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Tending to Your Financial Plan

Tending to your financial plan is much like tending to your garden plan. It takes structure, stability and flexibility.

Tending to your financial plan is much like tending to your garden plan. It takes structure, stability and flexibility.

Have you ever noticed how tending to your financial plan is a lot like tending to your garden?

I have been in my new home for a few years now and I’ve worked really hard to make it a place where the kids and I truly feel we belong. And thankfully we all do. One of our favorite places to spend time is outdoors in the garden.

I fell in love with the house the moment I saw the garden. It was a true blank slate, with only a few good shrubs and trees, themselves in need of some TLC. I took last summer to look through multiple magazines and talk with experts at garden centers to gain some ideas for what I could do with the different conditions this new landscape provided. I drew up a plan with a good friend who loves gardening as much as I, but is far more advanced in her knowledge of what works in our southern climate and what doesn’t. Last fall, I planted some of my favorite perennials so they could take root in the cooler months and this spring I added some color and texture for visual interest and finally saw my garden begin to take shape.

Now it’s September,and my garden is doing well, but some issues have arisen that I hadn’t planned on. A rabbit, for one – a very hungry, persistent rabbit that decided my yard was the best place for her to start a home. So I now have numerous bunnies noshing on my newly planted perennials that are now no bigger than when I planted them. Also, a recent storm changed the shape of a tree, meaning what was once an overly sunny spot is now completely in the shade. And lastly, the past few weeks have provided multiple days with 90+ degree temperatures which has made tending to the garden a bit more difficult.

All of these unexpected events put my plan off track and started me thinking of how tending to my garden reminds me of my financial life. Much like my garden plan, my financial plan is the template that provides structure and stability to help deal with the inevitable changes. The plan and my attitude must be flexible, because things will change. The wind will blow down a tree, a critter of some kind will eat a valued plant, a market downturn will occur, and a life event will alter my situation. Knowing that change is inevitable is a good reason for resolving to review your financial plan at least annually to make any necessary changes whether it was a rabbit or a market decline that disrupts your plans.

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5 tips for juggling financial priorities

One of the biggest challenges when it comes to managing your money is juggling financial priorities: Should you save for your own future or college for your kids? Put money in an emergency fund or pad your 401(k)? Pay down debt or save for retirement?

That last question is particularly prudent as you approach retirement age because in an ideal situation, you want to retire debt-free. You probably won’t be surprised to read that the answer is to strike a balance. How do you do that?

Break your debts down by interest rate. Your mortgage is likely a low-interest rate debt — rates right now are holding strong in the low 4% range. Auto loans and student loans, particularly if they are federal student loans and not private loans, are likely to fall into this low-rate category, too. Credit cards generally have much higher interest rates. On average, they’re running about 13% to 14%, with store-credit cards coming in an average 8% higher. Paying down your debt efficiently and inexpensively means focusing your efforts on the highest interest rates first. That will get you the biggest bang for your buck.

Do the math. I generally recommend assuming an investment return of between 6 and 8 percent when planning for retirement. Wells Fargo’s My Retirement Plan assumes a return that ranges from around 4 percent to a little over 7% In either case, you’ll note that debt on credit cards comes at a higher cost — as I said, they’re high-interest rate debts and you’re likely to pay anywhere from 9% at the low end to over 20% on a particularly costly card. Simple math, then, tells you that you’d get a better return on your money by paying off credit card debt first. Debts that fall in the low interest rate category, like your mortgage, should of course be paid, but there’s no need to throw additional money at them when you could be earning a greater return in your retirement account.

The caveat? If your employer offers matching dollars, that’s a return that’s going to beat the one you get paying off even high rate debt. A common scenario is a 50% match, which means they’ll throw in 50 cents for every dollar you contribute, up to a certain percentage of your salary. That’s a 50% return on your money – guaranteed. Take advantage.

Ask yourself whether you can do both. In the best scenario, you can find some room in your budget to pay off debt and some room in your budget to save. The best way to do that is to take a careful look at where your money is going and try to cut some expenses. (One thought: Try a month-long shopping fast. It’s a very trendy way to learn what you actually can live without.)

Take pleasure in your successes. Whether you choose to focus on paying down debt or building up your savings make sure that once a month you take a close look at how much progress you’ve made. It will bolster your confidence that you can do more.

Finally, talk to an expert. When there competing financial priorities and you’re having a tough time sorting them out, it can help to meet with a financial planner. Having an expert on call can help you put things in perspective and develop a road map to meet all of your goals.

