From CFP Board's Consumer Advocate, Eleanor Blayney, CFP^®

The hits just keep on coming! Stalled economic growth, partisan cold war in Congress, Greece teetering on the edge of bankruptcy. The U.S. stock market is like a punch-drunk boxer, trying to stagger back into the ring, only to be decked again by another round of dismal economic news.

But on closer inspection, it does not appear to be new “news” that is driving the market these days. There have been few negative surprises lately – Greece’s massive indebtedness was not built in a day, and we’ve been warned repeatedly by economists that it will take time for real improvement in both employment and housing (prices and sales). It seems that we’ve been living with these low-hanging clouds for so long that we have begun to doubt the existence of the sun.

Alas, our national problem is really a lack of confidence and certainty. Because there has not been much economic upside lately, we are going deep to the downside in our perspective on the future. With a cloudy perspective we are also less certain about our future.

Unfortunately, however, perception can – as it usually does – become reality. If we don’t believe that things will ever get better, we stop investing, buying, traveling, living our lives normally and thereby create an actual crisis to get newly depressed about: namely, a drop in "smart" consumer spending, which accounts for nearly two-thirds of our domestic economic activity. And by smart I mean we buy things we need – not just want – replacing the old and worn out.

All of this leads me to believe that it's time to break this cycle of negativism, disengage from the old news and reclaim some hope for the future. This means focusing on the things that each of us individually can control. It also means creating our own “news” doing something different and positive in our lives to make ourselves feel better and potentially richer, in the fullest sense of the word. Here are “The Great Eight: Tips for Financial Confidence” that are sure to do the trick:

1. Disconnect from the negativity. Unplug the TV and turn off your wireless devices. Recognize that repetition does not mean intensity. Just because you’ve heard the negative news about economic growth four times from different sources does not mean that it is four times as bad.


2. Live With the New Reality. If you haven’t fully absorbed the existing bad news in your expectations, it’s time to get it over with. That means accepting the current value of your home, your 401(k), or your brokerage account, and building a financial plan from there. It is much easier to remain confident if you see yourself making a fresh start toward building your financial security rather than waiting for the good times to return.


3. Weather-proof. Build your investment or retirement portfolio to withstand the good times and bad. Focus on high quality investments and an allocation that you can maintain through thick and thin. A well-diversified portfolio will always have a slice of “good news” – something that is doing well in hard times.


4. Live within your means. Your paycheck, rather than the GDP numbers, should be your economic bell-weather. If you have predictable and steady income, make sure you are setting some aside in the event that your employment situation changes. When you have money left at the end of the month rather than having to borrow ahead, your outlook on the next month – and the next – will improve significantly.


5. Educate a child. Just spending time with a child - observing their energy, curiosity, sense of wonder and imagination – inspires hope for a better future. Put that hope to work by investing in our future by helping children learn skills – math, language, financial literacy – that will help them succeed.


6. Learn a new skill. Study a new language or take a course in a subject matter that you never studied in school. Expanding your horizons opens more possibilities for tomorrow, in terms of careers, supplemental income and personal satisfaction.


7. Give it away. If you want to feel “rich,” make a contribution to someone less well off than you – your favorite charity, a family member, a friend. Or if money is truly scarce, donate your time. The sense of connection to others, and being able to help, usually puts our own financial difficulties in perspective.


8. Make a financial plan. CFP Board research has demonstrated that those who draw up a written financial plan – ideally with a CFP^® professional – have more confidence and are prepared for what is to come.

It’s not a matter of whistling in the economic dark, but actually taking concrete steps to illuminate the course forward. Confidence that you are on the right path is the first, most important step toward financial security.

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CFP Board seeks volunteers to participate in its enforcement-related initiatives, including serving on hearing panels that make determinations in disciplinary cases involving CFP^® professionals accused of misconduct. We seek people who can serve as a “public representative”: individuals who do not hold CFP^® certification; who do not provide financial planning, brokerage, investment advisory, banking or insurance services; and who have demonstrated interest and experience with issues related to consumer protection or personal finance issues. Learn more and submit a volunteer application.

Financial Planning for Your Life Now

Reducing Your Credit Card Debt Is Critical for Your Financial Well-being

When reducing debt, it is beneficial to identify the portion that carries the highest interest rate in order to pay it down first. But it may also be encouraging for consumers to pay smaller debts in quick succession to achieve quicker results. Marilyn Capelli Dimitroff, CFP^®, asserts that, "People must focus on their cash flow and their ability to create working assets over their lifetime." She advises: "Do not charge on credit cards at the same time you're trying to pay them off." In addition, Capelli Dimitroff says it is important to look at other things apart from a card's interest rates, such as annual fees. She notes that every time a person applies for credit, it can negatively impact their credit score, so it is detrimental to keep opening and closing accounts to get lower rates. People who have a good credit record with a card issuer might try asking for a reduction in the interest rate, but this will likely require talking to a person with the appropriate authority.

