Instill a value of saving

images-11We don’t make our kids eat their vegetables before having dessert. Shocking, isn’t it? I’m probably going to get in trouble with a lot of parents and nutritionists for saying this, but yes, we do not make our kids eat their vegetables before having dessert. Wait, you say, isn’t this is a blog about personal financial planning? What does saving have to do with kids eating vegetables?

I’ll get to that in a minute, but first let me tell you how dinnertime goes at our house.

Dinner at Our House

Almost every night (no one is perfect), our kids get a plate of healthy food in front of them.

We talk about how we value eating foods that make us strong inside and out. We even have a vegetable garden so they can see where healthy food comes from and have the pleasure of helping to grow it.

Beyond what goes on their plates, though, we stay out of their eating decisions. They are pretty good about trying things, but they don’t always like what we serve, and they don’t always eat it. That’s okay. If we happen to be having dessert that night, they still get some.

There’s research out there that says kids have innate mechanisms for knowing what their bodies need and when to stop eating. Limiting sweets can actually lead to kids eating a lot more of them later in life. Our goal is simply not to mess up their internal regulation by telling our kids what to eat.

And guess what? They like vegetables and are really proud of eating them!

Kids and Eating / Kids and Money

So what does all this vegetable talk have to do with money? We wonder if a similar approach might work for money lessons. Right now, the kids are six and four years old. The most important thing we want them to internalize at this age is “spend less than you make,” “live beneath your means,” or in other words, “Save!”

So, what is our job as parents?

  • Put healthy choices in front of the kids. First, we limit the amount of advertising and shopping that makes it on to their “plates.” And we do things such as hitting neighborhood garage sales to stock up on gently used toys. They are comfortable leaving some of their money in their piggy banks when we go, because they know they are going to have a little fun spending too, and it’s easy for them to see that their money goes further than it would at the store.
  • Give them a window into how we make grown-up decisions with money, using lessons they can understand. “Yes, I can just pay for that library book you can’t find, but that is money we won’t be able to spend going to the water park.”
  • Talk to them about our value of saving. We value having reserves that give us choices and flexibility. Saving is setting aside money to spend later on something more important than whatever is in front of us right now. Like the vegetables, it makes us strong and healthy, even though it might not give us the same immediate pleasure as dessert.
  • Use Money Savvy Pigs so they can see and touch what it means to make goals, set aside money for different goals, and have the pleasure of reaching goals. This is their money vegetable garden!
  • Stay out of their spending decisions and let them have dessert (i.e. spend money on something frivolous), even if they don’t always save exactly the way we want them to save.

Planning and Uncertainty About Finance

download-36Benjamin Franklin once wrote, “Tis impossible to be sure of any thing but Death and Taxes.” But even death and taxes are uncertain enough to present significant financial planning challenges.

Unfortunately, it is quite easy to conclude that financial planning is a waste of time because no one can know the future. But we do know that we’ll need to set something aside for the future, we won’t earn wages out entire life, and prices will probably continue to inflate. The only other crucial assumption we need to make in financial planning is that every other assumption we make is wrong.

Let’s face it, managing our finances and making important money decisions involve making a lot assumptions:

  • How much will I save? Spend?
  • How much money will I be making? For how long?
  • How much will I need for emergencies?
  • Should I buy or rent?
  • What if I need to move for work?
  • How much should I invest? Keep in cash?
  • How much money will I need to retire?
  • Inflation?
  • When will I retire? Will that be in a bull or bear market?
  • How much risk should I take?
  • What will the markets return?
  • How much insurance do I need?
  • How much will healthcare cost?
  • What will my future tax liability be?
  • How long will I live?

Just about everything about financial planning is uncertain, but some of these uncertainties become less uncertain overtime. As we get closer to future events, often the very same events that we’re planning for, the range of possibilities becomes narrower because we will have more information available. And at some point, we will have our certain answer, but by that point, is is usually too late to have done anything different before we knowing better.

Assumptions are temporary placeholders

Perhaps instead of thinking about the role of assumptions in financial planning as what we think will happen, we should think of them as a way to better answer the question of what to do now. Often, long-term assumptions are used to answer questions like, “how much should I be saving now,” “how much can I spend now,” and “how much risk should I take now.” An assumptions is really nothing more than a temporary placeholder for a piece of information we do not yet have, so we can dosomething, not just anything right now.

Trial and error is a skill

So what if we are wrong now? we can repeat this process and adjust what we do in the present as more information becomes available. We may still be wrong, but with each adjustment, the margin of error in our placeholders becomes progressively smaller until we arrive at the certain information.

