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Thinking of buying a boat? Read this first

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June brings the official start of summer and with it, all the activities we associate with warm weather and good times: grilling, swimming, fireworks, and boating.

If you love the water and have been dreaming of buying your own boat for some time, you may currently be in the throes of boat buying fever. But is it worth it to make that plunge? After all, we’ve all heard the saying that the best days of a boat owner’s life are the day they buy AND the day they sell.

Before you commit to boat ownership or go buy a captain’s hat, let’s weigh the good and bad together.

The Good

Freedom

When it’s your boat, you can decide when you want to head out on the water, for how long, and where you want to go. If you have ever tried renting a boat or using a charter, you know that those decisions may not always be in your control (ever try to book a charter for a weekend during Red Snapper season? Ugh!).

Family Memories

Spent summers on a boat as a kid? You know how much joy and how many good memories come from family time on the water. That’s why many boat owners choose to use their boat as a vacation getaway.

When compared to the costs of a family trip, it’s not hard to see how a boat might pay for itself in terms of sharing that time together and enjoying a vacay on the water. Think of it as an investment in your family’s happiness.

Fulfilling a Dream

Even though a boat isn’t a “necessary” purchase, it can add value to your life. Being able to spend on the items that matter to you is part of living life. Once the cost of ownership is determined, you may decide the cost of fulfilling your dream is worth it. It can be a great way to spend your time and give you joy.

Boats are fun purchases that can be planned for and fit into your life plan. If you’ve always dreamed of owning a boat, do your research to determine what the true cost is and determine if the cost is worth the reward.  

The Bad

The Cost

The main problem with buying boats is just like cars, you know exactly which way their value will go once you drive away- DOWN! Whenever you are about to purchase a depreciating asset that has high maintenance costs, BEWARE, things are going to be expensive! I mean, there’s a reason they say that BOAT stands for “Break Out Another Thousand.”

  • Rapid Depreciation (expect 25-40 % in the 1st two years)
  • Registration and insurance
  • Trailer maintenance
  • Towing and storage
  • Slip fees and fuel costs
  • Repairs and maintenance

These are just a few of the many additional costs that can add up and drive up the costs of owning your boat. Be sure you understand all the costs you may incur over time, and whether you can truly afford the ongoing maintenance and upkeep.

The Work

Speaking of maintenance and upkeep, you’ll need to put in some serious elbow grease to properly care for your boat and ensure years of continued use and enjoyment.

Besides the large tasks of winterizing and de-winterizing your boat, you’ll need to flush the engine every time you take the boat out, keep an eye on the oil and potentially change it after every 50-100 hours on the water, clean, clean, CLEAN thoroughly to prevent mold and mildew, treat and repair upholstery, wax, check and clean the batteries… you get the idea.

If you don’t want to spend the considerable time it takes to properly maintain your boat, you’ll simply be throwing your money away.

Unrealistic Expectations

Have you or anyone you’ve known ever spent a lot of money on gym memberships or workout equipment, convinced that it would ensure a commitment to regular exercise, only to see that membership card at the bottom of a drawer or the equipment covered in dust?

Yeah. It happens to the best of us. Unrealistic expectations can cause us to spend money on things we plan to do, with the results sometimes coming up far short of what we envisioned.

The same can be true of what you expect to gain out of boat ownership. You may have grand visions of spending every weekend out on the water, surrounded by friends and family. But the reality may be far different:

  • The weather may not always cooperate
  • Family schedules may dictate other weekend plans, especially with graduations, weddings, holidays and other summertime activities
  • If you don’t live close to a body of water, it can add another level of difficulty in making time to get out on the boat
  • Again, think of the maintenance and upkeep you’ll need to do which will also take away from actual time spent on the water

Having a clear understanding of how much you will truly be able to use your boat may uncover how realistic it is to buy one.

I am a card-carrying boat-a-holic, but the reality is, you may wind up saving yourself some time and money by using professional charter guides or simply renting a boat. And who knows, you might even catch more fish! Check sites like Airbnb, Boatsetter or Louisiana Fishing Guides.

As with any large purchase, do your homework and carefully consider the pros and cons I’ve listed here to arrive at an informed decision. Your financial advisor can also help you run the numbers to ensure you’re not biting off more than your wallet and lifestyle can chew.

Here’s to a great summer!

To Own or Not to Own?

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In last month’s blog post, I talked about both the positives and negatives of business partnerships. I recommended a lot of soul searching and “know thyself” kind of questions that can guide you in making the best decision for yourself.

This month, we’re going to take a step back and ask ourselves a broader question that can help inform any entrepreneurial decisions: is it even worth it to own your own business, partner or no partner?

If you have been thus far deterred because of the oft-repeated statistic that 90% of startups fail, I’ve got good news: it’s not actually true. Even during the worst of times (the dotcom bust), the failure rate only reached 79%, a full eleven points shy of this dismal projection.

If we look at the actual numbers, you might feel a bit more encouraged:

Startup Failure Rates by Year:

  • Second year: 20%
  • Third year: 30%
  • Fourth year: 38%
  • Fifth year: 44%

Essentially, you’ve got a better than 50-50 shot of your business making it past the five-year mark – a pretty level playing field, if you ask me!  

So, now that we’ve cleared up that initial hurdle, let’s look at what is both good and bad about business ownership, and what successful business owners can learn from failed startups.

Control

Pros: If you’re considering starting a business, you probably already feel that tug of wanting more autonomy, of having the final say over everything. You want to be your own boss and answer only to yourself.

And in many respects, you will have that: you’re choosing the product, the marketing, the income, the policies, the hours, the workers, etc. You will definitely find a freedom in business ownership that you didn’t have as an employee.