Come Prepared and Get Free Financial Advice From a CERTIFIED FINANCIAL PLANNER™ Professional

During Financial Planning Days, credentialed financial planners will provide free personalized advice to all comers in various cities around the country. Event organizers--which include the Certified Financial Planner Board of Standards and the U.S. Conference of Mayors--say participating planners are not supposed to sell anyone anything, ask individuals to set up a follow-up appointment, or even hand out their business card. No appointment is necessary to meet with the planners--meaning attendees might want to bring a book or magazine--and attendees will need to be in or near one of the 31 cities hosting an event. Those who go should use their time wisely. There are no set time parameters, but if there is a crowd, individuals may be asked to limit their sessions to 20 minutes, says a spokesperson for the CFP Board. Cathy Seeber, CFP^®, suggests coming ready with documents and targeted questions. Seeber outlines three scenarios for the event: the planner can review an individual's credit card and mortgage statements and suggest ways to negotiate a better deal with lenders; would-be retirees uncertain about investments can bring their retirement account statements and ask if they are saving enough and whether their investments are wise; and adults weighing estate planning can come prepared to talk about anything they have already decided, including wills and medical directives.

Can You Afford a Daily Latte? Rethinking Luxuries in the Current Economic Climate

The sluggish economy has forced many consumers to reconsider how they handle their money. For instance, some consumers are cutting back on luxuries like their daily lattes in order to save more. But certified public accountant George Gotthold, CFP^®, says consumers who have enough discretionary income should go ahead and splurge on things like a daily latte. However, he notes that consumers may want to first maximize their contributions to their 401(k) or other retirement plan. Consumers should consider cutting back on luxuries like daily lattes if they are carrying large amounts of credit card debt, Gotthold says. Meanwhile, Jorie Johnson, CFP^® says consumers should be careful about buying a home in the current economic climate. Johnson says consumers should not buy a home now unless they plan to stay there for at least seven years. She adds that consumers should not look at buying a single-family home as being an investment, but rather as something that will give their families stability and a sense of ownership.

A Balanced, Diversified Portfolio Can Help You Weather the Ups and Downs of the Market

Investors might be suffering from financial crisis fatigue, considering a number of investment vehicles have flamed out over the past decade and more could take hits, writes Wes Moss, CFP^®. Nonetheless, investors still can make significant progress toward their investment goals while avoiding the boom-bust cycle by creating a balanced, diversified portfolio. Investors should have various categories of investments, and each one should serve a different role for their financial present and future. Moss calls the strategy the "Bucket Approach," and as investors fill their buckets, they should focus on investments that pay dividends. Income, such as dividends from stocks, interest from bonds, and distributions from closed-end funds, royalty trusts, and MLPs, can provide a cushion in difficult times and add to the total return in good times. Over the past 14 years, the S&P 500 has offered a net 6 percent cumulative return, or about 0.5 percent per year, but an investor who stayed in the market the entire time and reinvested dividends would have had a 36 percent cumulative return, or a little more than 2.5 percent per year.

The Certified Financial Planner Board of Standards' 'Consumer Guide to Financial Self-Defense' Can Help You Avoid Investment Scams

A new collection of resources compiled by the Alliance for Investor Education can help investors avoid dubious high-risk investments and their promoters. Among the resources cited at the alliance's Web site is the Certified Financial Planner Board of Standards' "Consumer Guide to Financial Self-Defense," which discusses 10 warning signs that should tip off shareholders to possible fraud and offers defensive actions for each. For instance, an adviser offering a "private" or "exclusive" investment opportunity could actually be "selling away" an opportunity that the adviser's employer does not supervise or is unaware of. Other resources the alliance recommends include the North American Securities Administrators Association's annual list of "Top Investor Traps and Threats," such as distressed real-estate schemes and affinity fraud. Also included in the collection is "Outrageous Advertising: A Survival Guide for Investors" published by the American Association of Individual Investors. The author discusses red flags that people should be on the lookout for when reading an investment ad. The Federal Trade Commission also publishes a list of 10 "pre-investment" questions that investors should ask both the person soliciting their business and themselves, such as whether the company they are investing in is registered to sell securities.

Have You Saved Enough Money to Make Your House Payment if You Lose Your Job?

