Managing Your Financial Life Well: Things to Do and Things to Avoid

by Eve Kaplan, CFP(R) Professional

It’s easy to feel overwhelmed by all the things you need to do to manage your life well – be it exercise, meditation, diet or making smart financial decisions. When confusion reigns, you may end up focusing on the trees instead of the “big-picture” forest.  How can you manage your financial life well?

To shed light on this subject, I’ll be giving a free talk on Monday April 25  (7:30-8:45 pm) at the Bernards Township Library, 32 South Maple Avenue, Basking Ridge NJ. (For RSVP info, see the bottom of this article).

Here’s a sneak preview:

Do Things That Help You and Your Family:

  1. Less is More: Our economy depends upon high levels of personal consumption – including shopping for things we don’t really need. If your household is “full to bursting,” consider how much you really need. I’m not talking about essentials – I’m talking about all the extra stuff we buy and own to the point where we’re choking on our possessions. Clients with adult children tell me they’re struggling to get rid of their belongings because they have own too much, their kids don’t want any of it, and they’re downsizing. Some of my clients have spent months cleaning out their parents’ homes after they pass away or move to a nursing home.
  2. What If You Die Unexpectedly? Every household needs a will, living will/medical health care directive and power of attorney. If you don’t have family, consider good friends. Without solid written instructions, your brother really doesn’t know if you want extraordinary efforts made to keep you alive, or not. Without documents, who will serve as guardians for your under-age children? If you die intestate (without estate docs), your state will make decisions for you that you might not agree with. Having up-to-date estate documents is money well spent.
  3. What if You Die Unexpectedly – Part 2: Do you have basic term life insurance through work, or on your own? How much? Would your family be left in the financial lurch if you unexpectedly died last week? Does your financial advisor have a record of your insurance policies? Does it make sense to buy expensive, permanent life insurance instead of straightforward term life?
  4. Better To Have It Than Not — Long-Term Care Insurance: Everyone loves to hate this insurance but it’s better than the alternative (“nothing”) for over 90% of my clients. Amongst other things, it helps staunch the flow of money out of your future estate in your later years. Your heirs will thank you for not zipping through your hard-earned savings in the last several years of your life.

Ways to Think About Financial Products and Financial Services:

  1. Product Sales Can Work Against You. Life insurance, check. Disability (probably through work), check. Long-term care, check. Annuities – huh, wait a minute. Is someone trying to sell you on the idea of variable annuities? When I engage new clients in my practice, I see plenty of examples of unnecessary variable annuities that truly benefitted the seller more than the buyer. This is a tricky area since advisors who get compensated for product sales frequently love the juicy commissions they earn on variable annuity sales. You may be able to partially extricate yourself from an expensive annuity by rolling it over to a less expensive annuity OR (if in an IRA) letting it lapse. Get a 2nd opinion before you buy anything, and a 2nd opinion before you let any product lapse.
  2. Smart Tax Advice is Essential. If you have a fairly straightforward tax situation, you’re probably fine preparing and filing your taxes with e.g. Turbo Tax. If your situation is less straightforward, utilize a CPA or EA — preferably someone who is thinking constructively about ways you can save money on taxes.
  3. Investment Management. Do you handle your own investments? When markets hit the skids – as they do periodically – do you panic and make rash decisions? When markets run higher, do you get nervous holding cash and rush to invest before you “miss out”? If so, consider engaging a professional to manage and rebalance your investments. He or she will put your investment portfolio into the context of your financial plan. Don’t have a financial plan? Get one. If  you strictly seek simple investment management only, Vanguard has a wonderful line-up of pre-set mutual fund portfolios that take investment decision-making off your plate.
  4. Understand How Professionals Are Paid. Brokers earn commissions when they sell you A, B or C share mutual fund investments. If you don’t see an invoice from a professional, make sure you understand and accept the fact that these products may not necessarily be in your best interest. Fees for investment management are tax-deductible if you pay someone up front (or have fees deducted from your investment assets).

Saving for Retirement – Your Biggest Financial Responsibility to Yourself and Others:

  1. Take Advantage of Money on the Table: Invest in your company 401k or other qualified plan – especially if a company match is provided. If not, see if you qualify to fund a Roth IRA, or if an IRA makes sense. Traditional IRAs allow you to defer taxes until you’re presumably in a lower tax bracket in retirement.
  2. Don’t Try to Go It Alone. The ostrich approach doesn’t work well if you want to manage your financial life well. If you dislike financial matters, engage a professional who have a fiduciary obligation to put your interests before his/her interests. Fee-only financial advisors typically fit the bill. Best of all, a good advisor will pull together your individualized “team” (estate attorney, tax preparer, insurance agent, other professionals) and make sure everyone is working to manage your financial life well – and no balls are dropped in the process.

Please email or call Lynne Hilf if you’d like to attend my April 25 (Monday, 7:30-8:45 pm) talk on “Managing Your Financial Life Well: Things to Do and Things to Avoid.”,  908-204-3031, ext 4.

About the author

Eve L. Kaplan, CFP®

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