Tag: Creating

The new year brings with it lots of well-intended resolutions, many of them financial. But it can be easy to procrastinate on money matters when you’re unaware of the consequences of inaction or unsure whether you’re making the right decisions.

Even for a financial planner, the process of setting and achieving financial goals can be overwhelming. This past year, although I focused on specific aspects of my finances, I didn’t take the time to identify important life goals for the year. I did not use my money to ensure that I was enriching my life.

So, like many others, I’m rededicating myself to the process as a New Year’s resolution. To organize and improve your finances in the year ahead, dedicate time each week to following these eight steps:

1. Set goals

Discuss your short- and long-term goals with your family, spouse or significant other. If you’re single, create a list for yourself. This is the most important step. Ask yourself what you want to have, to do, and to be over the next six or 12 months. Be as specific as you can and brainstorm as many items as possible. Next, prioritize these items by picking your top four or five. Assign a realistic cost to these goals to see if they are achievable within your budget.

2. Develop a new budget

Review last year’s spending and determine how it aligns with your values and your goals. Then, develop a new budget using last year’s as a benchmark. Shift your expenses where appropriate to reflect your core values while also incorporating the top four or five priorities from Step 1. Some of these goals will have a cost associated with them; others may not.

For example, my 2021 priorities include doing some maintenance on my home, attending a Coldplay concert, taking regular art lessons, vacationing for a week with my family and good friends in Utah, and creating more balance in my life by simplifying work processes. The estimated cost for the first four items was pretty straightforward, and I added those expenses to my household budget.

Not all of your goals have to be associated with money; creating more free time in your schedule is a good example. For busy professionals, time can be more valuable than money.

3. Open multiple savings accounts

Set aside specific, separate savings accounts for some of the goals that you have established. For example, you may want to have a separate savings account for a vacation, the kids’ education, a new car purchase or a special entertainment expense.

Why separate accounts? This helps ensure that you won’t raid savings for one expenditure to use for another, making it easier for you to spend money where it matters. Also, it can be easier to part with money associated with a personal goal or expenditure if there’s an account specifically designated for that money.

4. Create a summary sheet of your net worth

This should include the value of all assets you own, such as real estate, cash, investments, the cash value of life insurance, art, jewelry and cars. Then list the amounts you owe, such as for car loans, mortgages, credit card debts and student loans. The difference between what you own and what you owe is your net worth. Ideally, your net worth is growing each year as you increase your savings for retirement and reduce your debt.

5. Summarize your insurance

Create another summary sheet for your health, life, disability, liability and long-term care insurance policies. Know when these policies expire and the basics for each one:

  • How much will you spend out of pocket in a year with your health insurance before the insurer pays in full?
  • How much would you receive in life insurance proceeds if someone in your family were to pass away?
  • How much would you receive in after-tax dollars if you were to become disabled?

You may also want to evaluate the cost of life insurance through your employer compared with the cost of an individual policy. Group life insurance plans tend to be more costly once you reach age 45.

6. Review your investments

See if your total exposure to the stock market makes sense given your risk tolerance and personality and your proximity to retirement. In general, it’s wise to reduce your risk five to seven years prior to and after retirement to avoid sharp losses during this critical time period.

7. Do an estate plan checkup

This includes checking the titling of your accounts, your beneficiary designations and your estate planning documents to see whether they still apply or whether any changes are necessary. If it’s been five or more years since your last estate-planning documents were prepared, you’ll probably need to schedule a visit with your estate-planning attorney for some revisions. If you don’t have a will, get one drafted as soon as possible. Dying without a will can create some nasty consequences for those you leave behind.

8. Organize your financial documents

Create a file for all of your financial documents, including investment accounts, wills and other estate-planning files and personal records. This should include a list of all current credit cards, your driver’s license, a list of bills and monthly debits, the location of your safe deposit box and keys, marriage and birth certificates, passports, social media and electronic passwords and accounts, and a video recording of your home contents. Any personally identifiable information should be in a secure, encrypted electronic file or in a safe deposit box.

