What Will Your "Next Five" Bring?

It can be hard to plan for next week, let alone
three or five years down the road.

Financial planners are focused on the future, but for many people thinking 10, 20 and 30 years or more down the road is hard to do. When things are hard to do, people tend not to do them. So let's make it easier!

What will your next five years bring? To make it even easier, break it down in to one-year, three-year and five-year increments. Of course, financial planners are focused on things that have a financial implication to them, either an inflow or an outflow.

Don't let your life just happen to you. Take advantage of the opportunities!
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Preparing for the Next Five Years

For 2014:

• If you are working, what will your income be over the next year? Are you expecting any potential pay increases, bonuses or stock option expirations?
• Do you have any debt, like student loans, car loans or home equity loans scheduled to be paid off? What will you do with the new found monthly money?
• Make a list of any home maintenance or improvement projects that you need to do or would like to do. You can't take on everything at once, so prioritize projects and space them out. Don't succumb to the advertising that says, "always keep improving," but don't defer needs so long that they become financially insurmountable.

For two to three years out:

• Are your kids going to college or graduating?
• Any potential weddings on the horizon?
• Any term life insurance policies expiring?
• Is it time to look at long-term-care insurance?
• Is it time to plan on replacing a car?
• Any special family birthday or anniversary celebrations?

Four to five years out:

• Depending on your stage of life, is it time to think about moving? You may need to consider downsizing or moving to a retirement community.
• Where are you on your "glide path" to retirement?
• Do you have any special travel plans? What's on your "bucket list"?

The lists could go on and on and be much more encompassing, but you get the point.

Don't Put Off Planning for the Future

Don't let your life just happen to you. Don't assume your spouse or significant other or family know what you are thinking either. Take advantage of the opportunities! 

New Resolutions for 2014: Keep It Simple!

Take baby steps with your New Year's resolutions,
and you'll be more likely to see success.

Happy New Year 2014!

'Tis the season for New Year's resolutions!

But first, how did you do with your 2013 resolutions? Oh, you didn't lose weight, exercise more often, spend more time with family and friends, save more money, go to church more often, get organized and become a perfect person? Join the crowd!

Baby Steps for the New Year

Let's keep it simple and take baby steps in 2014:

1. Identify one way you know you spend too much money and eliminate it or cut it back. Are you forgetting to use restaurant coupons, clicking on Amazon too frequently, or buying clothes you rarely wear or stuff you rarely use? Pick one bad habit and kick it.
2. Increase your 401(k) or retirement plan contribution by 1%. Better yet, increase it by more than that, but make the increase at least 1%. Pledge to do this every year and your retirement goals will become much more achievable.
3. Save mother earth and your green cash by doing at least one environmentally friendly thing. Reduce, reuse, recycle. Install a timer thermostat, check the setting on your water heater, or weather strip a door or window. Reduce your driving and let up on the lead foot. Don't let the water run and be prudent with your landscape watering. Take care of your trees and plant a new one. Start a compost pile. Pick one thing and do it.
4. Take control of your "daily money management" by exploring technology to simplify it and help you track your spending. Use Quicken or Mint.com to see where your money goes, use your bank's online bill pay to save postage, and automate as many routine transactions as possible. Start using a password management program. Pledge to check and compare your income and expenses once a month.
5. Increase your financial peace of mind. Recognize the difference between what you can control and what you cannot control and don't worry about the latter. Concentrate on what you can control: maximize your income and minimize your income taxes and expenses. Have realistic expectations. Take a baby step (or more than one) towards financial peace of mind.

Live a Life of Gratitude

In closing, live a life of gratitude in 2014. No matter how bad or difficult you think things may be, there are many people who are not as fortunate as you. Ironically, in many cases, people who live in poverty are happier than people who live in abundance. They don't have much, but they are thankful for what they have and don't worry about what they don't have.

Keep it simple in 2014, take baby steps, and have a happy New Year!
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What Financial Lessons Are Your Children Learning From You?

Kids start learning financial lessons when they're very young.

Our children are learning financial lessons from us, whether we realize it or not, through our actions, behavior and words. Are they learning useful lessons? Is their learning a positive experience?

The best approach is a proactive one, where they learn lessons from our intentional conversations about personal finances. This starts with a foundation of values and priorities that precede economic decisions. Do they choose their friends by who has the biggest house or the best clothes or the most stuff? Or do they choose their friends by who is the most genuine, honest, humble and caring? Watch for "teachable moments."

