due refunds, with the average refund totaling slightly less than $3,000. Consumers who want to reduce the size of a refund need to adjust their withholding tax allowance on a W-4 form. This form is usually filled out when a person starts a new job, and exemptions can be claimed. The higher the number of exemptions, the less money is withheld from the paycheck. It is important not to take an excessive number of exemptions because it means money will be owed at the end of the year. The employee should ideally claim the right number of exemptions to break even or be close to breaking even. Consumers can use online calculators to estimate how much they should be withholding.
Your 'Human Capital' Makes You Richer Than You May Know Digested from: You're Richer Than You May Realize MarketWatch (04/25/11) Andrea Coombes
Some experts say that workers should include the amount of their "human capital" in their financial planning. York University finance professor Moshe Milevsky defined human capital as anything that would generate cash flow for a person outside of their investments, including their ability to work, their ability to be awarded a bonus, and their ability to work overtime. Milevsky added that this asset, which decreases in value as time goes by because employees have fewer working years ahead of them, should be protected and managed like any other asset. This can be done by purchasing life insurance or disability insurance. Meanwhile, Certified Financial Planner Board of Standards spokesman Dan Drummond noted that the concept of "human capital" is not directly identified in the current or future versions of the CERTIFIED FINANCIAL PLANNER™ professional exam blueprint, though he said that the concept is indirectly covered when assessing earning potential and its economic value to the financial planning process, as well as other factors that might have an effect on clients. Drummond also noted that CERTIFIED FINANCIAL PLANNER™ professionals take someone's human capital into consideration when helping them prepare for a possible disability and in helping them determine whether their skills could be useful in a different profession or career.
Making a Decision to Be Transparent About Your Finances Can Help You Weather Your Divorce Digested from: Divorce Doesn't Have to Be a Pain in Wallet News-Press (FL) (04/17/11) Laura Ruane
When a couple goes through divorce proceedings, it is essential that spouses remain transparent about their financial dealings, experts say. This includes collecting financial records prior to meeting with an attorney, financial planner, or divorce mediator, possibly through the use of Web sites. Many couples in today's economy face upside-down mortgages or high credit bills. "People are having to choose between making a mortgage payment or paying spousal support," notes Toni Sparkman, a forensic accountant for divorce issues. Carole Peck, CFP®, says the majority of married couples who own homes own them jointly, and that homes have become harder to sell due to excessive supply and a decline in property values over the past five years. Peck encourages her clients to obtain credit reports from the three reporting agencies to identify such things as whether a spouse has an undisclosed credit card or if someone is improperly using their name to obtain credit. Such situations could impair a person's credit score and delay the refinancing of a home as part of a divorce settlement, she says. Peck also recommends forming a post-divorce spending plan to help determine what changes may need to be made or whether certain expenses should be given up.
In Retirement, You Will Be Responsible for Covering Some of Your Prescription Drug Costs Digested from: Medicare Won't Cover All Drug Costs SmartMoney (04/22/11) Glenn Ruffenach
New research from the Employee Benefit Research Institute reveals some startling differences in spending needs in retirement based on three levels of possible drug expenditures--at the U.S. median, the 75th percentile, and the 90th percentile. According to the institute, a couple retiring today with median drug expenses would need $158,000 for a 50 percent chance of having sufficient funds to cover health expenses later in life. But the same couple in the 90th percentile of drug spending would need $231,000. Here are some ideas to consider to help limit spending on prescription drugs -- and save more for health care expenses in general. Choosing the right drug plan under the Medicare Part D program could save a participant a bundle--as long as they stay on top of their plan. Joseph L. Matthews, coauthor of "Social Security, Medicare and Government Pensions," says just one mistake, depending on how long it goes unnoticed, could cost a participant thousands of dollars. Health savings accounts are one of the best ways to save and pay for medical expenses in later life--if the accountholder can max out contributions during their working years and avoid dipping into the account early. One of the biggest perks of these accounts is there are no taxes on contributions, investment growth, or withdrawals, as long as the money is used for medical expenses.
