First off, I’d like to say, again, that I’m not an expert in these matters — but I’ve had many conversations with wise clients who have shared a thing or two over the years. I have clients, with great material means, who have children that remain “unspoiled”, and don’t carry an expectant spirit.

Likewise, I have clients who have shared their struggles with us about their children always wanting MORE MORE! (these are brave and wonderful clients to share such private details), and this, even, when some of these families don’t have large incomes.

And then there are the holidays — coming faster than we all think.

So how do we hold back the flood of consumerism, and teach our children the true meaning of gifts, giving and the upcoming holiday season? Well, some of my wiser clients might say …

1) Explicitly Limit The Number Of Gifts Given
Parents often tend to go overboard buying presents for their little ones around birthdays and holidays — after all, it often feels like an overflow of love AND children sure do love it.

But I know families who have always put a stated limit on Christmas and birthday presents — and yet their children don’t seem to act like they feel deprived. Christians can link Christmas gift-giving to the three gifts of the magi; others can find different spiritual reasons to not simply pour a truckload of gifts on their children. The key seems to be in creating a happy atmosphere around it, and remaining consistent.

2) Have Your Children Buy Their Friends Gifts
Why not let your kids experience what it feels like to sacrifice and give? After all, we’d all want to give ALL of our friends a gift, but the truth of the matter is that we simply cannot buy a gift for everyone on our list. We have finite resources and have to allocate them accordingly. There is a line that we all have to draw in the sand for who will get gifts and who will get a card.

Giving your children a certain dollar amount to spend on gifts, or simply making them pay for their friends’ gifts out of their own pocket, will teach them about making the hard choices of whom to give to, and how much, within their very limited resources.

And, of course, this assumes that they ARE giving gifts! If not, that’s a great place to start.

3) Share Pertinent Financial Details
Children should be protected from adult concerns. But that doesn’t mean that they should be blissfully ignorant about how money works. In fact, we owe it to our children to properly explain where the family’s money comes from, how it gets into the bank account, and how expenses and budgets work. With a little explanation about how your family’s budget is structured, you may be able to hold back the tide of consumerism.

Again, they don’t need to feel a pinch — but they SHOULD know that gifts and items have a monetary value, and don’t just get plucked from the shelves without cost.

These are just ideas to start with. It’s extremely hard to curb the allure of consumerism in our culture. But in my opinion, it’s a fight that every parent should consider waging in today’s society of overspending and consumer debt.

Again, every family has their own approach … but I do hope that you’ve thought yours through. To your family’s financial health!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Working with my clients’ finances over the years has given me a bit of a crash course in human behavior. Often, I’m floored by the generosity I see displayed by many clients–even those without significant means.

Other times…well, I think that we all could use the reminder that our human flaws show up very clearly in our family’s finances. The fact is that we ALL lie to ourselves, from time to time, about what’s really happening in our wallets.

This habit of lying to ourselves threatens our financial stability. Instead of spending $5, we spend $20. Instead of recognizing that we *want* that new shirt, car, or fine dinner at a restaurant, we lie to ourselves until we are convinced that, for one reason or another, we *need* that new shirt, car, or fine dinner. The current credit crunch can partly be blamed on a nation full of people who convinced themselves, for example, that a $500,000 home was necessary–even though a $250,000 home was sufficient. We must learn to live within our income … and this means, we must stop lying!

So, I’ve compiled a short list of ideas on how to stop lying to ourselves and face the truth when making purchase decisions…
1. Have (and stick to) a budget. Is this purchase in my budget? For example, my family budgets a certain amount each month to spend on clothing. We’ve agreed that this amount is sufficient to meet our needs. We set this amount before facing a purchase decision. If during the month we want to exceed the budget because Kohl’s is having a fantastic sale, then we are now lying to ourselves. We aren’t saving money by exceeding our budget during a sale. In fact, now I have to dip into savings to pay for my overspending.

2. Set a per-purchase spending limit. A wise man said, “The four most caring words for those we love are ‘We can’t afford it.’” Take some time with your spouse to set what I call a “What I can spend without having to ask my wife if it’s ok” spending limit. My wife and I have decided that neither one of us is allowed to spend more than $50 at any given time without calling and asking the other one if it’s okay (this does not apply to groceries). Let me tell you right now, my wife has stopped me from making a lot of unnecessary purchases by telling me, “We can’t afford it.” Even though we had a budget for the purchase, we still didn’t need it.