This process is known and trial and error, and we rely on it almost everyday, from figuring out what time to leave the house to get someplace on-time to how much food to plan for dinner. It starts with a trial, and even if most of our assumptions are wrong, we have a starting point from which we may continuously improve.

The more we use trial and error to solve a problem, the better we get at it. Just like planning meals, travel, and projects, financial planning has a skill set that is ultimately refined through trial and error. Even medicine uses trial and error. How does a doctor know what dose of a medication will get a patient’s high cholesterol under control? Uncertainty is found everywhere, yet we still get things done.

How to increase a interest rates

download-37As neared a finish, I thought that interest rates, which had been dramatically suppressed by the Federal Reserve, would start to rise sometime in 2011. Boy, was I wrong. Being in the majority of professional opinion at that time didn’t matter either.

Now it is the summer of 2015 and we’re still waiting for our Federal Reserve to raise short term interest rates which will have an influence on longer term rates. Who knows when that will happen and I’ve stopped predicting and making recommendations based upon my personal view.

I thought it was important to remind readers of the effects of rising interest rates, so here goes:

  1. When interest rates go up, the market re-prices the value of bonds and bond funds down to reflect a better return in newer fixed income securities. Fixed means the rate promised remains the same.
  2. The bonds and bond funds (remember there are many different types of bonds) currently owned still produce the same amount of interest income unless there is a default or non-payment. If you hold the individual bond to maturity it pays you back your initial investment. Bond funds just replace maturing bonds with newer, hopefully, increased return bonds, and the fund slowly rises in value (market price) to reflect these transactions.
  3. Now I’ve set the scene, what are the strategies we’ve previously recommended or are now considering recommending in the near future:
  4. Floating rate bank loan portfolio funds. These funds feature variable rate loans usually credit rated B or better. You pay a professional mutual fund manager to select the holdings.
  5. TIPS. Treasury Inflation Protected Securities. These are US government bonds (and many providers have TIPS bond funds) that provide a return of stated coupon rate plus a variable cost of living adjustment (COLA). If interest rates, and then inflation increases, these will become a more popular security or fund.
  6. Bond ladders. Individual bonds that sequentially mature in a pattern like $10,000 at the end of one year, $10,000 at the end of two years and $10,000 at the end of the third year. The bonds will be re-priced down if rates rise, but since the maturity is short we know with a high degree of certainty we will get our money back plus interest along the way.
  7. Other alternatives? Of course. Just wait and the financial services industry will be hard at work to sell you on the “fear” emotion of loss of principal by offering you lots of products and funds that will make them lots of money and maybe you too. Bonds and bond funds will be like stocks for awhile rising and falling in value based on actions in the interest rate sensitive markets.

All about invest that you should know it first

As a financial planner and fiduciary investment advisor, I work with people with varying goals and vastly different levels of education, income, assets and comfort with technology. I’m often worried by similarities I see among investors of all stripes.

Many people simply have no plan when they start investing. Others follow the latest hot investment tips from a stranger online, on TV or in a magazine. I’m surprised by how many investors think they’ve done well, but don’t know how to measure their true rate of return for the risk they have taken. Few investors even know how much risk is in their portfolios.
These issues arise because investors generally don’t use a consistent methodology — a repeatable, rule-based process — to build or monitor their portfolios. That often leads to portfolios that aren’t well-diversified, don’t have the appropriate amount of risk for the investor and aren’t tax-efficient. What’s more, many investors don’t review their portfolios and haven’t thought much about how their investments fit into a bigger overall plan.


Are you ready to invest?
What can you do to make sure you aren’t in this camp? First, determine whether you’re really ready to invest on your own. Based on my experience, there are a number of essential tasks to complete and issues to understand before you start investing.
Completing the following investing assessment can help you determine how prepared you are and whether you’d be better served by obtaining professional assistance from an objective, fee-only advisor.
1. I have a written list of my short-, intermediate- and long-term financial goals and know how much I need to save and the required rate of return to fund each of those goals.

2. I have completed a trusted risk assessment questionnaire tool (such as this one from FinaMetrica) and understand how my risk tolerance fits in with the required rate of return to fund my goals.

3. I have a written investment plan (investment policy statement) that spells out the asset allocation to be used in my portfolio along with the expected range of returns.

4. I understand the importance of asset allocation (the mix of stocks, bonds and other investments) and follow a methodology to identify and create a portfolio that is designed to provide the highest return for the level of risk that is appropriate for my situation.

5. I utilize a methodology to select the investments for each asset class.


The benefit when you choose about investing

Evidence increases by the day that more consumers are moving towards a plant-based diet. How can the average investor take advantage of this trend?

