Despite popular assertions to the contrary, science tells us that money can buy happiness. To a point. From a recent study (my emphasis):

We report an analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 US residents conducted by the Gallup Organization. ... When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000. For reference, the federal poverty level for a family of four is currently $23,050. Once you reach a little over 3 times the poverty level in income, you’ve achieved peak happiness, as least far as money alone can reasonably get you.

This is something I’ve seen echoed in a number of studies. Once you have “enough” money to satisfy the basic items at the foot of the Maslow’s Hierarchy of Needs pyramid — that is, you no longer have to worry about food, shelter, security, and perhaps having a bit of extra discretionary money for the unknown — stacking even more money up doesn’t do much, if anything, to help you scale the top of the pyramid.

But even if you’re fortunate enough to have a good income, how you spend your money has a strong influence on how happy — or unhappy — it will make you. And, again, there’s science behind this. The relevant research is summarized in a recent study in the Journal of Consumer Psychology by a quartet of Harvard researchers: “If money doesn’t make you happy, then you probably aren’t spending it right.” (July 2011, available online at www.ScienceDirect.com )

Most people don’t know the basic scientific facts about happiness — about what brings it and what sustains it — and so they don’t know how to use their money to get it. It is not surprising when wealthy people who know nothing about wine end up with cellars that aren’t much better stocked than their neighbors’, and it shouldn’t be surprising when wealthy people who know nothing about happiness end up with lives that aren’t that much happier than anyone else’s. Money is a chance for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t.

What is, then, the science of happiness? I’ll summarize the basic seven points as best I can, but checking out the paper itself will add to it, with citations, etc.

1. Buy experiences instead of things
Things get old. Things become ordinary. But experiences are totally unique; they shine like diamonds in your memory, often more brightly every year, and they can be shared forever. Whenever possible, spend money on experiences such as taking your family to Disney World, rather than things like a new television.

2. Help others instead of yourself
Anything we can do with money to create deeper connections with others tends to tighten our social connections and reinforce positive feelings about ourselves and others. Imagine ways you can spend some part of your money to help others — even in a very small way — and integrate that into your regular spending habits.

3. Buy many small pleasures instead of a few big ones
Because we adapt so readily to change, the most effective use of your money is to bring frequent change. Break up large purchases, when possible, into smaller ones over time so that you can savor the entire experience. When it comes to happiness, frequency is more important than intensity. Embrace the idea that lots of small, pleasurable purchases are actually more effective than a single giant one.

4. Buy less insurance
Humans adapt readily to both positive and negative change. Extended warranties and insurance prey on your impulse for loss aversion, but because we are so adaptable, people experience far less regret than they anticipate when their purchases don’t work out.

Furthermore, having the easy “out” of insurance or a generous return policy can paradoxically lead to even more angst and unhappiness because people deprived themselves of the emotional benefit of full commitment. Thus, avoid buying insurance, and don’t seek out generous return policies.

5. Pay now and consume later
Immediate gratification can lead you to make purchases you can’t afford, or may not even truly want. Impulse buying also deprives you of the distance necessary to make reasoned decisions. It eliminates any sense of anticipation, which is a strong source of happiness. For maximum happiness, savor (maybe even prolong!) the uncertainty of deciding whether to buy, what to buy, and the time waiting for the object of your desire to arrive.

6. Think about what you’re not thinking about
We tend to gloss over details when considering future purchases, but research shows that our happiness (or unhappiness) largely lies in exactly those tiny details we aren’t thinking about. Before making a major purchase, consider the mechanics and logistics of owning this thing, and where your actual time will be spent once you own it. Try to imagine a typical day in your life, in some detail, hour by hour: how will it be affected by this purchase?

7. Beware of comparison shopping
Comparison shopping focuses us on attributes of products that arbitrarily distinguish one product from another, but have nothing to do with how much we’ll enjoy the purchase. They emphasize things we care about while shopping, but not necessarily what we’ll care about when actually using what we just bought. In other words, getting a great deal on cheap chocolate for $2 may not matter if it’s not fun to eat.

