Category Archives: Finance

Lets make a plan on your finance

As I meet with clients to present their financial plan, it is common to sense a figurative (and often literal) sigh of relief at the meeting’s end. Admittedly, some may just be glad to have survived the long presentation, but I’m fairly certain that most are relieved to have a path forward.

 

A recent article on Govexec.com (“From Voting to Writing a Will: The Power of Making a Plan”) struck a chord with me and added a little bit of science to my observation. In this piece, Todd Rogers and Adan Acevedo apply behavioral science to show how having a plan can reduce the “intention-to-action gap” that so many of us can relate to.

 

Ideally, we should have a plan in place before a crisis hits and we need to act. This is a central theme in all aspects of financial planning – do you have a Will, is your emergency fund sufficient, is your home adequately insured, are you saving enough for retirement? Thinking about these questions and then building a plan to address them can decrease some of the stress and anxiety in our lives.

 

During the recent Metro Washington Financial Planning Day, one of the presentations addressed the value of running a “financial fire drill.” As children we were taught to “stop, drop, and roll” during fire safety awareness events. As adults, a financial fire drill can help us assess whether we are prepared to address adversity in our financial lives.

 

An effective plan defines the desired end goal as well as the necessary steps to achieve that goal. We may need to adjust our initial path as “life happens,” but the planning process is iterative and can help keep us on track. I borrowed a bit of wisdom from my colleagues and now use it at the conclusion of each financial plan I write: “Financial planning is an ongoing process as opposed to a single event and your plan will need to change as your life changes.“ Do you have a plan to push beyond life’s challenges and reach your goals?

Prepare for Emergencies Tips

Last week Kristen and Julia, our rising high-school senior, visited McGill University in Montreal, Canada.  By all accounts it was a hugely successful trip. Julia is thrilled at the prospect of furthering her education and expanding her horizons. She will be 18-years old soon and “on her own” as a freshman, hopefully, at a college of her choice.

Students may be worried about making new friends, studying, and adjusting to college life. Parents or guardians may share these concerns too, but they should not neglect legal and financial matters. Our 18 year-olds are now adults who can enter into contracts, make their own health care decisions, and are afforded levels of privacy to which we may not be accustomed. Who will make medical decisions on behalf of your child if he or she is unable to do so? What will you do if you need to get medical information in a time of an emergency? Will you be able to have access or make decisions on financial/tuition matters with the bursar’s office? Is it important to have access to your child’s academic record? Consider these items allowing parents/guardians to assist their adult children before they leave for college:


Health care proxy
: This document allows your child to name someone they know and trust to make medical decisions on their behalf, if for any reason, they are unable to make the decision or communicate their wishes. While standard forms may be available on-line through state medical societies, your estate planning attorney can draft this document.


HIPPA release:
 The Health Insurance Portability and Accountability Act (HIPPA), a federal law, protects your child’s privacy even from parents. The act prohibits a health care provider from releasing any health care information unless your child provides the health care provider with a HIPPA release form naming you as an authorized recipient.


Durable power of attorney:
 This document allows your child to appoint an agent in order to manage his/ her financial matters. While parents may be paying the tuition bills, this does not grant authority to discuss or resolve their child’s financial issues with the college’s student accounts office or bursar’s office.


FERPA waiver:
 The Family Educational Rights and Privacy Act (FERPA) governs privacy of educational records and prohibits an institution from discussing a student’s record with anyone unless the student has granted authorization. Colleges may allow students to grant access to one or more individuals via an on-line wavier form. However, remember your children are gaining independence and responsibility. Simply engaging your student may prove an equally, if not a more effective means of communication about how they are doing in school.
It is important to keep signed forms available as you may need them if your child is traveling, and remember that authorizations can be modified or updated as their circumstances change.
This is not legal advice so please be sure to contact your estate planning attorney to address these important issues.  If you don’t have an estate attorney ask your family, friends or financial advisor for recommendations.

The Plant Power Investing of Finance

Evidence increases by the day that more consumers are moving towards a plant-based diet. How can the average investor take advantage of this trend?
Low-cost index investing has become a popular approach to achieve market returns and will continue to be used by more individual and institutional investors. On the other hand, sustainable investing is also a growing trend, as more investors recognize that an “all-of-the-above” index investing strategy conflicts with their worldview. Index investors are accepting the status quo by owning companies as they are. Sustainable investors are driving change by using fund managers who engage with companies to adopt positive changes or by simple divestment (i.e. avoid investment in the company or sector).
I envision three groups of individuals who would find plant power investing attractive – vegans, vegetarians and advocates of a healthy eating / living lifestyle (ironically, HE/LL for short). The majority of individuals in this category, however, are not in a position to take on an extraordinary amount of investment risk. Investing in “pure play” meat or egg substitute start-up companies is beyond their financial reach.
The growth in the number of mutual funds that divest from fossil fuels provides an example that plant-based investors might want to follow. Why not simply avoid companies that are in obvious conflict with your worldview? Truth is, there are sufficient large, established companies to choose from in order to develop an investment portfolio that may satisfy both financial and personal goals.
As I point out in my book, Low Fee Vegan Investing, there are currently no mutual funds targeted to plant-based investors. This is unfortunate since, without this option, most investors are not in a position to take on the effort or cost to implement a strategy that would otherwise meet their needs.
I believe there are two easy steps plant-centered investors can take to encourage the development of a suitable investment tool (e.g., mutual fund, plant-based index fund). The first step would be to contact their investment professional and state an interest in having a portfolio which reflects their worldview. If sufficient demand develops, this will be noticed by financial service providers (again, recall what happened with fossil fuel divestment – many mutual funds and ETFs options were developed in a fairly short amount of time). Second, participate in the short “Plant Power Survey” that I developed to start counting the number of plant-based investors interested in this concept and, equally importantly, develop a consumer preference data set that might help the community of portfolio managers generate a set of filters for use until investor demand warrants the expense of more rigorous research.
Average investors can, collectively, use the tools of sustainable investing to exercise their power and achieve the extraordinary.