Low-cost index investing has become a popular approach to achieve market returns and will continue to be used by more individual and institutional investors. On the other hand, sustainable investing is also a growing trend, as more investors recognize that an “all-of-the-above” index investing strategy conflicts with their worldview. Index investors are accepting the status quo by owning companies as they are. Sustainable investors are driving change by using fund managers who engage with companies to adopt positive changes or by simple divestment (i.e. avoid investment in the company or sector).

I envision three groups of individuals who would find plant power investing attractive – vegans, vegetarians and advocates of a healthy eating / living lifestyle (ironically, HE/LL for short). The majority of individuals in this category, however, are not in a position to take on an extraordinary amount of investment risk. Investing in “pure play” meat or egg substitute start-up companies is beyond their financial reach.

The growth in the number of mutual funds that divest from fossil fuels provides an example that plant-based investors might want to follow. Why not simply avoid companies that are in obvious conflict with your worldview? Truth is, there are sufficient large, established companies to choose from in order to develop an investment portfolio that may satisfy both financial and personal goals.

As I point out in my book, Low Fee Vegan Investing, there are currently no mutual funds targeted to plant-based investors. This is unfortunate since, without this option, most investors are not in a position to take on the effort or cost to implement a strategy that would otherwise meet their needs.

I believe there are two easy steps plant-centered investors can take to encourage the development of a suitable investment tool (e.g., mutual fund, plant-based index fund). The first step would be to contact their investment professional and state an interest in having a portfolio which reflects their worldview. If sufficient demand develops, this will be noticed by financial service providers (again, recall what happened with fossil fuel divestment – many mutual funds and ETFs options were developed in a fairly short amount of time). Second, participate in the short “Plant Power Survey” that I developed to start counting the number of plant-based investors interested in this concept and, equally importantly, develop a consumer preference data set that might help the community of portfolio managers generate a set of filters for use until investor demand warrants the expense of more rigorous research.

Average investors can, collectively, use the tools of sustainable investing to exercise their power and achieve the extraordinary.


Personal Financial Planner

As I wrapped up a financial planning presentation with clients last week, we laughed when we realized we were all going to buy Powerball tickets on our way home that evening. With the jackpot at over $600 million at the time, a lot of us who might not normally play the lottery had already started counting our Powerball “chickens.”

I found particular irony in a personal financial planner buying lottery tickets, but rationalized that I could freely admit to my purchase as long as I set a reasonable limit (two tickets), had already paid my monthly bills, and wasn’t borrowing from my 401(k) to buy the tickets. As I drove home, I imagined all of the things I would do when (not if) I won the jackpot. I quickly emptied my bucket list and then I started dreaming really big!

This folly reminded me of the importance of making time to dream but also following through by acting on your dreams. Use the ongoing Powerball frenzy as an opportunity to start a conversation with your spouse, partner or even yourself. What is important to you? What do you want your life or retirement to look like? What more do you want to achieve and what’s keeping you from doing it?

We all need personal and financial goals and can benefit from planning for how we will achieve those goals. While playing the lottery should not be a formal part of your retirement plan, it is a fun reminder to spend some time thinking about what (and who) makes you happy. You don’t even have to buy that Powerball ticket to put a plan in place and act on your dreams…but you might be surprised at how doing so can help you push beyond any restraints on your imagination.

You need to know about money lessons

I’m usually pretty frugal. I’ll often do without something I want but don’t need, or I’ll find a cheaper alternative. It’s just my nature.

But just after the holidays, I decided to indulge. I bought a navy blue Brooks Brothers blazer I’ve had my eyes on for years, the kind of thing that never goes out of style and that I can wear in all kinds of situations.

As silly as it might sound, I’m really excited about it! It’s something I’ve wanted for a while and I can’t wait to wear it. But I’m also excited about the deal I got. Instead of paying the full $558.49 price tag, I was able to get it for $260.47.

Here’s how I saved the money, and how you could do the same on your next big purchase.

Step 1: I Waited

I didn’t buy the blazer as soon as I saw it. It probably sat on my wish list for a few years before I actually pulled the trigger. And that waiting did a couple of things for me.

First, it allowed me to find an opportunity to buy it for less. Instead of paying full price, I was able to get it for 50% off during the Brooks Brothers annual sale. That saved me $249 on the price of the blazer, and another $22.81 on sales tax.

Second, I benefited from delayed gratification. I got to spend a long time anticipating the purchase, which is actually a key part of enjoying something. And when I finally did buy it, it felt like a gift. I appreciated it more because I had been waiting for it.