Happiness is a lot harder to come by than money. So when you do spend money, keep these lessons in mind to maximize what happiness it can buy for you. And remember: it’s science!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

As Americans try to spend less and go on a budget this provides an opportunity to teach the next generation financial principles they may never have seen in the prosperous years they have been alive. Here are my ten principles, which I often communicate in person, for teaching children about money:

1. Talk about money. Every time money is involved, parents have a chance to teach their children the values and analysis behind their actions. Money should never be the primary topic of discussion, but it is one of the most important topics through which we communicate our wisdom and values to our children. Every purchase, investment, or donation can be a time to teach your children something about your values.

2. Talk openly about money. Parents make a mistake when they keep information from their children. The only way children learn what is a good deal and what is too expensive is by the experience of what their family earns and what items cost. Hiding this information robs children of the financial education they need.

3. Talk factually about money. Many parents have strong emotions about money, based on their childhood experiences. These emotions are always transmitted to children. Instead of helping children, they can cripple children from growing to make sound financial decisions.

4. Require chores; pay for optional work. Everyone in the family has to help complete the work that needs to be done. If you want to pay your children, only pay them for optional work they can choose to do or not to do.

5. Provide children an allowance they can make real choices with. Talk about money is important, but children need real-world lab experience to understand the consequences of their decisions. Consider giving them an allowance large enough so that they can purchase some of their own needs. Then continue to give them honest advice, and help them ask the right questions to make wise decisions based on their values.

6. Help children prioritize purchases. Ask them if this purchase is better than other purchases they are considering making.

7. Help children comparison shop. Help them consider issues such as cost, quality, and convenience.

8. Require children to wait before making large purchases. Adults should wait at least a month whenever they are making a large purchase. Children shouldn’t be expected to wait that long. Here is a good rule of thumb: Children should be required to wait as many days as they are old in years before being allowed to make a large purchase (over a week’s allowance). There is always tomorrow…and over half the time they won’t remember what attracted them to it in the first place. Developing this habit will help make them resistant to impulse buying.

9. Don’t use money as a punishment. Your priority should be helping to give your values to your children, not buy their outward behavior.

10. Don’t loan your children money! If their desired purchase is something they should be saving for, let them save for it. If you want to buy it for them for the value of the experience, buy it for them. The principles are, “If they want it, they have to save for it. If you want them to have it, you will buy it for them.” Loaning your children money for items they want teaches them they aren’t responsible and they don’t have to prioritize.

Some may disagree with all of these admonitions–I don’t intend to become a “parenting guru” in my spare time–but I do hope that, at minimum, this will help you be thinking about how your wishes get passed down.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

We have many clients who are receiving refunds this month, and that number of course will only be rising. So, here’s a thought for you: What would it look like for you to give your refund away?

Yes, this is a radical idea to think about, but consider: what does this refund represent to you?

If you’re like many families, it’s a bit like “found money” — i.e., an unexpected windfall. And, in those scenarios, it’s tempting to hoard, or to splurge.

However, as with other windfall scenarios which I’ve written about in the past, one of the smartest things you can do is to give a portion (at least) of it away.

Why do I suggest this?

Well, I believe it’s actually “enlightened” self-interest in the long run. And not just in our sense of feeling good.

I see the balance sheets of folks from every walk of life, and over the years I’ve noticed an interesting phenomenon: individuals and families who make giving a priority, even when they aren’t “wealthy”, seem to do better in the long run. And I mean financially–not just in their state of mind.

(Though, there are significant “state of mind” reasons for giving. Have you seen, as I have, that those who freely give seem to be more pleasant company?)

Before you write this off as being “ask the universe” mushiness, understand that A) I don’t subscribe to that baloney and B) I am merely reporting an observed phenomenon. Do with it what you will.