Take Action Now to Prepare for Your Retirement Health Care Costs Later Digested from: 4 Tips to Help Plan for Retirement Health Care Costs USA Today (05/08/11) David Pitt
An overwhelming majority of workers--92 percent--do not know how much their health care will cost in retirement or vastly underestimate the amount, according to a survey released May 4. Forty percent of respondents to the survey by Sun Life Financial said they have "no idea" what their health care costs are likely to be in retirement, and only 8 percent correctly projected a ballpark figure of $200,000 or more. The challenge in estimating what is needed may be adding to a sense of helplessness about what to do. Creating a strategy should relieve anxiety. There are four things workers can do to prepare for future medical expenses. First, work on developing a retirement spending budget. AARP offers a calculator to help workers estimate retirement costs and determine how much they should save. Second, purchase disability insurance. Such coverage will make up for at least a part of lost income if the worker gets sick or injured, and some employers even offer group coverage. Another option is to watch out for a new government assistance program that was part of the health care reform act called the Community Living Assistance Services and Support Act, or CLASS Act. Third, consider long-term care insurance. According to the U.S. Department of Health and Human Services, which offers guidance on long-term-care insurance on its Web site, approximately 70 percent of people over age 65 will need some form of long-term care. And finally, stay healthy. More than half of the workers surveyed by Sun Life said they are trying to become healthier by eating better, exercising more, and quitting smoking so they can mitigate their long-term health risks.
Hiring a CERTIFIED FINANCIAL PLANNER™ Professional
Consult the CFP Board's Online Brochure Before Meeting With Your CERTIFIED FINANCIAL PLANNER™ Professional for the First Time Digested from: Working With a Financial Adviser: How to Prepare for the First Date Consumerism Commentary (04/11/11)
The first meeting with a financial planner will determine whether the planner's personality aligns with the client's; the Certified Financial Planner Board of Standards provides a brochure with a list of questions to ask the planner in that initial consultation. Among the queries that can be of great value during the meeting is what is the adviser's approach to financial planning. The client should learn about the planner's usual clients in terms of income range, marital status, and occupation. How the client will pay for the planner's services also is a valuable question to ask, as planners can work on commission, on a fee basis, or somewhere in the middle. When a planner is working on a commission and recommends a product, the issue always comes up as to whether the recommendation is in the client's or the planner's best interest. Fee-only planners receive the same payment irrespective of what kind of fund they recommend, which helps to address clients' concerns that they are making their recommendations based on their potential income. Planners who charge fees as well as commissions may call the practice "fee-based compensation," but because they are being compensated partly by commission they may be motivated by their own financial profit. Some experts recommend clients work with planners with a fiduciary responsibility, meaning they are required to make decisions that are in their clients' best interests at all times. The client should ask the planner about their fiduciary responsibility and ensure that this is outlined in the contract.
Your CERTIFIED FINANCIAL PLANNER™ Professional Has Taken Extensive Exams and Receives Ongoing Education Digested from: What to Look for in a Financial Adviser USA Today (04/30/11) Christine Dugas
More consumers are seeking financial advice in the wake of the worst bear market since the Great Depression, but with the growing demand for such advice has been a concurrent rise in the number of cases demonstrating that not all investment advisers are trustworthy, despite their credentials. There are various ways investors can assess an adviser and reduce risk, but sifting through the many credentials to find an appropriate adviser is a difficult challenge. "There is a lot of confusion because there is no one designation," notes Certified Financial Planner Board of Standards CEO Kevin Keller. "There are close to 200 of them." An adviser with a CERTIFIED FINANCIAL PLANNER™ professional designation must be rigorously tested to be certified, and then maintain the certification through continuing education. Enforcement of ethical standards also is a mission of the CFP Board. Another challenge is knowing whether an adviser has been charged with misconduct by regulators. A free Web site about financial advisers launched by independent 401(k) plan ratings provider BrightScope could make it easier for investors to choose an adviser wisely.
