Happy New Year!

Although the new year is just another date on the calendar, it does give us an opportunity to reflect on the past twelve months and how we might make the coming days better.  Many parts of our financial lives do reset with the beginning of the year, so I would like to offer some recommendations for improvement.

1)  Keep better records - This isn't just for the detailed personalities out there.  There is a lot of insight and power that can only come from accurate recordkeeping.  There are even simple solutions like Mint.com that will do most of the work for you.

2)  Accept the past and start fresh - Although real estate troubles or job changes might have changed your financial situation, you can reboot and develop a new financial plan for your current realities.

3)  Reduce clutter - This might include closing some unused accounts or consolidating some old investments.  Less clutter in the practical areas of our lives allows us to focus more on the things that matter most.

4)  Live life more efficiently - There are lots of small things that can be done here.  Reducing unnecessary shopping trips, replacing inefficient light bulbs or appliances and programming your thermastat are just a few.

5)  Insure the important things in life - You should not take insurable risks that could cause harm to your family in the event of an accident or disaster.

6)  Establish an estate plan - This can include a will, health care directives, and a trust.  The first step is to think about it.

7)  Think about your investments - This is an area that can be very costly when ignored for a long period of time.  Each investment involves risks and these should be carefully reconsidered periodically.

8)  Reduce unnecessary debts - There are good debts and bad debts.  Debts should be reviewed, prioritized and paid down in a smart way.  For example - pay down the debt with the highest interest rate first.

9)  Do some math - You might not enjoy numbers, but some basic arithmetic can help your financial security.  Basic assessments of income and outflows and projected future savings balances have to be done periodically to have a sense of realistic goals.

10)  Share what you have learned - Family and friends can benefit greatly from the financial lessons that you have learned through your experience.  Be a good example of healthy habits that will be observed by others.

I could list many more, but this should provide some ideas for many of you.  If this is seems overwhelming, contact a fiscally-minded friend, family member or financial professional.  They would be happy to help!

Are the Markets Making You Nervous?

Stock markets have been more volatile lately, largely due to U.S. and European debt problems.  Although these are significant problems in need of long-term, structural changes, I view investing as a long-term, disciplined process.  That being said, how does one invest for the future but also take advantage of short-term opportunities to strengthen ones financial situation.

As explained by Andrea Coombes in a MarketWatch article posted on September 23rd, there are five things that should be the foundation of any long-term investment portfolio:

Minimize Taxes - Although investment income and capital gains are taxable, there are ways to structure a portfolio to minimize or defer these taxable events.  Gains can also be offset by losses in certain instances.

Control Costs  - Any investment has a cost associated with it, but these costs can be controlled by evaluating management fees and consolidating assets to reduce fees.  Costs can often be hidden or difficult to quantify, so an independent investment professional can assist in evaluating the true costs of various investments.

Diversify - This is as simple as "Don't put all your eggs in one basket."  Investments should be across various asset classes, company sizes and economies.  A large amount of an investor's portfolio in one specific investment, concentrates too much risk in one area, unless that investment is broadly diversified itself.

Rebalance - Different asset classes will perform differently in a portfolio.  Outperformance of one asset class should be realized and then reinvested in an underperforming asset class.  This rebalancing can contribute significantly to the aggregate performance of a portfolio over time.

Be Proactive, But Patient - A plan should first be developed before investing significant amounts of capital.  This plan should include goals and the amount of risk that you are comfortable with.  Portfolio performance should be monitored versus this plan over time and changes can made, if needed.  Accomplishing long-term financial goals is a patient process, though, and no rash changes should be made based on emotions.

Although the news headlines will always affect our emotional well-being, a long-term investment plan with a strong foundation provides a stable backdrop to the ups and downs of our daily lives.

Government Debt and the Stock Market

The headlines the past few weeks have been dominated by political wrangling about raising the government debt limit and the related volatility in the stock market. As a financial professional, I do follow the headlines, but I also try to formulate relevant lessons that I can apply to my own or my clients' situations.