Nearly one in three Americans surveyed in September said they would, at most, be able to pay their rent or mortgage for a single month if they lost their job. The poll of 1,021 adults was carried out for the Certified Financial Planner Board of Standards, Financial Planning Association, Foundation for Financial Planning, and the U.S. Conference of Mayors, which together are moving to promote better financial planning. Many experts recommend having enough savings set aside to pay expenses for six months. A survey released in June by Bankrate.com found that about one in four respondents--24 percent--said they had no emergency savings, and an additional 22 percent said their savings amounted to less than three months of expenses. "Those most likely to have six months' expenses in an emergency fund are higher-income households and people in their 50s and 60s, but even among these groups, at least half do not have six months' expenses in an emergency fund," Bankrate.com said. "People younger than age 30 and the lowest-income households are the most likely to report having no emergency savings at all."

Hiring a CERTIFIED FINANCIAL PLANNER™ Professional

Ask These Questions When You Hire Your CERTIFIED FINANCIAL PLANNER™ Professional

Here are 10 questions to consider asking when looking for a financial planner. One, what are the planner's areas of expertise, and how many years of practice do they have? Two, what professional qualifications--such as the CERTIFIED FINANCIAL PLANNER™ professional designation--do they possess? Three, are specialty areas such as investing, retirement, or tax strategies covered under their services? Four, does the financial planner take a more conservative or aggressive approach to financial planning? Five, will the planner work directly with clients, or will he or she use outsiders such as tax attorneys and insurance agents? Six, is the planner paid by commissions or fees? Seven, what is the typical charge, after accounting for hourly rates, flat fees, and commissions on financial products? Eight, who else benefits from the advice? Nine, does the planner have a history of professional discipline? CERTIFIED FINANCIAL PLANNER™ professionals' disciplinary history can be found on the Certified Financial Planner Board of Standards' Web site. And finally, can the planner provide a written description of the financial services provided?

Financial Planning for Your Retirement

Fund Your Retirement Before You Pay for Your Child's Education

As more Americans postpone marriage and children, increasing numbers of parents are poised to hit the traditional retirement age just as their kids reach college age. The U.S. Census Bureau estimates that of 15.5 million U.S. households with children younger than age six in 2010, about 19 percent had parents or step-parents age 40 or older. Factors that impact how these midlife parents prepare financially for retirement and for college expenses include each family's circumstances, and may entail working longer or cutting costs. Parents should place a greater priority on retirement savings, according to financial advisers. "The kindest thing a parent can do for their child is fund their own retirement and let the child pay for their own education," notes Rick Kahler, CFP^®. He points out that a child would spend two to five times more caring for an elderly parent who did not plan for retirement than they would for their own college education. "There seems to be a societal money script that if you're a good parent you will fund your child's education, so I see very few people who come to me that have chosen to fund their retirement over their child's education," Kahler says. He also says parents who let their children work their way through college or cover at least half of college costs "may be giving their child a huge gift in focus and self esteem, and that can be a good thing." Kahler notes that most people are not saving enough money, and says that someone 30 years from retirement must save 17 percent of salary to maintain his or her lifestyle for three decades after leaving the workforce, while someone who starts saving at 50 will need to save 30 percent of income to have any hope of retiring. Furthermore, each minor child of a retiree age 62 and older may receive Social Security benefits equal to a significant percentage of the parent's benefit without lowering the retiree's share. Nonworking younger spouses caring for kids also may qualify, although there is a family maximum.

Should You Pay Off Your Mortgage as You Enter Retirement?

Paying off a mortgage prior to retirement is often touted as the best strategy, but it may no longer be the absolute best strategy given the current low-interest landscape and the need to preserve cash in an imbalanced economy. "Paying off your house is one goal, but having a zero-mortgage liability is not the answer for everyone," says Jennie Fierstein, CFP^®. "If you don't have a stream of resources to replenish it, you might do yourself a disservice by taking money out of the bank to pay off your mortgage." Boston College's Center for Retirement Research estimates that 41 percent of U.S. households age 60 to 69 maintained a mortgage in 2007, and 51 percent of that segment had enough holdings to repay their loans. Financial expert Elaine Bedel says it is more financially sensible to keep your money in the market and use the earnings to pay off your loan under certain circumstances, such as out of a need to invest for growth. "There are a few of my clients who feel like if they don't take the risk to get the growth, they're not going to be able to meet their retirement objectives and live the lifestyle they want," she notes. "If you take a big chunk out of your nest egg and the income it was generating was being used to meet your mortgage payments, as well as additional living expenses, that may not be the right thing to do." Fierstein concurs, and points out that most retirees are urged to withdraw no more than 4 percent from their nest egg per year to guarantee they will not outlive their income. People considering paying off or keeping their mortgage also should be mindful of their interest rate, as Fierstein says that it may make sense to keep the money invested if the average after-tax return on investments exceeds the after-tax cost of the mortgage.