Cons: However, ironically, complete control comes with limitations you may not have expected. For example, you’re probably going to have to initially do tasks you don’t enjoy and/or are not prepared to handle (ahem, accounting, IT, legal issues, admin tasks, etc).

Your workweek will almost definitely log more than 40 hours, even if you get to dictate the when and where. If you have investors or board members, you’ll have to answer to them. And if you build a product and no one comes, you’re going to have to rely on customer input, not just your own vision, to retool your business.

Finances

Pros: The sky is the limit! You get to choose your salary, there’s no limit to how much you can earn, and your own effort and hustle can directly impact all of the above. For once, you are in a position to control your financial destiny.

Cons: Pure profit is a shortsighted view of business ownership, especially during the critical first years. Much of your income will probably need to be reinvested in the business to help it grow, and your income can be highly unpredictable while trying to establish your business.

Additionally, your personal finances are no longer your own due to liability issues. Personal liability as a business owner means co-mingling of business and personal assets and you can lose it all if sued. Protect yourself by exploring ways to limit liability.

Fulfillment

Pros: Maybe you are pursuing your own business because you want to help people, contribute to society, or otherwise gain personal satisfaction. If that’s your motivation, you’ll be living the advice of “Find a job you love, and you’ll never work a day in your life.”

Many business owners have found this kind of happiness by building a product or company that allows them to feel personally fulfilled, and have reported living more quality lives because of it.

Cons: The flip side of working so hard to find your joy is that working so hard brings stress and possible health issues.

As I previously mentioned, business income is highly unpredictable and can depend largely on the entrepreneur’s ability to hustle and generate revenue. Staying on the grind generates stress; having employees that depend on you magnifies the stress by X.

Be aware of potential health risks associated with business ownership and make a proactive plan to mitigate unhealthy side effects.    

How Can Your Business Succeed?

Finally, after weighing these pros and cons, if you have decided that starting a business is right for you, it’s helpful to take a look at failed startups to see what you can and should do differently to succeed.

Here are the top five reasons businesses fail, according to CB Insights:

  1. No market need – In a nutshell, make sure that you’re offering something that someone actually wants to buy. Following your passion is ideal, but will it bring customers?
  2. Ran out of cash – Simple as that. This can be a symptom of other issues listed here, or the previously mentioned issues of unpredictable revenue streams or unwillingness to reinvest profits.
  3. Not the right team – Make sure your team brings a diversity of skills, experience, and opinions to weather the critical first years. Having a team of yes people helps no one.
  4. You were outcompeted – Don’t turn a blind eye to what the competition is doing. If they’ve built a better mouse trap, you may need to shift your focus to stay relevant.
  5. Price or cost issues – Make sure you are choosing the prices and price structure that make the most sense for your customers and product industry.

As you can see, so much about business success is dependent on making wise financial choices, which can be difficult to do when you’re juggling all the responsibilities of getting your business off the ground.

You don’t have to go it alone! A certified financial planner can help you navigate these decisions and give your business the best chance at success by starting on a solid financial foundation and creating a financial roadmap for where you want your business to go.

Are Two Heads Always Better Than One?

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If you’ve ever had a roommate and/or been married, you know how hard it can be for two people to work together for what is (hopefully) a mutually beneficial goal. Whether it’s to save money on rent, or simply because you love and want to build a life with someone, we enter into these interpersonal arrangements with the best of intentions to compromise with and respect our partner to achieve the best possible outcome.

Yet, based on the estimated 50% divorce rate in America, those intentions clearly don’t always pan out.

Why, then, do we think that a business partnership would be any different?

When you think about it, business partnerships take the same level of commitment and compromise to work as marriage or living together. And yet almost 70% of them face a similar fate of failure. I believe that this ultimate failure – like any relationship – can be due in large part to not asking the right questions.

So aside from analyzing the common pros and cons of forming a partnership, I recommend also asking yourself a series of questions that will help you determine what both you AND your potential partner can do to address hot button topics upfront and set realistic expectations for a balanced relationship.

First, let’s take a look at the essential pros and cons of a business partnership.

PROS

  • Your partner has skills, knowledge, connections or other beneficial offerings that you do not.
  • You don’t have to go it alone. Having someone to weather the storm of starting a new business can provide confidence and camaraderie.
  • The workload is divided, thus it’s easier to accomplish more.
  • Creativity or innovation can be sparked by having another perspective / sounding board.

CONS

  • Joint decision-making can be long and tedious, it will lead to disagreements and possible resentment, and it can ruin relationships.
  • You have to share profits or stock, and this can get ugly when you have to jointly decide how to spend or reinvest to grow the business.
  • Work ethic and responsibility are subjective. Again, a recipe for resentment.
  • You may be liable for your partner’s actions or activities.

Now, here are the questions you can ask to determine whether a partnership is right for you.


1. Are you a team player?

There’s nothing wrong in admitting you prefer to work alone. In fact, it’s very common for entrepreneurs to have lone-wolf tendencies.

However, overlooking this self-evaluation will lead to major problems down the road, when you resent not being able to make decisions on your own. If both you and your partner lack the ability to be a team player, your power struggle will undermine and eventually destroy any goodwill you may have.

Be honest about where you fall on the self-sufficiency scale and ask your potential partner to do the same.

Also, don’t forget to consider the most obvious question: do you even need a partner? Unless you have to bring someone on board for financial capital or for the skills they possess that are not easily acquirable, chances are you can do this on your own.


2. Can you accept differences among skills and roles?

Ideally, the division of labor will be divvied up into ways that play up your unique skillsets. For instance, one of you may handle clients, while the other handles the books. This division is one of the reasons people choose partnerships: to each bring your complementary skills together in a yin yang balancing act.