Although there was hope that the discussions between Congress and the President would lead to some significant improvements in the fiscal outlook for America, the resulting bill basically arranged financing for spending that has already occurred. Although big changes still could be coming, the lack of significant improvements in some economies is one thing that has contributed to decreases in various stock markets the past couple weeks.

I think that more people are coming to the realization that the government can't solve our problems. In America, we are our own government and the problems at that level are often a reflection of what is going on in individual homes and families. The solution is ourselves. We should individually evaluate our household finances, our debt situation, our savings and our education to make improvements. Just as America needs a new plan for government revenues and expenditures, we can each make an individual financial plan to improve our lives. It can start with small changes and eventually we'll see improvements at a higher level. Let's return to what made America great and get to work!

Do you have control of your finances?

As I talk to family, friends and prospective clients, I often hear about financial challenges. Most people have financial challenges. If not, they would almost always like to be in a better place when it comes to their financial well-being. I try to remind people that the challenges aren't always the problem. The problem is often the fact that people don't have a clear picture of their financial situation. Many people aren't even aware of what parts of their financial lives they are in control of. I'd like to review a few areas and offer some suggestions.

A good starting point is a net worth statement and a income statement. In plain English, a net worth statement is a listing off all positive and negative account balances in order to come up with the net positive or negative "net worth." An income statement is a listing of all income and expenses over a chosen period of time. Once you have pulled together a basic summary of where you are, you can start to look at what you can control to improve your financial situation.

Bank Accounts - Are you paying unnecessary fees or missing out on earning interest? Do you have adequate savings?

Investments - Are you taking inappropriate risks considering your stage in life? Do you know what you are investing in and why you are doing it? Are your investments diversified? Have you had a professional assessment of your investments?

Real Estate - Do you have the lowest rate available on your mortgage? Is your mortgage balance appropriate? Are you maintaining your home and only spending money on it in "smart" ways?

Credit Cards - Do you pay more interest and fees than is necessary? Do you even need to use credit cards to begin with? Can you reduce the balances that are incurring interest?

Other Loans - Borrowing money for purchases should be well thought out and should not be a frequent behavior.

Salary - Are you living up to your potential at work? Have you evaluated your career path and what type of spending that supports over the long run?

Monthly Expenses - Which of these are necessities and which of these are luxuries? Can you really afford all the luxuries?

Taxes - Do you take advantage of all available deductions? Do you consider the tax impact of your large financial decisions?

The Bottom Line - Are you living within your means? Is more coming in than is going out?

Gaining control of your finances takes work, just like keeping your body healthy, keeping your marriage strong and teaching your children correct principles. Like all of these things, increased financial control will expand your options in life and lead to greater peace of mind. We are all faced with challenges we can't control, but we also have the ability to take charge and chart the path we want to follow in life.

Retirement As We Know It

There have been quite a few articles written lately about "The End of Retirement As We Know It." There are a variety of reasons for this, which I would like to discuss. I would also like to address the fact that this may also not be a terrible thing, at least from a certain perspective.

Because of the recent financial crisis and downturn in the economy, many of the overly optimistic and irresponsible calculations regarding retirement, investment returns and pensions have been brought into question. The Federal government is being forced to question long-term entitlements and what is realistic. State and local governments and the unions that often represent their workers are being pressured to question the generosity of their pensions and other retirement benefits. Individuals that didn't have a holistic, professional retirement plan are now wondering if they will be able to retire at all. And finally, some people approaching retirement without a fulfilling plan are questioning what they even want to do in this period of their lives. I guess some people are recognizing that many years of government-funded cruise vacations aren't really what we should all be after in life.

All this being said, I am a strong believer in striving for financial independence and in being able to have time in life in order to achieve balance and fulfillment. There are several different ways to get to this point, and a realistic plan often includes a variety of these. One option is the government plan known as social security. This progam was designed with reasonable ideas and intentions, but its current path is unsustainable. Although it will be around in some form for many years to come, I would suggest a muted expectation of how this might fund future living expenses. A second is a retirement plan from a public or private sector job. Once again, some pension plans have not been well designed and will see changes in the years to come, but a well-funded and well-managed employer plan can provide some future living expenses. Finally, and most importantly, is a unique, well-designed, individually funded plan for financial independence or flexibility. This can include well-managed personal savings, a reduced income stream in a fulfilling and flexible profession, or lifestyle changes to free up resources and/or reduce living expenses.

