Moving Toward a No-Debt Lifestyle: Steps to Consider

August 04 2010

Any financial planning process begins with necessary changes in financial behavior. The degree of change varies based on financial priorities, but in the end, it’s about adopting good habits and abandoning bad ones.

Before you take any of the following steps, it makes sense to talk to an expert who can help you see your whole financial picture. A financial planning professional can examine all your sources of income and expenses and find the most efficient ways to cut expenses, pay off debt and boost the money you have for saving and investing.

In the meantime, here are some ideas:

Start with nickels and dimes:

You can’t wish your way out of debt – it takes cash. And recovery literally can start with loose change. If you’ve never done a real budget, it’s time. That means tracking every cent of your spending either online (Mint.com is a free online website that offers some unique expense-tracking tools) or on paper. Once you see what’s left your wallet in the last month, start cutting non-essential spending like designer coffee, carryout and deluxe cable and start applying that extra cash to the highest-rate, non-deductible debt you have. Seeing everything you spend in black and white is the first step in changing your relationship with money for a lifetime.

Attack the highest-rate debt first:

In most households, this means attack the credit card balances. While February’s credit card reform law has given borrowers a slight boost by applying monthly payments to highest-rate balances within every credit card statement, it won’t matter much unless you begin paying more each month than the minimum balance. Zero in on your highest-rate cards first, pay more than the minimum and then work downward.

Refinance if you can:

Mortgage rates are still at historically low levels. You’ll need at least 10 percent equity in your home and a credit score exceeding at least 740 (out of 850) to qualify for the best rates, but negotiating with your current lender first is a great place to start. Be sure to inquire about the various government programs and how they pertain to your specific situation.

Make debt-fighting a family lesson:

When you’re talking to kids about budgeting and lowering your expenses, you have to walk a fine line between discipline and fear. But setting money priorities is part of growing up, and it’s essential to discuss and agree upon them as a family. Generally speaking, it helps to solicit the input from others as they feel involved in the decision making process.

Set some post-debt money goals:

Getting out of debt means you’ll be in for an extended period of frugality, and that might be a bit depressing. But as you battle your balances, make some time to really think about what you want to do with your life after the debt is gone. Having a debt-free lifestyle doesn’t stop at having zero balances (though that might call for a celebration!). Being debt-free is the gateway to better money management that will help you reach your dreams. A financial planner can get the conversation started on what those dreams and aspirations are and what permanent savings, spending and investment philosophies will be necessary to achieve them.

Shop differently:

The retail explosion of the last generation – and its implosion of the last 2-3 years – have revealed to a wider audience what money-smart people have always known. Happiness is not measured in what you wear, what you drive, or even where you live. If there is a cheaper solution to find both necessities and luxuries, adopt it. If used or wholesale options are available for food, clothing, housewares or services, why pay retail? Internet retailers, price-comparison shopping sites and online coupon sources are popular for a reason – they almost always offer lower-cost paths to savings. Use them and compare. Here’s another suggestion – keep a centralized shopping list on a big sheet of paper that lets you see all the spending you feel you have to do, and then try to handle it during one organized trip. Seeing everything in front of you will make it easier to prioritize what you really need and what you don’t.

Do-it-yourself or barter repairs and services:

The do-it-yourself movement is in a new phase with the downturn. For any home or auto maintenance chores you may have during the year, learn as much as you can about those tasks and estimate the cost of materials and your time before doing them yourself.  Previous generations made do-it-yourself a necessity. See if that option is right for you and you might save considerable money doing it. Also, for more complicated jobs, partner with friends and family and you can help each other save money.

Rebid your home and life insurance:

Most everyone knows that bundling home and auto insurance with one carrier saves money. Increase your deductibles if you can afford to. But ask your agent specifically about changes in behavior that can save you money. See what taking mass transit most of the week can do for your insurance rates. See if you can benefit from age-related discounts. And check whether it might be worth beefing up your home security or adding more protection against weather-related disasters (storm shutters, shatter-proof glass, etc.) or upgrades to appliances, plumbing or electrical systems. Lastly, be tax-smart about improvements – EnergyStar.gov lists rebates and other breaks for upgrades around your home.

Go debit:

Debit cards wearing a bankcard logo are typically welcome at most stores where credit cards are accepted. This way, you pay cash without carrying cash. If you don’t have such a card, you can probably get one from your bank to replace your traditional ATM card, but remember to tell them to limit your buying power on the card to only what you have in your account. And use overdraft protection to avoid fees.

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Financial Implications of Healthcare Reform

June 16 2010

After almost a year of heated debate, the President has achieved his goal of a major reform to the health care system. In March, the House voted to approve the 2,409 page Senate Bill passed in December, along with 153 pages worth of amendments. Shortly thereafter, the Senate did the same thing so the combined bills became law.

Over the last month, there has been a race by financial industry media to become the thought leaders on the subject so lots of information has been published. After sifting through much of this, I’ll turn to Dr. David Kelly, CFA who is the Managing Director Chief Market Strategist for J.P. Morgan Funds for some thoughts about what the health care reform means financially for individuals and investors.

First, we need to recognize that in discussing this issue, like any other issue in investing, it is critical to leave politics and emotion to one side. People have very strong opinions on all sides of the health care debate – they are entitled to those opinions. These comments are solely focused on the financial and investment implications of the combined bills.

Passing over the generally recognized positive of expanding coverage to roughly 30 million of the 50 million U.S. residents who don’t currently have insurance, what does it all mean for the economy and markets?

Taxes:  The most obvious quantifiable impact of the bill is an increase in taxes for upper income Americans, particularly on investment income. Starting in 2013, the Medicare tax rate on households with income over $250,000 will be increased from 1.45% to 2.35%. In addition, a new 3.8% Medicare tax will be introduced for the same group on investment income.

Currently, the tax rate on dividends and long-term capital gains is 15%. In 2011, those rates are expected to rise to 20% for households earning over $250,000, and with the new Medicare tax, these rates will rise to 23.8% for the same group. Under current tax law, investors get to keep 85% of the income stream from taxable stock market investments. Under the new law, this will be cut by 8.8% to 76.2%, reducing the value of the income stream by 10.4% (that is 8.8% of 85%). This is obviously a significant number. However, it is worth noting three things about this:

•  First, roughly half of U.S. stocks are owned by households with income under $250,000 and roughly half are held in non-taxable accounts. Thus, using a number of broad assumptions, the value of the average stock should be reduced by one-quarter of 10.4%, or 2.6% – not good obviously, but also not an overwhelming reason to avoid stocks after a 12-month period in which they rose by over 70% and still appear undervalued.