Financial Planning for Women

A CERTIFIED FINANCIAL PLANNER™ Professional Offers a Divorced Mom Some Advice About Getting Out of Debt

CERTIFIED FINANCIAL PLANNER™ professionals say Lynn, a 53-year-old Florida nurse and mother of two, can rebound financially from a 2008 divorce that saddled her with about $40,000 in credit card debt, medical bills from the treatment for her daughter's brain tumor, and a 540 credit score. She considered filing for bankruptcy, but decided to reduce her debt, following the advice she found online. Lynn's annual income tops six figures because she works 14-hour overnight shifts to maximize overtime pay, but she wants to move to the Midwest and finish her bachelor's and master's degrees in order to escape the heavy workload. Over the past three years, Lynn has refinanced an auto loan from 21 percent to 8 percent, negotiated lower interest rates on credit cards, paid down about 25 percent of her outstanding debt, saved $4,000 in an emergency fund, and her credit score has risen to 650. According to Carole Peck, CFP^®, who specializes in women in transition, Lynn should max out her 401(k), stay put and pay off as much debt as possible before relocating, and consider a federal student loan if she can not find an employer that is willing to pay her tuition. "That probably feels like, 'here she goes again, increasing the debt,' but I really like my clients to keep liquidity in this economic environment," says Peck. She is concerned that a job loss could force Lynn to tap retirement accounts early, but wants her to wait as long as possible to collect Social Security to improve her benefit.

You're Capable of Planning More Aggressively for Retirement, Although Many Women Don't

In the realm of retirement planning, women should "out-plan" men. That is a core finding in a new report from the MetLife Mature Market Institute and the Scripps Gerontology Center at Miami University. The study argues that women--considering the unique financial scenarios they face during their working years and in later life--should take "charge of their futures in a more forceful way that accounts for [such] risks." The problem: Few women, according to the report, are preparing for retirement as aggressively as they should be--even though they are equally capable of doing so. The study, titled "Women, Retirement and the Extra-Long Life: Implications for Planning," starts by outlining the unique challenges that women face in preparing for their twilight years. For starters, women, on average, live 8 percent longer than men. Consequently, they are more likely than men to age alone; they have bigger medical bills, given their longer lives; they typically have insufficient health coverage; they are more likely to act as a caregiver during their working years, thus reducing their wages and future benefits like Social Security; and they are more likely to require long-term care themselves. Yet despite these findings, women typically fall short in planning for retirement. Just one in three women--34 percent--told researchers that they are primarily responsible for determining how to handle their household finances, savings, and investments, compared with about three in five men. Only 44 percent of women have projected what their expenses might be in later life--compared with 58 percent of men--and 58 percent of women report spending fewer than 10 hours planning or amassing information over a six-month period, compared with 45 percent of men.

Financial Planning for Your Children

Little-Known Things to Keep In Mind When You Apply for a College Loan

There are several things about student loan money that potential borrowers do not know. Few student borrowers are aware that their co-signer’s credit standing will affect the loan’s interest rates. Each time the student applies for a loan the lender checks the co-signer’s credit standing, and if there is any change the lender may raise interest rates. Also little known is the difficulty borrowers will have with repayment--nearly 10 percent of government student loan borrowers defaulted between September 2008 and 2010, and in the second quarter of this year 5.4 percent of private student loan borrowers defaulted, up from 4.5 percent the previous year. A default will damage a borrower’s credit score and make it harder for them to get a credit card or rent an apartment. The large debt load also often makes graduates feel pressure to get high-paying jobs rather than the kind of jobs they really want. And filing for bankruptcy offers little relief--student loan debt will almost never be discharged in bankruptcy, and the government can garnish up to 15 percent of a borrower’s or cosigner’s wages until the debt is paid off. Another little-known fact is that the more expensive school one attends, the cheaper the loan. Because the student is required to show need in order to get the cheapest government-subsidized loans, a student at a more expensive school will obviously have more need and be more likely to get the cheapest loans. However, the top colleges tend to prefer offering grants to students rather than student loans, so those students tend to graduate with less debt. Indeed, 78 percent of Princeton graduates have no debt, and the remainder are carrying an average of just $5,000, compared to the national average of $27,000. And about 90 percent of colleges offer tuition installment plans, which do not charge interest, so in many cases loans would not be necessary at all, assuming the student or family can afford the installment payments. Finally, for right now at least, variable-rate loans are cheaper, and with the Federal Reserve planning to keep interest rates low for at least two more years, that will remain the case for some time.

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