You see, I make it a point to seek to observe how money works. And, for some reason — money gets attracted to those who aren’t only in hot, desperate pursuit of it. It’s almost like in romance — potential lovers are usually turned off by the overly-aggressive seeker.

I know it might feel painful. But trust me when I tell you that it can actually provide you with a deeper feeling of joy than if you choose to cling tightly to everything which comes your way.

I hope I didn’t ruffle too many feathers … but if so, understand that most of all, we are here to walk with you no matter WHAT your balance sheets look like!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

According to recent data from the Federal Reserve (what do they NOT keep track of??), more than nine million households in the U.S. reported getting an inheritance of at least $100,000. And there is other data which suggests that baby boomers stand to receive over $8 trillion in inheritance over the next few decades.

But sometimes such “blessings” end up as curses to those who aren’t prepared.

Consider former baseball star Lenny Dykstra, who recently filed for bankruptcy in 2009 after once having a net worth estimated at $58 million. And, of course, the stories of lottery winners has become so pervasive that Hollywood has even begun using it as regular plot device on TV.

So — a few quick essentials for you to consider, should you find yourself on the receiving end of a small fortune. These aren’t pieces of investment advice, per se, but rather some guidelines which will help you emotionally handle the new situation:

1) Move slowly at first.
Take some time to let it sink in and get through the emotion of it all. Most of the bad decisions made with sudden wealth happen in the first couple months. So lock it up in a low-yield savings account for three months, proceed as normal, and use that time productively.

Do this during that time…
2) Circle back to your life goals, and evaluate how the money will help you achieve them. Just because you’ve suddenly been given some cushion, doesn’t mean your life has to radically change. It might get easier … but if you leave behind the goals you created BEFORE this windfall, it’s more likely that it will get harder.

3) Find a disinterested advisor to be a buffer. It’s often best to work with someone who already has experienced handling the finances for people of means. That way they, too, won’t get caught up in the emotion of it. Let them be your “go to” gatekeeper for your greedy cousin or high school friend with those “can’t miss” investment ideas.

4) Immediately, give a portion of it away. I’ve written about this dynamic before, but there’s something special which happens inside your mind when you give away your money: it loses its grip on you, ever so slowly. And, far from turning you into a profligate (and unwise) giver, what can happen is that you aren’t as affected in your character by the sudden influx of funds. Which means that you don’t become more flashy, nor do you become a tightwad.

5) And, of course, assess your tax strategy. Coming from me, this should be a no-brainer, but every gift has a variety of ways by which it can affect your taxes. And many of the moves which we can help you make can protect you greatly.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Far too many marriages fall apart. And, sadly, one of the most often-cited reasons for that being the case is financial angst.

We’ve seen enough beautiful marriages around here, that I believe that I can put together a few commonalities of how finances are handled in some of the best of relationships — be they marriage, or otherwise…

Start saving when young. Every seven years you delay starting a savings plan cuts in half your ultimate net worth in retirement. Chances are that you know someone who’s getting married this year so send them a copy of this article. It may be more valuable than any check you write.

Budgeting together. Couples that share church activities or philanthropic causes do better financially because their common vision allows them to work together instead of pulling in different directions. They do well while doing good.

So, the more chances you have to do something which helps you to clarify your shared vision, the better the marriage team. Even the simple process of creating and adjusting a family budget provides a forum for discussion of what is really important to the family.

Realize that a budget brings freedom — not constraint. Couples without a budget can, and often do, fight over every dollar spent. But couples who have worked together on a budget are already in agreement on the big picture. Once the difficult decisions are made, the specific purchases in each category are much less critical.

Here’s one way this works (among many): Having decided how much money the family can afford to spend on clothes for him and for her, it doesn’t matter as much if he prefers lots of inexpensive clothes and she prefers a few nice pieces, or vice versa. A budget allows discretion and freedom to prevail within the context of cooperation and teamwork.