Look for the CERTIFIED FINANCIAL PLANNER™ Professional Designation When Selecting Your Financial Planner Digested from: Lessons I Learned From Interviewing Over a Thousand Financial Planners Forbes (04/14/11) Liz Davidson
To find an effective financial planner, look for someone with the CERTIFIED FINANCIAL PLANNER™ professional designation. This demonstrates that the planner has a high level of knowledge and commitment because the CERTIFIED FINANCIAL PLANNER™ professional exam is rigorous. Just about 50 percent of those who take the exam pass, and planners must also have a minimum of three years experience to gain the CERTIFIED FINANCIAL PLANNER™ professional designation. CERTIFIED FINANCIAL PLANNER™ professionals also need to fulfill a continuing education requirement of 30 hours every two years, hold themselves to a fiduciary standard, and voluntarily submit to ongoing oversight by the Certified Financial Planner Board of Standards to ensure they are acting in the best interest of clients. In general, most financial planners become experts in their field after working 10,000 hours with clients, which translates to spending approximately 20 hours a week in client meetings and on client financial plans for 10 years. The planner becomes attuned to clients, adapts to them, supervises them, and invests for them in a way suited to their needs. It is also important that planners' experience be varied by participating in different roles, working with different types of clients, and acquiring expertise on different products and services. Planners should also have strong core values, a client-focused approach, and be broad-based generalists who are knowledgeable in all areas of financial planning.
Craft Your Retirement Plan -- Then Get a Second Opinion Digested from: Always Get a Second Opinion Laguna Niguel Patch (04/24/11) David S. Lopez
Only 36 percent of people who took part in a 2009 Certified Financial Planner Board of Standards study had any type of written retirement plan. Crafting a plan and getting a second opinion is important. The first step in getting a second opinion is asking a friend to recommend a financial professional, preferably a fee-based financial professional. Financial professionals who work off of fees tend to offer more impartial advice. The financial professional should provide you with a written analysis of your financial plan so that you can see whether your goals are reasonable. This analysis should take into account things such as future living expenses, inflation, and unexpected expenses. In addition, the analysis should look at whether the types of investments you have match your level of risk tolerance. Finally, the analysis should look at what would happen to your savings if the stock market fell a certain percentage.
Five Things to Look for in Your Child's Financial Aid Award Letter Digested from: 5 Hints to Compare Financial Aid Award Letters U.S. News & World Report (04/18/11) Peter Van Buskirk
There are several steps parents and students can take to determine how much their out of pocket expenses will be for college. First, parents and students need to figure what the total costs for attending a particular college or university are. These costs, which include things such as tuition, room and board, and lab fees, can be found on the college or university's Web site. Parents and students should then add up all of the grants and scholarships listed on the financial aid award letters they receive from colleges and universities. This amount should be subtracted from the total cost of attendance to determine how much parents or students will need to pay out of their own pockets. Parents and students should also look at the amount of "self-help" that is included in most financial aid award letters. This amount includes guaranteed student loans and campus work-study opportunities. Finally, parents and students should be sure to be vigilant about the use of the practice of "gapping" by colleges and universities. This practice is used by colleges and universities that opt to not make up the difference between the student's expected family contribution and the total cost of attendance with financial aid. After determining how much of their expenses they will need to pay with loans or other funds, parents and students need to be sure they are completely comfortable with their ability to pay those costs before they send in their enrollment deposit. Any concerns should be directed to the institution's financial aid office, which should be willing to hear appeals when students or parents can provide new documentation.
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.
The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning. The Board of Directors, in furthering CFP Board’s mission, acts on behalf of the public, CFP® certificants and other stakeholders. CFP Board awards CFP® certification to individuals in the U.S who successfully complete CFP Board’s initial and ongoing certification requirements. There are currently more than 60,000 CFP® professionals in the United States dedicated to helping clients meet their life goals through competent and ethical financial planning.
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