The bottom line

Each item on this list is important, but you don’t have to everything all at once. Schedule time each week to work on your financial to-do list so it’s not so overwhelming. A certified financial planner can help you organize and optimize your financial life and work with you as your accountability partner.

Whether you work with a planner or tackle these steps on your own, it’s important to set yearly goals and do the work to simplify and improve your financial picture.

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Many people view retirement as a 30-year vacation, full of leisure and travel. But new retirees often find that retirement isn’t the carefree life they expected. They miss having social interactions, a sense of achievement and daily structure — and as a result, some experience weight gain, marital discord, depression or substance abuse.

And many retirees, especially those who retire early, end up returning to the workforce.

Retirement often looks different today than it has in the past. And as you reconsider how you want to spend your golden years, it’s a good idea to contemplate big-picture life goals and current desires.

Maybe some of those dreams don’t have to wait until retirement.

Rethinking retirement

Rather than leave careers they enjoy, some baby boomers are working well beyond the traditional retirement age of 65 or phasing into retirement over time. Increasing longevity and improving health outcomes also relate to this decision.

But these boomers aren’t necessarily working 40-hour weeks. Companies are growing more receptive to employees’ desires for flexible schedules, including three- or four-day work weeks or remote work. These arrangements free pre-retirees to spend time on travel, hobbies and other goals — and lead to enhanced productivity and job satisfaction.

Work-life balance is the key ingredient to happiness. According to John Wasik’s New York Times article Facing Retirement, but Easing Your Way Out the Door,” many workers enjoy their reduced schedules so much that they’re extending the arrangements for years longer than they planned.

Figuring out what you want now

In his book 4 Hour Workweek,” author Tim Ferris argues that reduced workweeks are a growing trend for all workers, not just pre-retirees. Technology and the “Uberization of the global economy allow workers to leverage overseas vendors and virtual assistants and focus on their “highest and best use” skills, in and out of the office. You don’t have to wait for that magical moment in time called retirement.

“Someday is a disease that will take your dreams to the grave with you,” Ferris writes. “Lifestyle Design is not interested in creating an excess of idle time, which is poison, but the positive use of free time, defined simply as doing what you want as opposed to what you feel obligated to do.”

My favorite parts of the book are the exercises that help you identify what you want to have, be and do within the next six to 12 months. These are similar to the questions I pose to clients when I first meet them. Younger clients often have no problem identifying 10 or more things they want to achieve before they die, but clients who are in their late 50s and older tend to have a harder time completing these exercises and may even focus on their kids’ needs instead of their own.

Here’s a sample of the questions Ferris uses to get people back in touch with the things that excite them and guide them through the goal identification process:

  • What are you good at?
  • What could you be best at?
  • What makes you happy?
  • What excites you?
  • What are you most proud of having accomplished in your life and how can you repeat this or develop it further?

Financial planners are life planners

Life planning creates the foundation for your financial plan. When I understand my clients’ goals, I can ensure that their money is allocated and prioritized to help them reach those goals. The financial plan then comes to life in a powerful way for clients. They can envision the future — whether it’s 12 months or 20 years from now.

Does your financial planner ask you questions like the ones above? Is he or she more interested in you or your money? Find a planner who provides holistic financial planning services and helps you start working through your bucket list. You don’t have to wait until retirement to start enjoying your time or your money.

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A recent study conducted by Timothy Gubler and Lamar Pierce from the Olin Business School, Washington University in St. Louis shows that poor physical health is driven by the same psychological factors that determine whether or not you contribute to your retirement plan at work.  See this related article in the NY Times:

In the study, employees who contributed regularly to their 401(k) plan were not only more likely to take steps to improve their health but also had a 27 percent improvement in their blood scores. “Non-contributors continued to suffer health declines,” the paper said.