Waiting helped me save money AND enjoy the experience more than if I had bought it immediately.

Step 2: I Looked for Alternative Savings Opportunities

With a little digging, I found that I could buy a $250 Brooks Brothers gift card for just $225. So I bought the gift card, used the card to buy the blazer, and saved myself another $25.

Whether it’s a gift card, a coupon code, or something else, it never hurts to look for alternative ways to save money before buying.

Step 3: I Used a Cash Back Credit Card

When I bought the gift card I used a credit card that earns 1% cash back, which saved me an extra $2.25. Certainly not a life-changing amount, but every little bit counts!

Step 4: I Bought Quality

This is a high-quality blazer I expect to use in many situations for many years to come.

When I spread the cost out over a number of years, it becomes a lot less expensive. Especially when compared to cheaper alternatives that might fall apart, or go out of style, a lot sooner.

Lessons Learned

Now let’s be clear: this was still NOT a frugal purchase. I spent a lot of money on something Iwanted, but didn’t really need.

But that’s okay from time to time. Nobody should feel like they always have to stick to the bare necessities or like they can never indulge.

I couldn’t make a purchase like this all of the time, but I’m happy to spend money on a high-quality product that I’ll use a lot and enjoy wearing, especially when I’m able to stack savings for a great deal.

How to Find Financial Advisors Online

When you’ve realized it’s time to get some professional help from the financial services industry, you’ll probably start with a Google search. You might enter phrases like “financial planner,” “financial advisor,” “investment advisor” or “wealth manager,” plus the name of your city, in hopes of finding the right person to guide your financial life.

Unfortunately, these terms can be used by a long list of people offering many different services, including mortgage brokers, credit “fix-it” agencies, stockbrokers and insurance salesmen. There’s no guarantee that the people showing up in your search results are qualified, under what regulatory authority they operate, what legal protections you have if you work with them, and how they’re compensated.

When evaluating professional financial advisors, consider these three main categories: certification, compensation structure, and registrations or licensure.


Some professions are pretty clear about who’s who. When you see the letters “M.D.” after a name, you know that person is a medical doctor. Someone with a Ph.D. has a doctorate in philosophy. In the financial services industry, however, there are more than 200 designations that can follow a person’s name.

The following are some of the most prominent certifications associated with the financial planning industry:

CFP (certified financial planner): This is considered the best certification in the field of financial planning or advising. It’s the only one that requires a test at the completion of the core study and the only one that’s acknowledged by the National Commission for Certifying Agencies.

CFA (chartered financial analyst): This is the best designation for those who offer investment analysis, rather than more wide-ranging financial planning.

ChFC (chartered financial consultant): This designation is used most often by insurance industry representatives.

PFS (personal financial specialist): This designation is for certified public accountants who focus on taxes and take additional training in personal finance.

It takes years of study to earn these certifications or designations. Other designations may be less meaningful; some can be obtained with a simple correspondence course or a weekend seminar

Compensation structure

It’s also important to understand how financial services professionals are paid. Fee structures can determine the type of advice you get. Here are the most common compensation arrangements:

Fee-only: This structure is also called “fee-for-service.” In it, the client pays the advisor for a specific service provided. Payment can be by the hour or based on a fixed price, retainer, percentage of assets managed, or a combination thereof. Fee-only or fee-for-service advisors tend to uphold the “fiduciary standard,” which means they must recommend the product that’s best for the client. And because they’re not paid by commission, they’re not motivated to give you advice that results in more-expensive financial products.

Commission-based: In this fee structure, the advisor receives a percentage of the sale or premium from financial services companies after selling one of their products. These individuals often call themselves “broker-dealers.” Many financial authorities, professional associations and academics believe this arrangement can lead to conflicts of interest, because the professional has an incentive to sell the product with the largest commission.

Fee-based: This approach is a combination of commission and fee-for-service models — but it can be confusing, because consumers often don’t understand which part of the advice they’re getting is “fee-only” and which part is subject to commissions. Advisors who receive a commission are subject not to the fiduciary standard but to the “suitability standard,” which holds that financial advice must merely be “suitable” for the consumer — and thus, more likely to result in the salesperson doing what’s best for him or his firm, rather than what is best for you.

Advisors with the certifications or designations mentioned earlier can be paid by either commissions or fees. That’s why it’s important to clarify not only your advisor’s designation, but also how he or she makes money.

Finance consultant is the best for your business

On my blog, one of the topics I like to cover is explaining how the personal financial advice industry works. Most people get financial advice from someone who is a salesman of insurance, annuities, mutual funds, and other products. You can also get help from someone whose main profession is something related like a CPA or lawyer who offer advice as a side business. The best way to get advice however, is from someone who functions as a consultant.