But what happens when that division leaves one partner feeling like they are working harder or more hours? Or not getting their due recognition? Or more passionate then the other? Or any other myriad way that feelings of inequality can rear their ugly head?  

What once seemed like a complementary style may now seem like a partner with differing levels of passion, drive, or working hours than you.

Can you recognize contributions that may look different on the surface, but bring equal value to the table? Or what will you do if there is genuinely an uneven distribution of work?


3. Do you have similar values and have you set clear expectations?

Choosing a partner should be like a job interview: you should be looking for the “best fit” candidate that shares your values and vision for the business. This may seem like a no-brainer, but it’s easy to get caught up in the excitement having a great idea or great chemistry together and forgetting to perform this exercise in due diligence (ask anyone who’s ever started a friend or family partnership – and failed).

Having this pointed and deliberate conversation can help identify the right partner and set clear expectations from the outset.

Ask your potential partner interview-like questions to help guide both of you toward a more grounded, realistic approach to how your business will run:

  • How do you handle adversity?
  • Where do you see yourself in five years? In ten?
  • How comfortable are you with risk?
  • Tell me about how you motivate yourself.
  • Can I contact your previous business associates?

Bottom Line

Business partnerships, just like any other partnership, rely on carefully selecting the right partner that will bring balance and value to the table…and then is continuously committed to working hard every day to meet shared visions and expectations.

Choosing to form a partnership may not be the best decision for everyone or for every situation, but it can be very beneficial if entered into for the right reasons and with a realistic understanding of both the positive gains and negative drawbacks.

If you decide to go down this path, it will be essential to build an operating agreement. Legal and financial professionals can help to set up protections for all parties involved, through good times and bad. Again, just like any relationship, the goal should be for all partners to do well and, if and when it’s time to part ways, for an amicable split that ends with dignity and respect.

The Funny Month of February: Love and Money

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Ah, February. With only 28 days, this short little month manages to pack quite a wallop, from wacky weather to omniscient groundhogs, to Super Bowl hype, to Mardi Gras, to the wrap up of a glitzy Hollywood award season.

Our general mood seems to shift with this month, too, as the practical and the romantic converge to realign our focus to a few key February agendas:

  • taking stock and organizing, as a byproduct of lingering New Year’s resolutions, being stuck inside, and current Marie Kondo mania;
  • money, thanks to those freshly delivered W2s and the commencement of tax season;
  • and love and relationships, as Valentine’s Day serves as our annual reminder to ply our loved ones with cards, candy, and gifts.

Because of this unique convergence of organization, money, and love, the brief month of February can serve as the perfect catalyst to get on the same financial page with your spouse or partner.

In other words, make February the time you have “the talk.”

Whether newly coupled, further along the path, or with the golden years right around the corner, reviewing your plans for combined finances and retirement can ensure you are both taking the right steps to get to where you want to be together.

Here’s how to get started.

Common Ground

The 2018 Fidelity Couples and Money Study shows just how out of sync most couples are when it comes to shared financial planning:

  • 46% cite money as the biggest challenge in their relationship
  • 67% argue over money
  • Over 40% of couples do not agree on when they will retire
  • 54% don’t agree on how much they need for retirement savings; 49% have “no idea” what that number might be

Clearly, we seem to be acting as single people within the context of our shared finances.  Only by gaining insight into our partner’s resources and goals can we begin to remove the fear and anxiety around money and replace it with shared purpose and strength.

It starts with establishing a common ground in which you are both completely honest about short and long term issues:

  • Current financial debts and obligations
  • Current methods of budgeting and saving
  • Shared goals for short term savings (think vacations, cars, home improvements)
  • Shared goals for long term savings

This last category will be very broad and should include the big questions like where you want to live in your later years, what you want to accomplish in retirement, any known health issues or how you can plan for the unknown ones, at what age you want to retire, how much you want to dote on the kids or grandkids, and so on.

The key to this discussion is to be frank and open about your dreams and expectations, and how you can work together to make both of you happy.

Be thorough, but don’t make it painful. Stretch it out over a few nights, maybe with your favorite takeout, or the promise of watching your favorite show together once you’ve covered X, Y, and Z.

RESOURCE: Fidelity’s Couples and Money Starter Guide

Take Action

With a new perspective on where you both are coming from and where you want to eventually be, now is the time to lay out a plan for the next year. What steps can you take in the next twelve months to get you closer to those shared goals?

Months 1-3

If you haven’t budgeted together before, now’s the time to do so. Otherwise, you’ll each be making decisions in a vacuum, never knowing if or how you are contributing to the future.

If you have been co-budgeting, try recalibrating and seeing how you can cut back, rearrange, or prioritize in ways that positively impact your goals.

RESOURCE: Best Budgeting Apps for Couples

Months 4-8

Get your affairs in order. Take these months to review all the paperwork: insurance policies, account statements, wills, and trusts, etc. Work with a professional if you have to in order to create a solid plan for your assets.

This exercise will serve double-duty, not only tackling these important topics but helping to identify which one (or both!) of you need help in better understanding these topics.

Part of caring for your partner is caring enough to give them the information and resources to be financially empowered in the event they will have to manage finances on their own.

RESOURCE: Estate planning for unmarried and married couples.