•  Second, this bill does not put stocks at a further disadvantage relative to fixed income. The maximum federal tax rate on bonds and cash accounts is currently 35% and with tax changes coming in 2011 combined with these changes, that maximum rate will rise to 43.4% for households with income over $250,000 in 2013.

• And, third, we’ve been here before. On average, over the past 40   , the maximum federal tax on capital gains was 24.7% and the maximum tax rate on dividends was 44.6%.

Medical care industry:  For the medical care industry, this bill will expand demand without much effort to rein in costs. A combination of federal subsidies and mandates will increase the pool of insured individuals, and while there are many constraints preventing insurance companies from limiting coverage, there are few that limit how much they can charge for it.

The pharmaceutical industry will benefit from this, as well as a plan to remove the donut hole from the Medicare prescription drug benefit program by 2020. Early in the debate on health care, the White House negotiated deals with pharmaceutical, insurance and medical device companies to dissuade them from fighting the reform effort. Under these deals, they appear to retain autonomy on price setting. However, they will pay cumulative taxes of $107 billion between 2011 and 2019. To the extent that they are able to pass these costs on to consumers, they may all do OK in this reform, although they may still be a target for future reform efforts.

The American Medical Association and American Hospital Association have both endorsed the health reform effort with a number of reservations. For the most part, the legislation does not interfere with patient-doctor relationships and, by expanding the pool of the insured, will reduce the number of hours that doctors are forced to devote to charity cases. Most doctors are naturally happy to see patients not lose their coverage due to pre-existing condition clauses, annual caps or non-renewal of existing insurance due to illnesses.

Federal deficit:  According to the Congressional Budget Office, the passage of this legislation would reduce federal deficits by a cumulative $143 billion between 2010 and 2019 and by greater amounts in the following decade. However, these estimates should be taken with more than a grain of salt. It is obviously very hard to estimate what total federal health care spending will be over the next decade. However, whatever else is said about this bill, there is nothing in it to suggest a reduction in either the quantity or prices of health care services consumed.

•  There is no meaningful malpractice reform.

•  There is no reduction in drug patent lives.

•  There is no compulsion to force insurance companies to compete across state lines.

•  There is no effort to limit health care procedures in the last year of life.

•  There is no movement in the direction of forcing consumers to confront the cost of services at the point of purchase, and,

•  There are no meaningful incentives to force the insured to take better care of their own health.

In fact, for the most part, this bill moves away from, rather than toward, the principles of market economics. In 2007, the United States devoted 16% of its GDP to health care spending compared to 11% in the country with the second highest spending, which was France. Despite this, it ranks 38th in the world in life expectancy at birth. Sadly, this bill isn’t likely to change either of these numbers for the better.

The economy:  Despite dire predictions, it’s not clear that health care reform will really slow economic growth that much. Most of the tax provisions don’t kick in until 2013 and the mandates on businesses and individuals don’t kick in in a big way until 2016. Between now and then, the economy is quite capable of staging a full cyclical recovery. It may be that businesses will, in the end, be forced to pay more for the health care of their workers – however, overall, American business is quite capable of limiting wage increases to add to benefit costs. It may be that America as a society ends up spending more on health care. However, if we spend more on health care and less on housing or education or hamburgers, that is our choice. The jobs created in the health care field are, for the most part, American jobs and still some of the highest skilled and best paid jobs out there. It should be noted, however, that to the extent that the government incurs more debt to pay for higher health care costs, it probably does mean higher long-term interest rates.

Politics:  The passage of health care reform is a huge victory for the President and it may ultimately work out better for him politically than many Republicans had hoped or Democrats had feared. The economy is improving, and if it continues to do so, many may feel that their fears about health care reform were unfounded. The reality is more complicated. Health care reform wasn’t about to stop the economy in its tracks anyway and the President will be the beneficiary of a cyclical bounce-back, which, on its face, appears to owe much more to pent-up demand than government stimulus. Either way, the Democrats will lose seats in the mid-term election. However, the end-game for health care reform may well mean less of a swing to the Republicans in November than many had thought.

All in all, a lot to consider but also, more important, a lot to keep in proper perspective

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New Careers After Age 50

April 16 2010

It’s possible that in the future, an over-50 career change might become a common event, maybe even a desired event in our society – which means it’s definitely worth planning for.

A visit to a financial planner might be a good first step in planning a move to a second career or dealing with a sudden change in your career prospects. You need to plan for any possible change in income up or down in any opportunity you entertain. You’ll also need to plan how you’ll afford any training you’ll need – college or otherwise – in making that successful transition. To make an over-50 career transition successful, it’s all about preparation. So here are some ideas:

Start with research: One of the best-detailed, up-to-the-minute career resources for the types of jobs that exist in this country and their salary and hiring forecasts is the U.S. Bureau of Labor Statistics’ Occupational Outlook Handbook (http://www.bls.gov/OCO/). This extensive online resource not only lists major career groups, but the leading occupations in it. If you haven’t been in the job market for awhile, this kind of research is a good way to reset your knowledge of your industry and whether its hiring prospects are bright. This database also lays out the need for the necessary training required to reach certain salary and career levels.

Check industries that are friendly to older workers: Healthcare and education are just two industries that are more welcoming to older workers. U.S. News & World Report has come up with its own list of popular over-50 occupations, and it’s a good starting point for people looking for flexible scheduling and other workers their age in the field. More older Americans now work as retail salespersons than in any other occupation. But baby boomers are expected to find other things to do besides being store clerks as they come to dominate the 55-plus age bracket. Boomers are likely to land in growth fields that welcome older workers, according to a new Urban Institute study. And many boomers will breathe a sigh of relief to find that retail jobs did not make the top 20 occupations projected to be the fastest growing among the older set.

Network: Face-to-face contact with people in your target fields is important. If you can, check out events at professional organizations in that field or attend casual networking functions to learn more. Being someone over 50, you can get an idea of whether there’s true age diversity in a field and how all those groups work together – or if you’re simply the oldest person in the room. Obviously if you feel welcome, networking will give you a better idea of which companies with someone with your maturity and experience might fit in.

Emphasize your up-to-date experience and training, not your birthday: Career experts suggest that older workers should lead with work experience and skills and leave off all but the most essential timeframe information. You’re not there to lie about your work experience, but the reason young workers are so valuable is that they’ve gotten the most recent training and they are generally less costly to employ. That’s why older workers should lead with every strength that makes them attractive to employers and should de-emphasize descriptors that broadcast age.

Make your perspective an asset: If you are already familiar with the industry you’re targeting, you can use your extensive work experience to position yourself as a problem solver. If you know what a company really needs in your chosen job, say so in the cover letter and be clear in stating why you’d be a great solution.

Consider timing issues at your current employer: If you are up for a salary review soon, it might make sense to have a better idea of what you’re worth in the marketplace. Also, as the end of the year is coming, you might want to use up any money in your flexible benefits accounts for medical appointments, glasses or dental work before you leave.

Don’t be shy about approaching managers who aren’t hiring – publicly: The best jobs aren’t always advertised. Instead of limiting your options to companies with posted openings, send letters of introduction to managers at firms where you’d really like to work. And again, make your perspective an asset – if you can see what a great role for you would be in their organization, tell them about it. The worst thing they could do is not respond. The best might be an interview that puts you on their radar screen.

Get in shape: It’s not just a matter of looks. Healthy employees cost less. It makes sense to lose weight if you need to and upgrade hair and wardrobe not to look like a twenty-something, but to fit in comfortably at the organization where you want to work.

Decide what you’ll be doing with your 401(k) and other retirement funds: You may not want to make any moves for awhile, but it’s good to talk with a CFP® professional about whether you’ll be moving that money to private accounts. Also, make sure you know when you can enroll in the company 401(k) and other retirement offerings at your new employer.

Secure your health insurance: You might wait a few months to a year for new health coverage to kick in at a new job. You might need to buy private insurance until then or go onto a spouse’s health plan in the meantime.

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Personality Affects Your Financial Decision-Making

February 15 2010

All investors are not created equal. That’s why financial planners usually start their first client meetings with a discussion of money attitudes, goals and risk tolerance – the driver at the root of all investment decisions. Some planners do this by general conversation, others by detailed surveys they ask their clients to fill out.

The survey route can be a more valuable tool because it forces clients to face their money issues, perhaps for the first time. Despite the difficulty in facing up to such key issues, individuals get a better idea of where their money strengths and weaknesses really lie.  Often, the real difficulties lie in how money is spent.

The real value of answering a lot of questions about your risk tolerance is to tell you what you don’t know – how the sources of your money, the way you made it, your money viewpoints and current methods of handling it will inform every decision you make about it in the future.

The most important thing a questionnaire can reveal is your true money priorities and behaviors. Trained financial advisers, such as CERTIFIED FINANCIAL PLANNER™ professionals – use both conversation and surveys to reach some firm answers that might surprise you.

Are there particular money types? In reality, you’ll find quite a number of surveys out there that define money types in particular ways, but you’ll find personalities that are common on the scale from conservative to liberal. Deborah L. Price, a Financial Planning Association member and founder and CEO of the Money Coaching Institute, offers these scenarios in an article titled, “What’s Your Money Personality?”:

The Innocent:  Price notes that innocents often live in denial, are easily overwhelmed by financial information and rely heavily on the advice and opinions of others. They tend to be the most trusting because they generally don’t see people or situations clearly – which leaves them open to bad decisions at best and fraud at worst.

The Victim:  She notes that victims are people who tend to live in the past and blame their woes on outside factors and situations they claim they can’t control. These people may have been abused, betrayed, or have suffered some great financial loss, but they generally see life as a self-fulfilling prophecy that they can’t change.

The Warrior:  Generally seen as a successful person in the business and financial worlds, they will listen to advisors, but they make their own decisions. They tend to be great caretakers.

The Martyr:  These people generally put other people before their own financial health. They use their money to rescue others based on their high expectations for themselves and the people they’re rescuing, but these decisions may be costly in the long run.

The Fool:  The Fool, explains Price, is a combination of the Innocent and the Warrior because they have no clue about what they’re doing but they’ll act fearlessly. They are financially adventurous and they act on impulse.

The Creator/Artist:  These people often have a love/hate relationship with money. They’re constantly struggling to make their finances work, but they often feel that caring about money means something bad.

The Tyrant:  Price reports that this type hoards money and uses it to manipulate others. They may have everything they need, but they’re never comfortable with their lives because they fear losing control.

The Magician:  Price defines the The Magician as the ideal money type. They’re aware of their circumstances and responsibilities and can see situations very clearly.

A financial planner tries to see through the static to find out what you really need to create a solid financial life. But it might make sense to ask yourself a few questions before you and your planner sit down:

1.    How would you describe your financial status right now?
2.    What’s important about money to you?
3.    What’s your family history with money?
4.    What do you do with your money?
5.    If money wasn’t an issue, what would you do with your life?
6.    Has the way you’ve made your money – through work, marriage or inheritance – affected the way you think about it in a particular way?
7.    How much debt do you have and how do you feel about it?
8.    Are you more concerned about maintaining the value of your initial investment or making a profit from it?
9.    Are you willing to give up that stability for the chance at long-term growth?
10.    What are you most likely to enjoy spending money on?
11.    How would you feel if the value of your investment dropped for several months?
12.    How would you feel if the value of your investment dropped for several years?
13.    If you had to list three things you really wanted to do with your money, what would they be?
14.    What does retirement mean to you? Does it mean quitting work entirely and doing whatever you want to do or working in a new career full- or part-time?
15.    Do you want kids? Do you understand the financial commitment?
16.    If you have kids, do you expect them to pay their own way through college or will you pay for all or part of it? What kind of shape are you in to afford their college education?
17.    How’s your health and your health insurance coverage?
18.    What kind of physical and financial shape are your parents in?

One of the toughest aspects of getting a financial plan going is recognizing how your personal style, mindset, and life situation might affect your investment decisions. A financial professional will understand this challenge and can help you think through your choices. Your resulting portfolio should feel like a perfect fit for you!

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The Necessity of Careful Business Planning

December 17 2009

The Ewing Marion Kauffman Foundation recently released a study entitled “The Coming Entrepreneurship Boom” that credits entrepreneurship as a major force that will bring the current troubled economy back to health. The twist, however, is that Baby Boomers – ranging in age from 45 to 63 – are expected to be in the vanguard of this movement.

It’s a particularly interesting demographic to be leading such a wave of startups, though not a complete surprise. After all, the oldest Boomers are on the cusp of retirement yet unable to retire due to shrunken portfolios. At the same time, they are not exactly the most attractive job candidates in the market due to age. So, many are exploring a third option – starting their own companies.

Before any firm decisions are made, however, individuals not only need to examine their personal and potential business finances but also the considerable lifestyle changes entrepreneurship can bring. One of the first stops on that learning curve should be to financial and tax experts — a CERTIFIED FINANCIAL PLANNER™ professional can give any individual an overview of their financial and personal capacity to make such a new enterprise work; and work with tax, estate and investment experts to make sure a new business career is on a sound footing.

In business, there are no guarantees. There is simply no way to eliminate all the risks associated with starting a small business – but you can improve your chances of success with good planning, preparation, and insight. Start by evaluating your strengths and weaknesses as a potential owner and manager of a small business.

Here are some other basic strategic and financial steps to follow in starting a business:

Start writing your business plan: There are some people who tell you that a business plan is necessary for a new company only if you want to borrow or seek investors for a startup. The truth is that sitting down and writing a formal business plan is an excellent way for anyone to examine the idea, structure and money sources for their business concept and most important, the potential of profit from the idea. One of the best places to get the basics of the business planning process is the U.S. Small Business Administration’s Small Business Planner website (www.sba.gov/smallbusinessplanner).

Branch out for specific advice: You need not one, but two sets of financial advice when starting a business. The first involves the viability of your business concept. You should understand your business idea inside and out before you launch and what your new company’s immediate and long-term cash needs will be. The second set of advice involves your own finances and how prepared you are for what will surely be a major lifestyle transition. Because new business owners frequently underestimate their new business’s expenses starting out, they can find themselves funding those business needs out-of-pocket. That means less money for day-to-day living expenses as well as long-term planning for retirement. That’s why it’s critical to consult a tax advisor as well as a CFP® at the outset.

Get rid of your debts: With the possible exception of mortgage debt, there’s very little “good debt” in the life of a businessperson. So while you’re researching your business concept and putting together your own financial plan, start cutting back and erasing as much credit card and adjustable-rate debt from your personal life as possible. The continuing credit crisis is making it tough for any business owner – even experienced ones – to borrow money at attractive rates. You’ll have the most flexibility when you owe as little as possible.

Work on your emergency fund: While it’s wise for everyone to have 3 to6 months of cash set aside for basic living expenses in case they lose their job or face a medical emergency, emergency funds are particularly necessary for new business owners. Startups can be particularly expensive, and most businesses are not profitable from day one. Plan a more extensive emergency fund for yourself and for the business as well.

Plan your healthcare and other basic benefits: Automatic benefits are the plus side of working for someone else. When you’re working for yourself, you become your own HR department and chances are you won’t be able to match your old employer’s buying power. If you support a family with these benefits or if you have particular health concerns, you need to price the out-of-pocket costs of such benefits before starting your own company – depending on the business and the cost of those benefits, you might want to rethink your plans.

Price disability coverage now: You might have short-term disability coverage as part of your current employee benefits, but that will likely end once you quit your job. You should price long-term disability coverage based on your present working salary so you can qualify for the highest possible benefit. Disability coverage is critical for self-employed people since they’re their own support system.

Starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, roughly 50% of small businesses fail within the first five years. In his book Small Business Management, Michael Ames gives the following reasons for small business failure: lack of experience, insufficient capital (money), poor location, poor inventory management, over-investment in fixed assets, poor credit arrangements, personal use of business funds, unexpected growth, competition, and low sales.

These figures and this list aren’t meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps.

It’s true that there are many reasons not to start your own business. But for the right person, the advantages of business ownership far outweigh the risks. Among them, you will be your own boss; hard work and long hours directly benefit you, rather than increasing profits for someone else; earning and growth potential are far greater; a new venture is as exciting as it is risky; and running a business provides endless challenge and opportunities for learning.

Godspeed to you and yours in 2010!

Craig Narum, CFP® is a Principal of Trisperity Wealth Advisory Group in Katy and West Houston. Trisperity helps people protect, grow and give (to loved ones) their financial wealth. He can be contacted at 281-693-3777, craig@trisperity.com or through www.trisperity.com. This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Craig Narum, a local member of FPA.

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Thinking Ahead About Inflation And The Federal Debt?

October 20 2009

While the struggling economy has put a vice on inflation, many experts don’t expect things to stay that way for much longer. Why? Many economic experts fear the current level of federal spending will inevitably lead to printing more money, and that’s regarded as an inflationary solution.
Recently, the Office of Management and Budget released its Mid-Session Review of the federal budget. While the numbers were not surprising, given the deep recession, they were still huge, projecting a cumulative $9.1 trillion in deficits over the next decade. Left unchecked, this rising tide of debt could boost Treasury interest rates substantially, while only postponing harder choices for a later date. Alternatively, Washington may decide to make some of these choices today, and attack the debt problem through lower spending or higher taxes, or more indirectly, through encouraging stronger economic growth or higher inflation. The key point for investors is that the federal debt is now so big and growing so fast that either path it takes, in the absence of action or any steps taken to correct it, will profoundly affect the investment environment for years to come.
The speed with which the fiscal situation has deteriorated has been breathtaking. Just one year ago, in the Mid-Session Review of the last budget of the Bush Administration, the federal budget was expected to move from deficit to surplus in 2012 with debt equaling 36% of GDP. Today, the deficit is expected to be almost $800 billion in 2012 with the debt at over 71% of GDP and rising.
One reason for this swelling tide of deficits is the measures taken to try to stabilize the financial system and jumpstart the economy—$700 billion in TARP money and $787 billion in fiscal stimulus is serious money. However, the biggest problem has been the recession itself. The Administration now projects that the unemployment rate will average 9.8% next year and fall by an average of just 1% per year over the next four years, reaching 5.9% in 2014. This massive unemployment will erode the tax base while boosting social spending. Meanwhile, interest costs on the debt incurred over the next few years rise very sharply, and by 2019, these annual interest costs reach $774 billion, accounting, on their own, for almost the entire annual deficit.
There are basically four ways to deal with a debt problem. You can try to cut your way out, tax your way out, grow your way out or inflate your way out. Alternatively, it is worth considering the implications of doing nothing—or in other words, letting the debt grow along its current path.
The most obvious impact of this decision, or rather non-decision, should be higher Treasury interest rates. As this is being written, 10-year Treasury bonds are yielding a super low 3.4%. However, it is hard to see how they can stay there in the face of a rebounding economy and soaring debt.
The problem is that vastly increased government debt, relative to the size of our economy, pushes up real yields on Treasuries—that is, Treasury yields less inflation. More people have to be induced to lend money to the government and they will need significant encouragement to do so.
A simple regression analysis, modeling changes in real 10-year Treasury bond yields as a function of real 3-month T-bill rates, the federal debt-to-GDP ratio and the change in the federal debt-to-GDP ratio, explains 88% of the variation in real 10-year yields over the past 54 years. This model, combined with the Administration’s own forecasts of short-term interest rates, federal debt and inflation, suggests that the 10-year Treasury yield could rise as high as 6.5% in 2014 from 3.4% today, as the federal debt soars from 55% of GDP to 72% of GDP and the Federal Reserve maneuvers short-term interest rates back to normal levels.
It should be emphasized that this model, or indeed any statistical model, has severe limitations given profound changes in global financial markets and investor attitudes over the past few decades. It is possible that increased personal savings, both here and abroad in the wake of the financial crisis, will partly absorb this increased supply of Treasury bonds. On the other hand, the U.S. government will be trying to borrow this money at a time when governments around the world are also trying to tap the world’s capital markets. However, the biggest economies outside the United States are also bleeding red ink. This suggests that the traditional safety valve of foreign purchases of U.S. Treasuries won’t be sufficient to absorb our growing debt and that the Treasury will have to offer higher interest rates to move it. These higher Treasury rates, needless to say, would inflict capital losses on current Treasury bond holders.
There are other issues, of course, also associated with the “do-nothing” scenario. Some have worried that the U.S. dollar might fall sharply from the weight of all this debt. However, the obvious question is, “Against what?” The fact that the Euro Area, Japan and the U.K. are facing similar economic and budget problems to the U.S. reduces the risk of a dollar collapse against the world’s biggest currencies. Having said this, the next few years may well see the dollar decline against some emerging market nations that have been less impacted by the crisis.
Another concern is that rising Treasury bond yields may also have the undesirable impact of “crowding-out” some private sector investment that otherwise would have occurred. This could be an issue for capital spending in general, but it is perhaps more of an issue for the housing market, where a rebound in 30-year fixed rate mortgage rates towards 8% could slow the recovery of this battered sector.
As of late August, the federal deficit was estimated at $1.58 trillion and expected to increase roughly $1 trillion more based on the final size of President Obama’s healthcare plan. Even if inflation moves slowly, it’s not a bad idea to at least start thinking about some savings, spending and investment strategies that take inflation into account. Here are a few:
Beware of Treasuries: An economic recovery combined with burgeoning federal debt could push 10-year Treasury yields above 6%, eating into total returns on short-term maturities and generating actual losses on longer-term bonds.
Recognize the risk of higher taxes, particularly if you are wealthier than average, and take advantage of tax-aware strategies.
Build a bigger nest egg: Any attempt to deal with the deficit will likely involve higher taxes on the rich or lower spending on the elderly, because this is where it is easiest to raise revenue and slow spending. If you are older and richer than average, then you are in the crosshairs.
Refinance if it makes sense for you: In March, April and May of 2009, mortgage rates were at 50-year lows. While they’ve largely bounced around in recent months, an economic recovery may mean rates are headed up.
Consider laddering CDs and other interest-bearing savings vehicles: For emergency funds and other forms of savings, a rising rate environment is actually a good thing. “Laddering” means buying CDs, T-bills or other similar investments consistently, so they’ll mature on a consistent basis. Like the steps of a ladder, this process allows a saver to deposit money on a specific date each month – for example, the first of the month – so as each month goes by at hopefully higher interest rates, you can build the nest egg faster.
Consider TIPS: Treasury Inflation-Protected Securities (TIPS) are Treasury securities whose principal and coupon payments are indexed to inflation based on the movements of the Consumer Price Index (CPI). Like ordinary Treasury securities, TIPS have a fixed coupon interest rate but principal is adjusted to reflect the inflation rate. If inflation goes up, the amount of principal to be paid at maturity rises. Coupon payments rise along with the principal since the rate is calculated on the principal amount. If your bet goes wrong and there’s deflation, you won’t lose your principal. There’s a floor at par. When rates rise, TIPS lose value, but they tend to lose a little less because of inflation protection. It might be best to own TIPS in an IRA or other tax-advantaged account because the periodic inventory adjustment is subject to ordinary federal tax at intervals before the bond matures.
Sometimes, when you pass an angry dog on the street, you are advised to ignore it and it will go away. This is not such great advice, however, if it lunges for your throat. The federal debt today is like an angry dog and, for investors, the best strategy is not to ignore it but rather to build a strategy to protect against it.

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Dealing With Companywide Pay and Benefits Cuts

August 18 2009

Even as the economy shows a few glimmers of improvement, most economists expect some continuation of job, pay and benefits cuts to continue throughout the year.  What can you do about these moves, even if they’re still in the rumor stage?

Hold a family meeting: Talking about money issues is a delicate balancing act between teamwork and fear, but there are already plenty of TV commercials showing Dad or Mom losing their jobs and kids rising to the occasion. As awful as economic circumstances have gotten, there’s a spirit of teamwork in the air, and families should harness it. Sit down, discuss what’s going on, and solicit suggestions equally on the best ways to conserve excess and luxury spending, save more money on essential spending and find an appropriate treat for everyone when trouble lifts.  And if your kids are working age, let them get a job to help with their expenses as long as it doesn’t affect their schoolwork.

Get some advice: Don’t wait until a crisis descends to get some useful strategic advice. A Certified Financial Planner™ professional will be able to help you with spending issues, but they will also be able to help you shore up your retirement investments if your company decides to alter its traditional pension plan or cut or eliminate matching contributions to your 401(k).

Create a budget and stick to it: Whether you build one in a family meeting or in front of a computer screen by yourself, it’s time to budget. Analyze every cent of spending, build a budget of mainly essentials and a few scheduled treats and swear to live by it to the letter until your employer restores pay and benefits or you find a new job. And when happy times come back, do one more thing – see if you can still stick to that budget so you can accumulate an emergency fund and additional savings. You’ll be in a much better position when the next downturn occurs.

Boost cash flow through simple withholding changes: Talk to your tax professional about whether it makes sense to boost your withholding allowances to make up for that percentage of lost pay. If you find you’re claiming too many allowances, you can send in an additional tax payment later.

Renegotiate what you’re paying for insurance. If you have an emergency fund, raise your deductibles on home and auto insurance so you can save on premiums. If your car is old, consider dropping that collision coverage and make sure you have your policies consolidated with one carrier because that can save you money. One more thing to consider – do you absolutely need that extra car? Selling it and car pooling or shifting to public transportation can save you thousands a year.

Start haggling over bills and fees: Sick of that cable bill? Either cancel it or tell your provider you’re going with a competing satellite or phone-based TV network and see if you can get a lower rate. Start pre-shopping all purchases online, and if you buy online, use discount codes to save money on your purchase and on shipping. Start asking about pricing on elective medical procedures among a range of doctors. Wherever you buy a product or service, make it a policy to see if there is a cheaper way to do the transaction. The worst thing the merchant, company or professional can say is “no,” and you can choose whether to stick with them or go elsewhere.

Refinance your mortgage: While rates are low, lock in a rate cut of a percentage point or more and lop at least $200 or more off your monthly payment. You might gain some tax advantages from that move as well as cover a good portion of your pay cut.  And if you find your company will be cutting its match to your 401(k) plan, that might not be a bad place for the surplus funds to go either.

Downsize your home: If you can sell your current residence, this might be a good time to downsize into a smaller home that gives you more equity and a lower mortgage payment.

Start buying used. Can you really tell whether someone wore that blouse that originally cost $300 that you picked up for $15? Are used DVDs that much harder to watch than new?  Start getting familiar with Internet auction sites, local flea markets, consignment shops and thrift stores to find ways to stretch a budget farther.

Plan a job search: You might absolutely love where you work and are willing to be a team player toughing out the downturn. But fortunes can deteriorate as well as improve at companies with severe cutbacks, so it’s wise to spruce up that resume while you have time to think about it and start networking just to see what’s going on in other parts of your industry, your city, or possibly in other cities. And if you can do it quietly, start lining up respected professionals to provide references.

Craig Narum, CFP^® is a Principal of Trisperity Wealth Advisory Group in Katy and West Houston. Trisperity helps people protect, grow and give (to loved ones) their financial wealth. He can be contacted at 281-693-3777, craig@trisperity.com or through www.trisperity.com. This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Craig Narum, a local member of FPA.

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Rights and Responsibilities of Investors

June 10 2009

The Bernie Madoff case is just the most recent high profile instance of investor fraud that is triggering a cycle of emotions. It’s truly astonishing that so many people have been impacted by so many fraudsters. I clearly feel sorry for those people who got taken and also wonder if they were ever suspicious about the outsized returns and the lack of clarity around the investment process. I get angry upon hearing how feeder firms either failed to perform proper due diligence or overlooked the obvious and now claim to be victims themselves. I cringe, but understand, when investors imply with their questions that others may not be trustworthy because a few in the industry have cast a shadow over my profession.

I recently read a piece by Mark Tibergien in Investment Advisor that I’ve edited for you. Mark is CEO of Pershing Advisor Solutions, one of the leading custodians for RIA assets, and is a former partner in Moss Adams LLP.

The canvas of this landscape, of course, is painted with multiple shades of gray. Investors hire advisors to guide them through complex financial decisions. Boards of non-profits outsource to investment consultants. Widows who have never balanced a checkbook seek handholding and direction from trusted financial professionals. Artists and actors delegate financial decisions to people who perform the role of business guru so that they can concentrate on their crafts. The whole point of hiring an advisor is to engage an intermediary, a guide, to do what a layperson doesn’t or can’t do well.

But does this mean the investor client should abdicate all responsibility? Wouldn’t they take action to understand nutrition and exercise if their doctor said they were morbidly obese? Wouldn’t they try to understand their child’s learning disability if he fell behind in school? People must frequently make decisions and take action on things they know nothing about. Why is understanding where their money is going and what their advisor is saying any different?

It is true that we seem to be living in a world where the obvious somehow becomes fodder for litigation and blame throwing. A recent blog cited frivolous law suits that have resulted in ridiculous warning labels like:

• “Remove child before folding,” on a baby stroller.

• “Harmful if swallowed,” on a brass fishing lure with a three-pronged hook.

• “Never iron clothes while they are being worn,” on a household iron.
• “Shin pads cannot protect any part of the body they do not cover,” on shin guards.

All of this raises the question: What is the investor’s responsibility to minimize the risk of fraud or failure in the management of their account? The Madoff affair has elevated the question of whether the markets are fixed to work against ordinary folks. Multiple other incidents continue to reinforce the impression that the financial services industry is out of control. It’s maddening that while many are keeping their nose clean, others are sullying their reputation by association.

Blame and Responsibility
This tension around whom to blame got Mr. Tibergien thinking about advisors helping investors to understand their rights and responsibilities in the management of their money. Yet how can this discussion occur at a time when investors are wounded and wary without the advisor coming off as trying to shift accountability?

Recently, Mr. Tibergien was asked to talk about this subject for the PBS television show “Consuelo Mack WealthTrack.” With the help of readers of the newsletter Inside Information, and input from members of the elite cadre of advisors in the Alpha Group, he pulled together some advisor/investor client communication ideas. One of those ideas is to provide investors with a “Bill of Rights and Responsibilities” as part of the engagement process. This document would outline responsibilities and expectations for both parties.

Investors’ Rights
Here’s how an Investor Bill of Rights might read:

As someone seeking advice from a financial planning and investment professional, you have the following rights:

• To know the credentials and relevant experience of your advisor and her team.

• To know the compliance and disciplinary history of your advisor and his associates, including relevant problems in their past such as: personal bankruptcy, poor health that may impair their work on your behalf, business history, and financial strength.

• To know your advisor’s processes and protocols for developing her recommendations and executing their strategies on your behalf.

• To understand your advisor’s investment philosophy and to expect that he can communicate it in a way that you can comprehend and even recite back to them.

• To understand all the fees, charges, and expenses charged by your advisor, by the funds she uses, and the cost of execution.

• To know whether your advisor uses an independent clearing firm if affiliated with a broker/dealer, or an independent custodian if a registered investment advisor (RIA).

• To receive printed or electronic confirmations from the independent custodian of every transaction of money or assets into and out of your account, and to receive statements summarizing activity in your account at least quarterly.

• To know if your advisor is receiving extra fees or compensation from her custodian including 12b-1 fee rebates, or “soft dollar” payments for doing business with them; or in the case of broker/dealer affiliated advisors, to know whether the registered representative (broker) has received a signing or retention bonus to affiliate with a particular firm. To have these terms explained to you in the context of how they could influence the advisor’s work with you as his client.

• To receive regular communication from your advisor on the status of your account, status of activities that your advisor is committed to, and other relevant developments.

• To be provided with the contact information of other investors as references.

Investors’ Responsibilities
The counterpart to having rights is having responsibilities, too. Here’s how a Bill of Responsibilities could read:

It is my responsibility as your advisor to be completely transparent about how I do business with you. I will develop and implement recommendations and follow the protocols that we have described to you, and will charge appropriately for my services. I am here to guide you based on my professional experience and education, but ultimately you must be both comfortable and clear about what I am doing on your behalf.

The following is a Statement of Personal Responsibility. It is your responsibility:

• To ask for explanations on any recommendations that you do not understand.

• To not authorize execution of the recommendation if you do not understand how it works, how it will benefit you, or what the risks are.

• To look at every “confirm” and statement you receive from the broker/dealer or custodian and to reconcile those statements with any performance reports that your advisor provides to you independently. You may choose to engage a CPA, bookkeeper, or trusted person separate from your advisor to perform this reconciliation.

• To understand and agree with your advisor’s investment philosophy or to seek another advisor if you do not agree or understand.

• To not allow investment of all your assets with a single money manager or fund.

• To evaluate your advisor not just on performance but on his ability to listen, communicate, and respond to your concerns, and to change the relationship if it is no longer acceptable.

• To understand your tolerance for risk and your own relationship with money.

• To question why returns are much greater than the market averages as vigorously as you might question why your returns are below a reasonable expectation.

• To challenge fees that were not agreed to in advance and to evaluate whether you believe you are receiving value for what you are paying.

• To not give full discretion for the management of assets, or to give a Power of Attorney over the assets, to the same person who is responsible for executing the transactions.

This is not a complete list of items to include in a Bill of Rights and Responsibilities for investors, but an example of how investors can assume control of their financial lives.

Though it is likely we will see changes in regulation that will attempt to shore up weaknesses in our system and better protect investors, it will be impossible to totally prevent investment abuse without better vigilance by investors and their other advisors including accountants and lawyers. Investors should always know their rights, but they should also understand their responsibilities as well.

Craig Narum, CFP® is a Principal of Trisperity Wealth Advisory Group in Katy. Trisperity helps people protect, grow and give (to loved ones) their financial wealth. He can be contacted at 281-693-3777, craig@trisperity.com or through www.trisperity.com. This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Craig Narum, a local member of FPA.

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Investing Against the Tide

April 04 2009

By Craig Narum
Trisperity Wealth

Over the last year, I have often been asked if this bear market and recession is different than the past. The short answer is that they have all been different.

For example, the 1969-1970 recession was the worst bear market since the Great Depression and was marked by the collapse of several large conglomerate companies whose growth was based on heavy leveraging. The 1981-1983 period was considered a double recession when the Fed pushed interest rates up to the nosebleed level of 20%. Anybody dependent on bank financing was in big trouble. More banks collapsed during this time than during the Great Depression. The 1990-1991 recession is when some 1500 S&L’s and banks were forced to merge or went bankrupt. It was an era of greed led by Michael Milken, junk bond king who later went to jail, as his firm Drexel, Burnham Lambert went belly up. Meanwhile, Congress was forced to set up the Resolution Trust Corporation to bail out the S&L’s and hundreds of thousands of their depositors.

In November 1974, few people thought it was a good time to invest. The Dow had lost more than 40% from its high in January 1973. Jim Fullerton, former chairman of the Capital Group, however, offered some perspective by recalling an even darker period in our nation’s history — April 1942. His remarks follow. As you read and identify parallels to 2007-2009, keep in mind that every word that follows was written in 1974 while reflecting back on 1942 …

One significant reason why there is such an extreme degree of bearishness, pessimism, bewildering confusion, and sheer terror in the minds of brokers and investors alike right now, is that most people today have nothing in their own experience that they can relate to, which is similar to this market decline.

My message to you, therefore, is: “Courage! We have been here before. Bear markets have lasted this long before. Well-managed mutual funds have gone down this much before. And shareholders in those funds and we the industry survived and prospered.”

I don’t know if we have seen the absolute bottom of this prolonged bear market, (although I think we’ve seen the lows for a lot of individual stocks).

Each economic, market and financial crisis is different from previous ones. But in their very difference, there is commonality. Namely, each crisis is characterized by its own new set of nonrecurring factors, its own set of apparently insoluble problems, and its own set of apparently logical reasons for well founded pessimism about the future.

Today there are thoughtful, experienced, respected economists, bankers, investors and businessmen who can give you well-reasoned, logical, documented arguments why this bear market is different; why this time the economic problems are different; why this time things are going to get worse — and hence, why this is not a good time to invest in common stocks, even though they may appear low.

Today people are saying: “There are so many bewildering uncertainties, and so many enormous problems still facing us — both long and short term — that there is no hope for more than an occasional rally until some of these uncertainties are cleared up. This is a whole new ball game.”

In 1942 everybody knew it was a whole new ball game. And it sure was. Uncertainties? We were all in a war that we were losing. The Germans had overrun France. The British had been thrown out of Dunkirk. The Pacific Fleet had been disastrously crippled at Pearl Harbor. We had surrendered Bataan, and the British had surrendered Singapore. The U.S. was so ill-prepared for a war that the cavalry school at Fort Riley was still teaching equitation, and I would guess that probably 75% of our field artillery was equipped with horse-drawn, French 75mm guns, Model 1897 (including the battalion in which I was then serving).

In April 1942, inflation was rampant. A Federal Reserve bulletin stated: “General price increases have become a grave threat to the efficient production of war materials and to the stability of the national economy.”

Today there is concern about the slump in housing construction. On April 8, 1942, the lead article in the Journal was: “Home construction. Total far behind last year’s; new curbs this week to cut further … Private builders hard hit.”

Today almost every financial journal or investment letter carries a list of reasons why investors are standing on the sidelines. They usually include (1) continued inflation; (2) illiquidity in the banking system; (3) shortage of energy; (4) possibility of further outbreak of hostilities in the Middle East; and (5) high interest rates. These are serious problems.

But on Saturday, April 11, 1942 (remember when the exchanges were open on Saturday?), the Wall Street Journal stated: “Brokers are certain that among the factors that are depressing potential investors are, (1) widening defeats of the United Nations; (2) a new German drive on Libya; (3) doubts concerning Russia’s ability to hold when the Germans get ready for a full-dress attack; (4) the ocean transport situation with the United Nations, which has become more critical; and (5) Washington is again considering either more drastic rationing with price-fixing or still higher taxes as a means of filling the ‘inflationary gap’ between increased public buying power and the diminishing supply of consumer goods.” (Virtually all of these concerns were realized and got worse.)

On the same day, discussing the slow price erosion of many groups of stocks, a leading stock market commentator said: “The market remains in the dark as to just what it has to discount. And as yet, signs are still lacking that the market has reached permanently solid ground for a sustained reversal.”

Yet on April 28, 1942, in that gloomy environment, in the midst of a war we were losing, faced with excess-profits taxes and wage and price controls, shortages of gasoline and rubber and other crucial materials, and with the virtual certainty in the minds of everyone that once the war was over we’d face a post-war depression in that environment, the market turned around.

What turned the market around in April of 1942?

Simply a return to reality. Simply a slow but growing recognition that despite all the bad news, despite all the gloomy outlook, the United States was going to survive, that strongly financed, well-managed U.S. corporations were going to survive also. The reality was that those companies were far more valuable than the prices of their stocks indicated. So, on Wednesday, April 29, 1942, for no apparent visible reason, investors again began to recognize reality.

The Dow Jones Industrial Average is not reality. Reality is not price-to-earnings ratios and technical market studies. Symbols on the tape are not the real world. In the real world, companies create wealth. Stock certificates don’t. Stock certificates are simply proxies for reality.

Now I’d like to close with this:

“Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?”

That comment was made 42 years ago by Dean Witter in May of 1932 — only a few weeks before the end of the worst bear market in history.

Have courage! We have been here before — and we’ve survived and prospered.

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Creating an Ethical Will

January 01 2009

You may or may not have heard the term “ethical will.”  But, for those who care about making their values and ethics part of their legacy, it is a tool to consider when planning your estate.

Unlike a “last will and testament”, which provides for the distribution of a person’s material assets, or a “living will”, which contains instructions for how you want to be treated medically at the end of your days, an “ethical will” is designed to let someone preserve and share their values, principles and beliefs for heirs and future generations, though it’s not legally binding.

According to Personal Legacy Advisors’ Web site, an ethical will is a letter that transmits the non-material assets that are also of great importance: your values, your story, the lessons life has taught you and the other information that is too valuable to risk being lost.  Your ethical will is the tool that enables you to address the question, “What do I want my loved ones to know?”

Financial writer Bruce Fraser says, “As a concept, ethical wills are not new.  The first written reference to ethical wills occurs in both the Hebrew and Christian Bibles.  Examples are Genesis, chapter 49, and The Book of John, chapters 15-18.  Over time, they evolved into written documents.”

While ethical wills were traditionally shared after death, along with the reading of an individual’s last will and testament, today they are often shared during the author’s life.  Exact figures aren’t available for how many people are writing ethical wills but they are on the rise based on increased Web activity and sales of ethical will resources.  They have gained impetus particularly in the wake of tragedies like the September 11, 2001, terrorist attacks.

Fraser shares these tips and tactics in a recent Financial Advisor magazine article:

Why create one?  People are inclined to write an ethical will when facing a challenging event, or at a turning point in life.  Some examples are facing the loss of a loved one, birth of a grandchild, expectant parents, becoming an empty-nester or approaching the end of life.  Other reasons to create an ethical will include:

- Your reflections will confirm what’s important and renew appreciation of your life to date

- You will create a personal message to those you love, of priceless value in the event of your absence

- If you do not tell your personal (and family) stories, they may be lost forever
-  Your material assets can be given within a personal context

-  You will mitigate confusion and hurt feelings with a personal explanation of potentially controversial elements of your legal will

- Your spirit will be expressed on paper, living beyond you in a timeless way

- Your words will link the past, present and future generations of your family

- You will enjoy peace of mind knowing the most important things will have been said.

Pros and cons.  The pros of an ethical include having an opportunity to influence future generations.  Through the process of writing an ethical will, the writer can gain self-knowledge and come to an understanding of what’s most important to him or her.  This is valuable information not only for their families but their professional advisers as well.  Another pro is that ethical wills are private documents.  Unlike a will, which if admitted to probate will become a matter of public record, an ethical will is a private communication and will not be made public unless the author (or recipient) so desires.  The con is that an ethical will is not enforceable in a court of law.  Those who want to provide specific instructions, such as who is to receive which asset or how assets are to be distributed and under what conditions, would need to put the instruction in a will or trust.

Setting up an ethical will.  Ethical wills come in a variety of forms, from a short letter to a lengthy autobiographical statement, from an audio-recorded message to a bound album.  There are three basic ways to create an ethical will.

1. Begin with an outline and list of suggestions.  Once you’ve created a rough draft, you can review and personalize it as much as you wish.

2. Begin with guided writing exercises.  For example, start with phrases such as “From my grandparents, I learned…” or “I am most grateful for…”

3. Begin with a blank sheet of paper and write down whatever is relevant about your thoughts, experiences and feelings.  This is an open-ended approach.  Eventually you should be able to create a comfortable structure for your ethical will.  For one-on-one help, an organization like the Association of Personal Historians may be of assistance.

Other tips from Personal Legacy Advisors include the following:

- Start today: If you were not here tomorrow, what is the most important thing you would not want left unsaid?  Write it down – now you’ve begun

- Relax: You are not trying to write for the Pulitzer Prize.  The letter is a gift of yourself, written for those you love

- Ask yourself: What do I want to make sure my loved ones know and have in writing

- Take it topic by topic: Don’t try to write it all at once

- Be yourself: You cannot bequeath what you never owned to begin with

- Be careful, be loving.  The reach of this letter is unknowable.

Sharing your will.  It’s a good idea to share your ethical will not only with family and friends, but also with your financial adviser and attorney.  Knowing what you value and what’s important to you will help them to develop a personalized plan that can help you to leverage your values in the future.

An ethical will speaks to one’s posterity or descendants long after the legal will has been probated and forgotten.  Of note, an ethical will is a dynamic document.  Just as a will or living trust document needs to be revisited so does an ethical will, because events occur in ones’ life that have an impact on ones’ value systems.

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