Pay your family first! Even if it hurts, at first, saving equals paying yourself. And don’t worry in the beginning overly much about where you’re placing your savings — only after you’ve saved several times your annual salary does the rate of appreciation become more important than the actual rate of savings. The main thing, early on, is to do it!

Because money makes money. And the money that money makes, makes even more money.

Limit the amount you spend unless you both agree. One big mistake can undo months of frugality and sacrifice. So it’s a good idea, that for big purchases, you require both members of the team to agree. Honoring each other in this way helps avoid resentment and disgust.

Have a small slush fund. Both members of a marriage should have a slice of the budget which is completely at their discretion. So long as their spending stays within this thin slice of the budget pie, they can be completely frivolous. Maybe it’s only 0.5% of your total budget, but it’ll provide a place to put purchases which otherwise might cause marital strife.

If one member collects ceramic pink pigs and the other signed collectible hockey cards they can both enjoy their frivolous expenditures without jeopardizing budget items that are more important to the family.

Couples that learn to live proportionately maintain their balance, whether they are rich or poor. No matter the circumstances, they include some fun, some gifting, and some investing as a reflection of their shared family values.

And it starts with having the conversation. So do it!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

The national average credit card balance for 2011 was $6,576, down from $7,404 the previous year — and while it’s certainly nice to see improvement, I also know that any kind of debt can feel like you have Justin Tuck climbing on your back. (That’s a New York Giants reference, by the way. Google him if you must. Not a small man.)

So, you may be in a better situation … it may also be worse. So, to answer the questions we often get around here from clients facing tough times, I’ve put together a step-by-step process which we often help people work through.

1. If you ever hope to pay off your credit card debt, pay more than the minimum payment each month.
If you only pay the minimum payment each month, your bill could continue to INCREASE, even if you completely stop using your card. This is called “negative amortization”–where you think you are paying on your debt but the additional fees and finance charges are more than the minimum payment. The bottom line is: Pay more than your minimum or you will eventually be in debt over your head.

2. Implement a regular *system* for credit card debt reduction.
With online banking and automatic payment options, there are GREAT tools for ensuring you don’t mess up because of administrative chaos. If you feel you can’t manage all your bills by pen and paper, there are several good software programs available for keeping track of your financial records.

In fact, I recommend that you automate a payment ABOVE the minimum monthly payment, just to be certain that you start getting ahead of the game. Those minimum payments are rigged against you, and the only way to get ahead is to … get ahead. I have some more thoughts on automation in a moment.

3. You can negotiate with your credit card company.
No, you do not need to be an attorney or other professional to negotiate with your credit card company (you will need patience and persistence though). The rising amount of consumer debt in this country has made creditors realize that they need to be more understanding of their customers — if they hope to get any money back. If you file bankruptcy they are only going to get pennies on the dollar, so they are willing to make deals.

4. Write letters to each of your creditors acknowledging your debt and the situation, and tell each one when you can begin repayment.
Open communication always helps. Usually credit card companies get ignored and end up sending delinquent files to a collections agency. So they’ll actually appreciate your openness in contacting them and may be more understanding of your situation. Proactively dealing with your debt problem rather than hiding will not only help your financial problem but make you feel better about yourself.

5. Keep track of what you are able to pay each creditor every month.
If you are not able to pay the full amount of your credit each month, you still should still pay something to stay on top of it. You should work off a written budget so you know exactly where you stand. Some experts suggest that you divide your monthly debt budget by the percentage each bill makes of the total and pay that amount.

Here’s an example: If you owe a total of $1,000, and one credit card is $800 and the other is $200, and you only have $100 available to pay for that month… You should pay $80 on the $800 balance, and $20 on the $200 balance. This way you are reducing each debt by the same percentage.

6. Don’t fall prey to intimidation tactics
No matter how forthcoming and honest you are, some creditors have been taught to be mean and downright nasty. Hang in there and don’t let this tactic intimidate you.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Here’s the thing about most financial resolutions: They don’t usually last even until the end of January. That’s because making a permanent change in our behavior requires both time and a steely resolve. But I’ve found that we can develop financial character one action at a time.