3. Replace bad habits with enjoyable, inexpensive activities. Shopping or overspending is a habit that we have likely formed over years. Since our brains are programmed to react in a certain way in specific situations, any change is met by resistance. The existing habit is simply more comfortable and natural. To help change your behavior, replace the bad habit with another activity.

For example, instead of going to the mall to pass time, go to a local park with a soccer ball and spend some time with family or friends. Start or re-start a hobby. Your new hobby might even be a low cost home business where you make money!

4. Make sure that the reason you tell yourself you are making the purchase and the *actual* reason you are making the purchase are the same. Ask yourself, “Why am I really making this purchase?” Am I buying this dress for my wife because I love her and want to show my appreciation, or am I trying to prove to her and the world that I am a good provider? We lie to ourselves to cover our true motives. If the real reason you are making a purchase isn’t in-line with your principles and budget, then don’t buy it.

5. Take stock of and enjoy everything that you already have! Develop gratitude for what you already have in your life. Purchasing new things is often a sign of ingratitude for what life has already afforded us … or a sign that we feel deficient in some area.

Overcoming bad habits and addictions is a process that requires concerted effort. Face each day one at a time and stop lying to yourself! Don’t believe the story you’ve created in your mind that justifies unnecessary and financially harmful purchases.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Sure, commonly-advertised services for regular families can seem like an easy button. But the problem is that most of these products are unnecessary or ineffective, or they duplicate things you can do yourself–for free.

Here are some basic things you can set into place right now, which will cover you in the vast majority of circumstances:

1) Please don’t carry your SSN in your wallet. Ever.

2) Don’t post your full DOB on your social profiles. If you really like the messages on your wall for your birthday, just take out the year at least! (Besides, it makes you more mysterious!)

3) Don’t check your bank balances on public wi-fi. Even if you do it on a secure connection, hacker programs to “snift” your info are as commonly-accessible as pirated video on the internet. This includes your mobile phone.

4) Um, don’t let your wallet get stolen.

5) In case it does, keep a photocopy of every important item in there. (Except cash, of course. That’s, er, against the law.)

6) Check your credit annually. www.AnnualCreditReport.com is the one where you don’t have to pay for it.

7) Shred important stuff you don’t need — including credit card solicitation offers. In fact, stop those for good by going here: www.optoutprescreen.com or calling 888-567-8688. Opting out should stop most offers, and it’s free.

There. I said it would be short, sweet, and full of common sense. As usual, I hope!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

As I wrote last week, you pay your bills on time. You try to save as much as you can. You even follow the advice which you read in books and hear on the radio about how to keep your finances in check.

But perhaps you’re still not getting ahead.

Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and hurt us.

So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. Last week, I gave you two:

Hidden Mistake #1: Inappropriate Mental Accounting
Hidden Mistake #2: Manipulative Price Anchoring

Let us know if you missed last week’s email, and would like to receive it again. Now here are the rest…

Hidden Mistake #3: Loss Aversion Costing You
Definition: Our consistent tendency to avoid loss, rather than acquiring gain.

Typical Example: An investor is more likely to sell a stock which has increased in value, rather than selling stock that decreased. Over time, her investment portfolio is made up of investments that have decreased.

Cure: Don’t think of selling a stock for less than you paid for it as being a loss. It can actually work as a gain for two reasons:

* Tax deduction (which can really help!)
* The other side of opportunity cost: opportunity GAINED (i.e. you can better utilize that money elsewhere)

So, don’t check your portfolio so often. If you don’t know you’ve lost money, you don’t experience the pain. (And riding the roller-coaster of your portfolio’s value is a waste of emotional space.)

Since stock prices go up in the long-run, the longer you go without looking at your portfolio, the greater chance of seeing a gain.

Sometimes taking that loss really is the best thing you can do.

Hidden Mistake #4: Following the Herd
Definition: The tendency for us to want to do the same thing as a large group of others, with no thought to whether that action is rational or irrational.

Typical Example #1: Buying when prices are high because everyone else is.

Typical Example #2: Selling when prices are low because everyone else is.
opposite

Cure: Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful.”

Keep this in mind when making your next financial decision. If everyone is telling you to buy this or buy that (i.e. gold, silver, real estate) do the opposite.

In the financial investment world, if it’s too good to be true, it usually is.

Write up an investment policy statement or contract.

Include factors such as:

* Investment objective
* Investment goals
* Desired asset allocation and diversification
* Summary of your risk tolerance
* Rebalancing schedule

Before making any changes, consult with this contract.

You can also take advantage of this inherent tendency to do what’s approved by others to affect positive behavior. For example, let’s say you trying to pay off debt. Tell your 3 closest friends, make an informal contract, sign your name at the bottom, and then email it to them. The pain you would incur from breaking that contract is high relative to the pain of breaking your behavior if you went about it alone.