Our lives, minds, and abilities to work, produce and be creative contributors to society are all gifts. Our free society gives us the opportunity to use these gifts. I encourage you to take charge of your personal situation, prioritize your goals and dreams and make a plan to achieve them!

Balance & Compromise

As I read the news headlines and follow happenings in the U.S. and around the world, I realize that many of our problems would be solved with more willingness to keep things in balance. We are seeing battles in Congress between taxing and spending. We see disputes between those preferring economic development versus those who want to preserve the environment. We also see fights in families and governments that can lead to heartache and sometimes even violence or wars. As I ponder the problems around me, I wish that more people could consider both sides of the story and compromise to solve problems and move forward.

When I work with individuals to develop a financial plan or manage an investment portfolio, it often comes down to the ideas of balance and compromise also. There are often choices to be made between short-term spending and long-term savings. There is balancing that needs to be done between asset classes in an investment portfolio. Compromises also have to be made between spouses about financial goals. Finally, a compromise is needed in determining how much risk can be tolerated and how much potential reward that might lead to.

A basic understanding of financial principles is something that all Americans could use. As we work to solve some of our state and national economic problems, we could all benefit by taking a look at our individual lives to see how we can bring things into better balance. A more realistic view of finances on the individual level would have significant benefits in solving some of the more significant problems in our country and around the world.

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

As usual, Congress has passed a new spending bill with a long, complex name. Despite the tax savings (tax rate preservation) that comes with this bill, it also includes additional deficit spending, which has become the normal way of doing things in Washington the past several years. Political opinions aside, I will summarize a few of the highlights of this bill:

1) Extension of all current tax rates through 2012

2) Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010-2012

3) AMT Patch for 2010 and 2011

4) Extension of "tax extenders" for 2010 and 2011

5) Temporary Employee Payroll Tax Cut

The average American might wonder what all of this means. With the exception of the new estate tax rates, Congress and the President have left our tax system very similar to how it is now for an additional two years. Most tax filers will see a tax return similar to 2009 for 2010 and 2011. One temporary tax reduction is the payroll tax "holiday" that reduces payroll taxes by 2%, saving most working Americans between $800 and $2,000 during 2011.

Although keeping tax rates low and temporarily reducing the payroll tax will provide a short-term boost to the economy, I feel that a better, longer-term, strategic approach to providing government services and funding our government is needed. We should let Americans work hard and innovate as they have in the past and the jobs and prosperity will follow. In the meantime, each of us should take a hard look at our personal financial situations and make any necessary adjustments in order to put our individual financial houses in order.

Hard Work & Determination

I have heard about several employers recently that have positions to fill but are having trouble keeping them filled due to inadequate employee contributions. The news headlines might tell us otherwise, but there are jobs available to those willing to work hard, develop skills and be adaptable to change and progress. I realize that there have been dramatic shifts in the economy and things aren't the way they were before, but I feel like many of our problems could be solved by some more hard work and determination.

Although there might be a few rare exceptions, the key to a comfortable financial future is based on the same things. A realistic financial plan involves assessing one's current situation, setting realistic goals for the future and then putting in the hard work of saving, sacrificing and being determined to reach one's financial goals. In addition, it's the journey that often provides most of the fulfillment, not the destination.

I recently heard a presentation from a financially independent individual who encourages more hard work. Why would someone who doesn't "have to work" encourage the opposite. He has experienced a period in his life without work and it did not fulfill him. As a result, he has filled his life with meaningful service and reaped the fulfilling rewards that service provides. I would encourage more hard work and determination in all areas of our lives. This is what has led our country to where we are and it is what will help us move beyond our challenges in the future.

Uncertainties & Opportunities

The one thing that I become more certain about as life progresses is that life is uncertain. Unexpected illnesses, financial volatility, natural disasters and irresponsible politicians all contribute to this reality. So if this is the case, what is one to do? Considering that this is a financial blog, how does one navigate the uncertainties in the practical areas of life?

