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5 Fees I Hate More Than The New Spirit Airlines B.S. Bag Charge: Our Cuppa Joe Discussion

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It’s Thursday! That means we’re grabbin’ a cup of coffee and talking about my opinion on anything I find amusing that particular day (my favorite topic).

Spirit Airlines, who should really just change their name to “We Will Do Anything To Alienate Our Customers,” announced last week that they plan to charge $100 to give you the pleasure of placing a bag in the overhead bin.

If it’ll fit under your seat or on your body, you’re still good.

Now I’ll have to wear six layers of clothing on the plane instead of three.

Like cars, I feel an airplane ride is a way to get from point A to point B. That makes me a low-cost whore. If Spirit’s fees are still less than everyone else when you include the $100 bag fee, you’ll find me on the first flight out of Dodge. I’ll be the guy with the big, fat happy (and because of all the clothing…sweaty) grin on my face.

Spirit’s goal is to keep costs low. I understand that, so I’m taking this one in stride. As the above USA Today article states, other airlines are quietly following behind the Spirit-hatred shield. Other fees fill me with rage FAR more than this particular nuisance, because they make zero sense to me, except “this is an easy way for us to piss you off while we rip money out of your pocket.”

5) Credit card application or annual fees. There may be more on the way. On a recent Consumerism Commentary podcast, Flexo and Matt Schultz interview Jay Frosting of InvestingAnswers.com,about some alarming news around credit card application fees. The executive summary: Watch your credit card statements carefully. Fees might be rising soon.

4) Piled on mortgage fees. Origination charges? Appraisal fee of $350? Ouch. Ask for a complete list of mortgage expenses before signing on the dotted line.

3) Ticketmaster “convenience” charges. This one is awesome in a “you must be joking but you totally aren’t” kind of way. Ticketmaster charges me a CONVENIENCE FEE for printing tickets at my house. I made it more convenient for them (they don’t have to do anything at all) and they charge me more. There’s a bean counter at headquarters giggling to himself while I’m buying tickets.

2) Bank fees. Teller fees. Statement fees. ATM charges. I know. Enough already. We all know that banks don’t get it.

I love this series of Ally Bank commercials and their discussion of fees and bad customer service. These say it all:

Just one example of Ally’s campaign railing on bad customer service, fine print and baloney fees.

 

1) …and my most hated fee of all….hidden financial product fees, like 12b1 fees (mutual funds), mortality and expense charges (annuities), sales loads (funds and variable insurance products).

I know, I know. Mutual fund and insurance companies have to make money somehow. Just be brave like Spirit and tell me upfront how you’re going to skewer me to make a profit.

 

What are your least-favorite bullshit fees?

The Waiting Is The Hardest Part

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I called my mother in law to check in yesterday.

I get worried about people after a loved one dies, but especially I’m concerned about her, right now. My in-laws were a close couple. She’d always yell, “Dave!” at him for one reason or another, but there was a camaraderie in her admonishments.

She enjoyed admonishing him and I could have swore he enjoyed being admonished.

There’s no way I can imagine what’s going on in someone’s head the day after their spouse passes away. It’s beyond imagination.

Still, my call to her was shocking.

I was surprised to find that she’d already called her financial advisor about moving money around and scheduled a meeting with the Medicare people about Papa Dave’s hospital bills.

Wow.

A piece of this I understand:

– The need to keep moving.

– The desire to run.

– The longing to make things feel better and to grab control.

I understand that, and it makes me want to give my mother-in-law a big fat hug today. All the running in the world won’t make the pain go away. There isn’t a hug big enough to swallow all those years of being together.

That’s why it’s a difficult pill to swallow when I tell you what I told her: Be still. Wait.

When any major life event occurs, the worst decision is to change your financial picture.

My best advice? Do nothing. Zip. Zero. Nada.

Too many times I’ve had clients come in after a spouse passes away and they want to make changes. Not little changes, mind you, but major, life changing moves. Let’s guarantee my money won’t run out. I want to take a trip around the world. It’s time to sell the house and move closer to my kids.

These are all valid thoughts, but not for today. Today’s a time to work on other areas.

– Go for a walk.

– Sign up for cooking classes.

– Learn a new language.

– Dive into a hobby.

All of these are positive life experiences that you can bow out of later without major repercussions. If you decide to sell your house and move, what if you don’t like the new place? If you change investments and the market tumbles, how will you respond?

Too many times I’ve witnessed people who’ve made life changing decisions without a clear head, only to regret all the moves later.