There are financial advisors out there that charge by the hour for financial advice. They often call themselves financial planners to distinguish themselves from financial advisors. You can find these financial planners through industry associations like the Garrett Planning Network and

I say it’s best to work with a consultant style of advisor because the consultant works only for you. Ask yourself what someone’s motivation is. A financial advisor employed by an insurance company or investment company (like Merrill Lynch, Morgan Stanley, Fidelity, Vanguard, etc.) has sales managers above them making sure they sell a certain number of contracts every month. You don’t want to be one of those sales targets. It may work out for you, and there are representatives who do look out for their clients, but ask yourself what their motivation is before signing anything.

By hiring a financial planner that charges fees only and no commissions, you are going to get an advisor who puts your best interest ahead of their own. Ask the advisor to sign the fiduciary oath. Advisors out to meet sales performance targets won’t put their fiduciary duty in writing. By going with a consultant style of advisor, not only will you get sound financial advice, you won’t wonder if the advisor recommended a product because his sales manager told him to.

The important of emergency fund

On the excitement meter, a “rainy day” fund might barely move the needle, particularly when compared with other financial goals such as saving for college, a retirement account, or a down payment on a new home. Yet investors who fail to include an emergency fund in their planning, do so at their peril.

Being unprepared for an emergency—anything from a flood to losing your job—can force you into a financial hole. The unexpected can happen to anyone, regardless of age or income level, and it can take years to recover if you are not financially prepared.

A study published by the National Bureau of Economic Research and the Brookings Institution found that 50% of Americans—and nearly 15% of households earning $150,000 or more a year—couldn’t come up with $2,000 in cash to cover an unexpected auto emergency, medical bill, or home repair.

This is why creating an emergency fund should be considered a priority. Maybe you’re just starting a career and are inclined to take your chances. Or maybe you think your net worth has grown enough to make an emergency fund unnecessary. The problem is, you may be wrong. Having a cash reserve can help protect you against unexpected financial difficulties that can have lasting consequences, even if you feel you are in good shape today.

How much do you need?

A.D. Financial Planning recommends the following emergency fund:

  • Single person: save and set aside 3 months of expenses
  • Two income family with stable jobs: save and set aside 3-6 months of expenses
  • Single income family or two income with unstable jobs: save and set aside 6-9 months of expenses
  • Self-employed family: save and set aside 9-12 months of expenses

This guidance may not fit everyone. You will need to take into account your expenses, liabilities, and other individual circumstances in order to get a dollar figure that suits your needs.If you’re single and on your own but have family backup, you might be comfortable with three months of savings. However, if you have a spouse, kids, and a mortgage to support, you might sleep better with six months or even 12 months of funding in reserve.

Remember to consider the full list of potential emergencies you could encounter, which might range from a disability or illness to a major housing repair or loss of employment. Make sure you check your disability insurance—either at work or as an individual—so that you know both how long your policy requires you to be disabled before benefits begin and how long they’ll last.

And when you are calculating your living expenses, keep in mind that if you lose your job, you’ll also lose your health insurance coverage. This means you’ll need additional emergency fund money to cover the cost of your health care coverage through COBRA.

Coming up with the cash

Once you’ve decided how much in emergency savings you’ll need, you’ll have to find the dollars to fund your cash reserve. A windfall such as an inheritance or a gift from a parent or grandparent is a great source of cash for starting a rainy day fund. Most people, however, will likely find that the process of building an emergency fund takes place while juggling other saving and spending priorities.

The 10 Steps to Financial Freedom recommended by A.D. Financial Planning gives you clear steps on your financial road for when to start and when to expand emergency fund. In order to build your emergency fund it must be part of your monthly budget. When you reach the target number for your emergency fund, you can start working toward saving for a down payment on a home, increasing your retirement savings in your 401(k) or 403(b) plan, IRA, or other tax-advantaged plan then saving for your child’s education.

Possible pitfalls

Some people view their 401(k) plan as a source of emergency cash, because you can borrow money from a 401(k) if your plan allows. This approach, however, comes with some real perils. If you leave your employer for any reason, you will likely have to pay the loan back within a maximum of 90 days. Moreover, if you fail to pay the loan back in that time, you’ll be subject to both income tax and a 10% early withdrawal penalty.

Others view their credit card as an emergency plan. Credit card balances that are not paid of monthly are fraught with fees, penalties and high interest rates. Using a credit card to bail yourself out of a financial hole is the equivalent of using a shovel to dig yourself out of a hole – you are only going to get deeper!