Don’t forget — we’re only a phone call or email away, and our consistent question for you is this: “What more could we do for you to help?”

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

You pay your bills on time. You try to save as much as you can. You even follow the advice which you read in books and hear on the radio about how to keep your finances in check.

But you’re still not getting ahead.

Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and bite us in the keister.

So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. All it takes is thinking a little differently…

Hidden Mistake #1: Inappropriate Mental Accounting
Definition: Tendency for families to divide money into separate accounts based on subjective criteria.

Typical Example: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.

Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.

Cure: Funnel income, no matter the source, into one savings account.

Any “found money”, such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.

As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental “books”, should be lumped into one, monthly bucket.

Hidden Mistake #2: Manipulative Price Anchoring
Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.

Typical Example: The “rule of thumb” to spend two months’ salary on an engagement ring.

Typical Example #2: A realtor will tell you that “in 2007 this house was going for $500,000 and is now listed at only $350,000!” … causing you to think this house is undervalued.

Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.

For everyday purchases, avoid looking at the MSRP or sticker price.

Ask yourself:

Can I afford this today?
What do I really want to spend?
What is this really worth to me?

Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.

I think I have a couple more up my sleeve, but I’ll save those for next week. But let me know: is this helpful to you? And what more could we do for you to help?

Financial Advisor Richmond
Financial Planner Richmond
Financial Planning Virginia

Financial independence training is a short-term pain, for a long term gain. Because “untrained” college students are sitting ducks for unscrupulous financial service companies and their own lack of financial sense.

So, with that in mind, here are some off-the-cuff guardrails to consider for your son or daughter entering, or continuing on through college…

1. Make a definite plan to leave college with no consumer debt. And I’m talking a real PLAN. Credit cards, car loans — college kids are ripe for the plucking. Consumer debt is a real killer, simply because it depreciates so much. In a short matter of time, these items lose their value, but the payments and interest continue to inexorably pile up. So set up a clear budget for travel, late-night snacks, and other miscellaneous lifestyle expenses (heck, going through the process might even prompt some lifestyle evaluation!). Tell your child: “You should have an exact answer if I ask about your weekly spending limit.” And have them try to earn enough over the summer that they can afford to skip the part-time job during the spring and fall semester.

2. ATM bank fees are killer. Moving to a new city often means the local debit card will likely be charged from $1.50 to $3.00 for every withdrawal from a foreign ATM. Consider an online bank account like Charles Schwab Bank that reimburses all ATM fees or a local bank with easy ATM access.

3. Overdraft fees are as common as hangovers for the college kid — avoid both. A recent Pew Foundation study found that the median overdraft penalty fee is $35; an additional $25 accrues if this overdraft is not repaid in seven business days. The average bank allows up to four of these overdrafts to occur in one day for a total fee of $140 or more per day. However, if you open a savings account in addition to your checking account, you can apply for overdraft transfer protection. You might even set up a situation where the college student controls the checking account — but you control the savings.

4. One cell phone bill gone awry can swamp you. New routines in college will likely mean that calling and texting habits will change. Or just one call to that high school sweetie who is spending the semester abroad might necessitate a different plan. If your child doesn’t have an unlimited plan, have them make it a habit to review the account online in the middle of each billing cycle. By the way, this is a very good expense to NOT pay for as a parent.

5. Avoid gimmicky credit card offers. Often the first credit card is awarded at a football game where so-called “free” T-shirts are being handed out. Again, college kids are ripe targets. Shop online for the best rates and terms and purchase a dozen dress shirts with the money saved by finding a card with less onerous terms for interest rates and late fees. Focusing on the so-called “rewards” which credit card companies give you is a distraction in your financial life. Like a casino, credit card companies win most of the time — which is why they stay in business.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Social Security benefits can represent a big stack of cash. A typical monthly benefit of $2,200 has a present value of well over $500,000.00! So, despite the fact that it seems like an easy decision, you need to consider all your Social Security options carefully to avoid making a costly mistake.

Like all government law, Social Security is not a simple piece of legislation. Since the Social Security Act became law in 1935, hundreds of amendments have been piled onto it, and have thereby added to the complexity. So to make the best decision about how to file for it, you’ll need to consider four things: 1) health 2) income before retirement and 3) income during retirement and 4) taxes.

Retirees cannot rely on conventional wisdom! Simplistic “rules” such as “Always file for early benefits” or “You need to stop working to receive benefits” are NOT always true. There are specific cases that break every rule of thumb. And these one-size-fits-all answers leave many retirees failing to maximize the benefits they have earned.