Often this regret, coupled with the sorrow of the original loss, is crippling.

How long do you wait?

I don’t know. 16 years of advising people who watched spouses, parents and children die still wasn’t enough for me to help you there. I can say this: Everyone was different. I will tell you that both my client and I knew when it was time to start moving. I’m sure you’ll know, too.

So, maybe Tom Petty was talking about a completely different topic, but he’s still right: The Waiting is the Hardest Part, but it’s the most important. Wait.

Emergency Fund? You’re Closer Than You Think

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Start a six month emergency fund? Are you crazy? How can I save that much money before I start investing? I’ll never make it! – most common reaction to my advice to create an emergency fund.

Personal finance is fun, but maybe the most boring part is creating an emergency fund. Yawn.

Building an emergency fund should be exciting. Sure, it’s the bland foundation of the house, but once this baby’s built, you’ll be able to rock ‘n roll on the fun stuff:

– Work without worry. You’ll know that even in an uncertain economy, you can focus on career instead of your next paycheck.

– Invest with confidence. We’re all worried about the market collapsing, but the best strategy is often to ride out downturns. With a reserve, you won’t have to decide whether to sell or not: you don’t need the money today.

– Weather financial storms. Is the muffler dragging behind your car? It’s covered! Did your dishwasher break down? You can fix it. Sure, you’ll have to slow your investing plan for a bit to rebuild the reserve, but you won’t be sweating the small personal finance stuff in life anymore.

In short, the reserve is the lynchpin of your personal finance plan. Doesn’t that fire you up?

Whether you’re excited or not, saving toward a reserve is a painful part of personal finance. That’s why gurus such as Dave Ramsey set the bar lower, like $1,000. Once you can weather the small storms, then you can focus on bigger fish.

At some point, you’ll need to adequately fund the reserve. There’s good news here. A six month cash reserve isn’t as large as you think it is.

First, people focus on three to six months of income, not expenses, when it should be the other way around. You don’t need six months worth of income. Your gross income from a job includes:

– federal taxes

– FICA taxes

– state taxes (in many places)

– savings

– insurance deductions (you’ll need to keep insurances in place, but the cost of workplace life or disability insurance will be removed). Unfortunately, you may have to self-purchase health insurance.

In a pinch, you don’t need to cover many of these costs. Instead, you’ll need only the basics: groceries, gasoline, clothing costs, utilities, and mortgage or rent payments. Add in any other debt payments you’ll have, and that’s your emergency fund amount.

This is a much, much smaller number than you may have realized.

Everyone wants to get their personal finance plan moving in the right direction. Building the foundation of your plan isn’t nearly as fun as what comes after. By focusing on the right number, you’ll have it built more quickly than you first imagined and be on your way to more entertaining goals.

(photo credit: martinak15, Flickr: frustrated; R Berteig, Flickr: foundation)

How I Chose My High Yield Bond Fund

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Last week I described the ultra-thrilling process of how high yield bond funds work. The reason I penned that particular post was simple. I was in the process of buying one.

In today’s entry, lets look “over my shoulder” to see the method I used to pick my new fund. Many people don’t get to see how someone with 16 years of professional experience chooses an investment in their portfolio. Choosing a high yield mutual fund is a little like exploring through a wasteland of worthless investments (as you’ll soon see), and I think there’s a few crucial basics beginners can learn from my adventure.

Why? Like reading a map, you’re going to be surprised by how straightforward and simple the process is. Buying funds isn’t complicated and you too can find a good mutual fund within minutes while feeling comfortable that you performed adequate due diligence.

The key part of the process is spending some good time with the map first. If you know what you’re looking for, exploring for the fund is the easy part.

Leading up to choosing a fund, I determined the following:

  1. I knew my end goal. I wasn’t just throwing money in the general direction of my problems or praying for high returns. I didn’t use a “more is better” approach. That usually lands investors in an ugly spot, when their greed turns profits to huge losses. I was looking for retirement, and needed to maintain at least a 6 percent return to get there.
  2. I had already determined my asset mix to reach my goal. On our podcast and in previous posts, I’ve discussed finding the appropriate diversified asset mix for your goals. Mine included high yield bonds, mostly because they have a history of achieving my target return.
  3. I knew how much money I needed in high yield bonds to meet my goal. Normally, I’m not a fan of mutual funds. But, because it was a small amount and a manager can oversee the process of avoiding defaults, I decided one mutual fund would do the trick. For more sizable chunks, I’d hire multiple managers or switch from a mutual fund to individual bonds.

Why is it important to determine these three criteria first?

Like deciding which size ice cream cone you’re getting, it’s best to look at your current situation, or waistline, first. Plus, there’s another, overreaching reason:

I’m lazy.

Could you imagine the horror of searching through a gazillion mutual funds in a trillion different asset classes to find the one that fit my needs? Why would I spend countless hours oogling different investments I’ll never buy. I want to narrow the search as much as possible before investing. Why waste all that time I could be watching Cake Boss or Millionaire Matchmaker sorting through countless asset classes that I’ll never use?

I’m not going to waste time searching for investments. I’ll figure out the map first and then choose the right vehicle to get me to my goal.

…and that, class, is how we reached this point: choosing the vehicle.

Let’s begin.

My search began at TD Ameritrade. That’s because the IRA holding the cash I was going to use is housed there. If you’re not familiar with IRA custodians, you have a choice between many different places. Some decide on a bank, others a financial brokerage firm. I chose TD Ameritrade because I’m comfortable choosing investments alone but appreciate their stock and bond tools. They aren’t the cheapest provider, but I’m comfortable with the fee structure.

Fees

 

Just like a trip to the grocery store, every asset search begins with a discussion of “how much is this going to cost.” In many cases, I don’t want a mutual fund at all because they’re expensive, but in the high yield asset class, I want one. I don’t want to guess if one of the companies I own is going to go bankrupt. I also don’t want to do the homework necessary to avoid picking a loser (remember the lazy part above?).

Some mutual funds manage your cash for a reasonable fee, while others might as well be carrying a gun and wearing a mask.

But they’re not the only robbers.

It turns out that TD Ameritrade also is in on the “let’s gouge our customer” game. They’ve forged deals with some fund companies to offer their mutual funds at a lower cost. To tell you just how much lower, I was originally eyeing a Pioneer high yield offering. Imagine my surprise when I found out that I’d have to pay $49 when I bought AND AGAIN when I sold. Ouch.

As an aside, why not just round this ridiculous fee to $50? Wouldn’t anyone dumb enough to pay $49 shrug at a dollar more? If they want to play the psychological game make it $49.99. They’re leaving $10 on the table. I should work for TD Ameritrade…..

 

Screening: Expenses

 

So, armed with the list of funds that are available on my platform, I visit TD Ameritrade’s mutual fund screener site. There are many of these all over the web. The Wall Street Journal has a good one, as do Morningstar, Yahoo and MSN.

I used TD Ameritrade’s own screener for one reason. The first screen for me should be called “funds that avoid the ridiculous fee.” Because that’s too obvious, they named it, “No trading cost fund list.”

Screening: Manager

 

The second screen is for manager. If I have a manager at all, I want one who’s a little seasoned, but different than most investors, I also don’t want one who’s crusty. A fund manager nearing retirement might be milking her reputation at this point. Well-known managers such as Bill Gross at PIMCO are going to survive a couple down years with their portfolio if they decide to take a mental vacation at this point in the game. I don’t want that person.

I want them hungry.

There is no “avoid managers who have been around too long” screen, so I’m stuck using one based on minimum tenure. I don’t want one with less than three years in the saddle, personally, so I choose that screen.

Screening: Star Rating

Like I said, I’m lazy. I want Morningstar to do most of the heavy lifting for me. Although I’m smart enough to know that many lower-ranked funds could do well next year, I don’t have the time to search through them all.

In other areas, where I’m looking for more than a consistent dividend check and a fairly stable value, I might screen for more complex areas. In high yield, that’s it.

I press the “search” button.

Examining the List.

Now I feel like a kid in a candy store. Laid out in front of me is a shortened list of candidates for the title of “good enough to examine up-close.”

My attention now turns to fund evaluation company Morningstar, where I’m going to dig into each fund in detail.

I’m particularly interested in:

  • how each fund performed against it’s competitors,
  • what the dividend looks like, and
  • how the fund is managed.

I dig into these areas quickly. Simple internet searches lead me to mines of information. I’m too lazy to waste time flipping through funds, but when I’ve found my potential targets, I dig in like a rib-lover at the barbeque cook-off.

What Did I Choose?

Ultimately, the USAA High Income Fund won the day.

Why?

For an average fee of .90%, the dividend to me approaches 7% (6.93% as of this writing). The fund manager, R. Matthew Freund, has 21 years of experience (with USAA since 1994), so is mature yet not quite at retirement age. There’s been a co-manager named Julianne Bass since 2007, so there is younger blood overseeing day-to-day operations as well.

The fund has beaten the high yield sector over the past five years, but not by a ton. For the most part this fund’s performance has been slightly above or below the index. When it’s missed, it missed well above its asset category. It hasn’t had a major hiccup.

At this point, I like to guess what I’d rank the fund. I’d give it four stars out of five. It’s a winner, but not a thoroughbred. It won’t be the “hot thing” anytime soon. Perfect for this job.

Morningstar agrees, rating the fund four stars out of five. It’s an above average competitor with average fees and solid management.

Perfect. Often five star funds attract scads of assets, forcing me to look elsewhere as the management can’t invest all of the cash it’s attracted. I’m less concerned with the management of the fund over the past five years as I am over the next five. Because this fund isn’t meant to be the “go baby go” part of my portfolio, I’m fine with boring. In fact, I expect it and hope for it. Let’s get my 7% return so I can focus my energy elsewhere.

That’s how I picked the fund.

Complex? Nope.

I’d be willing to bet that this little 1000 word example is more homework than 95 percent of people complete when choosing investments. Even if a professional picks funds for you, there should be a list of screens you use to oversee picks.

It’s your portfolio. Take charge. It isn’t difficult.

(photo credit: Statue, Eusebius, Flickr;

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Allowances and Overprotective Parents: Our Cuppa Joe Thursday Discussion

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A recent headline in USA Today, Aggressive ‘Helicopter’ Parents Force Easter Egg Hunt Cancellation spurred today’s topic. Some overbearing parents were so worried that their little kiddos couldn’t Easter egg hunt on their own and wouldn’t get their “fair share” of prizes that they violated the hunt rules and “helped” their children claim eggs…

….all while parents who had the fortitude to follow the rules watched as their kids came back with baskets empty.

 

My opinion:

 

We all want our kids to succeed and don’t want to see them cry. But sometimes, sending little Timmy out to play without his helmet can help him learn valuable life lessons.

We all learn from failure.

I’ve failed more often than the average person has tried. – Donald Trump

Back in my advising days, I’d ask parents how they were teaching their kids financial responsibility. I don’t think many advisors ask this question, because so many were surprised when I asked.

Often, they’d ask what I’d recommend.

One of my favorite recommendations was that they hand little Timmy or Tina an allowance.  I’d make it a big one, too.

One of my favorite pastimes was to watch their faces when I told them just how big I’d make it. I’m not talking “break the bank” big, but I am suggesting you hand them enough to make them go “wow!”

Here’s the deal:

 

You can trust your kids with a little money today or send them off to college later without a clue how to manage cash in their hand.

Let Timmy screw up. Have the guts to let him fall on his face.

Then, once he’s stepped in it the first time, be a parent enough to discuss his mistake. Do it a few days after he’s broken the new iTouch he bought, or when G.I. Joe is missing an arm.

Teach him how he could have bought security by saving or investing that money. Ask him if the toy really made him happier.

Stop sheltering your kids from real life until they show up as adults with no training and you’re not there to do it for them.

I’ll bet giving them $10 a few times will teach them well over $1,000 in lessons over their lifetime.  What a great investment!

Here’s what I did. I paid my kids a large allowance. Then I stopped buying popcorn at movies when we’d go. I wouldn’t by them books at the bookstore. There were no video games. They could buy that stuff, but it was their choice. Then we’d talk about the impact of those choices.

Today my kids both run websites at age 16 and own stocks on their own. They both have healthy savings accounts from jobs. I stopped paying an allowance years ago.

I’m not patting myself on the back. We’ve messed up our fair share and will in the future.  I’m just showing you that it’s possible to teach your kids about life without doing everything for them.

(photo credits: C’mon Kid, finish up: I’ve got work to do: Ed Yourdon, Flickr;  Kids and Money: GoodNCrazy, Flickr)

 

Thoughts anyone? Bueller?

Getting Through the “Broke Week”

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Happy Tuesday, Minions!

I’m not here today…my nephews are visiting so I’m probably hiking in the mountains or playing board games…you know…tough work stuff.

I’ve asked my friend Michelle to sit in. She’s better looking than me. And writes better. Pretty annoying.

Michelle is a mom to 3 munchkins who, with her husband Jefferson, started one of my fav websites: See Debt Run.  They both contribute regularly to the site that puts the ‘personal’ in personal finance.  

Their site runs the gamut: they talk about advancing your career, saving money in day-to-day family life,  finding ways to supplement your income, and everything in between.  

I’m happy today she could provide some tips for the parents of the world, offering suggestions on how to get through a rough financial period without interrupting the normal family routine.

– – – – – – – – – – – – – – – – – – – – – – – – –

 

Getting Through Broke Week

Have you ever looked at the balance in your checking account and realized that your balance is flirting dangerously close to zero, yet payday is still a week away?

This used to be very much the norm for us, and still happens on occasion when unexpected expenses creep up.

Whenever one of these “broke weeks” pops up, we have to make some adjustments in our day-to-day life.  For example, we might find dinner in the back of the pantry and finally eat that old can of minestrone or black-eyed peas that normally would be overlooked for other options.  It isn’t the end of the world to have to bridge the gap for a few days without spending any money; you just have to make the most of these times.

When money is tight, we have to change some of the ways that we parent as well.  Below are a few tips to help you get through a “broke week” without rocking the family routine too much:

Come Out And Play?

 

In today’s high-tech world, most kids are obsessed with the newest gadgets and video games.  Unfortunately, all that stuff is expensive and has no place during lean times.  Even if they are nagging you, don’t take the kids to the movies or swing by a Redbox for that new PS3 game they’ve been talking about.

Tell the kids to go old-school and *gasp* just play outside.

They can grab the neighbors and start a wiffle ball game, ride their bikes or scooters, or just chase each other around for a bit.  That last one is assuming you don’t have my children.  In that case, your older child will chase and torment your middle child until he cries and the neighbors think that this time he really might be dying.

If you don’t have my children, carry on.

Really, there is an infinite amount of totally free outdoor entertainment for your kids, and it would serve them well to use their imaginations.  It would also serve them well to get off their butts for a couple hours.  Remember when we were kids?  I wasn’t even allowed to have video games, and I’m sure I played outside more frequently than kids today.  I remember riding off on my bike and not coming home again until I was hungry or until the street lights came on–whichever came first.

Yes, it is a different world today and, for the most part, I don’t let my kids out of my peripheral vision, but I do kick them out of the house and make them play in the backyard or tell them to go shoot hoops in the driveway on a regular basis.  It’s good for ’em!

Bored? Games!

 

So, the weather isn’t great?  For quality family time, you can’t beat a good board game.  Almost everyone has a few in their basement, and playing games is a great way to bond with your kids, and it wont cost you a cent (well, after you buy the board game obviously.)  Some of our favorites are Risk, Ticket to Ride, Forbidden Island, Apples to Apples, and Funglish, but we have many more that we rotate in.

If you are one of the few who doesn’t have–or like–board games, then grab a deck of cards and teach the kids how to play Hearts or Spades.  Not a card shark either?  Grab some dice and look up the rules to the game “Farkle” which is always a blast.  You can have a great time at home with your kids without even spending a dime.

Step Away From The Stores

 

You have to respect temptation, as it is a powerful beast.  And taking kids to the store with you?  You might as well hand over your credit card now, as we both know this is not going to end well.

Have you ever heard the saying that nobody ever leaves Target without spending $100?  Okay, it’s not really a saying, but it is unfortunately true
for a lot of people.  When you are broke, just keep away from that evil well-designed place with their cute marketing and bright, beautiful displays.  I don’t know how many times I’ve come home with a trunk full of toys and stuff I didn’t need, when all I went there for was socks and Lysol.  The same goes for Home Depot, Sephora, Best Buy, or whatever your personal poison is.  If you are out of a necessity (TP, deodorant, etc), then just pop into a less tempting store (maybe a drug store or Aldi) to get what you need.

Befriend Other Breeders

 

Being social can be expensive.

For most people, the idea of “getting together with friends” involves eating dinner somewhere and/or drinks if kids aren’t involved.

Actually, scratch that.

Sometimes I drink because kids are involved.  If you are broke, though, going out to eat just isn’t an option.  Don’t be ashamed of it.  Just tell your friends that things are a little tight this week and ask instead if you guys can just get together at their house or yours.  Hauling kids around can be stressful any time, but at a friends’ house, you should be able to relax a bit and let them run around and burn some energy, unless of course your friends live in a museum.

Letting your kids run around is good for their social needs as well.  Besides, it’s generally frowned upon inside restaurants anyway.

Trust me.

I’ve been the recipient of a stink-eye or two in my day.

 

Okay, what do you do during “broke week?” Let’s talk about it in the comments below:

Unclaimed Money – Your Own Personal Treasure Hunt

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As I was rummaging through my golf gear (stored in the basement for the long-harsh winter that never materialized) I went through all the pockets…and guess what?  I found…drum roll please…a $50 dollar bill!!!!!  My wife and kids came running.

They must’ve thought I’d lost an eye the way I was screaming.

Have you ever found money when you didn’t expect it?  Isn’t it a wonderful experience?

Now, since we’re all about honesty over here in Average Joe’s dungeon (yes, sir.  This gruel tastes wonderful.  May I have another?), I must confess I treat all found money as completely discretionary.

Here’s the rule: I can spend every penny without even the slightest ounce of guilt.

If you find money, what do you do?

So, if you want to find money, doesn’t it make sense to search places we’d likely have left some cash?

The first place you should look for cash right now

First, enter the following phrase into Google: “State of <insert your state> unclaimed property”

That search will turn up your state’s unclaimed property list – which I encourage everyone to check  not just for your state, but for every state you’ve ever lived in.

You’ll be amazed.

Each state has an unclaimed money and property list and if you’ve ever left money somewhere, that’s where it’ll show up.  I know what you’re thinking: I would never misplace a bank account.  I know.

Here’s the thing: you may be entitled to a refund of some kind…maybe you paid home owner’s insurance premiums and they were too high.  Trust me.  I’m willing to bet my next bowl of gruel on the fact that someone who reads this and follows my directions will find money. It’d bring a tear to my eye if you shared it with me.

A couple years ago, I did the search for unclaimed money in our state and looked up relatives – and I was surprised when Aunt Donna’s name came up.  I called her and asked if she ever did business with ABC Insurance Co., to which she replied that she had.  I told her how to get the form to fill out and encouraged her to mail in the request form.  Her response?  “Ah, it’s probably not that much…so I don’t know…”  WHAT THE @#$@?  THIS IS FREE MONEY!

I would understand if the process took 6 hours, but in our state, it was a simple form and a stamp.  Finally, I convinced her to do it…

Her reward? $418. It would still be unclaimed money today if she hadn’t looked.

Not a bad return for seven minutes of exhausting work stamping an envelope and completing a form.

The second stop on your treasure hunt

Let’s visit the United States Treasury department. Specifically, you should search the database of savings bonds.

Savings bonds aren’t nearly as popular as they used to be, partly because of their paltry rate of return, but that doesn’t mean that Great Aunt Betsie didn’t have a whole lot of ’em…here’s where you can check: Treasury Hunt Website.

When you visit the site, type your SSN or your Great Aunt Betsie’s and it will inform you if that SSN has any savings bonds registered under it.

Again, I know what you’re thinking: I’d never lose a savings bond.

Yes, you would.

You especially would if you were all of 11 days old when that well-meaning Aunt picked up that whopping $25 bond as a gift for you at the local Second National Bank.

Do yourself a favor and check the site for unclaimed money.  Then tell everyone you know to check.

Because, get this: there are $16.5 billion worth of unclaimed bonds out there…that don’t even earn interest any more.  That’s $16,500,000,000 reasons to check it out.

Any success stories?  Post ’em in comments…if no one finds any money, I’ll donate my next bowl of gruel to the first person who wants it…

 

(Photo Credit: ExpertInfantry, Flickr)

(About the photo….BAGRAM AIRFIELD, Afghanistan – U.S. Army Sgt. Benjamin Rudy, a Columbia, S.C. native, looks at a map that will help him find buried treasure while serving as a force protection non-commissioned officer for Combined Joint Task Force-82, at Bagram Airfield, Afghanistan. The mug and the map were sent to him as gifts from his kids, Logan, six, and Taylor, four, who believe he’s on a pirate ship to find treasures for them. His pirate character is a way Rudy bonds with his kids during long periods of separation.)

 

5 Good Reasons to Hire a Financial Advisor and 2 Bad Ones

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The decision to hire an advisor to help with your financial planning isn’t a step I recommend lightly. I’ve been lucky: over 16 years of practice I was hired mostly for good reasons, although some others were….not so much.




Most people don’t need a financial advisor.

I’d tell individuals before they hired me that 90 percent of what I did, they could do themselves. My job was to guide them through sometimes stormy financial waters. As a bonus, I’d save them time and money by already knowing tricks they could probably find online. My staff would fill out annoying paperwork, and we had access to the best professionals in related fields. If you needed good advice, I either could provide it or knew how to find it fast.

In fact, at some points I was more of a concierge than a financial advisor….while most of my contacts were finance-related, I knew good babysitters and how to get a table at the top restaurants in town!

Here are five good reasons to hire a financial advisor:

 

1) You don’t have time.

I worked with many successful people who could have easily completed their plans alone. Most of my clients were engineers or executives working for Microsoft and Chrysler. These were intelligent people (often financially savvy, too).

They recognized that they needed a good plan drafted that they could examine and sign off on. They also needed someone to facilitate the legwork. It had to be someone knowledgeable who had their back. They needed to be able to review everything on a plane or between meetings.

 

2) You aren’t going to look at the stuff yourself.

Some of my clients were smart people, but in completely different areas. I had a client who was a very well-known artist. He needed to be forced to have consistent meetings about his meetings. Without me, he wouldn’t ever review how he was doing.

 

3) You don’t want a full financial education.

This type of client would sometimes frustrate me, but I had a large number of them as clients. Different from my artist and executive clients who were generally well educated, financially savvy people, these clients would just rather pay me to do it.

These clients were very happy to meet with me and talk financial planning. They’d listen and nod. I was pretty sure that they were getting the basics about what we were talking about. I tried to keep it entertaining, because I knew they hated being in my office.

Some were looking for the concierge treatment. For those people, we had client dinners, good coffee in the lobby and occasionally went to sporting events or concerts. They didn’t care about how the money was managed, as long as it was done with as little input on their end as possible.

These clients sometimes scared me, because if things went wrong, they had no idea why and didn’t want to learn from anyone but me. If this sounds like you, it’s better to hire a good advisor than wreck your financial ship because nobody’s at the helm.

 

4) You want a smart coach in your corner…

…to steer your plan in the right direction.

Some of my clients I knew were only going to be with me for a short time. My job was to educate them how to do it themselves. Some advisors won’t do this. I was happy to help. I liked talking strategy anyway, so if I had a willing client who was coachable, I’d take them through the process. As a bonus, I handled most of the annoying parts (like filling out Roth IRA forms) because they were paying me a fee. It wasn’t why they wanted me as an advisor, but it was definitely icing on the cake.

 

5) You want an ally to point out flaws in your strategy.

This was probably my least profitable type of relationship, but the one I appreciated the most. I had a few Do It Yourself investors who already had a complete strategy and just wanted to hire me for a couple of hours a year so they could tell me their strategy. I always had questions, then feedback, and nearly always, adjustments I’d recommend.

One client, Paul, said he specifically hired me because our philosophies clashed and he wanted to make sure his strategy looked good from the other point of view. He thought about his plan so often that he usually had a winning approach, even though I definitely would have rarely completed the plan the way he did.

 

 

There are a couple of important reasons NOT to hire an advisor:

 

1) You want someone to do it for you.

There’s a subtle difference between this person and the one in #3 above. The person in #3 was happy to meet with me every few months and talk about money. They wanted some small amount of “here’s why we’re doing this.”

Then there’s the person who just wanted “take this cash and make it work.”

I care about my former clients. I never can care about your money more than you do. I’m the money babysitter, you’re the parent. Act the part.

 

2) You want to day trade with a partner.

I had two clients who could never get through their skull that I was very happy that they day traded…but leave me out of it.

Initially we’d separate the portfolio into two sections: the “long term investment” portion, that I’d help steer, and then the “play money” portion that they’d day trade. I’d make clear that they were on their own with the play money account.

Invariably, these two clients would call in a panic and tell me that Jim Cramer had just said something on television and they needed to sell…but what did I think first? Should they sell? Should the go contrarian and buy more? Could I look up some charts for them? Maybe call a couple fund managers and ask their opinion off the record?

No thank you.

The math on my practice worked this way: 150 families, all of whom paid for and should demand my attention.

If I met with each client on average 3 times per year for an hour and a half, that meant 675 hours of meetings. Additionally, I’d call each client twice a year minimum and talk for 20 minutes (assuming there weren’t urgent financial events afoot or you hadn’t called me first). That was another 50 hours.

We won’t even approach all of the emails I sent or returned daily. Remember that I mentioned Microsoft employees? Those people love email.

After 10 hours of preparation time a week and 10 hours of strategy/internal and analysis time (not to mention any marketing we were doing), that left 30 hours for client meetings. After holidays, I worked about 48 weeks a year.

Where was I going to find time to day trade your account?

 

 

That’s my story. Now it’s your turn: have you interviewed advisors? How did the meeting go? What did you like/didn’t like about their approach?

 

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Budget Spreadsheet on Steroids: A Mint Review

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By now, you should know that I strongly believe it’s great money management systems, not mental strength, that creates wealth.

In earlier pieces on budgeting, we tackled two important topics:

– Many successful people don’t have create time to create or track a budget spreadsheet, so automating the process is important for success:  Forget 5 Steps To Budget Success–How About One.

– Budgeting with a partner is as much about communication asit is about counting pennies. Cheryl and I use this budget to make sure we’re on the same page:  The Twenty-Minute-a-Week Budget: A Busy Couple’s Best Friend.

If you’re a busy person who can’t write down every expense on the fly, it’s important to stay on top of data. You’ve heard me mention a tool called Mint which I use to monitor my financial life.

 

What is Mint? Let’s take a tour.

 

Mint.com is a free website that tracks your money management. For the most part, it does so seamlessly, handling all the budget spreadsheet tasks and more. I get excited whenever I log into my Mint account, because it puts a wealth of information at my fingertips.

With Mint, I know:

– How much I’ve spent this month

– My net worth at a glance

– My investment status

– Opportunities to improve

Of course, just because it’s free doesn’t mean there isn’t a cost. Mint assails you with  partner offers and a myriad of ways that you could do better, using products solicited through the site. Like I mentioned in my review of Upromise, to me this is a small price to pay for a robust tool that saves me from creating a budget spreadsheet and looks for opportunities to save me money.

In many ways, Mint is like another pair of eyes that can point out strengths and weaknesses.

 

Setting Up the Account

 

When you first log onto Mint, you’ll enter in information about your financial life. It’s going to ask for your brokerage, home, savings, checking, and credit cards. It’ll be helpful to have login information ready at your fingertips.

If you aren’t sold on Mint, give it a quick tour to see how it’ll affect your money management decisions. Put in only one or two accounts at first. You can always add the rest later if you like it.

Sometimes adding information to your Mint account isn’t easy, even though it seems like it should be. I use a small regional bank. Mint had 22 variations of the name, and it took me about 15 minutes to discover which bank was mine. That was a pain.

Besides this issue, though, I was able to quickly put the bulk of my finances into the system. That’s when the magic began.

 

Mint Alerts

 

Forget spending hours on the budget. Mint automates the process so you focus on results.

You’ll be able to set up custom alerts on Mint, but right out of the gate, it informed me that my house payment was due in three days and I had a credit card payment due now. A budget spreadsheet would have never noticed any of these things.

It’s the focused alerts that keep me coming back for more. Who has time to set 20 individual alerts across the financial universe when I can aggregate this information into one convenient spot.

 

The Budget

 

Mint laid out my expenses clearly in a graph format. I can quickly see if my expenses are where they should be, without having to dig through my expense history.

Better yet, I can place constraints around budget categories and ask Mint to notify me if an area of spending is out of control. This feature is awesome for busy people. You’ll know immediately if an area of the budget is compromised without having to go check your stuff.

We just completed a trip to Austin, Texas for the state swim meet. Mint told me that I’d spent far more on dining out than I normally do. For a quick money management update, this is handy information. Even though I was aware of my overage in this case, the reminder from Mint is always welcome.

 

When Mint Doesn’t Work

 

Like any budget, diet or workout schedule, Mint only works if you use it. You have to visit the site frequently or set up alerts to make sure that the information is useable.

I like Mint in combination with our weekly family planning meeting specifically for this reason. By reviewing our Mint budget spreadsheet at every meeting, we make sure that the data we’re collecting helps us make good decisions in the future.

 

Security

 

I’m not a security expert, and it worries me that I’m trusting Mint with my entire money management financial life. Here’s how I justify it: Mint is aligned with nearly every financial institution in the country. Their security experts have to be satisfied that Mint is a safe place for customer information before agreeing to be a part of the network.

Is this a valid argument? Probably not. That said, for me time is money. Mint is a time-proven entity that saves me a ton of hassle and has saved my financial bacon on more than one occasion. There are threats to my financial security all around. I have to trust some sites or I’ll end up at home with my abacus, getting nothing done.

 

What do you use to automate your budget? Do you manually create a budget spreadsheet or have you found a quicker way? If you use Mint, is there an area you like that I didn’t mention? Are there parts of Mint you find frustrating?

(assembly line image credit: Paul Esson, Flickr)

 

Interested in trying Mint? This will take you to the home page: Mint.com