Confused About How Financial Planning Works?

Financial planning confuses a lot of people. Faced with an array of decisions, most people don’t know what to do. Which investments will you select from your employer’s retirement plan? Which type of mortgage is best? What’s the best way to save for college? Should you go with dealer financing when you buy a car? What’s important when choosing a long-term care insurance policy? What kind of trust do you need?

Few of us have any training in investments, economics, insurance, taxes or law. You’ve never heard of Harry Markowitz, you don’t know about the efficient frontier, you have trouble spelling amortisation (let alone explaining it), and you can’t explain the difference between a testamentary trust and a springing power of attorney.

Yet you’re faced with decisions pertaining to these things. You know you have to make financial decisions, and you are correct in thinking that the wrong decision could cost you and your family huge amounts of money. No wonder you feel as though you’re in over your head. How can you conquer the field of personal finance and obtain financial security for yourself and your family?

I have good news for you. Simply approach the topic of financial planning exactly as you do the field of medicine. After all, you might not be accustomed to working with a financial planner, but you’ve been to the doctor. Approach both the same way.

All you need to do is focus on your symptoms: Where does it hurt? What’s bothering you? What is the cause of your concerns? Just tell your advisor — and let the advisor respond. A talented advisor will engage in diagnostic efforts: He or she will ask you a bunch of questions and, believe it or not, you really will know the answers. The planner will then run tests to assess the situation, evaluate the findings, and then prescribe a treatment plan for you. Sound familiar?

You should see a financial advisor even if nothing is bothering you. After all, even healthy people should have an annual physical. Just because the patient has no symptoms — “Doc, I feel great!” — doesn’t mean nothing’s wrong. Lots of illnesses have no symptoms (high cholesterol and blood pressure, for example) but you can die if you don’t treat them. You know this, and that’s why you go to the doctor every year or two to let him poke around and ask you a bunch of questions.

On the same basis, visit a financial planner and let him or her poke around, too, even if you think everything is fine financially. Show him your investment account statements, employee benefit printouts and insurance policies and let him read your trust documents. (What? You don’t have any of those things? That’s a hint your appointment might be overdue.)

The planner will ask you questions about your income, expenses, assets and debts. He’ll poke into your real estate, mortgage, employee benefits, and then he or she will get really intimate. If you think taking your clothes off in front of a doctor is awkward, wait till you tell your planner about your marriage and family circumstances, your career, your goals and, gulp, your fears. How do you feel about risk? What’s your need for liquidity?

Your answers will enable your financial planner to determine what tests need to be conducted before he or she is able to offer recommendations to you.

If you hesitate delegating such responsibilities to the expert, well, that’s exactly how you work with your physician, isn’t it? And the best part about this process is that you are the expert, too: You are the expert on your symptoms; nobody knows your symptoms as well as you do.

You know about your income; you know how much you spend; you know what’s going on in your family; you know your goals; and you know what’s concerning you. You know where it hurts. Stop right there because that’s all you need to know. You don’t need to know more about money than you do about pharmacology.

And if you’re worried that your financial planner will make bad recommendations, well, that’s what second opinions are for.

You see, you know a lot more about the financial planning process than you thought. Call for a financial physical today.

Dealing With the Financial Impact of Divorce

Know Your Obligations and How to Protect Yourself
The true cost of divorce is its effect on the family, but it's also very costly financially. Knowing your rights and obligations, and how to protect yourself, can make it less expensive and perhaps a little less painful.

Your Obligations
If there are children involved, their well-being should be both parents' primary concern. Unfortunately, this is not always the case. Spouses paying child support sometimes feel that the custodial ex-spouse is "squandering" the child support money, or that the child support is exorbitant.

Only half of all court-ordered child support is paid, and only half of that is paid in full. If child support is part of your divorce agreement, you are legally and morally obligated to pay it. Likewise, withholding of visitation rights shouldn't be used as a weapon to try to force a non-paying parent to cough up the child support payments.

Division of Property
The laws in the country and if you have one your anti nuptial contract help determine how your assets are divided in a divorce. The court will consider many tangibles and intangibles in coming to a decision on how to divide assets.

