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Joe is a former financial advisor and media representative for American Express and Ameriprise. He was the “Money Man” at Detroit television WXYZ-TV, appearing twice weekly. He’s also appeared in Bride, Best Life, and Child magazines, the Los Angeles Times, Chicago Sun-Times, Detroit News and Baltimore Sun newspapers and numerous other media outlets.  Joe holds B.A Degrees from The Citadel and Michigan State University. 

Getting Through the “Broke Week”

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Happy Tuesday, Minions!

I’m not here today…my nephews are visiting so I’m probably hiking in the mountains or playing board games…you know…tough work stuff.

I’ve asked my friend Michelle to sit in. She’s better looking than me. And writes better. Pretty annoying.

Michelle is a mom to 3 munchkins who, with her husband Jefferson, started one of my fav websites: See Debt Run.  They both contribute regularly to the site that puts the ‘personal’ in personal finance.  

Their site runs the gamut: they talk about advancing your career, saving money in day-to-day family life,  finding ways to supplement your income, and everything in between.  

I’m happy today she could provide some tips for the parents of the world, offering suggestions on how to get through a rough financial period without interrupting the normal family routine.

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Getting Through Broke Week

Have you ever looked at the balance in your checking account and realized that your balance is flirting dangerously close to zero, yet payday is still a week away?

This used to be very much the norm for us, and still happens on occasion when unexpected expenses creep up.

Whenever one of these “broke weeks” pops up, we have to make some adjustments in our day-to-day life.  For example, we might find dinner in the back of the pantry and finally eat that old can of minestrone or black-eyed peas that normally would be overlooked for other options.  It isn’t the end of the world to have to bridge the gap for a few days without spending any money; you just have to make the most of these times.

When money is tight, we have to change some of the ways that we parent as well.  Below are a few tips to help you get through a “broke week” without rocking the family routine too much:

Come Out And Play?

 

In today’s high-tech world, most kids are obsessed with the newest gadgets and video games.  Unfortunately, all that stuff is expensive and has no place during lean times.  Even if they are nagging you, don’t take the kids to the movies or swing by a Redbox for that new PS3 game they’ve been talking about.

Tell the kids to go old-school and *gasp* just play outside.

They can grab the neighbors and start a wiffle ball game, ride their bikes or scooters, or just chase each other around for a bit.  That last one is assuming you don’t have my children.  In that case, your older child will chase and torment your middle child until he cries and the neighbors think that this time he really might be dying.

If you don’t have my children, carry on.

Really, there is an infinite amount of totally free outdoor entertainment for your kids, and it would serve them well to use their imaginations.  It would also serve them well to get off their butts for a couple hours.  Remember when we were kids?  I wasn’t even allowed to have video games, and I’m sure I played outside more frequently than kids today.  I remember riding off on my bike and not coming home again until I was hungry or until the street lights came on–whichever came first.

Yes, it is a different world today and, for the most part, I don’t let my kids out of my peripheral vision, but I do kick them out of the house and make them play in the backyard or tell them to go shoot hoops in the driveway on a regular basis.  It’s good for ’em!

Bored? Games!

 

So, the weather isn’t great?  For quality family time, you can’t beat a good board game.  Almost everyone has a few in their basement, and playing games is a great way to bond with your kids, and it wont cost you a cent (well, after you buy the board game obviously.)  Some of our favorites are Risk, Ticket to Ride, Forbidden Island, Apples to Apples, and Funglish, but we have many more that we rotate in.

If you are one of the few who doesn’t have–or like–board games, then grab a deck of cards and teach the kids how to play Hearts or Spades.  Not a card shark either?  Grab some dice and look up the rules to the game “Farkle” which is always a blast.  You can have a great time at home with your kids without even spending a dime.

Step Away From The Stores

 

You have to respect temptation, as it is a powerful beast.  And taking kids to the store with you?  You might as well hand over your credit card now, as we both know this is not going to end well.