This study underscores the importance of having a mindset that is focused on planning for the future.

The same mentality that drives you to increase your 401K contributions also inspires you to enhance health measures such as weight and blood pressure. The participants who improved their health scores were incentivized to make changes to their physical health after receiving information and education from the study coordinators. Once informed, they took the appropriate action and their health improved.

Whereas some people are motivated to save and are more future-oriented, others apparently only act when they are forced to make a change. This is something I see frequently in my practice. The clients who are able to pull together their financial statements easily and quickly and who are more organized and committed, fare far better than those who are not as concerned about the future and do not have their financial life organized and top of mind. The key is to be intentional about making the changes you need to improve your future. Helping the client creating a clear vision of the future often helps motivate someone who up to that point had been procrastinating savings and unwilling to address key areas of his or her financial life that needed to be addressed.

A fee only financial planner can act as a personal fiscal fitness coach to provide motivation as well as a well defined action plan to ensure that steps are taken to improve the clients financial independence now and in the future.

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Summer does not really feel like summer without vacation. Childhood memories of playing all day at the beach, swimming and collapsing in exhaustion at the end of the day always make me smile. However, creating a stress-free, relaxing vacation these days seems difficult. Even with the economy “feeling” a little bit better this summer, most families hesitate to make big summer plans that will require a lot of cash.

How to Make Your Dream Vacation a Reality

Northern California provides endless “staycation” or mini-vacation possibilities that can keep your spending in check and provide a well-deserved getaway from everyday life. However, it is the bigger plans that most families dream of but feel like they are out of reach. Whether you fantasize about starting a family tradition of a couple of weeks each year on a white sand beach, taking an extended vacation to see family, or renting a house in Italy for the summer, mindful planning can make fantasy a reality.

Bigger trips typically require more money, so planning is the key. Below are ten simple steps to follow to ensure that you can achieve your dream vacation goal and enjoy it without guilt.

CREATE your own picture of the ideal vacation. I recommend that you and your partner sit down separately. Write it down, cut out articles, or clip pictures out of magazines. Then, come together and see what the other person has in mind. It is important that there is a shared vision for this goal since you will be using family resources to make it a priority and reality. Include everything from location to how you want to spend your days.

DECIDE on your family’s big vacation goal. If your separate visions of your big vacation are worlds apart, compromise will be in order. You might decide to postpone the trip to Peru until your kids are older and opt for Disney World now.

DETERMINE how much money you feel comfortable spending on this trip. It is VERY important for you to decide on the amount you want to spend before you let others tell you how much it would cost. This amount will serve as an anchor for you when you start researching costs of the vacation. If $5,000 is the total budget, you will need to allocate this to travel (airfare, car, or train), lodging, food, and activities.

CALCULATE how long it will take you to save enough money to pay for your vacation. This is where having a comprehensive understanding of your family’s finances is critical. How are you savings towards retirement? Do you have a sufficient Emergency Fund? Are you living within your means? If you can save ~$275 per month over the next 18 months, the trip is paid for. This may mean temporarily cutting back on eating out or shopping, or potentially refinancing your mortgage to generate this savings. If you already have a sufficient Emergency Fund, you could tap into it (within reason) and take the vacation sooner, with an agreement to pay the money back over time.

MARK your calendar for the big trip. This will help make the vacation a reality and eliminate any scheduling excuses.

SET UP a high yield savings or money market account solely for this trip and give it an inspiring name, like “Summer in Provence.” Check out Bankrate for best rates so that you are at least keeping pace with inflation. Open an account and put in any amount you can afford. It might be $50 to start. By having the account open, it is ready to receive future money.

FUND your new Vacation Account. If you can put aside a specific amount each month before paying your other expenses, set up an automatic transfer. If money is tight, see what you can spare and get creative. You may have a mountain bike that you have not ridden in five years that you could sell.

