Coffee to Car Payments

4 Threats To Your Fincancial Well-Being That Have Absolutely Nothing To Do With the Market

Too often, when trying to formulate a financial plan, we tend to focus solely on what the market is doing on a given day, week, month, or some other particular period of time.  We look at historical averages and rules of thumb and try to come up with some sort of plan.

All the while, we ignore four major risks that lurk in the shadows and have absolutely nothing to do with the market.

• Unable to work and bring home a paycheck.  I'm starting with this one because it applies to virtually anyone who is working and has anyone counting on their income, including themselves.  Let's say you're 25 years old and very near the beginning of your career.  You're making $30,000/year, single, no children.  Nobody but you to provide for.  Did you know that even if you only average a 4% increase each year to barely keep up with inflation, you will earn between six and seven million dollars over a 40-year career?  Nothing to sneeze at, is it?  That is why everyone whose standard of living depends on being able to work should review their plan for disability income.  Your employer may provide some coverage but, it's up to you to make up the difference.

• Dying too soon.  No one likes to think about death any more than they like to think about being disabled.  If you are young (or not) and single with no one to provide for other than yourself, you probably don't need much in the way of life insurance.  Enough to cover the cost of your final expenses should suffice.  However, if you have a significant other, child(ren), or both, you may want to think about protecting their standard of living (Remember that $6-7M figure?).  However, in an upcoming post, I'll be talking about how to avoid buying too much life insurance.  Please stay tuned.

• Living too long or outliving your money.  A sound financial plan should address the issue of longevity.  It's OK to try to figure out some sort of "safe" withdrawal rate for retirement but, over the last ten years, these "safe" rates have wrecked more than a few well-laid plans.  If you are within 10-20 years of retiring, you may want to consider moving a portion of your savings to instruments designed to provide you with guaranteed lifetime income at some point in the future.  Annuities have come a long way in the last 10-15 years with the addition of living benefits.  They may not make you rich but, they'll keep you from becoming poor.

• Unable to care for yourself.  This is not a very popular topic but needs to be addressed because it can wipe out an entire lifetime of good financial decisions.  If you are unable to care for yourself, the duty falls to family first, then to assisted living, and then on to full nursing home care.  Most of today's Long Term Care policies carry provisions that will pay cash benefits even if you are just receiving part-time care or assistance.  That means you may be able to enjoy the comforts of your own home for longer without worrying about breaking the bank.  The alternative is to spend it all down so that you can qualify for your state's Medicaid program and live out your days sharing a dinky room with someone else.  So, why don't more people buy Long Term Care insurance?  It's simple really.  By the time they've had the opportunity to see first-hand the financial impact to someone close to them, they've already reached the age where the cost of coverage is a little hard to swallow.

I'll be addressing each of these in more detail over the next few weeks.  I hope you found this useful.

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Are You Forgetting Something?

In my last post I talked about picking things that are highest priority and focusing on those things first.  On the other hand, what you think is the highest priority may not be after all.  If I were to ignore the details in designing my dream home,  I could end up with something that was not what I imagined at all.  It could be very disappointing indeed.  I could end up with a ramshackle, thrown together place that I couldn't stand and I'd be scrambling to try and fix it.

That is why I like the Priority Planning Review as a tool to start putting together a plan.  It's quick and easy and may remind you of something that you hadn't thought of that needs to be a little more of a priority.   You don't want to find yourself scratching your head and wondering  "Who took my money?"

Designing Your Dream Home: 3 Things You Can't Live Without

If you could design your dream home but only got to pick 3 things, what would they be?  I think I've got mine figured out.

• #1 Heated Sidewalks and Driveways.  Wouldn't it be cool to never have to shovel again no matter how much snow we got.  The sidewalks and driveways would have a surface temperature of 50 degrees or so.
• #2 Buffalo Grass.  This low-growing grass can almost go without mowing...ever.
• #3 One Sweet Kitchen.  Just in case my last two things made me sound lazy.  I would love nothing more than a kitchen where my friends could hang out while I cook up something amazing.  While a couple of my recent posts were about simplicity and efficiency of cooking for one, I love busting out my cookbooks when I have company.  Here's one from Buca di Beppo for Chicken Saltimbocca.=

When it comes to financial planning, it's important to be able to pick just a couple things that are the highest priority.  In my example, notice that I don't even care what the house looks like, how many bedrooms, etc.?  I've got 3 things that I want.  Show me those 3 things and the rest can be added later.