Have you ever heard the saying that nobody ever leaves Target without spending $100?  Okay, it’s not really a saying, but it is unfortunately true
for a lot of people.  When you are broke, just keep away from that evil well-designed place with their cute marketing and bright, beautiful displays.  I don’t know how many times I’ve come home with a trunk full of toys and stuff I didn’t need, when all I went there for was socks and Lysol.  The same goes for Home Depot, Sephora, Best Buy, or whatever your personal poison is.  If you are out of a necessity (TP, deodorant, etc), then just pop into a less tempting store (maybe a drug store or Aldi) to get what you need.

Befriend Other Breeders

 

Being social can be expensive.

For most people, the idea of “getting together with friends” involves eating dinner somewhere and/or drinks if kids aren’t involved.

Actually, scratch that.

Sometimes I drink because kids are involved.  If you are broke, though, going out to eat just isn’t an option.  Don’t be ashamed of it.  Just tell your friends that things are a little tight this week and ask instead if you guys can just get together at their house or yours.  Hauling kids around can be stressful any time, but at a friends’ house, you should be able to relax a bit and let them run around and burn some energy, unless of course your friends live in a museum.

Letting your kids run around is good for their social needs as well.  Besides, it’s generally frowned upon inside restaurants anyway.

Trust me.

I’ve been the recipient of a stink-eye or two in my day.

 

Okay, what do you do during “broke week?” Let’s talk about it in the comments below:

The Worst of the Free Financial Advisor Podcast – Episode 3: Top 5 Ways to Automate Your Money

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In this week’s show we welcome PK and the team from DQYDJ.net to the show!

OG and I talk estate planning, PK gives us a great financial automation tip and the roundtable talks weddings. …and Len Penzo is coo-coo for Cocoa Puffs….all that leading up to our top 5 ways to automate your finances.

Enjoy!

 

Show Notes: 

Open: Intern heads will roll!

<6:00> On the Blog: Estate Planning

<14.18> Fractional Sense – PK from DQYDJ.net – Automating Your Money

<21:35> Our Roundtable – Carrie (Careful Cents) Dominique (YourFinancesSimplified) Dr. Dean (The Millionaire Nurse Blog) Len (LenPenzo dot Com) – discuss weddings and an article from Untemplater.com: The Average Wedding Cost is Crazy: Why Do People Spend So Much Money?

<45:08> Contest Winner! Matt from Rambling Fever!

<50:10> Top 5 Ways to Automate Your Money

 

Subscribe to the show (or just listen) on iTunes here.

Download the show directly by right-clicking here.

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Estate Planning for Really Smart People

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I’m not a dummy, so I avoid that aisle of the bookstore. You should, too. Let’s concentrate on what really smart people would do instead.

If you’re an exceptionally brilliant person who just happens to know less than you should about estate planning, I’ve written this piece for you.

Estate planning is a complicated field, but at a basic level, there are only a few important items to understand. For individuals with significant assets, comprehending the nuances of estate planning becomes even more crucial. This process not only encompasses the distribution of assets but also involves strategies to minimize taxes and ensure that your wishes are executed efficiently. Luckily, understanding estate planning is like building a house: once you grasp the foundation, it’ll be easy to construct a manor later. However, you don’t need to do it alone. A professional financial advisor or wealth planner can help you understand estate planning in detail. Moreover, they use advanced estate planning software to simplify elements like wills, trusts, taxes, and estate planning documentation.

…and yes, I am in fact a ninja with similes.

The Will

In your will, write “I leave it all to AverageJoe.”

Okay, since you didn’t bite on that dubious advice, I’ll focus on some better tips: when you’re planning your estate, start with a basic document called a will.

If you’re estate is large or convoluted, you may need to gravitate toward more complex documents such as a trust, but you’ll still have a will as the base of your estate plan.

In short, a will is the basic block that everyone will need.

Here’s what you’ll accomplish in your will: you’ll determine where your belongings will go and how they’ll be divided. If you want to also control when they’re divided, you’ll need more complex documents (or a will which converts to a more complex document upon your demise).

In your will you’ll appoint a person to oversee the process. This person is often called the executor of your will.