Months 9-12

Take advantage of end-of-year incentives to better align and maximize your goals:

  • If you get a holiday bonus or tax refund, use that money to max out retirement account contributions, beef up your emergency fund, or build college savings plans.
  • If you itemize, now’s the time for charitable giving.
  • Most companies offer open enrollment toward the end of the year, usually in October. Analyze your benefit utilization to determine if your enrollments are appropriate, or if you could make better use of the options available to you.
  • If you’ve got FSA money to spend, now’s the time to schedule a physical, get new glasses, order the screenings, dental issues etc. Remember that physical wellness is a component of overall financial wellness.

This twelve-month plan will prepare you well to meet again next February, maybe over a romantic Valentine’s Day dinner, to review how far you’ve come, and plan once again for the year ahead.

RESOURCE: Year-end Money Moves

Know When You Need Help

If managing shared finances were as easy as all this, then money wouldn’t be the primary cause of stress for almost half of all couples.

Navigating “the talk” can be challenging even for the most simpatico of couples. You should expect to hit some bumps along the way, and maybe even face what appear to be absolute stalemates as you try to establish your joint plan.

This is where a certified financial planner can help. We can provide an objective third party perspective, guide you with expert advice, and suggest solutions that will be in the best interest of both of you and your future plans together.

Including a professional advisor in your financial planning may be just what you need to ensure that you and your partner remain happily on track for many Valentine’s Days(and Mardi Gras) to come.

Do You Have Investing FOMO?

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You get it: you need to invest wisely in order to grow your wealth.

You understand the importance of getting your money into the market, and you’ve been diligently contributing to retirement accounts and maybe even a brokerage account for years now.

But you can’t help but wonder… are you investing in the best possible way? Are you potentially missing out on a better investment someone else is using that you don’t know about?

It’s reasonable to feel this fear of missing out on something great — or having a little investing FOMO. It’s when you act on this fear that you can start making bad choices, choosing poor investments, and making speculative decisions rather than strategic ones.

What Is Investing FOMO?

There’s a research-backed definition for FOMO or fear of missing out: It’s the “pervasive apprehension that others might be having rewarding experiences from which one is absent.”

The prospect of “rewarding” opportunities tends to lure potential investors into the “take this opportunity now” trap without even thinking about it. This plays on your emotions, not your intelligence or capacity for reasoning.

You’ve probably seen these traps before. They sprung up around BitCoin. They come up around every new “hot stock” from talking heads on CNBC. They might even be lurking in your office when you hear your coworker talk about some wild investment that’s generating crazy returns that you just have to get in on.

Hearing things like this often makes us feel uncertain. Are we missing something? Is there an investment that’s bigger, more exciting, and more profitable than the ones we have now?

Your FOMO Could Lead to Serious Financial Costs

The answer in almost every case is “no.” Financial markets are efficient, and thinking you have the inside scoop on a huge investment that no one else knows about flies in the face of that.

There are millions and millions of market participants out there. Your odds of actually having information they don’t are slim to none.

Of course, you’d know that if you thought through this rationally. (Ever heard of things that are “too good to be true?” There’s a reason for that saying and it certainly applies in investing!)

But the fear that you could be missing out on something — even if you’re not entirely sure what that “something” is — often influences investors to make poor choices because they deviate from their cohesive strategy and impulsively act based on what other people they perceive as successful are doing.  

Those poor choices include:

Trying to time the market: Plenty of people love to try and predict when the next big downturn or upswing in the market will be. None of them have any real clue about when it will happen. 

Sure, we know it will happen. But we don’t know exactly when. And how will you know when to get back in? Anyone tempting you to invest big now (or to sell everything and get out before a crash) is leading you to a big mistake, and probably a new product.

Speculating instead of investing: Investing FOMO usually manifests through speculative behaviors. BitCoin and other cryptocurrencies are a great example.

Watching other people make hundreds of thousands, even millions, of dollars from buying coins can make you feel like you’re missing out, big time. No one is arguing you could make a lot of money from such a purchase.

But we need to be clear about one thing: if you do so, you’re speculating, not investing. Speculating looks a lot like gambling, and there’s no strategy behind it. It’s a lot of chance and luck, which means you could hit it big — but more likely, you’re risking money you may or may not have to lose.

Jumping from craze to craze: On a similar note, investing FOMO can cause you to dump money in whatever’s trendy this month. This creates huge potential for loss, not just because you’re jumping around without a plan.

But you’re also likely incurring higher fees, transaction costs, and throwing your asset allocation and diversification way out of whack. A better way? Invest strategically and with care, with the long-term in mind.

Getting Over Your Fear of Missing Out on the Next Big Investment

So, how do we get over FOMO and avoid making the wrong financial choices? The first step is to be self-aware. Start to recognize those uncomfortable feelings that creep up when someone you know or someone on TV or in the media begins talking about that next hot stock…

…and then learn to do nothing with that feeling. You do not need to act. You can acknowledge you feel uneasy, stressed, or worried that you’re missing out, but you don’t need to try and meddle with your investment strategy.

Step two? Reach out to your financial advisor and let them know how you feel. Your advisor is there to help you stay the course even when you’re emotionally tempted (by either fear or greed) to take a wild left turn into speculative territory.

Finally, you might want to immerse yourself in a little knowledge. If you can better understand how markets work and develop your own strong investment philosophy, you’ll be better able to sort through the noise that could previously trigger your sense of investing FOMO.

You’ll know what’s worth listening to — and what’s simply a distraction along the way.

Again, your advisor may be able to point you in the right direction if you’re not sure what resources to use to increase your knowledge and deepen your education on finance and investments. Your family’s life savings depends on it!

Budgeting for the Holidays?

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Christmas with the Kranks, playing at any given time on a number of cable channels during the month of December, has a Rotten Tomatoes score of 5%. You read that right: 5%. A movie has to be mightily bad to receive such an abysmal score.

