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Looking for an Advisor? …Seek Quality

Excerpt Adapted From: The Financial Shepherd®–
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

The person needs to know more than you about a particular area of expertise, otherwise, you could do it on your own. The individual should have more than just training from a company, but also should have some type of designation. There are many designations that advisors can simply pay a fee for and have it on paper to make them look more credible. You want to make sure that they have accreditation and designations where extensive training and continuing education are involved. Within the financial realm, the most creditable designation is the CFP, or Certified Financial Planner. In addition, if someone is going to manage your money, they should also be a registered investment advisor. Another designation is the RFC which stands for Registered Financial Consultant and requires more continuing education than most others. Regarding finances, the point is not just about getting a designation, it’s about continuing to learn and evolve as the financial world around us evolves. If you want to hire an accountant, then they need to be a signed fiduciary, or a Certified Public Accountant (CPA).  If you need an attorney, make sure that individual specializes in the area of law that you need. For instance, you should not use a personal injury attorney to complete your estate planning or a defense attorney to close your real estate transactions.

Most people think that all financial planners are “certified,” but this isn’t true. Anyone can call himself or herself a “financial planner.” Only those who have fulfilled the certification and renewal requirements of the CFP Board can display the CFP® certification marks. When selecting a financial planner, you need to feel confident that the person you choose to help you plan for your future is competent and ethical. The CFP® certification provides that sense of security by allowing only those who meet the following requirements the right to use the CFP® certification marks.

Here is some helpful information to know: CFP® professionals must develop their theoretical and practical financial planning knowledge by completing a comprehensive course of study at a college or university offering a financial planning curriculum approved by the CFP Board. CFP® practitioners must pass a comprehensive two-day, 10-hour CFP® Certification Examination that tests their ability to apply financial planning knowledge in an integrated format. Based on regular research of what planners do, the exam covers the financial planning process, tax planning, employee benefits and retirement planning, estate planning, investment management, and insurance. Finally, CFP® professionals must have three years minimum experience in the financial planning process prior to earning the right to use the CFP® certification marks. As a result, CFP® practitioners possess financial counseling skills in addition to financial planning knowledge. As a final step to certification, CFP® practitioners agree to abide by a strict code of professional conduct, known as CFP Board’s Code of Ethics and Professional Responsibility, that sets forth their ethical responsibilities to the public, clients and employers. The CFP Board also performs a background check during this process, and each individual must disclose any investigations or legal proceedings related to their professional or business conduct. (Certified Financial Planner – Board of Standards, Inc. website. www.cfp.net)

Building and/or Restoring Credit

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

In building or restoring credit, the goal should not be to have no credit at all, but rather to use your credit wisely. Use credit as a resource, not as an emergency reserve fund. Credit not only affects your purchasing power but it can affect getting a new job or getting life insurance to protect your loved ones. The goal is to achieve a high credit score of 720 or above. There are several easy ways to help build up your score.

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Retirement Planning: Index Investing

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

A contemporary consideration for modern-day retirement planning is the idea of longevity risk. Due to longer life expectancies and advances in modern medicine, people are living longer than ever. In some instances, they are outliving benefits designed to help them survive and thrive during retirement. Corporate re-structuring has resulted in fewer employer-matched investment funds and fewer generous benefits packages. Many types of previously held financial entitlements are no longer in existence, and the burden of responsibility has shifted from employer to employee.

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Un- American Dream

Excerpt Adapted From: The Financial Shepherd- 
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Affordable education used to be an accessible rung on the ladder that led to economic success and upward mobility. However, “affordable education” is a paradox in the new millennium. On average, a high school diploma guarantees nothing more than the promise of a mediocre life marked by a low-paying job in a society where minimum wage does not support an individual’s ability to provide for his or her family. Across the nation, college tuition rates have outpaced salary increases, and many families simply cannot afford to educate their children without going further into debt by taking on student loans or taking out second mortgages on their homes.