Some practical advice: try to avoid naming two individuals. People fight about weird stuff when a loved one passes away. If you leave two people in charge equally, you’re asking for them to both fight for your interest. I’d rather you chose one single person who’s very comfortable being seen as “a jerk.”

Usually when I make that recommendation people’s mind springs directly to a specific person. Did yours?

 

What If I’m Sick and I Can’t Communicate With Medical Pros?

Hmmm…..this one’s a problem. Luckily, there’s an easy solution.

Here’s what we’ll do: We’ll throw into your estate planning package (doesn’t that sound official?) a document often called a Health Care Power of Attorney.

You may have heard the old story about “pulling the plug.” It used to be that you could just write down your wishes on a notarized piece of scrap paper and the doctor would follow it.

Today, that document, often referred to as a living will, isn’t recognized by many doctors and also isn’t legally binding in many states. Instead, you now nominate someone ahead of time to communicate on your behalf with doctor plug-puller.

Who would want that responsibility?

I certainly wouldn’t want the life-long psychotherapy I’ll need after deciding to pull the plug on my mother (not that I haven’t thought about it a time or two….but anger is fleeting, love is strong).

Here’s how you handle this: in the Health Care Power of Attorney, you’ll write down your wishes regarding end of life scenarios. That way, your nominated person will only be following your orders, not deciding what to do in the moment.

I told you this wasn’t difficult. In a kind-of-sick way, it’s fun. Let’s move on.

 

 

Who Will Manage My Vast Fortune I Haven’t Built Yet, But Will Someday?

 

You’ll also need someone to sort through your financial picture if you’re still alive, but unable to communicate or make decisions. For this, you’ll add a document called a Power of Attorney document.

In most cases, this is a springing power, meaning that it’s worthless until you’re incapacitated. You won’t have to worry about junior emptying your bank account the moment you make him your representative.

When it comes to both health care and financial powers of attorney, choose someone your age or younger. There’s a more-than-likely chance you’ll forget about these documents about 32 seconds after you’ve finished. You don’t want your power of attorney to pass away before you do.

On that note, consider a contingent power of attorney to back up your primary choice, in case your nominee can’t serve your wishes.

 

What About a Trust?

 

Trusts are important for more complex estates. Some bloggers with estate planning experience aren’t fans of trusts. Others live by them.

I’ll be blunt about trusts: I’ve seen more trust work done that was worthless than trusts which actually made sense. In many cases, there was only one reason for this: the attorney could bill more hours preparing a huge trust instead of a tiny will document.

There are good reasons you may decide a trust is for you:

  • you have children by two different spouses,
  • your net worth is well above $1M dollars (some estate attorneys will say above $5M is a better number),
  • you have specific charitable intentions,
  • there are business interests involved in your estate,
  • you have specific time frame wishes to dole cash out over longer periods or with specific caveats, and
  • You’re worried about privacy in your estate

 

Who Takes Care of My Beautiful Children?

 

Assuming you have children, you’ll choose a guardian in your will.

Many people have a will specifically for this reason. If you die intestate (that means without a will), the laws in your state will govern who cares for your children when you die. You’ve seen the mess they’ve made of our roads….imagine what they’ll do with your kids!

 

Should I Hire Someone Or Use A Kit?

 

This one is easy. A kit is FAR cheaper, but I’d hire an attorney every time.

Maybe you’re a whiz kid at estate planning. Good for you.

I’ve worked with families that have to clean up the mess left by an uber-guru such as yourself, and wading through your accounts isn’t pretty without professional help. If you work with an attorney, consider this to be your chance to pre-interviewing the person your family is 90 percent likely to deal with once you pass away.

Is this a more expensive approach? Heck yeah.

Will the lawyer’s will look suspiciously like the one in the will kit? In many cases, yup.

All of this is irrelevant. We’re talking about your children, your stuff, your healthcare. Do it right.

 

Okay, here’s the question of the day: is your choice of estate executor comfortable being “a jerk?”

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The Worst of the Free Financial Advisor Podcast: Print Edition

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Because Joe couldn’t be bothered to put together a podcast this week (he’s secretly out of town on business), we interns have decided to give you something more…..thrilling.