Whats The Good Bank Worth to You

Your bank is the hub of your financial life. It’s where your paycheck is deposited. It’s where bills are paid. It’s where savings are directed to other accounts. And it’s where you work towards some of your most important near-term financial goals like building an emergency fund and saving for a down payment.

 

Given its importance, don’t you owe it to yourself to find a good bank? One that makes it easy to manage your financial life? One that not only doesn’t charge you ridiculous fees, but maybe even helps you grow your money too?

 

I think you do. Here’s how to find one.

 

What Makes a Bank Good?

 

First, let’s take a step back and talk about the qualities you should look for in a bank. Here are some of the things I consider when helping my clients choose the right bank for them:

 

  • Fees – Maintenance fees. Out-of-network ATM fees. Overdraft fees. Most fees are easily avoidable these days if you know where to look.
  • Requirements – Some banks require you to keep a certain balance in your account or make a certain number of transactions each month in order to avoid paying a fee.
  • Interest Rate – The more you earn, the quicker you can reach your goals. We’ll get into this in more detail below.
  • Online and App Capability – Most day-to-day banking is now done online or on your phone. Having a good user experience in both places is a must.

 

How Much is a Good Bank Worth?

 

Switching banks can be a hassle, so it’s worth asking whether it’s really worth it. How much money could you save by switching to a good bank?

 

Every situation is different, but let’s say that you have $100,000 saved up for a down payment and you’re just waiting for the right time to buy. If your bank charges a $12 monthly maintenance fee and pays a meager 0.01% in interest, you’ll actually LOSE money keeping it in a savings account. After two years, your $100,000 would turn into $99,732.

 

If instead you kept that money in a good bank that pays 1% interest with no fees, you’d wind up with $102,019. That’s an extra $2,287 that could be used for your down payment, or maybe for some furniture and decorations for your new house.

 

And even if you don’t have that much to save now, do you really want to waste $12 every single month, plus the lost interest, just because the one-time effort of switching is a hassle?

 

The bottom line is that there’s real money at stake. Money that could be used on you and your family instead of being donated to a big bank’s profit margin.

 

Where Are the Good Banks?

 

Of course, the big question now is where to find these good banks. Who’s paying all of that interest without any fees?

 

You almost certainly won’t find these deals with the big traditional banks, but there are two good places to look.

 

The first is online. There are a number of banks that now operate either exclusively or primarily online and these banks tend to have much lower fees and pay much better interest. Nerdwallet has a few tools to help you find the best bank for your needs.

 

You can also look at local credit unions. Credit unions are essentially member-owned banks that pass their profits on to their customers, meaning you typically get better deals. The NCUA has a credit union locator tool that can help you find one in your area.

A Financial Cleanse

Do you feel like you’ve lost control of your finances recently? Maybe you went overboard during the holiday season, or you’ve become lax in monitoring your spending.

Whatever the reason, here are some steps to reset your financial baseline in 2017.

Track your spending for the next 30 days
This exercise is as painful and time-consuming as it sounds. I’m listing it first because it’s the most important step. If you execute just one item on the list, do this. My wife and I did at the beginning of last year and we’re still seeing benefits.

The practice of tracking will make you more focused and frugal when it comes to spending money. You can compare it to a person tracking all of their calories or recording the weight they lift at the gym.

Assess all recurring subscriptions
Many people use at least one subscription service, such as a gym membership, styling subscription, wine club, meal delivery service, credit monitoring service or video streaming app. There’s nothing wrong with holding these subscriptions as long as you know how many you have and are receiving the value you expect. Ask yourself whether you’d join now if you weren’t already a member.

Save your annual raise
Often, merit increases go into effect and bonuses are paid in the first quarter. Make a habit of increasing the amount of your paycheck that goes to savings every time you get a raise. You can do this by increasing your 401(k) contribution percentage or the amount you send to your taxable investment or savings account.

» MORE: Best savings accounts

Renegotiate with vendors
This is a tactic from my experience in corporate finance. Every year, we’d list all of our vendors, assess the value of each and try to renegotiate better rates. We weren’t always successful, but our efforts always resulted in savings. I recommend you do the same with your personal vendors. Consider your cable, internet and phone service as a starting point and get more creative from there.

Book your 2017 travel early
If you aren’t a planner, this can be tough. However, you might already know a few weddings or family events you’ll need to travel for this year. Bite the bullet, open your calendars and book a few months ahead of time. Look for no-fee, refundable options when possible. Some airlines have better policies than others, and most hotels let you cancel without a fee up to a few days in advance.

We often travel to Chicago to visit my wife’s family. If we book a few months out, we can usually fly for less than $200, but if we wait until the month before, the tickets can easily cost $500. This adds up fast when it happens a few times per year. Now we book earlier and use an airline that allows for flexibility.

Record your charitable giving
Setting up a tracking system for charitable contributions is simple but beneficial. In the past, I’ve tracked the big-ticket charitable contributions, but failed to capture several small ones. If you have a process at the beginning of the year, you’re more likely to remember everything for the charitable deductions on your tax returns.

Taking this one step further, clean out your closets and purge items you no longer need. Get a receipt for your donations. More charitable contributions tracked equals more money in your pocket when you file your tax returns.

Check your credit
It can take some time to remove inaccurate information from your credit report. Request a copy of your credit report now to ensure everything looks correct. If you wait until a company is performing a credit check, it will likely be too late to report an error, which could lead you to receive higher interest rates or loan denials.