November 2008 Edition Subscribe Unsubscribe eFinPLAN's Taking the Mystery Out of Financial Planning e-Newsletter Our goal is to demystify financial planning by providing common sense usable information and easy-to-use financial planning software. How to survive a recession Someone once said that the difference between a recession and a depression is that when someone you know loses a job it is a recession, but when you lose your job, it’s a depression. Most economists agree we are in a recession, although we have not yet experienced two straight quarters of negative Gross Domestic Product. Unemployment has increased to 6.5%, the highest in 14 years, wages have stagnated or decreased, credit is very difficult to receive. Real estate values have decreased, the stock market is bearish and average inflation is about 5%. Prepare - don't panic. Prepare in case you are thrown a financial curve ball. If you prepare, you will be better able to face financial challenges when (not if) they come. Delay large purchases: you may want to put off purchasing the new car or going on a big vacation. You can always buy the item later, but you usually can't take it back. This particular tip could potentially save tens of thousands of dollars. Accumulate money in savings or rainy day funds so that you don't have to pull money out of retirement funds, borrow, or fall behind on payments during a hardship. Savings can be invested in a money market account earning around 4%, which isn't great, but it’s much better than paying 18% on a credit card for emergencies. Budget: Develop and follow a household budget and limit spending on discretionary items. Utilize good budgeting software to track all your expenses. They key ingredient to budgeting is setting a spending limit for each category, and saving ahead for seasonal (e.g., holiday gifts, clothes) or quarterly expenses (e.g., quarterly auto insurance). This way you can see if you are overspending in any particular category. Avoid unnecessary smaller ‘want' versus ‘need' purchases. For example, your cell phone contract may be due to renew; opt for the free or low-cost phone and avoid the multi-media entertainment devices unless Internet and email is a must for your business. Study: Becoming a student of money-saving techniques and financial matters. Go to the library or book store and acquire books about frugality, investing, debt, retirement planning, insurance and overall financial planning. Be Positive: Your attitude is a choice that you make each day; it is not a consequence of what happens to you. Good and bad things happen to everyone every day. For most people good things and blessings constitute the majority of our day, but everything that happens to us can be looked at as either positive or negative. Choose looking at the positive. Focus on the things you have and the good things that will come about if you go through your current circumstances with a positive attitude. Avoid negative people and avoid watching too much news because that usually focuses on the negative. Be Thankful: November is a great month for reflection upon all the things that make us thankful. Unplug from the news and take stock of the good things you have. Because of you, eFinPLAN is growing and expanding and we are thankful. Our children are both healthy and enjoying their lives. New friends and old have been an encouragement to us this year – we love you all. We are thankful for our families, whose shoulders we can lean on in good times and bad. Cancer touched one of our loved ones recently and we are especially thankful for a cancer free outcome and for the strength to get through the adversity. We hope that you have many wonderful blessings for which to be grateful. Work: Many employers are feeling financial pressure and will be considering reducing their work force. Concentrate on excellent work habits, having a positive attitude, and great relationships with peers, superiors and customers. Plan: Develop your long-term goals. Having written goals and a mapped-out plan of action puts your spending into the proper perspective. To get started, list 10 things you want to accomplish. These goals can be things you want to achieve now or in the future. Secondly, get a financial plan, like an eFinPLAN financial plan. Lastly begin to implement your plan, using advisors as needed. Self-Employment: Many new businesses have sprouted because experienced workers rich with great ideas, excellent work ethic and numerous contacts were burned out in their corporate position or were laid-off or forced to retire early. Invest: Don't try to time the market by moving out of stock mutual funds, but stay with the proper asset allocation (that fits your risk tolerance and return expectations) between stocks and bonds funds regardless of short term economic forecasts. When stock values decrease, you get more mutual fund shares for your money. You will likely enjoy great appreciation in your investment portfolio when the stock market goes up. Real estate purchased for investment purposes should always be for the long term since it can be costly to own and difficult to sell; however, recessionary times may provide opportunities to purchase property which has gone down in value. If you are retired or nearing retirement, pay special attention to your investments, and, as always, seek the advice of qualified professional trusted financial advisors regarding any changes you wish to make. Help Others: It’s so easy to focus on your own situation (my sister-in-law calls it ‘navel gazing’, that is, looking only at your own navel, not anyone else’s). If you have friends who are going through a difficult time, call them up and encourage them, invite them out for a cup of coffee or to your home for dinner. Life is hard. Many are experiencing extremely difficult circumstances for the first time in their lives. Let them know you care. Write a check, make a charitable contribution, volunteer at a food pantry, mentor a student at an inner city school. People need your help, and helping others feels good and will benefit you too. Women are Poorer in Retirement — What Women Should do! 1. Women earn less money — Every woman reading this has already experienced this inequity, but now you have the facts to back up your suspicions. Ten years after college, women make only 69% of what their male peers earn, even though they have slightly higher grade-point averages than men do in every major (even math and science). Women who attended highly selective colleges earn the same as men who attended minimally selective colleges, which shows that they lack compensation for their scholastic performance. On average, full-time, year-round working women earn roughly 74% of what men earn. What to do Resourceful women have found ways to overcome this barrier, including becoming business owners, budgeting with an emphasis on saving money, networking with other women (including online Web sites such as womencorp.com), working harder and longer hours, getting higher education, getting extra part-time or home based jobs, making education about financial matters a priority, and countless other ways, include getting a financial plan. 2. Women’s Health Insurance May Cost More — High deductible health insurance plans cost women more. When an employer changes to a high-deductible plan, it costs on average $1000/year more for women than for men because of mammograms, the cervical-cancer vaccine, Pap tests, birth control, and pregnancy-related services. Women also generally go to the doctor more regularly for preventative care. What to do While the inequity exists, women must make an extra effort to contribute the difference to a Health Savings Account or other savings. Medical expenses have risen dramatically the last several years, so regardless of the kind of health insurance (or lack thereof), women must work toward having a contingency fund for medical and other emergencies. 3. Women May Take ‘Time-outs’ from work to care for children or aging parents, which means lower total earnings over time and less money automatically deposited into 401(k)’s. With the aging Baby Boomer population, many women will have taken time out to raise children and may need to take time out again to care for elderly parents. Caring for both ends of the age spectrum has historically fallen to women; this shows that women are strong, loving, and selfless caregivers. What to do Being aware of how these ’time-outs’ can affect retirement can help women realize the urgency of continuing to contribute to a retirement account (or savings and investments) during times when they are not earning an income, and of saving consistently while they are working. 4. Social Security Checks May be Lower because less money goes into Social Security accounts for women who earn less than men over their lifetimes, and for women who take ‘time-outs’ from earning an income. What to do Even if women make less money than men, being armed with the knowledge of how that may affect retirement should give women an extra incentive to contribute the most they can into their retirement accounts, even if it means doing without some wants (not needs). Since no money counts towards Social Security during a ‘time-out’, it makes contributing to an IRA during these times even more critical. 5. Women Live Longer than Men — A longer life span requires more years of living from retirement savings. The average life span for women is 79.2 compared to 75.2 for men (as of 2004). Therefore, women need to plan for at least five more years of retirement. Living longer is a great problem to have; it just requires women to be aware of the need for more money in retirement as they create their financial plans. What to do If you are married, make sure you are putting as much in your account (or more) as your husband contributes to his. If you are single, make sure your retirement plans are geared toward a longer life span. Make sure that you have a financial plan. 6. Single Mothers are the Poorest in Retirement. Single mothers earn less than any other group (1/4 that of married couples with children and 3/5 that of single childless women). What to do With lower earnings and without the retirement benefits of a spouse, single mothers need to be especially savvy about finances in order to avoid poverty in retirement. Take every opportunity to educate yourself about your finances on everything from great budgeting habits to retirement planning. Get help from trusted advisors whenever possible. Also, many churches offer help and information for single parents, such as free financial counseling, free oil changes, free school supplies, etc. eFinPLAN realizes that single parents really need a financial plan; that is why we offer 50% off the regular price for them. 7. Women May Make Less on their Investments because they invest more conservatively than men; this can sometimes prevent them from seeing the higher rates of return that men who take more risks may see. Women are legitimately more afraid to make any mistakes with their finances, and they prefer fixed/steady returns because making up for a mistake could take a lot longer for a woman who earns less than a man. What to do Seek help from trusted professionals and/or educate yourself about wise investing. If your company has a Human Resources department that oversees your 401(k), seek advice from them regarding your individual situation. Also, contribute the maximum amount to get matched contributions from your employer. In divorce situations, seek advice from your attorney to make sure that the investments will be divided evenly. 8. Women Are Not Well Represented in the Financial Planning Industry because it is dominated by males. Historically, very few women (or minorities for that matter) have gone into financial planning careers, so women’s issues may have been unintentionally under-represented. Also, women have historically been more intimidated about financial issues and may also have deferred to their husbands regarding financial decisions, leaving many questions unasked. What to do As a group, women need to become more educated about financial matters (including the inequities in retirement). The financial planning industry has begun to address the unique needs of women, but it will take some time for the industry as a whole to increase awareness. As with any other field, as women begin entering the financial planning industry, women’s issues will begin to come to the forefront. Many aspects of financial matters are unique for women and should be taken into consideration in any financial plan. If you are able to afford a financial planner, make sure he/she is aware of the inequities women face and is making your financial plans accordingly. Do not be intimidated or afraid to ask questions. Please help us get this information to as many women as possible by forwarding this article to the women you care about. Resources 1. Anthes, Ph.d., William L., and Bruce W. Most. "Frozen in the Headlights: the Dynamics of Women and Money." Journal of Financial Planning Sept (2000). 19 Apr. 2007 journalfp.net>. 2. Ehrlich, Stan. "Consumer Tips & Tools Article: Women and Money." National Association of Personal Financial Advisors. Dec. 2005. S. F. Ehrlich Associates. 25 Apr. 2007 napfa.org/tips_tools/article.asp?CATEGORY_ID=16&TT_ID=41>. 3. The Gallup Organization, March 17, 2000. 4. Simon, Ellen. "Women Make Less 1 Year After College." Mlive.Com. 23 Apr. 2007. The Associated Press. 23 Apr. 2007 <http//www.mlive.com>. 5. Stobbe, Mike. "Health Plans Cost Women More." The Columbus Dispatch 6 Apr. 2007, sec. A: 8. 6. A Women & Money Program Incubator Sponsored by the National Endowment for Financial Education and AARP Washington, D.C.—February 15-17, 2000 Guest Article –5 Simple Steps to Financial Success in a Financial Crisis As with virtually all financial matters, the easiest way to be successful in these troubling times is with a cash management program that will develop a systematic and disciplined approach. By spending a few minutes each week to maintain your cash management program, you not only have the opportunity to enhance your current financial position, but you can save yourself some money, time, and energy. Any good cash management system revolves around taking STOCK: 1. Simple Strategies, 2. Taking Action, 3. Organize, 4. Create and Use Automation and 5. Keep it Real Sometimes the simplest strategies can result in the best solutions to a secure financial future. With your busy life and not much free time, financial organization may seem daunting, but with some planning and new habits, taming your finances will be easier than you think. Individuals respond to programs that require little or no disruption in their everyday routines; the same is true with financial programs. You look for a way to organize your finances; here is the perfect way to start. Simple Strategies: when setting your financial goals, the more specific you can be the better. You need to create a list of your top priorities, such as: -Saving for a car -Saving for a home -Saving for college -Growing your savings -Saving for retirement Once you determine your goals you will have some choices to make. Many options are available to you. Take Action: create a plan of action to achieve your spending plan and savings plan. Use the resources available to you; there are many on-line tools that will allow you to track how your expenses compare to your savings. Organize: if you can organize your workplace you will have one less thing to worry about; create a station for bill paying with simple filing systems using separate folders for: -Monthly bank statements -Unpaid bills -Receipts -Taxes -Insurance paperwork Studies show if you’re organized you are less stressed; that may be the most important reason to organize. Create Automation: the solution to the lack of discipline you may experience; it is easier to be successful if you use the technology available. The advantages are: -Avoid missing deadlines and avoid late fees -Reduce chances for conflict -Save time You will be able to receive payments notifications as well as setting up automatic payments, thus simplifying your life. Keep it Real: start with baby steps; smaller more manageable steps can lead to bigger success. Money management should be a habit; look at your busy schedule and select a time that you will take care of all of your financial activities. The goal is to take STOCK and stick to that schedule no matter what. As you focus on money management, remember that prudent action is important; doing something is always better than doing nothing. Don’t risk your secure financial future by not taking the steps needed to succeed. Consider the consequences and choose all your actions with an eye toward your financial goals and objectives. Angie Hollerich CEP, CCA is the founder of Brass Ring Productions Ltd. BRP works with company owners and association leaders who understand the value of educating their employees and members in the area of Financial Success, Communication and Professional Development to increase productivity and retention. She can be reached at 614-337-2204 or by email angieh@brassringpro.com. Her Web site has additional information and educational materials www.brassringpro.com.
Ideas from other Web sites - From the Blog World At eFinPLAN.com on the right side of the screen you will find “News Feeds”. These are interesting financial articles and blogs from around the Web that I think are useful. We have written some of them, but most are written by others. Go to eFinPLAN Blogroll to see the following and more:
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About the Authors Kent E. Irwin is CEO and co-founder of eFinplan, LLC. He is also a Chartered Financial Consultant (ChFC), a Chartered Advisor in Philanthropy (CAP) and a Chartered Life Underwriter (CLU). He can be reached at kirwin@efinplan.com. Laura D. Irwin is CFO and co-founder of eFinPLAN, LLC. She can be reached at lirwin@efinplan.com.
eFinPLAN reports, newsletters and Web site are designed to increase your knowledge of financial matters and permit you to take greater control of your financial future. The resources provided are to assist you as you advance up the financial learning curve. No single company or person has all the financial knowledge you need or can address everyone’s individual situation and show all possible solutions. Therefore, we encourage you to utilize other resources, and when appropriate, rely upon trusted professional advisors. This is not intended to, and does not, provide specific legal, tax, accounting, and insurance, and investment, financial or other professional advice. eFinPLAN is not your financial planner or investment advisor. For specific advice on these aspects of your overall financial plan we encourage utilizing trusted professional advisors. This is not an advertisement or solicitation for any specific investment or investment strategy. Information contained herein is not a substitute for consultation with a competent legal professional or tax advisor and should only be used in conjunction with professional advice. Copyright 2008 All rights reserved. eFinPLAN, LLC, & Taking the mystery out of financial planning are service marks of eFinPLAN, LLC
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