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Introduction to The Financial Shepherd

Excerpt Adapted From: The Financial Shepherd- 
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Have you ever wondered why some people have SO much money, and why others have so little? What makes the super-rich any different from you? For anyone who has ever wondered what the difference is between the “haves” and the “have-nots,” you may have just found your answer. Regardless of how much money you have or don’t have, the journey to financial success begins with understanding and accepting how you think about money, how you feel about money, and what you know about money. Once you achieve a realistic assessment of where you are financially, there are specific steps and proven strategies that can propel you toward accomplishing positive financial goals and securing financial freedom.

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Blessed to Be a Blessing

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Although we have touched on this subject in other chapters, we want to take a moment to expound on a particular verse: Proverbs 13:22 – “A good man leaves an inheritance for his children’s children, but a sinner’s wealth is stored up for the righteous.” Proverbs 13:22a, provides an excellent example of a Financial Shepherd. What is clear about this verse is that the wise man leaves a legacy. More often than not though, that legacy does not involve the riches and wealth we tend to think about when we talk about an inheritance. Often the legacy comes in the form of wise counsel and seeds of faithfulness. As the children of Israel benefited from Abraham’s faithfulness, and Solomon benefited from David’s wise counsel, so too do we have to be prepared to leave an inheritance of righteousness. Most parents want to see their children become more successful than themselves, so they instill in them wisdom from their own life’s lessons and other intangible instructions for success. If you were provided with this type of legacy from your own parents, the wisest decision you can make is to work to ingrain the same teaching in your own children, grandchildren, nieces, nephews, and cousins. Truthfully, your children aren’t just those that were born to you or reared in your household, they include those that follow your instructions and those that are impacted by your decisions as well.

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The Need for Retirement Planning

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

For much of the 20th century, retirement in America was traditionally defined in terms of its relationship to participation in the active workforce. An individual would work full-time until a certain age, and then leave employment to spend a few years quietly rocking on the front porch. Declining health often made retirement short and unpleasant. Retirement planning, as such, typically focused on saving enough to guarantee minimal survival for a relatively brief period of time.

More recently, however, many individuals are beginning to recognize that for a number of reasons, this traditional view of retirement is no longer accurate. Some individuals, for example, are voluntarily choosing to retire early, in their 40s or 50s. Others, because they enjoy working, choose to remain employed well past the traditional retirement age of 65. And many retirees do more than just rock on the front porch. Retirement is now often defined by activities such as travel, returning to school, volunteer work, or the pursuit of favorite hobbies or sports.

However, this changed face of retirement—with all of its possibilities—does not happen automatically. Many of the issues associated with retirement, such as ill health, and the need to provide income, still exist. With proper planning, these needs can adequately be addressed. So, ask yourself, ‘What exactly do I need and how much money will it take to comfortably retire?’

Retirement in the new millennium now encompasses many more complex issues than it did decades ago. When most of us were growing up, the terms Social Security and retirement were practically synonymous. The process was fairly straightforward: graduate from high school, maybe go to college, then get a job and stay there for 30 years while paying into the Social Security system; then retire, relax on a front porch swing, and collect a monthly payout in return for your years of dedicated service. Well, that is no longer the case, and complete reliance on an under-funded Social Security system that’s heading toward bankruptcy is certainly a risky proposition. Here’s why:

Social Security is a system of social insurance benefits available to all covered workers in the United States providing added protections against the societal pressures of advanced age, disability, and poverty. The program was initially launched in the mid- 1930s as part of President Franklin D. Roosevelt’s New Deal package. The benefits are funded primarily by payroll taxes paid by covered employees, employers, and self-employed individuals, and they kick in at age 65 (or reduced benefits at age 62). The goal of Social Security has always been to provide a secure future for American workers. Ironically, that sense of “security” is slowly eroding because of an imbalance of more retired workers from the Baby Boomer generation receiving benefits from the system versus the number of current workers paying into the system. Additionally, economic downturn, decreased interest rate earnings, and escalating inflation rates have weakened the value of the dollar over time. It is quite possible that Social Security as we’ve known it for decades might no longer be in existence in the not-too-distant future. Successful financial planning for retirement will require an investment strategy much more comprehensive than Social Security – but at least it’s a start.

