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How Much Wood Could a Woodchuck Chuck?

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Anyone know the answer to that?  As we all know, that all depends, right?  No, it doesn’t depend on whether or not the woodchuck could chuck wood, but rather whether he was healthy enough to do so.  So my question to you, dear reader is this: If, God forbid, you weren’t able to get up and go to work tomorrow because you were too sick or hurt…how much chucking would you get done?

We’ve all seen the quacking Aflac commercials, I know I’ve laughed at most of them.  But when was the last time you actually thought about the implications of what that magical duck was saying?  Here’s a little exercise I go through with all my clients – you can play along at home.  Assume the following:

  • You’re an average white-collar worker making $60,000 per year and you get a $10,000 per year bonus
  • You have a nice ‘n comfy group disability policy that pays 60% of your base salary if you’re too sick or hurt to work
  • You’d really like to retire – and your family is counting on you being able to work so that you can save to reach that (or any other) goal

Here’s how I go through this little exercise – it kinda drives the point home:

Mr. Client.  Play along with me a second.  Let’s assume you head into work in the morning and your boss says, “Jim, you’re a wonderful employee, but we have to let you go.  Pack up your desk.”  Just like that you’re unemployed.  Since it’s only 11:30 A.M., you decide to head out to get something to eat before heading home to break the news to your lovely wife.  What’s your favorite fast-food restaurant?

McDonalds.

Excellent.  So, you’re at McDonalds and you see they’re hiring.  A nice little help-wanted sign stares you right in the face.  So, since you’re now jobless, you ask the manager for an interview.  After a short period of time he says, “Jim, you’re super awesome and we’d love you on the team.  We can’t pay a whole lot, but we’d be happy to pay you $60,000 per year.”

Figuring you’re in some kind of third dimension you run across the street to your 2nd favorite restaurant…which is…

Wendy’s.

Right, Wendy’s.  A quick chat with the manager and he wants you there too!  This is your lucky day!  He says, “Jim, we’d love you on our team, too.  We can’t pay a lot, but we can pay $58,000.”

Which job do you take?

McDonald’s right?  (all other things being equal)

So, before you sign your professional McDonald’s contract you ask the sixty-four thousand dollar question:

“What happens if I get sick or hurt and unable to work for an extended period of time?”

“Great question Jim.  We can’t pay you a lot of money – but we can pay you $30,000.”

Armed with this info, you dash over to Wendy’s.  You ask the same question.  The Wendy’s manager says, “Great question Jim.  We can’t pay a lot, but we can pay you $48,000.”

Now what?

If you’re like most clients, looking at this issue in the big picture helps solidify it.  It generally makes a lot of sense to forfeit a small amount of income today in exchange for guaranteed income forever.  There are hundreds of bells-and-whistles that make disability insurances different between companies, but suffice it to say, your group coverage isn’t good enough.  Generally speaking, group policies:

  1. Are considered taxable income when you receive the benefits
  2. Are canceled as soon as you leave employment
  3. Only cover base salary
  4. Require you to visit “company” doctors

I’m not saying group policies are bad – they’re not.  What they are, however, are incomplete.  Consider adding an individual disability policy to supplement your group disability policy.  When you own an individually purchased contract:

  1. The benefits are tax free
  2. Are guaranteed renewable through age 65 (or 67 depending on the company)
  3. Can cover all your income – including bonuses and retirement plan matching
  4. You can use your own doctor for reviews

Disability insurance policies are like car and home owner’s policies.  The premiums suck until you need to collect.  And trust me, you’re not going to be on your death bed saying “What the heck.  I paid $800 per year for 65 years and never had a house fire.”  Instead, you’ll say, “Boy was I lucky.”  Disability is the same way.  Go check out a couple companies and get some quotes.  My bet is you’re talking about less than $100 per month.  Not chump change, I know.  But the price is so much less than the risk.  Go get it done.

It’s all about chucking that wood.

Are You an Overnight Success Waiting to Happen? Our Cuppa Joe Discussion.

