Dancing in the Rain

About the time that clients were receiving their monthly statements on their investment accounts, my business partner and I noticed an influx of calls and e-mails.  The general question being asked was “Am I okay?”  We work to position our clients in all aspects of their financial lives to make it through difficult financial times.  In our minds, that’s as important as taking advantage of financial opportunities – for some people it’s actually more important.  Our clients know that and generally talk-the-talk and walk-the-walk of diversifying investments, staying calm during difficult times, and making decisions based on factors other than fear or greed. 

 

But these are pretty unnerving times and even some of the most fearless individuals are beginning to have little beads of sweat popping onto their foreheads.  A friend forwarded this anonymous quote to my business partner: “Life isn’t about waiting for the storm to pass.  It’s about learning to dance in the rain.”

 

So let’s look at a few “dance moves” for current times:

-         Eliminate frivolous items from your spending.  Unless you’re spending more than you make or you’ve lost a major source of income, don’t go overboard.  Everyone needs some rewards built in to their budget. 

-         Have funds available.  Make sure you have 10% of your annual pre-tax income where you could get to it pretty quickly and another 20% or so when you could get to it over time or with some tax consequences. 

-         Don’t put the rest of your money all into the stock market.  Beyond your highly liquid money, also have some that’s in pretty boring stuff life certificates of deposit and government bonds.

-         Stick with quality.  This is a great time to get bargains on quality.  But don’t be speculative.  High quality diversified mutual funds are often better for the average consumer than individual stocks or mutual funds that concentrate on only one industry.  Professional advice on your situation is warranted.

-         Don’t be penny wise and pound foolish.  Don’t be afraid to get professional advice.  Have a pro do your taxes, consult on your investments, and advise you on your overall financial situation. 

-         Don’t scrimp on things you’ll later regret.  If you can afford some niceties that are timely, get them.  Buy holiday gifts, get professional portraits of your high school senior, take the vacation you had planned.  Don’t miss meals to do these things, but when times are good again, you don’t want to be sorry for once in a lifetime things you missed. 

-         Be patient.  It may seem that the economy fell apart over night.  It didn’t.  The poor decisions and waste that impacted the financial markets and several of our industries have been going on for awhile.  The solutions will take time to be completely formed and implemented and the results will take awhile to be fully realized. 

 

Mistakes should be learning opportunities, so we should all take note and become wiser.     

Putting Your Money Where Your Mouth Is

People who have a passion manifest it in how they live their lives.  This manifestation often comes in the form of deeds rather than words.

 

An example is Scott Staub.  I don’t really know Scott – just sat next to him on a plane.  But we chatted during our flight and got to talking about what we both do for a living.  Scott is Vice President of Fund Development for EMQ Children & Family Services.  His employer advocates for children to put them with good families and reunite them with their own families when practical.  It’s hard not to be impressed that someone derives their livelihood from such work.  When we chatted, we got to talking about kids and money.  Scott doesn’t have kids, but he’s active as an uncle as well as with the son of a single mom who’s a friend of his.  It’s clear that he’s a wonderful role model for these kids.  When a nephew turned 14 recently, Scott’s gift was a promise of money to the nephew as well as a donation to a charity of the nephew’s choosing on the nephew’s behalf.  And the nephew would receive his share of the money after he’d identified his charity and discussed it with his Uncle Scott. 

 

So here’s a man who’s part of a positive financial force through his career for many more kids than most of us parents are ever able to touch.  His work will have a huge impact on the lives of kids who desperately need it.  Outside work, the kids he has a personal relationship with can see the value of working in a profession that makes a difference in people’s lives and they get experience in how to make a difference for others in the world who need it.  In my chat with him, he wasn’t boastful about his life or critical of how other people live their lives.  He’s just doing what he feels led to do. 