At least four methods are used when electing how to take Social Security. And if you’re married, the two of you can mix and match these in more than 16 different ways (!). Each choice results in a different cash flow. By using the cash flows and the time value of money, you can determine which method will offer you the best maximum value.

So these methods differ significantly… they depend on your historical earnings, marital or divorce status, continued work in retirement, life-longevity and rates of return. The choice alone could be worth $250,000 of income or more. Filing options include “early filing,” “standard filing,” “delayed filing,” “file and suspend,” and many combinations of these options for married couples. It is DEFINITELY worth careful study and analysis of each option… yet a majority of Americans make their choice impulsively and emotionally.

The decision is even more crucial for women. For 42% of single women older than 62, Social Security is their sole source of income. Women on average outlive men. Thus, planning for retirement is usually much easier for men (who statistically tend to have more assets and die younger). Widows are twice as likely to live under the poverty line as men who have lost their wives. And the poverty rate for elderly single women is 23% compared with just 5% for retired couples.

So couples must take their joint longevity into account before either one files for benefits. The person with the longer life expectancy will inherit either a wise or a foolish decision that will last a lifetime. Given that a husband’s benefits are often higher and the wife’s life expectancy longer, each case needs to be analyzed carefully.

Unfortunately, many people file after considering only one or two options in isolation. Even worse–the Social Security Administration’s new online filing system enables quick decision-making. People can easily submit their request without any professional advice or planning.

Before filing, then, you obviously should be informed about all the options. To begin, you need to know your personal Social Security earnings and the projected benefits for both you and your spouse. You can request an estimate at www.ssa.gov/estimator and then print the results. Or call the Social Security Administration at 800-772-1213. You can also get a copy of “Retirement Benefits” (Publication No. 05-10035) online.

Social Security planning is crucial for everyone. People with significant assets should carefully consider both the lifetime benefits and tax consequences of Social Security in light of their overall portfolio strategy. For the less well-off, Social Security benefits will dictate their retirement lifestyle. Proper planning could well determine what they can afford to eat.

There’s obviously a lot to consider here. I recommend you sit down with somebody you trust that can walk you through your different options. It could make a BIG difference in your lifestyle!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Long-time renters often cite all the negatives of home ownership, and there are some to be sure. But many of these oft-cited reasons have a valid counterargument OR these old paradigms are no longer accurate:

Current Conception #1: It’s More Expensive to Own Than to Rent — This is probably the biggest myth out there that many proponents of renting continue to propagate. Primarily, at this point in time, with home prices having crashed and interest rates at record lows, the rent-to-buy ratio is favoring “buy” in many parts of the country, more so than at any point in recent history.

Now this isn’t just a rah-rah “buy a home” Note, and I would concede that it is entirely plausible that home prices continue to decline for several more years. But if you’re not buying to sell, but rather buying to live, it can be MUCH more economically efficient to own over rent, especially at this time.

Here is the data (rent vs buy favors buy in 75% of US cities), aside from the other intangibles listed below: http://money.cnn.com/2011/08/16/real_estate/buy_rent/index.htm

Let me repeat: It is becoming cheaper to own and it is becoming more expensive to rent.

In my analysis, this trend will continue for years.

Why? First off, the Fed’s policy has been to reward debt holders and punish savers with the unprecedented a) zero interest rate policy and b) projecting out through 2013 that rates will stay low. This in turn, is pushing up gold prices and equities prices, and investors are pricing in future inflation. This bodes well for landlords, and poorly for renters. See, this interest rate/inflation phenomena mixed with the new ratio of renters over owners is flooding the market with renters and starving the market for buyers. This makes homes more affordable, while landlords are embarking on higher annual rent increases.

Current Conception #2: Homeowners Have to Pay to Maintain a Home Instead of the Landlord. Put aside the premium you might pay if you got in a bidding war over a home or made some upgrades to your home that weren’t necessary. Simply baseline the same property and look at renting versus owning it. Everything you pay for as a homeowner, the landlord has to pay for as well. Who do you think pays for that? Do you think the landlord pays for snow removal, replacing carpets, fixing leaks and a new roof every 15 years out of the goodness of their heart? No — you pay for it! It’s all priced in over long-term rent trends. Landlords are in this business to make money and if they weren’t making money they wouldn’t be landlords. You are paying to put their kids through college and for their Caribbean vacations.