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Having found out today that the Zune is probably dead, I look at Microsoft and think “this was a good idea gone wrong.” From outside appearances, Microsoft never really identified what the brand “Zune” stood for. At one point it was a music player. Then it was a music service. Now, because Microsoft couldn’t make up it’s mind, it’s soon to be nothing. It seems to be a textbook case of jumbled product design.

The iPod never had that problem.

From the beginning, there was clear differentiation between the iPod and iTunes. One was a service, the other a little sexy looking hard drive that Apple marketed as a music player.

 

Cool Design Alone Doesn’t Win the Day

 

But people forget that the first iPod wasn’t a blockbuster; quite the contrary. Initially, in 2002 iPod sales were about 40,000 units a month. That may sound like a ton, but not when compared to the 56 million iPods sold in 2008. The product took some time to catch on. It took consistent backing of the manufacturer and a laser-like focus on the end product without distractions.

In the short time I’ve been blogging, a good number of well-designed and well-written sites have disappeared. I’ve watched blogs implode under the weight of the writer’s unrealistic expectations that if they wrote something (anything) the market would come running immediately.

This “quick success” isn’t limited to blogging. Restaurants open daily without any real planning and end up highlighted on the Gordon Ramsay show Kitchen Nightmares. Viewers like me ask “what were they thinking?” as you see people ill-suited for prime-time trying to run a restaurant.

There are other industries: tech gambles, films, online stores, retail and B2B operations. In each category you’ll find businesspeople who were hoping for quick riches. Success

In forums I’d see new owners complain that people weren’t coming to their site/restaurant/store. They’d rail against the injustice of lesser companies gaining the traction that they’d wished for. I wasn’t ever surprised when these businesses were gone in a hurry. Inspiration is great, but it doesn’t create an overnight success.

I think you start to understand business when you realize: you won’t be an overnight success. At that point, you’ll go into business with a clear understanding of what it’s going to take to succeed: tireless effort and a long-standing belief in your product.

The band Silversun Pickups was nominated in the Best New Artist category at the 2009 Grammy Awards. The band had been around since 2005….four years! Lead singer Brian Aubert, when asked about the three-year-late New Artist nomination answered: “It’s not lost on us how lucky we are.”

 

People want instant success, but the wise entrepreneur is ready for the long haul, and feels lucky when they finally find their audience. In most businesses, you don’t have to fall into the “get rich now” trap.

Instead, you can take the longer view:

1) Revisit your product. Do you have a jumbled message or a well-designed idea?

2) Realize that you have a cool product and treat it every day as awesome.

3) Interact with your audience in a way that cool companies would interact with their fans.

4) Be patient, but continue seeking out opportunities to invest in yourself and your chance of success.

Sure, sometimes you run out of patience or money. But if you’ve gone into business with the long view, rather than the “I’m gonna get rich quick” attitude, you’re far more likely to win because you’ve set up your business plan expecting it to be a marathon, not a sprint.

Who knows, four years into your new venture, like the Silversun Pickups or the iPod, you might be the next overnight success.

 

How do you remain patient about your business?

Meeting an Advisor? Understand Fees by Bringing This Checklist

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Yesterday I posted a riveting story about advisor fees.

How do you know all the fees an advisor may charge?

The good news: this isn’t my first fee-rodeo, so I’ve meticulously prepared and will present to you, hot out of the oven, a fee checklist. Now when you meet an advisor you can ask intelligent questions about what fees you may pay.

Isn’t this exciting? Of course it is. Let’s begin:

 

___ Advisory fee. This fee is an umbrella fee for services rendered.

What services are included?

  • Financial plan?          Yes  /  No  (how often is the plan updated?)
  • Budget review?         Yes  /  No  (will you advise on line items?)
  • Net worth review?     Yes  /  No  (do you make suggestions on assets for the fee?)

Often advisors say they will recommend new homes for assets, however, those new places are through them, garnering the advisor another fee. Will they make recommendations of funds/ETFs/other investments outside of their control?