SET a date to start planning your trip. If the vacation is 18 months away, you most likely do not need to start booking your plane tickets or making reservations yet. To make sure this dream vacation does not consume your every thought, determine when you will start the actual planning process.

ENJOY the planning process. Building up to a big trip can create a lot of stress for a couple because it requires decision making without instant gratification. As soon as the planning stops being fun, take a step back and revisit your vision for this trip and how you want to feel when you are on vacation.

MONITOR your progress and acknowledge your accomplishment. While it may take time to save enough money for this goal, give yourself credit for having a vision and taking steps to make it a reality. For example, once you have saved ¼ of your goal, buy a travel magazine or book for your destination.

Of course, life can throw you curve balls, such as unplanned expenses, unforeseen job loss, the arrival of another child. These things might cause your “vision” of the dream vacation to change and for you to postpone the trip for a while.

Deciding on your dreams is completely within your control, and by creating measurable goals to get you to those dreams, you are one step closer to making it a reality.

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With a crying baby or a two-year-old throwing a tantrum you may feel ready to retire on some days! You may also have a hard time conceptualizing the relaxing vision of your “Retirement.” Alas, the day will come when our little ones have grown up, and we will all be enjoying a new kind of independence—-one that will hopefully last a long time! The question is, “Will you be ready?”

While “ready” can come with many emotional factors such as the empty nest and exiting the social network of the workplace, as a financial planner, I will focus on the financial aspects of “ready.”

First, let me define retirement. You may immediately think of the outdated images of older people sitting in Adirondack chairs reading books and wistfully gazing at the sea. We’ve all seen this picture in any number of advertisements targeted to retirees. Ahhh….how peaceful.

In reality, though, as we consider our generation, we have had our children later, we are living longer, and we will likely want to lead very active lives as we continue to age. When I talk about retirement, I really just mean that time when you are going to rely upon — and draw upon —- your accrued savings whether that is from a 401K, your IRAs, or just money from a brokerage or savings account that you have invested.

To know if you are “ready,” you have work to do before you get to the money part. Do you know what you want from this time that society calls retirement? Have you painted this picture in your mind? I challenge you to ponder what you might want for your future. If you have read my column in the past, you know that I am a strong proponent of creating a vision —- that is, really setting aside time in a serene place to feel and envision what you want to create. I recommend that you and your spouse do this separately — and then compare your answers about what your retirement will look like. It makes for very lively date night conversation!!

Once you know from a lifestyle perspective what you want to do, feel, and “have,” the next part of being “ready” is to attach costs to this vision. The purpose of doing this exercise is ultimately to answer the question, “How much money will I need for retirement?”

This question alone keeps many financial planners in business since the art of calculating this need is not easy. And, the resulting numbers are astronomical (think Millions). The list of factors and considerations that impact the amount is long. A few questions you will need to be able to answer before any planner can help you are:

What age to you anticipate you want to retire? Do you have a goal of retiring at age 50 or do expect to keep working through until your mid-sixties or beyond? Again, this is the age where you would start to rely on your assets accumulated.

How much income do you want? This is hard to get your head around, so start with your income today. Are you comfortable? I will guess that you will want at least as much as you make now, if not more. While you may reduce your expenses in retirement (home costs may be eliminated, you may relocate to a less expensive area, you no longer have to save for your children), you will have much higher health insurance costs, and you will probably want to travel or do other exciting activities that require cash.

Will you have additional income? What is your confidence level in the existence of a social security system? Do you envision yourself working part-time or starting a business? Do you have cash flow from other investments such as real estate? Are you fortunate enough to have a pension? Are you confident it will still be available when you retire?

As you can see, getting “ready” to retire is a process you can start right now. While your idea of retirement will probably change many times as you have more birthdays, the practice of creating the vision, assigning value and ensuring you are contributing enough money toward your goal is one that will serve you well in any area of your financial plan. Make sure you get ready now.

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