Basic economics dictate that over a long period of time, you are losing money by renting, not just because you’re not building any equity, getting a mortgage tax deduction, etc., but because you are paying for the upkeep, depreciation expense and maintenance of the home in your rent — PLUS a tidy profit to the landlord.

Many renters are convinced they’re “beating the system” because they don’t have to pay for these things, but they are — it’s just not itemized out in tidy fashion for them. It’s all in the rent. This is logic — and reality.

Current Conception #3: Renting Provides for Much More Flexibility to Move. This is a major (and legitimate) reason NOT to own. After all, closing costs, transfer taxes, realtor fees and such are nothing to sneeze at. However, what a lot of renters end up doing is deciding to rent instead of own, but then they never move! They end up renting for years on end when they could have owned.

And that flexibility? Well, the landlord also has the flexibility to keep increasing prices year over year at whatever rate they so choose — which then requires a calculus on your end as to how much of an increase makes it worth moving out, in order to just rent somewhere else. Additionally, you’re often locked into an annual lease (which isn’t very flexible), they can sell the home or put new tenants in each lease cycle (which isn’t very flexible), and you can’t do many things to the place you live in without their permission, or perhaps not at all (not very flexible). So, you’re trading the slight mobility flexibility for a lack of flexibility in virtually everything else that the landlord controls.

To reiterate, if you’re a current renter, you may feel this Note is critical of your situation. It’s not. It’s an economic reality that many Americans never have had, or never will have the economic means to be a homeowner. This is a mathematical certainty. The point here is to get my clients and friends thinking who DO have the means to save for a down payment, and who may be better off financially as owners than renters… but who continue to muddle along in complacency because they’ve convinced themselves that homeowners get hosed and renters have all the perks.

If you’re especially interested in math, here’s a helpful exercise for you to consider.
http://www.khanacademy.org/video/renting-vs–buying-a-home?playlist=Finance

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Whether you’re running a Fortune 50 corporation, or just trying to keep your household expenses from exceeding your salary, the same basic financial concepts which I use in my personal life can apply for you. These are fundamental building blocks for wise financial decisions.

Quick Interest Calculations: The Rule of 72
Want to double your money? The Rule of 72 can tell you how long it will take, based on the specific interest rate you’re looking at. Just divide 72 by the interest rate. For example, if you’re looking at an investment with an interest rate of 6 percent, then 72 divided by 6 gets you an answer of 12 years.

This is a rough estimate, of course, but it’s pretty effective.

In fact, you can also turn the equation around to determine the interest rate you’re looking at if someone promises to double your money in a set amount of time. Twice as much money in 12 years? Divide 72 by 12 and you get an interest rate of 6 percent. This rule lets you evaluate investment opportunities quickly and decide where to put your money.

Opportunity cost.
What do you need to give up in order to get something you want? It’s a question of money, but also time and value: Pursuing an advanced degree may take years–are you willing to put in that amount of time? Will a sports car give you enough enjoyment to offset going into debt for it?

Sunken costs.
This is money you can’t get back–a non-refundable airline ticket, for example. Keep sunken costs in perspective. It’s easy to start thinking “Well, I’ve already spent $100, what’s another $25?” You’ve got to be willing to walk away sometimes.

Time value of money.
According to this principle, a dollar you receive today is worth more than a dollar you’ll get tomorrow. You’ll have opportunity to invest that dollar immediately and begin earning more revenue from it (and also avoid losing value because of inflation).

Again, this helps you make calls about your purchases — and your income. It’s the old “a bird in the hand” theory in action for your wallet.

I hope these help! Until next week then…

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

What a messy weekend. Heartbreaking news from Afghanistan, the S&P downgrade — and now all of the resultant (and gruesomely predictable) political posturing. Oh, and as I write this, it’s no surprise that the stock market is “reacting” a bit.

Tom’s Key Reminder #1: The only thing certain about the stock market is that it’s volatile. So those of you with many assets resting there, don’t make moves out of panic. Sit down to discuss a tax-advantaged strategy … not a knee-jerk fear response.

Tom’s Key Reminder #2: What you choose to “ingest” over these next few days will greatly impact your state-of-mind. Garbage in, garbage out, as they say. And, of course, the opposite is true–when you surround yourself with excellence and clear-eyed determination, you find that your heart and mind carry much greater strength. Temper your media intake this week, as they are (quite literally) merchants of fear.

Tom’s Key Reminder #3: The only thing you can truly control is yourself. You can’t control the market, you can’t control the US debt rating (unless, of course, Messrs. Geithner and Bernanke are reading this — perhaps you guys can!), and there’s a real sense in which you can’t even, really, control your salary and income.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia