Monthly Archives: June 2016

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.

Certifications

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 NAPFA.org.

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.