And yet, when I watch it, I see beyond the scathing critic reviews to the sound fiscal policy that lies central to the plot of this Christmas dud: a middle-aged couple, newly established as empty nesters, decide that the holidays have become a testament to excess.

They vow to skip Christmas this year, opting instead to spend their usual holiday expense on a Caribbean cruise for two.

Now, aside from the shenanigans that you would expect to ensue from such a premise, in a movie starring Tim Allen, there are some gleaming nuggets of wisdom we can take with us from those Scrooge-like Kranks.

And maybe, just maybe, the actions deemed horrific by their friends and neighbors can serve as lessons to help you keep some jingle in your pocket this holiday season.

Lesson #1: If you’re not budgeting for the holidays, you’re doing it wrong

Luther Krank is a numbers guy. He really crunched previous annual spending, down to ornament repair costs, to truly put a price tag on their customary Christmas expenditures.

As Grinch-y as this practice may sound, Luther Krank has the right idea. He will not be spending beyond his means because he’s accounted for every penny. He’s created a budget. And so should you.

If you don’t like the “B” word, let’s call it a spending plan. Either way, if you don’t know your financial limits, you’re setting yourself up for overspending.

In the madness of weekend sales, 24-hour specials, and last-minute markdowns, it’s easy to keep piling up those purchases that are such a “deal.”

And what does that get you? “Blue Monday,” which falls on January 19 next month. That’s the saddest day of the year, due in part to our excessive holiday spending finally catching up with us once those credit card statements come rolling in.

Don’t be a Blue Monday victim. Make a game plan:

  • How much can you afford to spend?
  • Who are you buying for?
  • What are your other holiday expenses? (parties, dining out, charity, décor, movies, concerts, etc.)

Once all expenses are accounted for, divvy up your budgeted dollars accordingly and enjoy the holidays guilt free! And my next tip might help with keeping your budget in line, too.

Lesson #2: Invest in experiences, not things

You’ve likely heard this one before, but kids outgrow toys, clothes go out of style, and physical objects rarely stand the test of time. But you know what lasts? Memories.

When Luther and Nora Krank decide to take a Christmas cruise, they decide to invest in quality time with each other. They even begin to connect more during the weeks leading up to their cruise, as preparing for the trip (and dodging holiday commitments) gives them something to look forward to together.

I’m not saying you have to skip Christmas altogether, or that you have to make a gesture as grand as a cruise.

But think about the little traditions unique to the holiday season that create priceless memories: putting up decorations, seeing distant relatives, baking cookies, looking at holiday lights, volunteering or otherwise giving to charity, and more.

These things cost little to nothing at all but can create a lifetime of cherished memories.

Don’t just take my word for it. This teacher’s post went viral for sharing that it’s the experiences her students talk about long after Christmas, not the expensive toys. 

Lesson #3: Sometimes, Just Sometimes, Giving Freely is the Way to Go

Without giving away any spoilers, I’ll just say that by the end of the movie, Luther Krank ended up spending double what he normally would on Christmas, being forced to pry open his checkbook and unclench his fist from around his tightly guarded wallet.

And he was perfectly fine with that.

I don’t mean to negate everything I just said, but despite all our best planning, sometimes the opportunities to embody the holiday spirit, or to help someone in need, or to create wonderful experiences will present themselves when we least expect them.

And far be it for me to tell you to deny yourself the ability to take advantage of these opportunities. After all, these are the things that make the season bright.

Indeed, the reason I saved this lesson for last is that, if you have followed lessons #1 and #2, you’ve probably made it a lot easier to put lesson #3 into action.

Staying within budget, and prioritizing quality experiences, means you may have extra cash, or time, or good old holiday cheer to be able to give freely, whether that’s with money, time, or hospitality – all of which carry value and can be worth their weight in gold to those on the receiving end.

From my family to yours, I wish all of you a wonderful holiday season and may the spirit of Luther Krank guide you throughout the new year.

 

The Basics of Benefits Enrollment Packages

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Photo courtesy of Brennan Clark on Flickr

When you think about your compensation, do you immediately think of your salary?

Most people do. But your salary is only one part of your compensation — and if you fail to account for the other aspects of that, you might be missing out.

Those other aspects, of course, are your benefits. As open enrollment season approaches, it’s worth considering the basics of your benefits package. By optimizing the benefits you use, you may keep more money in your own pocket — which is money you can then save and invest.

Here’s what to keep in mind.

Get the Right Health Insurance

One of the biggest benefits of working with a company is the fact that you get access to group insurance policies, which are far cheaper to utilize than buying your own private insurance.

The obvious policy you want to get through your employer is health insurance — but what might not be so obvious is the right choice of all the policies you can choose from.

Many people opt for the plan that offers the lowest deductible possible (which can still feel pricey even when it’s the smallest amount available). That makes sense if you want to minimize what you could be on the hook for paying out-of-pocket.

But you might want to at least consider a high deductible health plan or an HDHP. Yes, the deductibles are high. Some run into the thousands of dollars for individuals and even more for families, which can feel like a bad idea to take on if you know you’ll have to pay so much for healthcare.

HDHPs, however, remain a good option for two main reasons. For one, your monthly premium payments will be lower. That keeps more money in your pocket — which you can then use to save into an account that an HDHP gives you access to a health savings account.

HSAs are the second reason why HDHPs make a lot of sense. They offer tremendous tax advantages.

You can deduct your contributions from your taxable income. You can invest the money you contribute so it can grow over time — and those earnings are tax-free, too. And finally, you can spend the money in the account, tax-free, if its used on qualified healthcare expenses.