  • Insurance review?     Yes  /  No  (In many states advisors can’t review insurances for a fee. However, they can make recommendations on appropriate amounts of insurance.)
  • 1040 review?             Yes  /  No (Again, advisors have to be careful here. Some aren’t allowed to give specific tax advice.)
  • Tax strategy?             Yes  /  No (Will you recommend comprehensive tax plan?)
  • Asset allocation?       Yes  /  No (Many advisors will calculate where your assets lie on an Ibbotson efficient frontier and recommend asset changes based on your goals.)
  • Estate review?           Yes  /  No

 

___ Wrap fees on personally managed funds. Sometimes an advisor will charge fees based on the percentage of assets inside of an account. Often, these fees range from 0.5% to 2.0% Remember that funds inside these plans have fees also, so ask what the average fee is for funds inside the account and add it to the fee.

 

___ Wrap fees on outside managed funds. Often advisors will recommend outside advisors to manage all or a portion of your assets. Fees generally range from 0.5% to 3.0% of assets managed, per year.

Wrap accounts are easy to remember if you think of plastic wrap around your assets managed in the account. Instead of trading and holding fees, you’ll pay the “wrap” fee on the entire amount inside of the wrapper.

 

__ Trading costs. Are there commissions for trades? What would those be?

 

__ Commissions to buy funds. Does the advisor use mutual funds? Are there fees to buy, sell or hold the fund? What are those fees?

 

__ Insurance commissions. If the advisor completes an insurance analysis, are you expected to buy insurance through them or do you go outside? What types of insurance does the advisor make recommendations on?

When I was an advisor, I’d recommend an insurance amount needed. Then I’d prepare quotes through companies I represented and recommended my clients shop other firms, such as Zander insurance (Dave Ramsey’s company).

 

__  Annuities, Private REITs and Limited Partnerships. Does the advisor recommend these product types? Do they receive commissions when they recommend these products? Annuities may pay up to a 9 percent commission. Often REITs (real estate investment trusts) will pay nearly the same amount to the advisor.

 

__ Cash products. Do you recommend savings accounts, CDs and other similar cash accounts? Are these through you, banks or credit unions? How do they work?

 

__ Mortgages, auto loans and revolving credit. Do you recommend these products for a commission?

 

__ Other outside experts. Should I expect to pay other experts, such as attorneys (estate plan) or CPAs (tax review)? If so, it’s important to know that there may be even more fees after you write your first check.

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How I Chose My High Yield Bond Fund

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Last week I described the ultra-thrilling process of how high yield bond funds work. The reason I penned that particular post was simple. I was in the process of buying one.

In today’s entry, lets look “over my shoulder” to see the method I used to pick my new fund. Many people don’t get to see how someone with 16 years of professional experience chooses an investment in their portfolio. Choosing a high yield mutual fund is a little like exploring through a wasteland of worthless investments (as you’ll soon see), and I think there’s a few crucial basics beginners can learn from my adventure.

Why? Like reading a map, you’re going to be surprised by how straightforward and simple the process is. Buying funds isn’t complicated and you too can find a good mutual fund within minutes while feeling comfortable that you performed adequate due diligence.

The key part of the process is spending some good time with the map first. If you know what you’re looking for, exploring for the fund is the easy part.

Leading up to choosing a fund, I determined the following:

  1. I knew my end goal. I wasn’t just throwing money in the general direction of my problems or praying for high returns. I didn’t use a “more is better” approach. That usually lands investors in an ugly spot, when their greed turns profits to huge losses. I was looking for retirement, and needed to maintain at least a 6 percent return to get there.
  2. I had already determined my asset mix to reach my goal. On our podcast and in previous posts, I’ve discussed finding the appropriate diversified asset mix for your goals. Mine included high yield bonds, mostly because they have a history of achieving my target return.
  3. I knew how much money I needed in high yield bonds to meet my goal. Normally, I’m not a fan of mutual funds. But, because it was a small amount and a manager can oversee the process of avoiding defaults, I decided one mutual fund would do the trick. For more sizable chunks, I’d hire multiple managers or switch from a mutual fund to individual bonds.

Why is it important to determine these three criteria first?