So in that vein, here are some financial practices to take you from pauper to prince or princess if you add one each year. If you’ve already got one down, move to the next on the list.

#1 MOST CRITICAL: Resolve to become (and stay) debt free. Now, I’m not Dave Ramsey, but there’s a reason why he’s become so popular: his approach works. I’d say that you can have a fixed-rate fixed-year traditional mortgage on your house — but nothing else, please. No equity line of credit on your house. No car payments. Certainly no credit card debt. Because you simply have to learn to live within your income — which, unfortunately, sometimes means going without. The millionaires among us really are frugal. So learn to enjoy that process, and it’s a fantastic start.

#2 Automate your savings (AKA Pay Yourself First). You can start by getting the entire match if your company offers a 401(k) plan. Usually this translates to saving 5% of your salary while the company contributes a 4% match, which is the fastest way to get an 80% return on your money. Most Americans forgo this match, believing they need to spend 100% of their salary. But you can learn to think like a millionaire and live well on 95% of what you make. If you don’t have a 401(k) plan, act like you do, and sock away 5% automatically.

#3 Fully fund your 2012 Roth IRA. This is $5,000 in 2012 and $6,000 if you are older than age 50. If you can’t manage the entire amount in January, put in $416 monthly. Automating deposits in an employer-defined contribution plan is easy. Fortunately, automating saving in a Roth IRA or a taxable savings plan is equally painless. Most brokers offer an automatic money link between your checking account and an investment account. Set your savings on autopilot, baby!

Remember — these steps build off one another, so if you already have done the first 3, here’s your next step:

#4 Save another 5% in a taxable investment account. Automating savings is great, automating investment is even greater. Key word here: automate. At this point, you’re hitting a mark of saving 15-20% of your income. That’s a fast-track to long-term prosperity.

But I’m not quite done, grasshopper. However, I’m going to leave you with these for now, and come back to this again in the weeks ahead.

Happy New Year!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

As of this writing, it’s a fact that almost 60% of Americans don’t have a basic will, and that’s a big problem.

One of the big reasons that most families don’t yet have this kind of plan in place is because of some incorrect thinking about whether it’s right for them, or if it’s even necessary. And sure –some people just haven’t gotten around to creating a will or trust. Others think they don’t need an estate plan because they’re not “rich”.

But here’s the problem–if you continue without an estate plan, you could leave a legacy of bad feelings and attorneys’ fees.

So I wanted to speak to some of the more common misconceptions out there. I’ll start with a couple big ones this week, and when the time is right, address a few more in 2012…

MYTH #1: Only rich people prepare estate plans.
Do you own ANYTHING? Because if so, you need a will. You see, a will allows you to designate who will receive your property should anything happen. Continuing without one ensures that your assets will be distributed under the terms of your state’s “intestate succession” laws. That means your money and property could end up with family members you haven’t spoken to in years, instead of who you’d really like to see control your assets.

I won’t go into all of the different components of a will, trust, health care directive etc., as my purpose here is to emphasize that failing to plan is simply a decision to trust your assets to government bureaucrats who don’t know you from Adam.

Even if you think your situation is pretty straightforward, you may feel more comfortable hiring a lawyer to guide you through the process.

MYTH #2: Everything goes to your spouse, if something happens.
Unfortunately, that’s not always the case. We deal with clients from different states around the country, and state laws vary. In fact, in most states, if you continue without a will (intestate), your inheritance will be divided among your spouse and your children. In New York, for example, when someone dies intestate, the spouse gets the first $50,000 of the estate and what’s left is divided 50-50 among the spouse and the children.

You can imagine how this could create all kinds of problems, particularly if your spouse was financially dependent on you or you have children from a previous marriage.

I’ll send a few more in the future, but I hope you can already see that things are not always as we “think”. And let’s take advantage of tax season and move towards getting this done (or updated) in 2012!