Here’s a shocking newspaper story from a top news source about intelligence in infants that we thought you could read rather than waste your precious time on the podcast.

Seriously.

You have better things to do anyway.

Enjoy the reprieve.

Love,

The FFA Intern Team

PS – AverageJoe has threatened assured us that the podcast will return next week.

The Roth IRA–Playing Games with Tax Brackets

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Our normal Friday Blog Post of the Week! segment will return next week.

 

The Roth IRA is a Swiss Army knife for financial success.

In our past wildly exciting posts about the Roth IRA here and here, some of the commenters on these stories have discussed the efficacy of the strategies presented by the Other Guy.

In short: is it worth all the trouble jumping through hoops to get as much money into the Roth IRA as possible?

In a word: indubitably (I’ve wanted to use that word since I heard it in Mary Poppins. 10 points!)

While I’ll agree that if the only upside to these strategies are immediate returns on a few exotic Roth IRA gyrations, you’ll only gain a few extra dollars in your pocket for what seems like a lot of work.

…and I get exhausted switching television channels, so let’s not talk about work.

I prefer easy and exciting.

The Roth IRA has one exciting feature beyond those we’ve listed previously—flexibility later in your planning.

 

The problem with financial planning

 

When I read well-meaning blog posts about retirement or education planning (including my own), the writer always discusses assumptions.

You know what happens when you assume…but what choice do we have?

We’ll have to assume that the tax rate will go up/down/stay level.

We have to project inflation rates.

Finally, we have to decide when we’re going to die. (Well, at least you do…I’ve got my cryogenic tank next to Walt Disney ready to go. I’m gonna live forever.)

Back on point: Roth IRA plans, for those of you uncomfortable with this type of tax shelter, give you no tax break today but offers tax free income down the line. Many (yawn) dissenters say that tax treatment of a Roth IRA is irrelevant. You’ll pay the tax today or tomorrow. It’s all the same.

No it isn’t.

We’re working for maximum tax flexibility, not a few random bucks. Because I can’t predict income tax rates, capital gains rates, or estate tax rates, I’m going to create a financial future that is as flexible as possible, as soon as two current criteria are met:

– I’ve done what I can to maximize deductions today. I know what tax rates are right now, so I’ll take my tax break, thank you.

– I’m not locking up money unnecessarily for down the road when I’m experiencing short term needs for cash.

 

Here’s the Roth IRA Game

 

When you reach retirement, let’s pretend you want to live on $60,000. Tax brackets in America are tiered, meaning that you’ll pay 10 percent on the first dollars you make, until you hit the 15 percent bracket, which is what you’ll pay beginning with the first dollar in that bracket, until you reach the 25 percent bracket…..

Because we don’t know what tax brackets will be in the future, let’s pretend the 25 percent line will be at $50,000.

 

You Have Two Pots of Money

 

Most people have a pre-tax retirement plan. As I mentioned, I like my current pretax deductions, so I’ve maximum funded those. Therefore, I have monster amounts of money (otherwise known as oodles) inside of them. These dollars must come out of the plan and get taxed.

I’ll remove $50,000 per year from this plan. Some of it will be taxed at the 15 percent bracket and some at the 10 percent bracket.

 

Here’s Where the Roth IRA Comes In

 

Finally, I remove $10,000 from my Roth IRA. Now I’m living in the 25 percent tax bracket but the government is taxing us at the top of the 15 percent bracket.

 

Lots of Work for Big Payoffs

 

Now, I’ve avoided a 25 percent tax each year (or whatever my top tax rate would be….) on $10,000, or $2,500 in taxes. Of course, I paid those taxes already, but remember, if I’m worried about the HUGE AMOUNT OF WORK this takes, I’m only investing money after I’ve already secured current tax breaks.

(photo credit: Swiss Army Knife: IK’s World Trip, Flickr; License Plate: Gamma Man, Flickr)

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Goal Setting and Pretty Retirement Charts – Our Cuppa Joe Discussion

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Every Thursday we grab a cup o’ Joe and talk opinions on financial matters…..today we’ll chat about goal setting and workplace retirement plans.