A dose of financial reality may come with your child's first paycheck when they ask, "What's FICA?"
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Teaching Kids About Personal Finances

There is no predefined or perfect way to teach children about personal finances. It starts at a young age with simple discussions about self-esteem, personal values and relationships. It can include discussions around presents at birthday parties and at Christmas. It can progress to dealing with cash as they may get allowances or babysitting or lawn-mowing income. The first dose of financial reality may come with your child's first official paycheck when they ask, "What is FICA?"

As the years pass, they will reach the stage when they can have their own bank account with mom or dad, followed by an ATM card or credit/debit card and checkbook. Explain the difference between a debit and credit card. Teach them how to write a check, even if hardly anyone does that anymore. They should understand the principle.

Explain to them how mom and dad make financial decisions. Explain, without lecturing, the sacrifices or trade-offs that are made to achieve personal goals and priorities. There's no harm or guilt trip in dad saying that sending a child to summer camp was more important than buying a new set of golf clubs, if you present it nicely and factually.

Turning 16 opens the doors to financial responsibilities of a car, including insurance and gasoline and maintenance costs. Preparing to go to college will certainly open some discussions about savings, grants, scholarships and loans. Hopefully a foundation of understanding financial principles and the value of a dollar will have been achieved by this point. Early adulthood may introduce buying or leasing a car, renting or buying a house, and the biggest of all debts, a mortgage!

Financial Lessons to Last a Lifetime

Decide for yourself whether you want your children (and grandchildren) to learn about money and personal finances by observation or by using a proactive approach. Either way, these will be lessons that influence them for a lifetime.

In the Spirit of Giving, Consider Your Community Foundation

Charitable giving tends to go up at the end of the year.

As the holidays and end of year quickly approach, many people turn to thinking about charitable gifts. The Thanksgiving and Christmas season is a popular time for charitable giving, both for expressions of gratitude and giving as well as income tax deductions for the current calendar year.

The most universal guideline of how much to give to charity is the biblical principle of tithing 10% of your income.
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Develop a Charitable Giving Plan

Ideally, you should first develop a plan for how much to give and to what organizations or causes. Ideally, the amount you give will be commensurate with your income and assets, so the higher your income and assets, the higher your charitable gifts are as a percentage of your income and assets. The most universal guideline of how much of your income to give to charity is the biblical principle of tithing 10% of your income. As always, the best advice is to set a goal and have a plan.

Cash (in reality, money given via checks and credit cards) is the most common form of gifts. (We are addressing financial gifts here, but gifts of time and services are equally important.) If you have appreciated stocks or mutual funds, however, giving appreciated securities has an additional benefit: avoiding capital gains tax. If you give an appreciated investment to a tax-exempt charity, they can sell the investment and convert it to cash without paying any capital gains tax.

Giving appreciated stocks or mutual funds to charity can become administratively difficult if you give to multiple charities during the year. An attractive option is a donor-advised fund (DAF) at a community foundation, such as The Greater Cincinnati Foundation. Many communities have a community foundation. A DAF offers tremendous ease and flexibility. You can make one gift to your DAF at the community foundation and then request that grants be made to your list of charitable organizations. A DAF also allows you to separate the timing of gifts for tax purposes. For example, you can make a gift to your DAF this year for the income tax deduction, and either request grants to your favorite charities this year or in the future. A DAF also allows your stock or mutual fund to be sold and invested in a more diversified portfolio pending future distributions to charities.

Consider a Donor-Advised Fund

We are happy to help you learn more about a donor-advised fund at a community foundation. There are many uses and advantages of a donor-advised fund at a community foundation and we have only highlighted a few of them here. Most important, develop a goal and a plan for your charitable giving—it's the gift that keeps on giving.

You Passed Your Driving Test, But Can You Pass a Retirement Test?

Passing a retirement test may be more difficult than
passing your driving test.

The Wall Street Journal recently published a thought-provoking article on preparing for retirement. Below, we've highlighted a few of the questions from the quiz, so you can see how you would fare. You may find that passing this retirement test is harder than passing your driving test. You can take the quiz yourself online at The Wall Street Journal website.

"Passing a retirement test may be more difficult than passing your driving test."
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Take This Retirement Test

1. Research by Fidelity Investments recommends that workers should aim to save what multiple of their ending annual salary at age 67 in order to meet basic income needs in retirement?

Workers need to save eight times their final annual salary if they hope to meet their basic retirement income needs, according to the Fidelity study. This estimate assumes you start saving at age 25 and live to age 92. But some estimates are even higher. The Wall Street Journal also reports that an Aon Hewitt study concluded that a person would need a nest egg of 11 times their salary to retire at age 65.

