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Legacy Planning

Generation "Why?"

Hangovers are tough.

All too often we forget that different people, raised at different times and in different ways see things entirely differently than others might.  I wonder what Generation "Y" thinks about our recent financial history and how their understanding of the facts that brought about the worst financial crisis of our time will impact their actions as they move forward in life?

What would your view of the banking sector be if you were at the precipice of your financial life in 2007-2009?  I wonder how much faith and comfort you'd have as you viewed your future financial landscape and considered the role that the banking and brokerage industry would play in your goal planning? My bet is that you'd be skeptical at best and skepticism typically leads to avoidance. 

Skepticism in finance is almost never a good thing. There's already enough "built in" propensities to avoid matters of personal finance, adding to the pile of impediments is not a good thing. 

And how do we propose to alleviate the problem before it snowballs into other ones? I'm not sure that we've thought that one threw have we?

What if an entire generation has lost it's faith in "investing" and "banking" seeing them both as self absorbed sectors, bent on greed, unfairness and lack of transparency?

What will that portend for the housing market?

What will that portend for retirement for a generation afraid to trust anyone with just about anything having to do with their life's savings?

What will that portend for social programs, already straining to provide for people?

Many outcomes are unintended. The lack of intention however has no direct corollary to the disruption it causes.

What we better start getting right in our thinking is this: Our actions send a wave of information forward and that wave, like the ripples on a pond reach all points. Understanding that the impact of and implications of that ripple last long after we've last seen it traverse the surface is something that we seem to keep missing. 

To this day, I meet with both existing and prospective Client's of a certain age who also don't trust "investing" or "ETF's" or "advisors" or much of anything else, absent dirt, a purposely built home and cash. 

Their starting point; the Great Depression. 

Bottom line is that "it" lasts longer than we think, takes more of a toll than we realize and consumes the thoughts of a generation. 

The failure of the Financial Crisis and the havoc it caused might need to be measured for the rest of most of our lives. 

 

 

 

 

Living longer...Working longer.

The average age at which an American worker retires is now reported to be 62 and that's the highest self-reported average age in 23 years.  

A recent Gallup study showed that in 1993 the average age was 57 and even as recently as 2010-2012 the age hovered at around 60.

But for many, even age 62 may be too early.  No doubt that the average age has creeped up, with the lack of a reliable program of saving/investment during their lives, and/or the Great Recession "mark-down," it's not hard to understand the "need" to work longer. 

And, there are for sure, workers who are working because they love their work or they feel more fully alive and involved when they are pursuing their passion so they've chosen to continue at their life's work. And, I think,  we can be relatively certain that the extra money doesn't hurt either. Also, I'd bet that as the percentage of total jobs moves more towards "technology" and less toward, manual labor, we wouldn't be surprised to see the age creep even more in the future, just as a natural outgrowth of the societal impact on work itself. 

Ironically, about the same time as the Gallup organization was asking about retirement ages, they were also asking the American public what their biggest financial fear was and as you might image, not having enough for retirement came in at the top of the its at 59%. The harmony between "working longer" and "not having enough for retirement" is almost scary, but, this too is not to be unexpected. 

So what's the answer?

I think in the last few years I've written more than a few blogs about changes that need to take place in the workplace, whether that's that we provide new incentives for increasing investments in saving for retirement, develop a newer/better retirement plan system or some other improvements (if you're old enough you can remember when your pension might have been 66% of your highest three years average earnings).

Surely we can do a much better job on financial education, an area where we do very little in relation to what we could potentially do. Teaching people how to handle and manage money is a skill that pays benefits for a lifetime. And middle school, yes, middle school, is a good place to start. 

I think that actually planning for your future also pays substantive dividends (no pun intended) and if possible or preferred, people should commit to working with someone who can help them understand the financial structure of working toward, to and through retirement. 

What passes my understanding is how frequently we seem to refer to the retirement problem as if there's no existing means to remedy it. Odd isn't it that when we talk about childhood obesity or obesity in general we can pretty quickly come up with "diet and exercise" as steps that should be undertaken to stem the tide on weight gain. 

Likewise, shouldn't the first thing that comes to mind when we're talking about providing for our own financial security be something like, "set your goals, have a plan..?"  

So, what's the problem?

Over the thirty years that I've been in the financial services profession, there's been the often used saying that "more people plan their vacation, than plan their finances" and from what I've seen that is a true statement. 

But the key to all this may lie in the fact that we CAN plan our vacation and if we CAN plan that, then we've got the appreciation/understanding/ability TO plan anything else.  So whey don't we?

There a a host of rationale and irrational reasons we don't and a series of blogs could be written explaining, validating or invalidating almost all of them in some way. 

In the interest of brevity, let's conclude on this thought. 

"If you don't know where you're currently situated on a map, you have little idea in which direction your next step should be."

Figuring out where you are doesn't take planning it takes quantification. Figuring out where to take the next step means you've been moved to action, an often unintended benefit of the "quantification" process. This is the nexus at which we cross from "quantify" to "plan." 

Even if you're not a planner, take the first small step and "quantify."  

Knowing where you're situated is seldom ever a bad thing, trust me on this one.


Navigating The Home Sale Contingency

From time to time, I ask professionals that we refer business matters to, to take the opportunity to share their expertise with you via our Blog Posting. 

This week, John Kruk, a leading Realtor with RE/MAX House Values 4 in Hackettstown, New Jersey shares his perspective on navigating the home sale. 

John's contact information appears below and if you're in need of a Realtor, well frankly, John's the guy to go to. You can feel free to contact him directly or, simply reach out for us either via our website or call at 908-223-1496 and we'll make sure that both you and John get together. 


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Many folks that currently own a home and need to downsize or upgrade often ask me if it is even possible to time the sale of their home and purchase another at the same time in the current market. My answer is almost always “of course you can”. There are some steps you must take, and doing some upfront planning between your financial advisor, mortgage lender and Realtor will determine how possible it is to move forward with your plan.

The first part of the planning phase involves finding out if there is a suitable place for you to go. Speak with your Realtor about what you have in mind for your next home and they can provide you with the listings for homes that meet your needs. If you are satisfied at that point with your options, you will need to know the marketability and suggested list price for your home. You need to get an absolute bottom price that your agent thinks will move your home (for planning purposes), to see if you are willing to go that low if you must. With an estimated purchase price for your home, along with an idea of what you are willing to spend on your next home, you can now speak with a mortgage professional to see if the deal can come together financially.

Having been in your shoes just a few years ago myself, I can speak personally about another avenue that you need to look at. My mortgage loan officer (Bob Deiorio with Residential Home Funding) recommended an option that I was trying to avoid…renting out my current home and purchasing my next property. In this market, doing that can make you just as marketable to a seller as any other buyer. After your agent shows you what your home can generate in rental income, you can then see if it is feasible to become a landlord. This option is quite popular with growing families that need to get into a larger home, but have negative equity in their current home. Even if you are slightly negative on cash flow from the property at the end of the year, it still might make sense for you to purchase your next home now, while rates are still amazingly low and rents are continuing to climb.

If renting your current property is not a valid option, the next move is to tour some of the homes you are interested in to make sure you are interested in making the move. After satisfying that requirement it is time to get your home listed. If you are planning on selling and buying at the same time (or within a week or so) you need to be aggressive with your list price and marketing plan. If you hit the ground running with a list price at the point where your home will appraise, along with flooding the internet sites, print media, and other forms of real estate marketing (i.e. electronic signage, agent-to-agent notification, neighborhood canvassing, etc.) you should get interested buyers going through your home.

There is still adequate inventory in the current market to offer you several choices in your next home. I still find my buyers weighing which home they want to write an offer on and having a tough time doing so. Thus you shouldn’t worry about not finding your next home as much as you should concentrate on finding a buyer for your home. If you end up getting a buyer sooner than you find a home I would say you are in a good position and will gain the upper hand in negotiating your purchase. If it is the other way around we are finding the sellers being not as willing to work with you as well as if you already had a buyer lined up for your home. So I tend to coach my clients in this situation to wait until their home is “under contract” prior to negotiating on their next purchase. It will make the situation much more fluid and save you aggravation, and of course, money.

The key point I am trying to make with this article is that nothing is impossible in today’s market, despite what national media outlets are saying. The main factor is having a plan (in writing) that shows you how you  will get from your current home to your next, with the least amount of stress, wasted assets, and on your timeline. The worst angle to take would be to either just start looking at homes on a whim without giving thought to your current home, or to just throw your home on the multiple listing service without knowing how you are going to complete your next transaction. Good luck on whatever real estate endeavors you are going to partake in and try to enjoy the ride. 

John Kruk is an award winning Broker-Sales Associate with RE/ MAX House Values 4 in Hackettstown, NJ. John has many innovative ways of getting you to closing even if you have a home to sell first. He can be reached on his cell at (908) 343-5328 or at his office at (908) 852-1333

The Ostrich Problem

"After all, it feels good to keep moving, and who wants the frustration of discovering that they've actually been driving in the wrong direction...?

The snippet above is from an article at 99u.com by Christian Jarrett on "The Ostrich Problem" and The Danger of Not Tracking Your Progress.  If you read the article you'll find a certain reference in there to yourself somewhere and it not to yourself most certainly to someone you love, or know well. (the fact that you don't recognize yourself is another ostrich problem.)

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Now, I know that finance is my job and I tend to focus on it in most of the blogs I write so It shouldn't come as a surprise that I'm going to do it again. 