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Turning Your Personal Budget from Torture into Freedom

I’ve always struggled with the idea of living my life according to a budget. It’s not that I was too lazy to make one or too frivolous with my money to stick to it, but to me budgets seemed like fad diets, a plan for failure.

I’ve always struggled with the idea of living my life according to a budget. It’s not that I was too lazy to make one or too frivolous with my money to stick to it, but to me budgets seemed like fad diets, a plan for failure.

I’ve always struggled with the idea of living my life according to a personal budget. It’s not that I was too lazy to make one or too frivolous with my money to stick to it, but to me budgeting seemed like a fad diet, a plan for failure. I swore them both off, and if you’ve read my blogs you’d understand why, I’ve made chasing freedom (in all aspects of my life) a daily goal.

I think we can all agree, from either personal experience or witnessing our friends turn into melting witches, that no one enjoys being on a diet. They’re limiting and even if the pounds are falling off you’re too bitter that you haven’t been allowed to look in the direction of a carb to even celebrate the weight-loss success. When we limit ourselves to what we can and can’t have we feel restricted, which causes us to slack off or just give up.

I found that restricting myself from certain foods was actually driving me to eat more out of frustration. I decided to make a nutrition plan that didn’t restrict me from anything. I found myself becoming more aware of the foods that made me feel good and felt proud every time I choose to eat them. But of course I needed the wiggle room to indulge in New York pizza and Thanksgiving stuffing with buttery mashed potatoes. It was a lenient approach that gave me freedom to make decisions that felt good in the present moment, and then I no longer wanted to rebel.

Based on my success around food, I realized I could change my negative mindset around personal budgeting if I approached it in a similar way. It was a simple shift that gave me enough motivation, and even excitement, to sign up for an online budgeting tool.

I ultimately discovered that my budget keeps me focused on my goals. I have found freedom in saying “heck yes” to buying new booties because I allotted myself that splurge each month. And I felt proud when I recognized I would be happier if I used the money I was spending on lunch twice a week (at a crappy deli) towards organic foods and dark chocolate treats at Whole Foods.

I want to encourage you to find fun in budgeting and to take advantage of the many free online budgeting tools available. Don’t let the pressure of creating a perfect budget and sticking to it deter you from making one. I’ve been playing around and tweaking mine for a month, and I expect that as things start changing in my life and career the numbers will inevitably have to move with it. But it has served as a great assignment to get really clear about what I value spending my money on most, and that feels liberating.

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Start Saving for Retirement Early

Click to access an interactive “Cost of Waiting” graph on Wells Fargo’s Financial Advisor Insights eMagazine.

Click to access an interactive “Cost of Waiting” graph on Wells Fargo’s Financial Advisor Insights eMagazine.

It seems patronizing to say that young workers have to start saving for retirement early, but is it?

Retirement sits on the shoulders of today’s adults like no previous generation. Our grandparents and some of our parents not only had pensions, but full confidence that Social Security would be enough of a supplement to meet their needs. We have IRAs, 401(k)’s, SEP’s and Keogh’s that we have to fund ourselves. Social Security will likely be around, but how much of our living expenses it will cover is much more of an open question. And then there’s healthcare, the wildcard in the equation. According to Fidelity it’s estimated to add another $220,000 in expenses to the bottom line of a 65-year-old couple through their retirements.
That’s the macro explanation about why it’s better to start saving for retirement today rather than tomorrow. But inspiration often comes from going micro – looking at the details of what you’ll have if you get into the retirement saving game sooner rather than later. Take a look at this interactive graphic created by Wells Fargo that calculates retirement savings by annual contribution according to the age you start saving.

So, the question becomes, “How much should I save for retirement?”

If you start at age 20 and save $83 a month or $1000 a year, by the time you’re 60 you’ll have more than $300,000 (this assumes an 8% annual gain). That’s a nice sum of money – and a very different scenario than one facing the saver who didn’t start until age 30 (she’ll have just $133,000), 40 ($54,000) or 50 ($18,000 – yikes!)

Of course, the more you can save each month, the better off you’re likely to be. If you can save $5,000 a year (or $417 a month) from the time you’re 20, you’re looking at $1.4 million at age 60. Look at the difference, though, if you do it for just 10 years less. At 30 years, your total drops to less than half that amount — $612,000. And it’s a steep slope from there. With 20 years of saving you have just $247,000; and with 10, $78,000.