Like deciding which size ice cream cone you’re getting, it’s best to look at your current situation, or waistline, first. Plus, there’s another, overreaching reason:

I’m lazy.

Could you imagine the horror of searching through a gazillion mutual funds in a trillion different asset classes to find the one that fit my needs? Why would I spend countless hours oogling different investments I’ll never buy. I want to narrow the search as much as possible before investing. Why waste all that time I could be watching Cake Boss or Millionaire Matchmaker sorting through countless asset classes that I’ll never use?

I’m not going to waste time searching for investments. I’ll figure out the map first and then choose the right vehicle to get me to my goal.

…and that, class, is how we reached this point: choosing the vehicle.

Let’s begin.

My search began at TD Ameritrade. That’s because the IRA holding the cash I was going to use is housed there. If you’re not familiar with IRA custodians, you have a choice between many different places. Some decide on a bank, others a financial brokerage firm. I chose TD Ameritrade because I’m comfortable choosing investments alone but appreciate their stock and bond tools. They aren’t the cheapest provider, but I’m comfortable with the fee structure.

Fees

 

Just like a trip to the grocery store, every asset search begins with a discussion of “how much is this going to cost.” In many cases, I don’t want a mutual fund at all because they’re expensive, but in the high yield asset class, I want one. I don’t want to guess if one of the companies I own is going to go bankrupt. I also don’t want to do the homework necessary to avoid picking a loser (remember the lazy part above?).

Some mutual funds manage your cash for a reasonable fee, while others might as well be carrying a gun and wearing a mask.

But they’re not the only robbers.

It turns out that TD Ameritrade also is in on the “let’s gouge our customer” game. They’ve forged deals with some fund companies to offer their mutual funds at a lower cost. To tell you just how much lower, I was originally eyeing a Pioneer high yield offering. Imagine my surprise when I found out that I’d have to pay $49 when I bought AND AGAIN when I sold. Ouch.

As an aside, why not just round this ridiculous fee to $50? Wouldn’t anyone dumb enough to pay $49 shrug at a dollar more? If they want to play the psychological game make it $49.99. They’re leaving $10 on the table. I should work for TD Ameritrade…..

 

Screening: Expenses

 

So, armed with the list of funds that are available on my platform, I visit TD Ameritrade’s mutual fund screener site. There are many of these all over the web. The Wall Street Journal has a good one, as do Morningstar, Yahoo and MSN.

I used TD Ameritrade’s own screener for one reason. The first screen for me should be called “funds that avoid the ridiculous fee.” Because that’s too obvious, they named it, “No trading cost fund list.”

Screening: Manager

 

The second screen is for manager. If I have a manager at all, I want one who’s a little seasoned, but different than most investors, I also don’t want one who’s crusty. A fund manager nearing retirement might be milking her reputation at this point. Well-known managers such as Bill Gross at PIMCO are going to survive a couple down years with their portfolio if they decide to take a mental vacation at this point in the game. I don’t want that person.

I want them hungry.

There is no “avoid managers who have been around too long” screen, so I’m stuck using one based on minimum tenure. I don’t want one with less than three years in the saddle, personally, so I choose that screen.

Screening: Star Rating

Like I said, I’m lazy. I want Morningstar to do most of the heavy lifting for me. Although I’m smart enough to know that many lower-ranked funds could do well next year, I don’t have the time to search through them all.

In other areas, where I’m looking for more than a consistent dividend check and a fairly stable value, I might screen for more complex areas. In high yield, that’s it.

I press the “search” button.

Examining the List.

Now I feel like a kid in a candy store. Laid out in front of me is a shortened list of candidates for the title of “good enough to examine up-close.”

My attention now turns to fund evaluation company Morningstar, where I’m going to dig into each fund in detail.

I’m particularly interested in:

  • how each fund performed against it’s competitors,
  • what the dividend looks like, and
  • how the fund is managed.

I dig into these areas quickly. Simple internet searches lead me to mines of information. I’m too lazy to waste time flipping through funds, but when I’ve found my potential targets, I dig in like a rib-lover at the barbeque cook-off.