My opinion: Do you know those 401k asset allocation charts in the front/back/middle of your workplace retirement plan booklet? They’re color coded circles of slick graphics, and are often found at the conclusion of a survey about the amount of risk you should take in your investments.

Those pie charts are nearly irrelevant when it comes to financial success.

Each day in a workplace somewhere in America you’ll find a fast-talking 401k-hocking yahoo teaching a group of people how to use these silly charts to determine how much risk they “want” to take.

How much risk you “want” to take?

“Want” and “financial success” rarely coexist when talking about money management. Most people want zero risk and huge returns. They also want Santa Claus to be a little more kind next year than last.

Is “how much risk do you want” really the question you should be asking with your 401k plan?

 

I have a better question.

 

Try this one on: How much risk do you need to take to reach your goal?

Isn’t that the question these surveys should be asking?

I know this doesn’t sound like rocket science, yet you’d think so if you’ve ever read workplace retirement plan guides. In many cases, risk tolerance charts and savings guidelines are presented as two entirely different discussions.

Huh?

Let’s be clear about what I’m discussing here. If you’re going to achieve financial success:

Find out how much you need to save.

Then learn what return you need on that savings.

 

If I had control of these workplace pie charts, here’s what I’d do

 

I’d gather everyone in the conference room and show the group how to determine the amount they need to save to reach financial success. I know that’ll differ for everyone, so it’ll be important to focus on goal calculators. With the boss’s permission, we’d follow this up with generous portions of alcohol. We’ll call it “Some of You Will Be Happy” Hour.

Second, I’d help everyone determine what return they need on that savings to achieve the retirement goal.

Sounds like I’m repeating myself, doesn’t it? I’m not.

 

Here’s where we finally insert the silly quiz

 

Third, the employees would be presented with the risk tolerance quiz. Everyone could see if the asset mix they (historically) would have needed to reach financial success matches their risk tolerance.

If so, more Happy Hour.

If it doesn’t: Houston, we have a problem.

 

The real problem

 

If you aren’t going to reach your goal, you have a choice to make: either save more money or raise your risk tolerance. One requires sweat, the other education.

Which path would you follow?

I believe that once we begin presenting 401k plans this way, instead of with some inane chart about your “risk tolerance” (lots of people very comfortably missing their goals out there), we’ll finally begin to realize that every goal can be met through a simple equation:

 

Savings x Return = Goal

 

How you approach one side will affect the other.

 

Okay, discussers, let’s go:  Do you have a workplace retirement plan? Did it come with a silly risk tolerance chart…or did they present retirement in the brilliant manner I have above?

Enhanced by Zemanta(photo credits: Nutty pie chart: Sebastien Paquet, Flickr;                 Teeter-totter: Rambergmedialigmages, Flickr

The Worst of the Free Financial Advisor #2: Top 5 Reasons We Like the Roth IRA – Are Tax Refunds Bad? – Hiring an Advisor

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Holy big topics, Batman! We’ve got a great show for you today.

First – Joe & OG talk Hiring an Advisor. Should you hire one? If so, what should you look for? What questions should you ask?

Then – Len, Carrie, Dom  and of course Dr. Dean discuss tax refunds. Should you avoid one?

Finally – Our top 5 reasons we love the Roth IRA.

Subscribe to the show (or just listen) on iTunes here.

Download the show directly by right-clicking here.

 

Hiring an Advisor

FINRA.org BrokerCheck

CFP – Questions to Ask When Hiring a Financial Planner

5 Jaw-Dropping Financial Advisor Interview Questions

Ric Edelman: The Truth About Money (Amazon page)

Our Roundtable Members Sites:

Carrie Smith = CarefulCents.com

Dominique Brown = YourFinancesSimplified

Dr. Dean = The Millionaire Nurse Blog

Len Penzo = Len Penzo (dot) Com

The Squirrelers.com article we’re discussing: Tax Refunds Are Not Taboo

 

 

 

 

The Passive Income Lie: Our Cuppa Joe Discussion

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The concept of “work hard now so I can play later” bothers me. I like to play, and I don’t want to wait until later.