One thing to remember – it’s more important to start, than to start with a particularly high (or particularly round) number. Few people can start saving thousands a year in their 20s; many more can amp up their savings as their earnings increase in their 30s, 40s and 50s. So, here’s one more example to show you the power of just doing something when you’re young.

Say you start at age 20 and save $500 a year for the first 5 years. At age 25, you bump up your contribution to 1000 for another 5 years. At 30, you go to $1,500 and so on, bumping up your contribution by $500 every 5 years. By the time you’re 60, you’ll have put away almost $400,000. And if you can keep saving for another 5 years beyond that at the same rate, you’ll have closer to $600,000.

So, start saving today. Make your contributions automatically so that you don’t miss a month unintentionally. Put them in tax-deferred accounts where they can grow as quickly as possible. And visit your accounts once a month to see how well you’re doing. Trust me. The progress you make when you start saving for retirement early will inspire you to do more.

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Return on College Investment

Considering the return on investment when choosing a college and major should be paramount.

Considering the return on investment when choosing a college and major should be paramount.

It’s a given that earning power is higher with a college degree. Yet, depending on the career path, the return on a college investment can look attractive or a bit iffy.
We have three kids in college right now. Fortunately, we have saved diligently for this and two of three were fortunate enough to get scholarships that help bring down the price tag a bit. College is a big investment and we hope it pays dividends—but it is a big unknown, especially with today’s job market and the salary potential for some majors.

Choosing a major in college doesn’t predestine you to a specific career or job or salary, but it does put you on a path where some doors open easier than others. I graduated with a social work degree (a somewhat reasonable choice for a return on my investment), but after a couple of internships, determined that my interests were better aligned with a human resources type role in a corporate setting. Now, the doors did not open easily for me, but eventually I found an employer that looked at my skills beyond just my degree.

My youngest is just finishing up his freshman year in college and is stressed about picking a major that will have plenty of job options when he graduates. This is an important consideration and I am pleased he has this practical approach to making a living. Yet, I have encouraged him to also consider what he enjoys and what his gifts are. In an ideal world, those would all line up—a career opportunity that leverages your talents and that you will enjoy.

I hope he finds that, but it may take a few turns and detours along the way.

Has your career path been a direct line from your college major to your current role? Feel free to post your comments below.

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4 tips to building financial trust in marriage

A study from the National Endowment for Financial Education earlier this year found that one in three adults have committed financial infidelity in a relationship.

A study from the National Endowment for Financial Education earlier this year found that one in three adults have committed financial infidelity in a relationship.

The research doesn’t lie: Money is a leading cause of divorce. Whether you’re dealing with an inability to talk about it, a difference of opinion about how to spend it, or just the stress of not having enough of it, financial arguments can quickly send an otherwise healthy marriage into a downward spiral.

Dishonesty is perhaps the worst offender, and it’s disturbingly common: A study from the National Endowment for Financial Education earlier this year found that one in three adults have committed financial infidelity in a relationship. That means hiding a purchase, lying about debt, misrepresenting income, siphoning cash into a secret account, or – yikes — all of the above.

When you decide to walk down the aisle, one of the first things you should do — even before you plan the ceremony and, I’d argue, before you purchase a ring — is lay out your finances on the table for your partner to see. This sets a transparent tone right from the start. But what if that ship has sailed? It’s never too late to start building (or re-building) trust in your relationship. Here’s how to do it:

  1. Schedule monthly money meetings. I’ve long been a proponent of these, and I practice what I preach — you’ll find my husband and I dishing the dirt at least once a month, if not more often. That’s because I, too, struggle with talking about money in my relationship, and so setting that time aside on a regular basis forces me to face the music. My hope is it will do the same for you. Having a designated time to address any and all financial concerns in the relationship will keep the lines of communication flowing. It’s also a built in system of checks and balances — use the opportunity to talk about where you’re overspending, how you can cut back, how you’re doing with your retirement and other financial goals, and what you’d like to improve.
  2. Maintain some autonomy. I’m a big fan of having both joint and separate accounts in a relationship. Joint is helpful administratively, so you can pay household bills from one account or for dinner with a single credit or debit card. But separate accounts are equally as important because they allow you to spend without feeling like you have to explain every nickel and dime to your partner. Fund the joint account first with an equal percentage of your paychecks – whatever percentage you need to meet the household expenses and joint savings. Whatever’s left stays in your separate accounts. If only one of you is working outside the home, that single paycheck should be divided into three pots.
  3. Talk about big purchases in advance. Or, even better, set a spending limit. Agree that you won’t spend over X amount without discussing it with your partner first. That means picking up take out on the way home from work is a-okay; picking up a new television is not. Part of this is common sense, of course, but it helps to have a dollar limit etched out so you’re on the same page about what is out of bounds. The limit will match your budget — set it at a number that will have a significant impact on your finances. For some, $50 will throw things off the rails. Others have more flexibility.
  4. Fess up. You’ll know when you’ve overstepped the financial lines in your relationship — the guilt will set in pretty quickly. As with any indiscretion, the consequences only multiply if you try to sweep it under the rug. So talk to your spouse about the misstep, then figure out a plan to get things back on track. Often, that’s a simple as making a return. If that’s not an option, work out a payment plan that allows you to slowly pay off the purchase, or pay back your savings account, over a period of a few months. Admitting the mistake is hard, but hiding it can be devastating.
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My 40th high school reunion: reflecting on the passage of time

At my 20th high school reunion, my classmates and I were in the prime of our lives and career.  Most of us were feeling young, enjoying life and working toward our life goals.

At my 20th high school reunion, my classmates and I were in the prime of our lives and career. Most of us were feeling young, enjoying life and working toward our life goals.


What a difference a significant passage of time can make! I recently attended my 40th high school reunion – the last one I went to was my 20th, and there’s a lot that happens in a 20 year span. While I was really looking forward to it reflecting on the past, I found myself feeling a little sad on the way home, which is certainly not an emotion I was expecting. In the days since, I’ve thought a lot about why that was.

I think some of it was what I’d call life and rites of passage. At my 20th high school reunion, my classmates and I were in the prime of our lives and career. Most of us were feeling young, enjoying life and working toward our life goals. We were in our late 30s and still had a lot of living ahead of us. Most of our parents were still with us and many of us had small children or teenagers.

Fast forward 20 years to the 40th reunion. The first thing I realized was that I couldn’t recognize many of my classmates. Several people had our old yearbook, which I hadn’t looked at in years. As I flipped through the pages, I recalled many of my classmates by looking at their senior pictures;but I sure would have struggled to pick out very many of them today without name tags! While there were a couple that I still recognized, many looked like strangers to me. The aging process is funny that way. The physical aspects creep up on you gradually so you don’t notice all the little changes over time in yourself and those you spend time with regularly. However, seeing the changes in people my age that I hadn’t seen regularly or at all over the past 20 years was eye-opening.

The hard truth is that we’ve all changed a lot, and not just physically. Many of us had lost one or both parents since we last met, some had been laid off or displaced, some were planning for retirement, almost all were empty nesters, and instead of talking about our parent’s health problems, we were talking about our own. And almost 30 of our classmates were no longer living.

I suddenly realized that “we were it.” As an older generation we are becoming the matriarchs and patriarchs of our families. We are community, civic and business leaders; church elders, grandparents and, for some, retirees. And the “somedays” no longer stretch as far out ahead of us as we always thought they would. We are now the “older generation,” and at least for me, I thought this day was a long way off.

It felt strange to suddenly realize we are the generation that younger generations now look to for strength, guidance, leadership, wisdom and experience, much as we looked up to our parents’ generation in the past. That’s quite a responsibility if you think about it, and not a little daunting.

Has a recent event or milestone in your life caused you to reflect on the passage of time and where you find yourself today? What was the catalyst for your self reflection and what revelations did you find most surprising?

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Building your nest egg in case of getting laid off

There’s nothing fun about getting laid off, particularly these days when the amount of time it takes to find the next job is still way above historical averages. But if it this financial setback has to happen, you’re best off if – like Carolyn and her husband – you’re in a place where you can weather it financially. As she noted: “We travel. We eat out. We don’t skimp on anything except we don’t own expensive cars. We don’t buy expensive clothes. Everything is just living within our means.” That’s what I call doing it just right. Checking the following off your-to-do lists will also enable you to handle a lay-off if one should happen to come along. (On the flip side, if you’re the one who decides you simply can’t stand one more day at your current job, they come in handy as well.)

Build up your emergency funds. Financial experts’ advice varies when it comes to recommendations for how much is enough in your financial cushion. I like to see at least three months of living expenses if you’re a two-income family and at least six months if you’re living on a single income. Why the difference? Because if you have two incomes, chances are you won’t lose both simultaneously. And note Your monthly living expenses do not equal the amount you spend every month. It’s the amount you’d have to spend in a month if you weren’t spending on the things you want but don’t really need.

Put it somewhere you can access it. I know interest rates on savings and money market accounts are low by historical averages. When it comes to your emergency fund, it doesn’t matter. The money still needs to be somewhere you can get at it easily in a pinch. To me, that means in my local bank, in a savings or money market account. Not in a CD., and not in a mutual fund. I’ll earn my return on my investments instead.

Consider a back-pocket emergency cushion, too. Should your layoff drag on, you’ll want to know that you have other sources of potential cash to tap. My suggestion? A home equity line of credit. Now, as far too many people learned during the financial crisis, you don’t want to use your home as an ATM unless it’s absolutely necessary., and you do not want to pull more equity out of your home than you absolutely need. But this is one of those things you have to secure while employed. So if it sounds good to you, do it sooner not later, just in case.

Keep job networking. When’s the best time to get a new job or start a new business? When you’re currently employed. Yes, it means working a little harder, putting in considerable extra hours. But the pressure of doing these things while you have a paycheck rolling in is nowhere near the pressure of doing them after being laid off and your severance is running out. Take the time to maintain your connections, keep your resume and contacts up to date, and preserve your memberships in important organizations. They’ve never been more valuable.

Getting laid off can be devastating, both personally and financially. Be prepared for emergencies by looking into some of these easy steps today.

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Do you have adequate insurance?

How do you view insurance for your car and home?   Does it provide more confidence for you and your family?

How do you view insurance for your car and home? Does it provide more confidence for you and your family?

Plan for the worst, hope for the best. Sage advice for all of us on many fronts, yet, planning for the worst is not how I am wired. I am optimistic by nature and use the glass is half full approach, so when I recently moved to the Wells Fargo insurance business a few months- I had to get my head around this idea of planning for the worst- whether it’s a car accident or tornado destroying homes and businesses. Actually – my head got it faster than my heart. My head understands the statistics and the need for adequate insurance coverage. My heart – got there after I heard just a few stories of customers who have encountered those unexpected and often devastating circumstances. Those who had the right insurance were more at ease that the financial impact of the event was covered- and they were able to focus on the emotional healing.

How do you view insurance for your car and home? Does it provide more confidence for you and your family?

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Costs of raising a child

The cost of raising a child is making many women think twice about having a baby.

The cost of raising a child is making many women think twice about having a baby.

The Wall Street Journal recently reported a decline – fairly steep by historical standards – in the number of women having babies in the US. From 2007 to 2010 (the figures for 2011 aren’t quite cooked yet) the number of births fell 8 percent overall, with births among immigrant women declining 14 percent and those among US born women down a smaller, but still significant, 6 percent. To blame? The recession and the rising average cost of raising a child. In other words, women aren’t having as many children because we don’t feel we can afford them.

Exactly how much does it cost to raise a child? There’s no doubt children are expensive. The Department of Labor’s most recent estimate of the cost to raise a child from cradle to college (not including tuition) is $234,900. Time magazine’s Brad Tuttle took a look at that figure and sneered that it was absurdly low. “Moms and dads out there should sit down before hearing that this figure is probably a gross underestimate of the costs of bringing up baby.” He points to numbers in the $900,000 to $1.1 million range as a more realistic cost of raising a baby from cradle to college. This takes into account money parents miss out on because of career “sacrifices” and investments they might have made otherwise.

Stories like both of these make me think of something my mother once said: If she and my father had waited until they could afford children to have them, my brothers and I would have never been born. Even back then (in the ’60s and early ’70s) the average cost was daunting, but they, and so many other people like them, swallowed hard and took the leap. What spurred them? Was it hubris? Confidence? Optimism? Some combination of them all?

I actually think there was something else going on. College was always on my parents’ radar – they both put themselves through, but I know they had aspirations of doing that for us. (They may have also thought they’d be able to do it inexpensively as my father was working as a college professor at the time.) What they didn’t think about was keeping up: With the Joneses, their friends, family, or anyone else. They decided they would do the best that they could within their means. As those means got more sizable through the years, they spent more, but they never broke through the boundaries and they made it work.

Today, the pressure to outfit your young one with the latest in designer strollers and adorable apparel starts well before birth. New parents are encouraged to purchase their way to safety (think baby-proofing), comfort (in both clothing and decor), and intelligence, unnaturally inflating the cost of raising a child. It’s time to step back from all of that.

Moving forward, I’m hoping for a time of fewer comparisons and more self-focus. Thinking about what we know deep down our children need rather than what marketers (or already co-opted other parents) tell us they need, has to be a better way to move forward. The thought of a couple not having the baby they’ve been dreaming about simply because they don’t think they can keep up is simply too depressing.

What do you think?

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