What Did I Choose?

Ultimately, the USAA High Income Fund won the day.

Why?

For an average fee of .90%, the dividend to me approaches 7% (6.93% as of this writing). The fund manager, R. Matthew Freund, has 21 years of experience (with USAA since 1994), so is mature yet not quite at retirement age. There’s been a co-manager named Julianne Bass since 2007, so there is younger blood overseeing day-to-day operations as well.

The fund has beaten the high yield sector over the past five years, but not by a ton. For the most part this fund’s performance has been slightly above or below the index. When it’s missed, it missed well above its asset category. It hasn’t had a major hiccup.

At this point, I like to guess what I’d rank the fund. I’d give it four stars out of five. It’s a winner, but not a thoroughbred. It won’t be the “hot thing” anytime soon. Perfect for this job.

Morningstar agrees, rating the fund four stars out of five. It’s an above average competitor with average fees and solid management.

Perfect. Often five star funds attract scads of assets, forcing me to look elsewhere as the management can’t invest all of the cash it’s attracted. I’m less concerned with the management of the fund over the past five years as I am over the next five. Because this fund isn’t meant to be the “go baby go” part of my portfolio, I’m fine with boring. In fact, I expect it and hope for it. Let’s get my 7% return so I can focus my energy elsewhere.

That’s how I picked the fund.

Complex? Nope.

I’d be willing to bet that this little 1000 word example is more homework than 95 percent of people complete when choosing investments. Even if a professional picks funds for you, there should be a list of screens you use to oversee picks.

It’s your portfolio. Take charge. It isn’t difficult.

(photo credit: Statue, Eusebius, Flickr;

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Worst of the Free Financial Advisor Podcast Episode 5 – Top 5 Ways to Cut Vacation Expenses

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Instead of a party to celebrate that we actually made it to five complete episodes, we’ve decided to celebrate with about 10 extra minutes of fun.

This might be my favorite episode yet.

Enjoy!

Subscribe to the show on iTunes here.

Never downloaded a podcast to your iPod? It’s easy! Click here for instructions direct from Apple.

 

Show Notes:

<open> Listener Question: What’s the worst advice you’ve ever seen an advisor give a client? (Thanks to MyCanadianFinances for the question!)

<8:30> On the Blog – Why I Save

<11:25> Fractional Sense from PK @ DQYDJ.net – Tax Refunds

<15:39>  Shout Out from Steve Stewart @ The MoneyPlanSOS Podcast

<16:03>  Roundtable

Our Crew:

Len Penzo from LenPenzo.com
Carrie Smith from CarefulCents.com
Dominique Brown from YourFinancesSimplified

and special thanks to our first-ever roundtable guest:

Andrew from 101Centavos!

The Article We Discuss: Why Starting a Business is Less Not That Risky and Costs Less Than You Think at Planting Money Seeds.com. I think you’ll enjoy this site, especially if you’re looking for motivation and tips to be an entrepreneur.

Book Recommendations:

Carrie: Many Happy Returns: The Story of Henry Bloch, America’s Tax Man

Quitter

Dom:401(k) Sales Champion: A Guide for Financial Advisors to Acquire and Retain 401(k) Plans

The Trusted Advisor

Hot Prospects: The Proven Prospecting System to Ramp Up Your Sale

Len: Competitive Advantage: Creating and Sustaining Superior Performance

Andrew: Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success

Joe: The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It

On The Sites:

Why Coke Rewards is For Suckers @ LenPenzo.com

Negotiate for Lower Rent and Live Large on a Small Budget @ Careful Cents

UpliftingSisters.com Prom Dreams Giveaway @ YourFinancesSimplified

Why Study History, Indeed? … @ 101Centavos

<44:48> Top 5 Ways to Cut Travel Costs

Websites mentioned: Hotwire, TripAdvisor, Jetsetter

 

Music on the Show: Incompetech.com

 

Finally, I’d like to again thank everyone who’s listened to these early episodes of the show. They’ve been a blast for OG and I to produce, and the feedback has been outstanding so far. If you get a moment, please go to iTunes and review the show. As we receive more 5 star reviews, it’s more likely then that iTunes will help publicize the show.