To qualify for Social Security benefits, a worker must be either “fully” insured or “currently” insured. Eligibility for “insured” status is earned by acquiring credits based on wages or self-employment income during a year. In 2010, an individual had to earn $1,120 in covered earnings to receive one credit and $4,480 to earn the maximum of four credits for the year. Americans workers become fully insured by earning 40 credits or by working 10 years in covered employment. The following benefits are available for fully insured workers:

  • Worker’s benefit – Monthly income for a retired or disabled worker.
  • Spouse’s benefit – Monthly income for the spouse or former spouse of a retired or disabled worker.
  • Widow(er)’s benefit – Monthly retirement income for the surviving spouse or former spouse of a deceased worker.
  • Child’s benefit – Monthly income for the dependent child of a deceased, disabled, or retired worker. The child must be under age 18; or 18 or 19 and a full-time elementary or high school student; or over 18 and disabled before age 22.
  • Mother’s or Father’s benefit – Monthly income paid to a surviving spouse who is caring for a worker’s dependent child who is under age 16 or over age 16, but disabled before age 22. If under age 62, the spouse of a retired worker receives the same benefits.
  • Parent’s benefit – Monthly income paid to the surviving dependent parent or dependent parents of a deceased worker.

Still, no matter how you look at it, the derived benefits from the Social Security system do not meet the ever-increasing costs of living and rising levels of inflation. Government-subsidized benefits alone are simply not going to be enough.

What Are You Thinking?

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Our financial goals should not conclude simply at getting rich, but rather, they should also incorporate building wealth. Although there are a lot of rich people in the world, many of them are not wealthy because they cannot sustain their riches. Wealth is like an evergreen tree that always remains the same regardless of the season. Think about what an evergreen looks like. It has full, green, plush leaves or spines even if it is surrounded by bees buzzing in the spring in search of pollen, or drenched from a late summer shower, or swayed by a mid-autumn breeze, or weighed down by a late winter’s snowfall. Underneath whatever else is going on, is still that same healthy, stable, viable tree. Much like wealth, evergreens are unburdened by external circumstances and the environment because their roots run much deeper than the temporary situations around them.

We should aspire to build wealth because it brings peace of mind by allowing an individual to focus on future goals instead of being consumed by the day-to-day ups and downs of their finances. Most wealthy people live well below the means of what they can actually afford – mainly because they understand the true value of money; what it is, what it isn’t, and what matters most.

One of the best lessons you can learn about money is this: When you change your mind, you can change your destiny. ‘As a man thinketh, so is he’ (Proverbs 23:7 KJV). What are you thinking about?

Estate Planning

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

 

Estate planning is not just for the rich and famous. If you do not have a will (a document expressing how you wish your assets to be distributed upon your death), you are basically asking for trouble and essentially begging the government (of the state you live in) to give away your stuff as they see fit – regardless of your dying wishes.

Not only do we recommend preparing a will, but advise that you consider developing a trust also, which is a prepared document that privately dictates how you’d like your assets to be distributed while you’re alive and upon your death. The process for creating a Revocable Living Trust involves an attorney who prepares a trust agreement (also called a declaration of trust) which is signed by the settlor and the trustee; and then the settlor transfers property to the trustee to be held for the beneficiary named in the trust document.

A trust is classified as a “living” trust when it is established during the settlor’s lifetime and as a “revocable” trust when the settlor has reserved the right to amend or revoke the trust during his or her lifetime. The primary reason for this procedure is because you ALWAYS want to avoid the estate going to probate (high attorney costs, delays, unwanted publicity, court costs, etc).  This type of trust does that. Other benefits include the ability to manage funds for heirs for a specified period of time—or until they reach a certain age or level of maturity—and to prevent reckless or irresponsible spending which might put the assets in jeopardy. If the person setting up the estate becomes incapacitated, the trust has built-in provisions for a successor trustee to oversee management of the estate.