1) Expect the unexpected - No matter how certain or predictable something is, consider the alternative. Certain things that were considered reliable in the economy are not as reliable right now, so have a back-up plan in mind.

2) Leave some wiggle room - The American way is often to live life on the edge, take risks and focus on the here and now. America is unique because of our founders' willingness to take risks, but we should consider the risks we are taking on a day-to-day basis and determine if they are really necessary.

3) Accept reality - It is easy to deny dramatic changes in our lives and refuse to adjust to a new reality. When it comes to financial matters, accepting the new reality and making adjustments to it is better than sticking to an outdated way of thinking. This allows for more flexibility is working through challenges and a more reliable plan for the future.

4) Keep a positive attitude - The news headlines and other negative influences can make it easy to get down and give up the fight. We are all better off when we focus on what is in our control and take positive steps to improve our situation. Life might not always turn out how we imagined, but a positive frame of mind is often the key to conquering practical challenges.

I enjoy the challenge of assessing a financial situation, collecting the relevant information and developing a workable plan to move forward. Let me know your questions and challenges and I am happy to see where I might be of assistance.

Is the "Good Life" Only About Money?

As someone who designs financial plans and manages investment portfolios, I'm keenly aware of money and the significant role it plays in our lives. I also understand the peace of mind that comes with having enough money to pay the bills and meet future goals. It is actually this peace of mind and fulfillment that has directed me towards the profession that I'm involved in.

As humans, we are all searching for the "Good Life," where we feel we are spiritually, physically and emotionally healthy. We all want to have good family relationships and friendships that contribute to this state of well being. A certain amount of money or wealth can contribute to this state, but an excessive pursuit of wealth can also detract. As this article summarizes, a sense of purpose really is critical to achieving the good life.

So how does one achieve this sense of purpose? As a financial planner, I work with clients to assess their current financial situation by taking a snapshot of their current assets, liabilities, etc. This can also be done in other areas of ones life. I then discuss goals and dreams with clients to see if they are on track to achieve these aspirations. In addition to finances, one can look to the future in relationships, health and other areas to picture where he or she wants to be. In order to achieve this future state, one must then determine realistic steps along the way that will help to get you where you want to be.

Are you living the "good life?" If not, why not?--and what is your plan to get there? Good luck and enjoy the journey!

The Financial Planning Profession

When choosing a service provider, one often looks for someone with a professional license or credential. While a professional certification is not a guarantee that the service professional will be completely reliable, it does go a long way in guaranteeing that you are working with someone who has met professional educational standards and is subject to an ongoing level of learning.

Although the Certified Public Accountant (CPA) is widely recognized in the fields of financial accounting and tax preparation, a bit of public confusion exists when it comes to the best professional for personal financial advice. Although many titles and designations exist in regards to financial advice, the most recognized and reliable credential is the Certified Financial Planner (CFP) professional. In this unsettling period of economic volatility, it's critical to have a professional that will help you make and keep a financial plan that's best for you and only you.

The Certified Financial Planner Board of Standards was founded 25 years ago this week to foster the highest standards of excellence for financial planners. In order to become a CFP practitioner, one must complete advanced college level studies on nearly 100 topics, compile at least three years of work experience, pass a 10-hour, two day exam and most importantly, agree to uphold the fiduciary standard--which means putting the client's interest first above all others. Does your financial advisor meet these standards?

Risk & Volatility

Anyone who follows the news headlines heard about the dramatic drop in the stock market yesterday. Although it was followed by a significant recovery, there was a point yesterday where the Dow Jones Industrial Average was down almost 1,000 points. What caused this to happen and what does it mean about the risk of investing in the stock market?

There is speculation about the exact cause of yesterday's volatility, but it was most likely caused by a combination of global economic uncertainty, computerized trading programs and human trading actions. All of these factors confirm that investing in equities does carry risk and this risk becomes more apparent when uncertainty exists. Our world economy has become more volatile and uncertain in recent times and the changes in the market show this.

Despite the volatility, developing a well-diversified, long-term investment portfolio is still the way to achieve returns that stay ahead of inflation and to build real wealth over a long period of time. Recent events confirm the need to have a well-thought-out financial plan and appropriate investments which support the risk this financial plan allows. Having a plan like this in place allows the short-term emotion of the markets to be viewed as "noise" and the long-term goals remain the primary concern.