 

 

The Two Reasons I Save

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It’s show and tell time!

There isn’t much that makes me happier than looking at old pics of children. Even the ugliest of adults was once a beautiful, smiling baby.

We were cleaning out boxes of old photographs to scan and store when we came across this gem on the left.

In my mind, this picture was taken yesterday,

and yet my twins are now 16 years old.

Holy s$%! I’m old!

This time next year they will have been accepted at a college of their choice.

In less than two years Cheryl and I will be here alone.

I’ve met plenty of people who’ve said “I can’t save for that yet.”

The key word: yet.

Here’s my perspective:  Time runs away. 

 

That’s why I sock money away. What motivates you to save?

What Type of Advisor Has Your Best Interest at Heart?

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Minions,

I’m busy kicking my nephew’s butts at board games, so you’re off the hook this week. Instead of me blathering on about some inane topic, Tom Cleveland from Forex Traders wrote us a nice piece about verifying the credentials of your investment advisor. Take it away, Tom!

– – – – – – – – – – – – –

What Type of Advisor Has Your Best Interest at Heart?

 

The rally in stock prices that began last October has been nothing short of outstanding. The S&P 500 index has risen more than 27%, sitting just over 1,400. This rise is even more impressive because it has happened when volumes were low and without any kind of recovery in the housing sector. Europe seems to have temporarily stopped the bleeding, removing much of the market uncertainty and volatility in the process, but the global economic recovery is still straining to “get legs” and produce prosperity for all concerned down the road.

Where will the markets go from here and whose advice counts most when trying to find this answer? Do you want to believe someone that is looking out for your financial interests or someone trying to sell you securities on the side? Investors need consultants that they can trust that accept their fiduciary duty to assist you in planning your financial future, taking into account every variable that may have an impact going forward.

This person is surely not a broker/dealer.

Marketing types in the investment industry often disguise themselves in a “cloak of authenticity” when they approach you with the latest and greatest stock to own. They may claim to be an “adviser”, using the term quite loosely to gain your confidence and make a sale. They get away with this subterfuge because the average retail investor, as confirmed by study after study, rarely understands the various professional designations in the investment industry.

A financial planner or analyst must pass rigorous exams and educational requirements in order to earn the coveted “CFP” or “CFA” certifications. The simple fact is that the proposal from your broker/dealer may actually be a good one, but prudent due diligence would suggest that you first review the sales proposal with a professional advisor that will not bias his opinion due to some unseen commission structure.

What are the differences between these two professionals?

 

Put quite simply, a “Certified Financial Planner” deals directly with the public and a “Certified Financial Analyst” deals primarily in a corporate setting. Each has completed a strenuous college curriculum, steeped in investment issues, mathematics, insurance, and complex methods of fundamental and technical analysis. Professional examinations, actual focused time in the workplace, and continuing education round out the necessary knowledge and experience components.

A CFP will typically possess very good communication skills and enjoy working directly with clients. He will help you develop a financial plan for the retirement, protect your assets and family from risks with insurance, and advise you on proper ways to manage your portfolio of investments. Estate and tax planning are also topics within his area of competency. He has been trained to understand complex financial issues and know how to describe them in layman’s term for your benefit.

A CFA generally pursues a career more corporate in nature, performing similar functions that require complex analysis in a corporate setting. Whether managing the assets in a retirement trust for optimum return, hedging a currency risk when FX charts deems it appropriate, or minimizing the risks surrounding a business activity, he or she has the ability to use the tools of the trade to guide firms in the most prudent financial direction. Their backgrounds of study tend to be more in depth than that required for a CFP, since the amounts of money involved can be significant in the corporate world and the legal and financial issues, broader than with most individuals.

In either case, you are in good hands when you are dealing with a truly certified professional in the investment industry.

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.

– – – – – – – – – – – – – – – – – – – – – – – – –

 

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:

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 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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