No other account offers so many tax advantages, which makes HSAs well worth the HDHP required to use them. If you want to get even more value from them, max out your HSA — but don’t spend down the money in the account.

Instead, pay your medical bills out of pocket as long as you’re working and earning an income. Leave your HSA money invested until retirement. Then, you have a specific fund of money to spend on healthcare in your later years (when medical bills will likely be the highest expense in your retirement budget).

As for that high deductible? You can either build in a line item to your budget to set aside a little money each month in case of emergencies. Or you can plan to use your emergency fund should you need to cover a big medical bill before you hit that deductible.

Look at Other Policies, Too

In addition to health insurance, your benefits likely include disability and life insurance. Life insurance policies are usually small, and the benefit paid out to your beneficiaries may only be enough to cover the cost of a funeral.

Still, it’s better to opt into this coverage and relieve your surviving loved ones of being on the hook for such an expense. (It also means any assets you leave behind can go to those beneficiaries, instead of being used on any end-of-life costs).

If you have people in your life who depend on your income for their financial stability (like a spouse, even one who earns their own income, and certainly any minor children), you may also want to buy term life insurance to supplement the small policy you get through work.

Disability insurance is one of the best benefits your employer offers because it protects your biggest asset: your ability to earn an income.

Life insurance only covers you should your life actually end. But if you’re injured or ill and can’t work, disability will kick in to provide an income when you can’t earn one.

You need to look at both short-term and long-term disability. Both these policies cover different needs — and what you get through your employer may or may not be enough.

Look at what they offer and opt-in, as it will likely be cheaper than buying your own policy. Then, consider what gaps that coverage leaves and consider talking to a financial planner about strategies to cover those gaps as necessary.

Take Advantage of Your Retirement Accounts

Retirement plans that provide you with an employer match offer a great way to literally increase the amount of money going into your account. If your match is 3 percent, for example, your employer will match your contributions up to 3 percent.

Contributing at least enough to your retirement accounts to get the full match offered is like giving yourself an instant raise that goes straight to funding your future self. It doesn’t get much better than that.

Keep in mind that this could be an option for you even if you don’t have a 401(k). You might have a plan like a SEP or SIMPLE IRA, but these could also provide your match. If you’re not sure, ask your HR department and get information about what your plan includes.

What If You Already Max Out Your 401(k)?

That last point might not be helpful if you’re already on top of it and contribute not just enough to get your match, but enough to completely max out how much you can put into the account. (That’s $18,500 in 2018.)

If that’s the case, consider other ways to save. Do you have other benefits that allow you to take advantage of tax-advantaged accounts or even equity compensation?

Look into your benefits and see if you can take advantage of ESOPs, ESPPs, or nonqualified deferred compensation packages. These are a great way to build wealth in a different way than just topping off retirement accounts.

What Else to Look for — and What You Shouldn’t Use in Your Benefits Package

As you go through your benefits, you may want to take advantage of additional offers, like stipends or reimbursements for wardrobe or transportation. Some companies offer perks like free (or at least discounted) gym memberships, meal subscription services, tuition,  or childcare.

If you’re not sure, ask HR what kinds of perks might be available. The answer might be, “none,” but it’s worth making absolutely sure if you could opt in and use what the company offers rather than spending your own money on services you use anyway.

But you shouldn’t fall for the so-called “teasers” that may be included with your benefits. You don’t need things like accidental death insurance. You probably don’t need vision or dental insurance either.

A more effective use of money will likely be setting up a comprehensive financial plan that accounts for these kinds of things — and is less expensive than the fees and premiums you’d pay otherwise.

Good financial planning can also help you evaluate all the benefits available to you, and make sure that you take advantage of the ones that will help you add to your nest egg or help your dollars stretch just a little further.

Before You Kick Back to a Traditional Retirement, Read This

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Photo courtesy of ulvi can @Flickr

 

Dreaming of the days you can sit on the beach, tropical drink in hand and not a thing on your to-do list? Ready to call it quits at your job and walk out to an endless vacation where you never have to check a single email or attend a meeting again?

It’s nice to daydream like this when you’re in the middle of your career, drowning in responsibility at work and home, and feeling like you’ll never catch up on all the sleep you missed in the last 10 years.

After all your hard work, you might look forward to the day when you can quit for good and kick back to a relaxing retirement free of any kind of obligation or responsibility.

But you may want to rethink that plan because more and more research shows that a “traditional” retirement — where work up until full retirement age only to quit and never work another day in your life — can be bad for your health.

The Potential Pitfalls of a Relaxing Retirement

When you simply stop going to work and have nothing on your to-do list, you can quickly run out of reasons to leave the house and interact with others during your everyday routine.

Many retirees become increasingly secluded and lonely without jobs to go to or people to see for a specific reason.

You can always plan trips to visit friends and family, of course. But it’s hard to beat the loneliness that can settle in when that’s not part of your day-to-day life.

A UK study found that loneliness, depression, and physical health issues are common among retirees who kick back to a traditional retirement with nothing on the daily agenda.

Initially, that relaxing retirement is restful and rejuvenating. But the longer it extends, the more prevalent health issues become as retirees increasingly retreat — consciously or subconsciously — from a more active life.

How to Have a Healthier Retirement

To avoid these pitfalls, plan your retirement around communities, relationships, and experiences. Researchers at Harvard found that you need to organize this new phase of life to include 4 fundamental factors for good mental and physical health:

  • A new social network outside of the job you leave behind.
  • Play, meaning hobbies you enjoy like camping or tennis.
  • Creativity, in whatever form that takes for you — taking up some sort of art, making something by hand, and so on.
  • Constantly seeking to learn new things and keep your mind engaged.