So, let's think for a moment about all the problems that the Ostrich Problem creates in the realm of personal finance and to help us all out, I'll list the ones that quickly come to mind; 

  • Bad investments
  • Bad insurance programs
  • Bad estate plans
  • Not having enough money for a goal
  • Not having enough money to retire
  • Not having enough money to stay retired
  • Leaving your heirs worse off than you'd ever imagined
  • Bad portfolio design

Ok, there's a few. 

Most of these maladies are caused by the simple fact that as humans; we avoid feedback loops that confirm the negative fears that we have. Like a plague we avoid them. And, this is what really compounds the bad decision.  I mean really, it isn't that we're somehow going to stop making bad choices but it's when we ignore them after we've made them that the damage starts to spread in an almost unworldly way. 

"The temporary pain of negative feedback is nothing compared with the crushing experience of project failure......."

Another snippet from Christian that rings so absolutely true. 

Risk in investing is and likely always won't be defined by market volatility. 

Risk in investing is the probability of not having the money you need when you need it. Think, daughter's wedding, kids college and worst of all, retirement. The problem with getting off course and not knowing it is that we have then no ability to initiate interim course corrections. 

I think that Christian might have it just right at the close of his article....

It's ok that you haven't been checking, now forgive yourself and start checking. 

One of the true benefits of planning lies not so much in it's ability to anticipate the future as it does in it's innate ability to quantify the present. 

Pain v. Gain

Clearly the most arduous part of the Wealth Management proces is having to construct a list of household expenditures. But the question remains, why is it so arduous?  In a world of online tools such as Quicken or Mint, why is budgeting so damn aggravating? 

First off, as you can read here, there are some pretty fundamental reasons, three of them actually, the first of which is clear, "it's not fun." We get it, and we can appreciate it. Few things that are necessary in life are fun in the true sense of the word, eating salad isn't fun, exercising everyday isn't fun and surely, picking that salad over your favorite steak or cheeseburger and fries isn't fun either. 

The second falls into that realm of the "doing v. knowing" gap. You already know where your money is going (out of your bank doesn't qualify as an answer).  But truly, you don't know where its going, you just think you do. And, in the world of the "doing v. knowing" gap, thinking you do virtually makes it so.  

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Clearly the most arduous part of the Wealth Management proces is having to construct a list of household expenditures. But the question remains, why is it so arduous?  In a world of online tools such as Quicken or Mint, why is budgeting so damn aggravating? 

First off, as you can read here, there are some pretty fundamental reasons, three of them actually, the first of which is clear, "it's not fun." We get it, and we can appreciate it. Few things that are necessary in life are fun in the true sense of the word, eating salad isn't fun, exercising everyday isn't fun and surely, picking that salad over your favorite steak or cheeseburger and fries isn't fun either. 

The second falls into that realm of the "doing v. knowing" gap. You already know where your money is going (out of your bank doesn't qualify as an answer).  But truly, you don't know where its going, you just think you do. And, in the world of the "doing v. knowing" gap, thinking you do virtually makes it so.  

For all we may want to ignore it; the reality remains that whatever you earn in your lifetime, whatever you save, whatever you invest is largely meant to do one primary thing....pay for what you spend today and what you'll spend over the remainder of your lifetime.  

Meaningful financial plans are built on accurately judging expenses, today and tomorrow. Not perfectly predicting it, but accurately predicting it would be key. If you're building a house, your "budget" is your foundation, everything else gets built on top of that. The more accurate (level) the budget the more reliable everything from there up is going to be.  

And, as the Carl Richards notes in his article, awareness is seldom ever a bad thing to have.  

 

 

The First Step Toward Success Is Defining It.

In his post on Leadership Freak, Dan Rockwell draws some pretty stark comparisions between new beginnings and the wealth management process. I guess that's because the two are so similar. 

"Clarity instills confidence."

Questions are always more powerful than answers. What are your questions?

Questions are always more powerful than answers. What are your questions?

"Are you reacting aginst or reaching forward? Reacting seldom takes you where you want to go."

These are also quotes from Dan's blog post; "10 Questions That Give Vitality To New Beginnings."

As the realm of personal finance has come to grips with the fact that the return on the markets might not always be the thing that takes you where you need to go, they've finally latched on to the two things that can make a difference in financial success or failure, namely; controlling what you spend and planning. 

Every day it seems, more and more articles are written on why it's important to know what your future will cost, if for no other reason than if you don't know you can't ever tell if you've got the money to afford it. 

Most times, clients look at the effort of planning for their future and see the work it might take and it scares them away. What they need to see perhaps is the clarity and confidence. Most times, clients come to me to solve a problem and yet, the conversation is about reaction, not about reaching. 

If you're unwilling to do the work necessary to define success, it would appear to this observer that your chance of stumbling upon it may be harder than you think. 

And later than desired as well. 

The first step toward success will always be defining it. The next one will be measuring it.