While most wills and trusts are future-focused, something few people think about in estate planning is if a parent who is still living becomes the “child” through illness, injury, or disease. In that situation, the child taking over management of the parent’s affairs must oversee decisions in the areas of Finances, Medical Care, Benefits, and Key Documents (e.g. health care directives, durable power of attorney, trust documents, living wills, etc.)  

If an individual becomes incapacitated and is no longer able to care for him/herself, another trusted individual will need to step in to handle affairs on their behalf. When considering the steps to take to ensure a smooth transition, the following documents should be drawn up to be executed if necessary:

Durable Power of Attorney – a written document (not just a verbal agreement or acknowledgment) by which the principal person allows another person (agent, attorney-in-fact, proxy) to act on his/her behalf. The appointee has the power to make key household and financial determinations.

Durable Power of Attorney for Health Care – a written document (not just a verbal agreement or acknowledgment) by which the principal person allows another person (agent, attorney-in-fact, proxy) to act on his/her behalf regarding health care and medical treatment issues.

Living Will – this document is also known as a “Directive to Physicians” and provides information regarding the types of medical procedures or treatments to be administered or withheld.

It is a very good and worthwhile investment of your time to put in place documents, plans, and procedures to protect your assets from strangers (probate), Uncle Sam (taxes), and time (inflation). In this, the Information and Technology Age, there is no excuse not to have your affairs in order.

The preference for establishing and maintaining up-to-date estate planning documents such as trusts and wills is to have them prepared and reviewed by an attorney. However, there are many other places to get wills and trusts. You can purchase and download software that feature fill-in-the-blank will and trust templates for as little as $20.

Though you might be tempted to spend $20 on software rather than $500 with an attorney, remember that you get what you pay for. Working with a professional who specializes in estate planning will offer ease of process and peace of mind. You don’t want to squander away your children’s and grandchildren’s inheritance because you were too cheap to let a professional protect the assets you worked your entire life to acquire. In the end, it’s worth it to make sure you get the best results, take advantage of the most tax breaks, and provide an inheritance for your loved ones. Additionally, over the course of time as your assets increase, a simple online template may not adequately address your financial planning needs. More valuable accounts, legislative and regulatory policy updates, changes in family structure, or other events may require you to update your will or trust. Utilizing the same person and/or firm can help minimize costs and ensure a seamless process.

The objective of Hope for the Best, Plan for the Worst is to help you prepare for anything and everything that might arise to derail your life-long efforts to build a good, quality life for you and your family. The priority of all retirement planning, insurance policies, and estate planning is to make sure that you never outlive your money.

Small Changes May Be Necessary

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

I have a client who told me that she had been taught to have zero debt; none. She paid cash for everything, had no credit card debt, and even paid off the mortgage of her first home in 10 years. On the surface, this sounds like a really good thing. Fast forward a few years, and she wanted to move to a more prestigious part of town and was wondering how to make this happen. Her thoughts were to sell her home and take all of the earnings and invest in her new home, then sign up for a 15-year mortgage to pay it off faster. All of this sounds great, except that she had a few holes in her plan.

First, she did not have an emergency reserve fund; she only had a line of credit on her home. She also has a son who was 10-years-old at the time and she had not saved anything toward his education. At age 45, she would have to work until age 70 before she could retire comfortably because she had not saved enough in her retirement to cover her living expenses. So I recommended some changes in her plan:

  1. Save and invest. Put only 20 percent down on the new home and invest the difference. Her mortgage rate was 5 percent fixed for a 30-year loan (versus 4.75% for the 15-year, not including its deductible); and over the last 10 years the S&P 500 index has averaged over 8.5 percent.
  2. Invest for the future. The payment difference between the 15- and 30-year mortgages was $900 per month. I recommended that she save that extra $900 to invest and help build a college savings fund for her son.
  3. Earn rewards. She loved to travel, so I suggested she get a travel reward credit card and pay it off every month to get extra bonus travel points. She put everything on her credit card and paid it off every month and received multiple free airline tickets which saved her thousands of dollars per year simply by paying with a reward card.

Just by taking some basic, straightforward steps, she was able to take a good financial situation and make it much better in addition to being much better prepared for the future.