If you don’t have family nearby, consider how you can engage more in your local community, make new friends, and maintain existing relationships with neighbors or coworkers.

You could also consider a move as part of your retirement planning so you can be closer to those you want to have good relationships with as you age.

Play and creativity may be easier to weave into your retirement plan, as these are fun and rewarding activities. The key is to be intentional and make them part of your plan — don’t just assume you’ll naturally fall into something that satisfies these needs.

Retirement planning needs to cover the financial stuff. But you can plan for your actual retirement lifestyle, too. Make sure you give yourself a reason to get up, move around, and interact with other people every single day.  

You’ll Enjoy Financial Benefits When You Switch Your Retirement Mindset, Too

When you consider alternatives to the traditional retirement that include possibilities like working part-time, putting your expertise to work as a consultant, or even starting your own business, you also make retirement planning considerably easier.

For one, you’ll enjoy all the benefits outlined above. Your physical and mental wealth will likely be better than if you kicked back and did nothing at all.

That, in turn, benefits your financial health. Healthcare is the biggest expense for most people in retirement. If you can maintain your health for as long as possible, you’ll likely pay less in medical costs down the road.

Plus, creating some form of income stream beyond just your retirement savings nest egg means you alleviate some financial pressure. If you continue to work — even if it’s just part-time — you’ll earn some amount of income.

That means you don’t need to rely 100 percent on what you saved during your working years to last you through 20 or 30 years’ worth of retirement.

Are You Planning for an Active, Robust Retirement?

Of course, kicking back and relaxing should be part of retirement. But it shouldn’t be the only thing you do in your life after work.

“Retirement” today could simply mean the day you no longer need to depend on a full-time job that provides you with a specific number on your paycheck.

It’s the day when you’re free to explore your hobbies, pick up a part-time job doing something you really love, or volunteer with an organization you’re passionate about.

This could be your chance to start a second act as a freelancer or consultant. You could start your own business — or even learn a completely new set of skills that allow you to start an encore career (with more flexibility and a lighter schedule than your previous job, of course).

Retirement shouldn’t mean you retreat from life. Find ways to stay active, engaged, and productive.

You’ll be happier as a result — and as a bonus, you could make it even easier to fund the retirement you want since you won’t be sitting around, twiddling your thumbs and hoping your savings alone will be enough to fund your retirement lifestyle.

How Much Is Too Much College Debt?

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Over 44 million Americans walked away from their time in higher education with some amount of college debt. The total amount of student loan debt collectively carried by college students and grads today is $1.45 trillion, and the average 20-something-year-old borrower pays $350 per month on their loans.

 

There’s no question about it: student loan debt is a serious financial burden for many students, parents, and newly-minted grads.

 

Whether you’re considering college costs for a family member or want to go back to school yourself, you likely want to avoid dealing with student loan debt thanks to statistics like this and harrowing news items that detail individuals who are struggling to handle their tens of thousands — or even hundreds of thousands — of dollars’ worth in college debt.

 

But debt isn’t inherently bad. In fact, student loans can be useful tools to use as leverage. The real question is how much is too much college debt, and when does it shift from useful tool to financial anchor holding you back?

 

Using Student Loans as Productive Financial Tools

 

There’s a lot of fear and uncertainty around student loans. But this kind of debt can actually be useful to you or your student. Here are some reasons why:

 

Student loans allow you to leverage your cash flow. Instead of shelling out for the cost of college in cash — and potentially leaving you vulnerable to other unexpected expenses and emergencies — student loans allow you to gradually pay for college over time in a way that doesn’t stress your liquidity as much.

 

You can pay down debt and continue saving. In addition to not needing to drain your savings accounts, the fact that you can pay back student loans over time allows you to balance that responsibility with the responsibility you have to yourself to save for the future.

 

Student loans can help students build their own credit. If your teenager is headed off to college, taking out a loan can help them build their own credit (which they’ll need as adults in the real world). This is a less risky way to help them than providing them with a credit card, which can be hard to manage and far more costly if they fail to make payments thanks to dramatically higher interest rates.

Still, Debt Is Debt

 

If you’re reading this and thinking you now have the green light to take out all the student loans you want, think again. At the end of the day, debt is debt. And it costs you money to borrow and finance an education.

 

It might make more sense to avoid student loans altogether if you have the financial means to do so (or your student can help pay their own way, so you’re not on the hook for the entire cost).

 

But what if you are….

 

  • Considering emptying your savings accounts to cover college costs
  • Not saving for retirement so that you can save for college instead
  • Able to pay for college out of pocket through your cash flow, but just barely

 

If you find yourself in these situations, student loans can be a reasonable solution. Just make sure you understand how much debt is too much first.

 

How Much College Debt Is Too Much?

 

Let’s be clear on the obvious indicators of “too much college debt.” If you’re looking at debt that reaches into the six figures, it’s too much.

 

Most grads won’t earn anywhere near $100,000 in their first year out of school, making this debt extremely difficult to pay off and a huge burden to handle financially. If your student is aiming for a career path that typically pays $40,000 to entry-level workers, $80,000 is far too much debt.

 

How much of an income you can expect to make after college is the biggest factor in determining how much is too much. Here’s an easy way to start estimating an appropriate amount of student loans:

 

  • Research how much you (or your student) can expect to make after entering the workforce with a new degree. Don’t just look at old data from something like the Bureau of Labor Statistics — go on job boards like Monster.com or Indeed and search for open positions that you might qualify for after school and view what the starting salaries are for those jobs.
  • Look at how much a degree from a chosen university will cost. Include tuition, fees, room and board, and other common expenses like textbooks. Most colleges have information on average costs and expenses that you can use.
  • Calculate how much of that cost you can reasonably cover and determine how much in student loans you’d like to use to help finance your education.
  • Compare a reasonably expected salary to your expected amount of college debt.