Luckily, my work = my play.

This is the way life is for me. Hard work is the journey and the destination.

That’s why I get so frustrated when I hear people say “I’m going to work really hard now so that I can sit back and relax later.”




They’re going to build up a truly passive income stream.

In this statement, it would seem that completely passive = perfect purpose.

What? Does that ever happen? And if it does happen, how often do you hear “This is exactly what I wanted! To sit here with nothing to do….”

My Story

Early in my career as a financial advisor, I was told the business was all about building a base of assets. This is a financial advisor’s version of passive income. Management would tell me, “bring on a ton of new clients now and roll over their money. Later on, that pile of cash will be making so much money for you that you won’t have to work hard.” It made sense. If could build my assets under management to $100M dollars and earn half a percent personally, I’d bring home $500k per year.

Sweet!

The Truth

I grew my practice to about $40M under management before I realized that this idea of working hard now so I could have fun later was a lie. ….at least for me.

First, as my practice grew, I attracted more demanding clients. It’s the same if you own rental houses or dividend stocks, isn’t it? As you grow the portfolio, you are pulled in more directions with your time managing assets. Decisions get more difficult. Strategies become more complex.

Every once in awhile, I’d try to take time off. The longest I could get away was two weeks, and by the end of the trip I usually was working about an hour and a half a day. My business demanded my time. How was I going to sit back and do nothing?

Second, I liked what I was doing. It was fun talking to my clients about their dreams. If I owned rental properties, I’d like to fix them up and receive rents. I own dividend stocks and like following the companies and diversifying the portfolio. When I step away, it demands that I continue to work, but it’s also fun.

In short, I’m starting to believe that the whole idea of work hard now/play later is a lie. Sure, I might work less hard. I also might delegate more of the tasks which aren’t my core activities, but I will never, ever stop working.

In fact, I’ve found proof that I probably don’t want to stop.

State of Flow

I first heard of the book Flow, by Mihaly Csikszentmihalyi (easy for you to say) during a USA Today interview with Jimmy Johnson, Super Bowl and NCAA National Championship winning coach. He was hot on this philosophy and had a history of professional success, so I went out and bought the book immediately.

It confirmed my suspicions about the meaning of life.

In the book, Csikszentmihalyi seeks to define what “optimal experience” is for a person. When are we in that state where we’re at one with the universe?

He asks–have you ever set out to accomplish a task and then lost track of time because you were so absorbed in it? He describes that perfect union of task and complete concentration as flow. This complete focus, to Csikszentmihalyi, is the optimal experience for a human.

He backs it up by studying people who play classical instruments. Their chances of becoming wealthy or famous are nearly zero, but they’ll practice for hours on end. Why? They crave the state of flow, where everything is working perfectly in harmony together.

There’s no promise that they’ll be rewarded down the line with riches. But they’re attracted to the work anyway. They’ll practice until their fingers bleed.

Do these people just not get it? Shouldn’t they be working hard at things that will make them money today so they can throw out that stupid instrument? I don’t think so.

I think the idea of sitting around is overrated.

Life is about chasing flow. Working so perfectly that you’re completely absorbed, using all of your energy to be the best you can.

Maybe you agree and maybe you don’t.

That’s what the cuppa Joe discussion are all about….grabbing some coffee and arguing a point.

Maybe the concept of passive income is cool if you hate your job. You want to grow your income in a way that you can work at those things you enjoy rather than those you’re forced to do to bring home the bacon.

I can see tha desire to have multiple income streams. What I can’t imagine is any discussion where I’m working hard now so I don’t work later. I don’t crave completely passive income because I’m pretty sure it’s unattainable.

The idea of my money working for me as I’m also working fires me up. The phrase “don’t work” literally doesn’t work for me.

How about for you? Let’s wrestle this out in the comment section.

(photos: Coffee Shop by dailylifeofmojo, Flickr; Immaculata Symphony by Jim Capaldi, Flickr)

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