People facing divorce sometimes don't get what they deserve because they are anxious to get it over with, or they hope to reconcile and don't want to alienate their spouse, or they want to get back at their spouse for real or imagined wrongs.

Divorce can have more of a financial impact on your future than buying a house or planning for retirement. Don't willingly give up what you have a right to, especially if you have custody of children, since your financial situation directly impacts them as well. And don't assume your attorney will protect you financially. In many cases it's worthwhile to spend the money to consult a financial planner to assess the real value of your assets, taking tax consequences into consideration, and to seek financial planning advice prior to a divorce settlement.

If you and your spouse can't come to an amicable agreement about the terms of your divorce, you will each most likely consult an attorney. But you may want to consider mediation or arbitration, which are less expensive than using an attorney to settle your differences, and don't require court appearances.

Marital Assets
· House
· Cars
· Boats
· Retirement plans
· Cash value life insurance policies
· Stocks, bonds, mutual funds
· Stock options
· Tax refunds
· Accumulated vacation pay
· Frequent flier miles
· Loans to others
· Artwork or antiques
· Collectibles, tools

Before going to an arbitrator, mediator, or attorney, you should do your homework. List your marital assets and get appraisals where necessary (art, antiques, etc.).
Calculate how much child support will be needed to cover food, housing, day care, clothes, school supplies and activities, and other expenses. Get written confirmation from your spouse's employer of your spouse's salary, vacation balance, bonuses, and stock options. Have a good idea of your spouse's income potential by researching what his or her profession pays for more experience, and what benefits are typical.

Protect Yourself
Men tend to know more about financial matters, so it's important for women to educate themselves about finances. In any marriage, both parties should understand their tax returns and investments, and stay informed of their debts, investments, and family income.
Once it's clear that a divorce is in the making, cancel any joint bank accounts and open individual accounts. Cancel all credit cards and get new ones in your own name. Close all unused credit accounts, and notify your creditors of your change in marital status.

When your divorce is final and assets have been legally divided, change names on house deeds, stocks and bonds, and car titles, as necessary. Change beneficiaries on investments, retirement plans, life insurance policies, and savings accounts. Update your will. Check your credit report to make sure your spouse hasn't incurred debts in your name since your divorce or separation.
Divorce can be devastating financially to one or both parties, but educating yourself and taking a few precautions can reduce the impact on you and your children.

You Die - Your Passwords And User Names Die With You

As part of every Estate Planning consultation these days, I ask not only "Where do you keep your assets" (ie: what institutions do you use for banks, brokerage accounts) but "How do you access your assets?" The point of the second question is to find out if the client takes advantage of electronic account access, and if so, who else shares access to those accounts.

I was reminded for the importance of this from the article: wcco.com - When Passwords And User Names Die With The User: "Security experts warn us to keep our passwords and user names under lock and key. But what happens after a loved one dies? How do survivors get access to information and documents kept squirreled away in safe deposit boxes and hard drives for years?"

The questions is even more prevalent when there is no hard data. Many people don't receive paper account statements and only access bank and brokerage accounts online. Or there are direct deposit or direct withdrawals set up only online. In this case, an executor may not even know about the assets until a tax statement comes in March, or by running an state asset search (state assets are assets that are turned over to that state if the institution can't find the owner).

First, the motivation for taking the steps below is avoiding the alternative - going to court for an order to get access to the accounts (if your executor even knows where the accounts are).

The best way to address concerns raised by assets in the electronic age from an estate planning and estate administration perspective is to employ some practical advice:

Each spouse keeps a spreadsheet of Institution Name, Website, Account Number, User Name, Password. The spreadsheet is updated WHENEVER a change is made. Save the spreadsheet to a removable media format (CD, DVD-R, USB Flash-Drive, etc). Save the removable media format in a safe location that your spouse, power of attorney, key adult child(ren) and attorney are aware of (safe deposit box, fireproof safe, drawer in the house where the important stuff is)
If you password protect the file, you need to make sure that your spouse, power of attorney, key adult child(ren) and attorney are aware of the password.

If putting all this in a safe place and telling key people of it concerns you because the key people have access to your accounts, you need to rethink the key people.

MOST IMPORTANT - If you make any changes to the information on the spreadsheet, update the spreadsheet and put in back in the safe (but well communicated) location.