Super Bowl XLIV? Wouldn't It Be Easier To Say Super Bowl 44?

Image by Getty Images via Daylife

Gosh!!  It's taken me a couple days to recover from the "Big Game" on Sunday.  I'm a Colt's fan unless they're playing the Cowboys...gotta have an AFC and an NFC team.  As the game played out, a few things stuck out:

• "Always" and "Never" are really bad words in any context.

• Every time the announcers quoted a statistic, one of the people I was watching the game with would say "There's another useless statistic."  She was right.  What counts is what's happening today.

• "Peyton can't win the big game."  reminds me of  Benjamin Graham's analogy of Mr. Market.  Mr. Market is completely irrational.  In sports, he'd be what you'd call a bandwagon fan.  Ask Peyton.  He's already looking forward to the first game of the next preseason.  If you know the underlying value of what you have, it makes it much easier to ride out the bumps in the road.

• Hindsight is overrated: It'd be easy to look back on the game and narrow the outcome down to 3 key plays: Reggie Wayne's dropped pass, Peyton's interception, or the Saints' onside kick to start the second half.  Every fan goes through this when their team loses.  If only a few key plays had gone the other way!...but they didn't. This is like looking at the market in the rear view mirror...coulda', shoulda', woulda'.  What counts is what you do next.

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Making Your "Shopping List"

In my last post, I talked about meal planning and financial planning.  Now that you have your meal plan, it's time to make a list.  First, you decide what it is you need to prepare all the meals for the week.  Next, you check your pantry, refrigerator, etc. to see what you already have on hand.  Cross those things off the list.  Now we have our shopping list.

Just as you're getting ready to head to the store, the phone rings.  Your friend who was expecting has just delivered a beautiful, healthy baby.  You're excited and you want to dash up to the hospital to see the new cherub.  But wait, need to get a card and a gift.  You immediately shift gears.  Your top priority is what you need to prepare tonight's dinner and still have time to see the baby.  The rest of the list can wait 'til tomorrow.  See how this changes things.

The challenge with comprehensive financial planning is that you may not be able to do it all at once.  You need an efficient method to determine what should be your top priority and also to bring to your attention things you may have overlooked.  For some time now, I have used a tool called the Priority Planning Review.  It only takes about 15 minutes to complete, only asks general questions, and allows you to determine what to focus on first.  Then we do that one thing.  Once it's handled, on to the next.  This way, the financial planning process isn't so daunting that it gets pushed to the back burner indefinitely.

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Financial Planning Not All That Different From Meal Planning

Image via Wikipedia

Think about how you typically plan your meals for a week.  First you decide what you want to make each night.  Now I'm a bachelor and cooking for one.  For me, I have a basic structure for each meal.  It's meat, carbs, and a vegetable.  and I don't want any leftovers because I probably won't eat them.  Therefore, all of my cookbooks stay in the cupboard because most of the recipes are designed to feed 2-6 people.  I bought a 12 pound bag of rice and several flavors of Mrs. Dash.  So, the carbs pretty much taken care of for at least a year aside from the occasional potato here and there because I'm sick of rice.  Each week when I go to the store I'll buy3 or 4 kinds of meat.  Pork chops, a steak, some kind of fish, maybe even some chicken breasts.  I keep four or five different kinds of frozen vegetables around.  Remember, I'm cooking for one and I'm not picky enough to get fresh vegetables and prepare them.  I'll grab some milk and some juice and I'm out the door for under $25.

When it's time to cook dinner, I throw on the rice because it takes 20 minutes.  At around 14 minutes I'll throw the meat on and season it.  At 7 minutes, time to flip the meat.  At 5 minutes, start the veggies.  Everything gets done at the same time and dinner is served.  It's a very simple routine.  I have enough variety to go probably 3 weeks without eating exactly the same meal.  This works for me.  If I do want to change things up a bit, I go out and eat and let someone else do the work.  My point is that I have a basic plan.  A framework that may include some variations.  This is not much different than having a good financial plan and then basing all of your decisions on your basic plan.  "Do I need this insurance? or "Should I make this investment?" or "Can I really afford this vacation?" or "Do I really need a new car this year or can it wait?"  All of these decisions become easier to make when viewed through the lens of a plan that works for you.

One other parallel I might point out is that I'm a bachelor, as I said, and my plan probably wouldn't work for a family with children.  This is no different than a financial plan.  Everyone is different and every plan should be too.

Monday, I think I'll talk about making a list.

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