Emotional Buying

I recently attending a church fundraising auction which was an enormous success. Considering that $$ and purchases were involved, the evening gave me some food for thought about how people buy things. The auctioneer was very talented and humorous and made the evening enjoyable for everyone. His performance, along with the fact that the bidding got a bit competitive all led to the success of the evening. The upbeat emotions of the evening led people to have fun and spend money. I have been involved in several charity auctions and this is often the case.

So how does this relate to our everyday and not so routine purchasing decisions? We often head into a store to buy something and come out with something else or more than we intended to buy. Our mood and the presentation of the store affect our purchasing behavior. This might be common sense to most, but it is often forgotten, especially when larger purchases are involved.

As a financial planner and as a rational consumer, I try to have a plan in place before I am in a situation to spend money. This doesn't always work and isn't always necessary with small, insignificant purchases, but is recommended behavior for the big decisions in life. Next time you are choosing a home, car or large appliance, keep this in mind. I would also recommend a plan or a referral in choosing important services providers, like doctors, dentists, financial advisors and the like.

The Economics of the Holidays

Most people are probably aware that more money is spent around Christmas time than any other time of the year. One estimate by Joel Waldfogel of the Wharton business school at the University of Pennsylvania concluded that $66 billion was spent by Americans on gifts in 2007. It is also estimated that 135 million Americans participated in Black Friday (the day after Thanksgiving and first day of the traditional Christmas shopping season) in 2007.

Considering the dollars spent and the enormous number of people involved, there are some significant economic lessons that can be learned. I love the holiday season, but like many things, I try to take a practical, analytical view at times and see what I can learn about human behavior.

1) Much of the holiday spending is unnecessary, or at least unappreciated. I don't recommend that everyone think selfishly, but Waldfogel also estimates that $12 billion of the $66 billion spent each year is inefficient spending, or money that the recipient wouldn't have spent on themselves. Gift giving is a wonderful tradition, but gift cards, cash or more educated purchasing can result in a more economically effective Christmas.

2) Consider giving to those who are truly needy instead of excessively giving to those who aren't needy at all. The percentage of GDP produced at Christmas time has actually decreased over time, so maybe we are improving our behavior a bit here.

3) Think about the long term value of Christmas gifts or decorations. Many products are designed for the "wow" factor, but are expensive or underutilized over a longer time period. Artificial vs. real Christmas trees and regular vs. LED Christmas lights have various costs and benefits that should be considered.

4) Certain gifts and traditions are not critical to a good Christmas. The most meaningful things are time together with family and friends and traditions that promote giving, peace and harmony amongst people.

Despite my tendency to focus on the economic side life, I love the positive, uneconomic parts of the holiday season. Like many significant events in life, Christmas provides an opportunity to think about the costs and benefits of various financial decisions and how they fit into a sensible long-term financial plan.

The Value of a Certified Financial Planner

A select group of professionals have attained the CFP® certification and are referred to as a CERTIFIED FINANCIAL PLANNER™. Other individuals may use the title "financial planner," but have not earned the official designation. What is a CERTIFIED FINANCIAL PLANNER™ and what should one expect from a financial plan?

CFP® certificants are individuals who have met the CFP Board's education, examination and experience requirements, have agreed to adhere to high ethical standards and complete biennial continuing education requirements. Although many other respected financial designations exist, the CFP® is considered by many to be the best example of a professional qualified to give comprehensive financial advice to individuals and families.

Most CFP® certificants will work with individuals to prepare a comprehensive financial plan. Like any goal in life, it is difficult to reach financial goals without a plan. This plan is unique to each individual, but it should cover the areas of saving for future goals, investing, taxes, risk assessment, insurance, and estate planning. Although these considerations are overwhelming to many people, a good CERTIFIED FINANCIAL PLANNER™should help reduce these burdens by boiling down significant financial decisions into manageable tasks. A good financial plan will involve an significant investment of time and money by the individual, but it will pay for itself many times over if it is properly implemented and updated over time.