 

If your expected amount of student loan debt is more than your expected salary, it’s too much. If it’s the same as your expected salary, it’s also likely too much (if you don’t want to spend the next 10 years paying off those loans).

 

If you estimate that the amount of your salary is more than the amount of debt you plan to take on, it could be a reasonable financial move to make.

 

Even when student loans can be used as financial tools, you need to be very careful about how much debt you take on. You also need a strategic plan for repaying it at the lowest cost possible before you start applying for loans.

Why Average Investors Don’t Beat the Market

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Photo courtesy of http://401kcalculator.org

Most people invest in order to grow wealth over time. It’s only natural to want the biggest returns possible as part of that process.

But focusing on returns isn’t necessarily a sound investment strategy — and it could be part of what leads average investors to perform so poorly.

In fact, average investors don’t just fail to get big returns. They tend to underperform market indices that they invested in, like the S&P 500. In 2015, the S&P 500 index outperformed average investors by 3+% percent and they did the same with the Barclay’s Bond Index!

Theoretically, that shouldn’t happen. An index simply tracks the market. Investors are getting beat up trying to beat the market.

And that’s where they get into trouble.

Why You Shouldn’t Try to Beat the Market

These investors are actively involved in their investments. They constantly watch the market (or the news, or both) and try to predict the best moves to make in order to earn the biggest return.

It’s not just individuals who do this. Some advisors will promise returns, too. If you run into one of these, run the other way. Over time, most active investment managers fail to beat the market just like average investors do.

Again, it’s only natural to want to maximize your ROI. To us as humans, that means we have to work for it and take actions and constantly be striving to earn that return.

But time and time again we see that tinkering with your portfolio — rather than simply sticking to a sound investment strategy that aligns with your goals, risk tolerance, and time horizon — leads to losses, not gains.

What’s going on here? Why can’t smart people use their intelligence to outsmart the market?

There are a few factors at work against you as an individual investor acting alone without a reasonable, fiduciary financial planner at your side to help guide the way. Let’s look at 3 of the biggest mistakes you can make that put your portfolio in the most danger.

1. Trying to Time the Market

Average investors get into a world of trouble when they start trying to time the market — especially when it comes to attempting to sell high.

It’s very simple: no one knows what the market will do tomorrow. We don’t know what it will do next month. We don’t know what it will do next year.

Trying to plan around guesses about what the market may or may not do is setting yourself up for failure. In this case, that means losses.

What we do know is that the market will, at some point, take a nosedive. We don’t know the day, and we don’t know where the bottom will be — so it is entirely pointless to try and time it.

Similarly, we know that once the market takes a tumble, it will eventually recover. But again, we don’t know precisely when this will happen. Say it with me: it’s entirely pointless to try and time it.

Investors tend to wait until they feel very confident to buy in after a market crash, at which point they’ve missed out on most of the gains and buy at premiums. The opposite tends to happen during the pullbacks: investors tend to wait for a ‘bounce’ to sell, and by the time they’re convinced they need to sell the market already tumbled. They sell and experience major losses making it even harder to buy on dips!

You nor anyone else has a clue when exactly market peaks or troughs will occur. Don’t try to guess and leave yourself buying high and selling low.

2. Giving in to Groupthink

You’ve heard that famous Warren Buffett quote, “be fearful when others are greedy and greedy when others are fearful.” It’s an excellent piece of investing advice that almost no individual investor follows.

Why? We’re biased toward influences from our social circles. FOMO. Fear of Missing Out. You can refer to this as groupthink or herd mentality — either way, we tend to let our desire to belong to a group or community override logical (and even creative) thought.

Today, of course, our survival wouldn’t be jeopardized if our “herd” kicked us out or if we chose to strike out on our own. But that wasn’t the case thousands of years ago when being accepted or rejected from our groups could mean the difference between life and death.

We go with the herd because we don’t want to get left behind, miss out, or worse, be shunned by the tribe. This happens in all areas of society — including in business and financial markets.

Groupthink can lead us to simply go with majority opinion while leaving our own critical thought and reasoning processes behind. It’s what drives market bubbles or the desire to buy more and more stocks when everyone else is doing the same.

When others are greedily buying up stocks, and the market is soaring, as Buffett mentioned, there’s reason to be cautious. Similarly, when everyone is panicking and selling shares, it provides the successful investor an opportunity to snap up stocks at bargain prices.

To avoid the mistake of groupthink, turn off the TV. Don’t worry about sensationalized headlines. Ignore your colleague at the water cooler who has the inside scoop on the next hot stock pick.

Stick to your investment strategy, even if it means going against the herd.

3. Not Realizing “No Action” Is a Decision

Sometimes, all the knowledge in the world is not enough to stop investors from doing stupid things in situations where they should know better. It’s not always easy to just sit back and do nothing, especially when you feel emotional.

And investing is a big emotional roller coaster full of very high highs and some terrifying lows. But just like a roller coaster, you need to keep the seatbelt buckled and stay in your seat until you reach the end of the ride instead of attempting to leap off at some point in the middle.

Many of the decisions investors make focus around choosing between one of two (or many) actions. What average investors sometimes miss is the fact that not doing anything is also a decision and a choice you can make.

Avoiding the actions that lead to mistakes is sometimes more powerful than choosing all the right moves to make.

In fact, this is one of the areas where a financial advisor acting as your fiduciary can add the most value: reminding you to stay calm, keep your seatbelt fastened, and ride out whatever has you spooked.