What do these numbers mean for you? If your family has an annual income of $100,000, you would need a nest egg of between $800,000 and $1,100,000 to meet your living expenses in retirement.

2. What is the average age at which current retirees say they actually retired—and what is the expected retirement age among current workers?

As you know, what people want to do and what they actually do are two different things. While many reported that they expected to retire at age 66 (up from age 60 in 1996), the average retirement age among current retirees is 61, according to a Gallup poll published in May (that's up from age 57 in 1993).

People are beginning to see the impact of The Great Recession on their savings and investments as well as facing the reality of potentially longer life expectancies and uncertainty over health care expenses. There's one advantage to working longer, however (aside from being able to save more for retirement): The Gallup poll also found that people between the ages of 60 and 69 who work enjoy better emotional health than those who stop drawing a paycheck. Bottom line: Work provides important non-economic benefits.

3. What percentage of surveyed workers say they plan to continue working for pay in later life—and what percentage of current retirees say they have worked for pay?

Again, what people say they are going to do and what they do are often two entirely different things. While nearly 70% of people say they plan to work for pay in retirement, only one quarter of retirees actually do so, according to a study by the Employee Benefit Research Institute. That's a pretty big gap between expectations and reality. Granted, those results could be partly due to surveying people at different stages of their life (I'm not sure that they asked the same people both before they retired and after they actually retired). But if I had a nickel for every time someone said, "I'll just do some consulting in retirement...."

Perception vs. Reality

There is much to be learned about retirement and big differences between perception and reality. Contact us today for an appointment to start learning more about retirement and making your retirement dreams a reality!  

You Are Invited to Join the 1% Club!

Most people would be happy to join the 1% club.

At first blush, reading an invitation to join the 1% club probably makes you think about the top income earners who are so frequently referenced in public debate about wealth and income taxes. Who wouldn't want to join the 1% club?

"Better now than later, better safe than sorry. Good words to live by!"
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A Different 1% Club

We are recommending that you join a different 1% club; one that is more realistic and within reach for almost anyone. Join the club by increasing your retirement plan contribution 1% in 2014! You will be the big winner in the long run and you will be glad you did it.

There is so much written about the retirement savings shortfall in the U.S. that it can lead most people to despair. The general conclusion is that there is no hope, so why bother trying? But only one thing is for sure: Any negative financial situation only gets worse the longer it is ignored! Start nibbling away today and the long run results may surprise you.

How Much Are You Saving?

We generally recommend that people save 10% to 15% of their income, (for some high income earners, the number may be even higher). Most people save 3% to 6% to qualify for their employer's maximum matching contribution. Going from 3% to 15% overnight is understandably a very big jump to make and unrealistic for most people. But bumping up 1% a year each year will help you achieve your goal in the long run.

Is It Time to Change Your Money Mindset?

Are you a dreamer, procrastinator, perfectionist or a wanderer?

What is your financial mindset?

The 2013 Household Financial Planning Survey and Index, recently released by the Certified Financial Planner Board of Standards and the Consumer Federation of America, divides American consumers into four categories when it comes to their financial behavior.

"90% of Wanderers have no plan in place for specific savings goals."
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Four Categories of Financial Behavior

The four categories are defined by specific financial behaviors: comprehensive financial planning, basic financial planning and credit card debt management. The four categories are:

1. Basic Planners—The Dreamers: 38% of Americans
2. Limited Planners—The Procrastinators: 33% of Americans
3. Comprehensive Planners—The Perfectionists: 19% of Americans
4. Non-Planners—The Wanderers: 10% of Americans

The Dreamers are the largest category. They have some clear goals, but they just haven't worked out all the details. Two-thirds have a household budget but less than half of them write down their budget or store it electronically.

The Procrastinators are the second largest category. They put forth the bare minimum of effort and might get to the rest of planning later. While 31% of them plan for retirement, only 7% save for emergencies. Just 7% save for other goals.

The Perfectionists know the exact route to their financial goals. Two-thirds work with a CERTIFIED FINANCIAL PLANNER™ professional or Registered Investment Advisor. More than half have a household income greater than $100,000.

The Wanderers basically float from bill to bill without any strategic approach to money management. The report reveals that 90% of people in this group have no plan in place for specific savings goals. About 40% have significant credit card debt, but half of them have no plan to pay down that debt.

Planners Save More

Most important, the report concluded that planners exhibit more confidence in financial decision-making and save more money. Their confidence comes from understanding their financial situation. Regardless of income, planners achieved better financial outcomes than non-planners.

What is your financial mindset? While there may be little hope if you are a Wanderer, if you are a Procrastinator or Dreamer, now would be a great time to step up to the next level.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.