I hope this helps. To your family’s financial and emotional peace…

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Personally, I prefer avoiding this mess altogether, but I just KNOW that many of my clients feel differently. So, if that’s you…here you go:

Expect some Black Friday sales to start on Thursday. Many retailers will start offering discounts online on Thanksgiving day. And some, such as Amazon, will offer Black Friday deals several days before November 25 — so hot items may sell out before the big shopping day after Thanksgiving. And, as you’ve probably seen, some stores (like Target) are even opening on Thursday…

Don’t assume the best deals are only in the stores. It’s a tradition for a lot of people to get up at the crack of dawn and camp out in front of stores to scoop up deals. But a lot of “doorbusters” (those deeply discounted items retailers use to get consumers in the door early Friday) will be available online, too — especially on big-ticket products. And if an Apple product is on your gift list, you’ll probably find it for less online (at Amazon.com, MacMall.com or MacConnection.com) than at an Apple store — AND you may escape sales tax on your purchase (I just had to get that one in there, as a tax pro ).

Only brave the crowds if you’re trying to snag an extremely limited item. You have a better chance of getting the deal if you go to the store – and are first in line. Keep in mind, though, that the items which are marked down dramatically are often cheap items to begin with – not top-selling, name-brand products.

Black Friday is only the beginning. In fact, the best deals on apparel usually appear on Cyber Monday (November 28 this year), when retailers discount items online. Toys will be cheaper the first two weeks of December when Walmart and Amazon go to war with each other to offer the lowest prices and clear out inventory before Christmas. And the best deals on name-brand TVs and luxury items can be found in early December, too.

Watch out for return policy shenanigans. Some retailers tighten their policies around the holidays as a way of compensating for all that discounting they’re up to. Some charge restocking fees if you bring an item back. And some won’t let you exchange items which were manufactured specifically for Black Friday (to be sold at a low price).

This one is pretty universal: Never spring for extended warranties on big-ticket items. There’s a good chance that a salesperson will try to talk you into paying extra for an extended warranty if you purchase a big-ticket item on Black Friday. That’s because revenue from extended warranties helps make up for lost profits on these discounted items. Typically, you’ll pay 10% to 20% more for an item to extend a one-year manufacturer’s warranty through the fifth year of ownership. But most major appliances do not break down within the extended-warranty period. Plus, you might already be covered if you use your credit card to purchase an item.

Just doing my little part to help YOUR economy-stimulation efforts this holiday season get the most bang.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

I have a few questions for you, which won’t take very long to answer, but can help US help you keep your taxes down, even for this year.

You see, I’m doing something a little different here this week. As you know, I love to write about current events, personal finance issues and information that matters to YOU with my Weekly Note (we try to keep the tax information concise and as pertinent as possible — knowing that most of our clients prefer we handle that all for them), as we did, for example, last week with the information about the looming higher ed bubble.

Well, with two months (less!) remaining in 2011, there may be a few moves we can make that can help your tax hit before we’re forced into “reaction mode” — which is the only mode out of which after-the-fact tax work can be done. So, if at all possible, I’d like to change that paradigm for you by having you answer a few short questions…

So, without further ado — some questions for you:

1) Have you had a significant change in your wage income this year?

2) Have you taken capital gains or losses this year? Are you planning to?

3) Did you start or sell a business this year?
BONUS QUESTION: Do you know anyone who did, that would like input on their tax situation?

4) Did you purchase real estate?

5) Did you make your full contributions to retirement accounts?

6) Have you considered a Roth IRA?

7) Did you withdraw from retirement accounts, and for what purpose?

**8) Have you sent your family and friends our way — and, if not, is there something which we can help you with to make this easier?

9) Are there any other issues you think we should know about?

Now — the answers to these questions form the “tip of the iceberg”, and they will help us to know which direction to take as we work with you over the next two months to prepare for year-end. With your permission, we’ll contact you back, as appropriate, and set up a time to discuss them further with you, whether by phone or other method.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia