Our Biggest Financial Challenges Are Often Self-Inflicted

Presented by Mark Phillips on April 13, 2016

In many respects, people can be their own worst enemies in their quest for financial security. When you consider that our lives are nothing more than a culmination of the decisions we make each day, if we tend to make more bad decisions than good decisions, or worse, if we can’t make decisions at all, it’s should be no surprise when financial security  remains elusive.

When it comes to finances and investment decisions, many people are not wired to be able to make decisions dispassionately, without emotions clouding their reasoning; and that’s when people tend to make the most behavioral mistakes with their financial decisions. Understanding these behavioral mistakes and how to avoid them is crucial to achieving financial security.

How many of these behavioral mistakes have you made?

Impulse purchases – We’re all prone to an impulse purchase now and then, but for some people, it’s more of pattern than a one-off indulgence; and when these purchases add to debt, the damage is compounded.

Using bonuses or salary increases to add to lifestyle and not savings – When people lack a goal, or a vision or a purpose, they are more likely to want more lifestyle than savings.

Trying to pick the winners – When investing, do you spend your time looking for the top performing mutual funds in hopes of jumping on the train to riches? Very rarely does a top performing mutual fund repeat its winning performance.

Following the herd – In investing, many people have a fear of being left behind, which is why the human tendency is to follow the herd in times of stock market exuberance or panic. Almost invariably, this leads to buying near the top of the market or selling near the bottom.

Procrastinating – Procrastination, typically brought on by the inability to make a decision, is one of the primary causes of financial distress.

Trying to avoid risk – Many of the behavioral mistakes people make is a result of their lack of understanding of the role risk plays in investing. Without risk, there are no returns; and, without returns, achieving financial security is almost impossible. If you think you are avoiding risk by avoiding the stock market, you are actually inviting other, more corrosive forms of risk, such as inflation risk, longevity risk, and interest rate risk.

These common, costly behavioral mistakes typically result from a lack of planning, with no clear vision or purpose to guide decisions.  Instead, decisions become reflexive responses to emotions that are allowed to dominate our thought process in the absence of the discipline, logic and reasoning that a well-conceived plan can engender.

Studies indicate that people who have well-defined goals, a clear purpose in life, and a thoughtfully prepared plan in place, are better able to check their emotions and muster the necessary discipline to follow their plan. In doing so, they are more likely to avoid many of the behavioral mistakes that can cost them their financial security.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2016 Advisor Websites.

Five New Ways We Could Use Credit Cards In The Future

Presented by Mark Phillips

Tired of pulling your credit card out of your wallet every time you want to make a purchase?  What if you only had to use your hand?  Or maybe instead of going to the grocery store, you could order groceries right from your refrigerator!  This article shares some possibilities for the future – that may or may not make life easier.

http://qz.com/609642/refrigerators-bots-and-cars-nine-ways-you-can-use-your-visa-card-in-10-years/

Update: New Bill Affects Social Security Claiming Strategies (for those not already claiming)

As you may know, President Obama recently signed the Bipartisan Budget Act of 2015 into law. Among other things, this two-year budget deal contains several provisions designed to close perceived loopholes in social security claiming strategies. Those most likely to be affected by this legislation are individuals who have yet to claim their benefits and who planned to employ the file-and-suspend/restricted spousal application strategies. 

What has changed?

This new legislation eliminates one of the more advanced strategies to maximize married clients’ overall benefits: the ability to file for dependent spousal benefits on a retiree’s record when that retiree is not currently receiving his or her benefits (i.e., when he or she has suspended benefits). The dependent spouse will now be limited to receiving the higher of his or her own or spousal benefit.

The good news is that those already employing this social security claiming method—you already filed for and immediately suspended your benefits, while your spouse is receiving spousal benefits through a restricted application—can continue doing so. But new social security claimants will definitely see a change in their options. 

This is our understanding of the budget act provisions:

1. If you and your spouse are less than six months away from reaching your full retirement age (FRA) for social security, there is still a window of opportunity to employ the above strategy. Please contact our office to discuss your family’s social security claiming plan.

2. If you turn age 62 by year-end 2015, you may still be able to file a restricted application for spousal dependent benefits when you reach your FRA. This option would be available if your retiree spouse is either receiving monthly benefits or your spouse suspended his or her benefits within six months of the law enactment. 

3. If you turn age 62 after 2015, the option to file a spousal-only restricted application will not be available. This would not impact your ability to delay your own benefit in the future at your FRA. 

4. The new legislation does not affect your ability to postpone receipt of your own social security benefits, so you can take advantage of delayed retirement credits.

We are continuing to monitor these rule changes closely and are ready to discuss your social security planning strategy with you in light of this new legislation. If you have any questions or concerns about the information shared here, please feel free to call our office at 949-333-6394.

The Leak in Your (Information) Boat:

Presented by Mark Phillips

The latest press on John McAfee not withstanding (and no he is no longer affiliated with the data security firm that bears his name), the newest on-line scams seem to simply be more sophisticated versions of older scams. Tailored for the Christmas shopping season, tailored to look like the real deal – beware! The linked article: The 12 Cyber Scams of Christmas, by McAfee is a good guide to avoiding reindeer road apples this season.

Since When Does Christmas Come Before Thanksgiving?

By Nick Bautista

As I walked through stores this past weekend, I realized that as a country we have completely forgotten about Thanksgiving. No longer do we think about turkey or giving thanks, instead we worry about where to find the best deals to get our shopping done early for Christmas. Not only do we buy gifts for others they probably don’t need, but we string up Christmas lights and decorations by the second week in November. So what gives?

When as Americans did we get so caught up with the next best thing that we can't stop for one minute to give thanks for the things we already have. I thought we valued humility and working hard for success yet we don’t give thanks when we achieve those things. Instead, we bypass those values to give the most awesome gift ever. Do you even remember the gift you were given last year or better yet the year before? How meaningful was that gift as opposed to spending time with the person who gave it to you?

But forget all that we need those deals!!

I was always taught to be thankful for the things I have, because you never know when you might not have those things again, so I’ll make it simple:

Do you have shelter?

Do you have food?

Do you have a job?

If you answered yes to any of the above you have plenty to be thankful for.

Let’s not forget Thanksgiving, instead let's embrace those things we often forget that are provided to us daily, which is the friends and family who support us.

Happy Thanksgiving!

PS. I love Christmas

5 Moves Every Couple Should Make

By Melanie Vu

 

An exclusive survey on love and money shows that how you handle your finances affects how happy you are in your marriage.  Following these 5 moves may improve your financial compatibility.

1.       Get Financially Naked with each other – lay it all out on the table. Financial transparency will set a solid foundation for your relationship, whether you are dating, about to get married, or already married. Knowing your significant other’s savings, debt and goals will give you a good idea about how they handle their finances. If you and your significant other aren’t already open about finances, don’t rush them into it.  To avoid coming off as confrontational, wait until the mood is happy and plan to make lists together. Make a list of assets and liabilities and monthly expenses together, as well as setting individual and mutual goals.

2.       If you haven’t already discussed retirement yet, start by creating a vision plan. Write down what age you want to retire, where you want to retire, what activities you would like to do together in retirement. See how much you have each saved for retirement and how much you will need in order to achieve retirement success.

3.       Tackle the biggest source of tension – If you and your partner are on opposite ends of the spectrum when it comes to spending and saving, meet halfway. Many couples hide purchases from their partner to avoid conflict. Make lists of what each of you have spent for the month and decide together what is necessary and what is excessive. Make compromises that both partners can agree with.

4.        Handling Debt – debt can be one of the biggest silent killers of a relationship. Credit card debt and student loans impact a person’s self-confidence, also making it harder to save for specific goals.  If you create a plan together to pay off debt and review your progress periodically, you will both feel accomplished and be more motivated to continue paying it down.

5.       Keep Tiny Tiffs from Escalating – Practicing all of these steps doesn’t guarantee that you and your partner will always agree and find a solution. The important thing is how you handle your disagreements. When you do argue about money, don’t wait too long after you cool down to have another discussion. Relationships are give and take; don’t let money rule your relationship.

 

This content was adapted from Time Money’s article “Five Money Moves Every Couple Should Make.”

Written by Dan Kadlec with Kerri Anne Renzulli.

To read the full article, click here.

Who Is Your Go-To Person For Financial Advice?

Presented by Nick Bautista 

Have you ever thought about the people in your life who you turn to for financial advice? Think about that for a minute. When you have a financial question, who do you call or text, and why? Is it because you perceive them to be smart, or wiser than you? Or is it simply because you believe they have the experience to handle your similar situation.

Whatever and whoever you listen to when making your financial decisions, there is one thing you should know. It goes back to the old saying you used to hear when you were a kid. “If Johnny were to jump off a bridge would you do jump too?” Although a ridiculous analogy for following what others do, the message is clear. Why do we blindly follow the advice from someone who doesn't necessarily know or understand our financial situation?

Okay maybe this doesn't hit too close to home or is just too simplistic. So instead, think of the first person you would ask if you had/needed medical attention, a gaping wound, would your parents or best friend know if you needed stitches and be able to do it right then if you did need them. Of course not, you would go see a doctor immediately. So why is it that in our financial need we turn to those who do not understand our situation?

Everyone agrees that finances are extremely important yet we automatically assume those around us with little or no experience can help us with our questions. No one financial situation is the same. Let me repeat that so it sinks in, no one financial situation is the same. Just ask any doctor and they will tell you how no one patient is exactly the same.  

So again I ask who do you ask for financial advice? How much experience do they really have and is it the exact same or similar situation you are in? If the answer is yes, then think one step further. Does your financial friend know if you should do a Roth Conversion or how much you should defer in 401k contributions to save on taxes now? Do they know how much you can contribute to your retirement in a given year based on your retirement plan? Do they understand the history of the stock market or the correlation between asset classes in a given time period, knowing what your allocation should be based on your age and amount saved already? Do they know your goals, and what the money is needed for in order to invest it in a suitable place? Do they know the effect on your retirement plan for buying that car or house you are thinking about?

If your answer is no to any of the above you are getting poor advice and ultimately the wrong answer. While your wound may be okay without stitches you don’t want to find out 30 years later you really needed them, or more importantly you were given the wrong financial advice and your retirement plan is now underfunded to meet your goals.