 

If you were gone from this earth tomorrow and someone who didn’t know you was settling your financial affairs, what would they be able to see about what’s important to you?  Would they see someone who loved to eat out, had a great wine collection, and went on some fabulous trips?  Or would they see someone who supported those in need and made a positive difference in the world?  What would those who knew you tell others?  Would they comment on how big your house was and tell stories about the business adversaries you brought to their knees?  Or would they tell how you were the first person to motivate them to research a non-profit so you could make a donation? 

Using the Right Professional

Some divorces call for additional professionals beyond those I’ve previously listed.  You might need an appraiser if either spouse is involved in a private business, some collectibles, or another valuable asset.   An appraiser is often needed to value the family home.  You might need a vocational evaluator if one of the spouses hasn’t been in the work for a while.  And maybe there’s another special circumstance that calls for another professional. 

 

There’s a final point to remember with all professionals.  Use the right professional for each task.  Many people going through their divorce spending lots of time talking through the emotional issues of their divorce with everyone they’ve hired.  All these professionals should have compassion for your situation, but paying attorney prices to have some emotional venting isn’t a good use of your resources.  Neither is having an attorney or their legal staff to run financial reports.  All these professionals are a great help in their area of expertise – just use them accordingly. 

Working the Numbers in Divorce

The financial settlement is the major component of many divorces.  Making sure that a professional who is an expert in finances is also an expert in divorce is key.  A financial professional working on a divorce needs to be familiar with the legal landscape in divorce, tax issues that specifically relate to divorce, and the long term impact of the financial settlement in a divorce. 

Three different professions tend to gravitate toward this work. 

Investment professionals sometimes do this work as a loss leader to get investment clients after the divorce.  Be aware of this, both because of the potential for a lack of objectivity and because they might not have the training and credentials necessary to advise on divorce issues. 

Tax professionals also often enter the divorce process.  Many CPAs and Enrolled Agents have excellent grasp of the tax and legal considerations in divorce and provide a great compliment to the work the attorney does.  If tax professionals have a shortfall in divorce in general, it’s that they don’t always take the long view.  They are great at looking at the numbers now, but don’t always think in terms of the long term outcome for both spouses. 

Financial planners can also be great assistance in a divorce.  If the financial planner is a Certified Financial Planner she’s had training in looking at all aspects of a financial picture, including taxes and the long term perspective.  If this person has more a working knowledge of tax issues in divorce and understands knows the divorce arena, she could be a great addition to your divorce team. 

Getting help with the financial settlement between you and your soon-to-be ex is important.  You need to decide on alimony, dividing assets and debts, and calculate child support if you have kids.  Generally, courts aren’t amenable to re-opening divorce settlements because people didn’t make wise decisions.  Paying a financial professional to help you evaluate your settlement can one of the best investments you ever make. 

Divorce and Emotion – Working with a Therapist

Divorce can be a huge trauma.  Many mental health professionals say that divorce is one of the most devastating events people can go through.  A support system of friends and family that can help you through is important.  But sometimes, despite all their good intentions of your personal support system, they don’t support you in the way you need to be supported.  They may tell you what you want to hear.  They might encourage you to seek revenge during the divorce proceedings or hold on to your anger.  Therapy with a professional can help anyone going through divorce who wants to truly heal and go forward. 

 

If you have children, divorce is a time your kids may benefit from someone to help them work through the emotional turmoil of their parents’ divorce.  You and your co-parent will want to maintain open communication with your kids and encourage them to have a good relationship with both their parents.  Therapy can help the kids with these and other issues they might need to work through as their family situation changes. 

What To Do About Current Economic Turmoil

I generally don’t like to watch many of the financial news networks.  For my tastes, they tend to focus a bit too much on the exciting short play and not quite enough on prudent long term personal financial issues.  But late last week I couldn’t help but overhear a commentator (who’s name I unfortunately missed – I’d like to write him a fan letter) say that the current market is being fueled by fear, not facts.  Bravo!

 

Let’s look at a non-financial example of how this works.  Think of some of the tragic injuries and deaths associated with fires.  A building is burning and instead of everyone making a calm exit, they rush toward the door, trample other people, block the door, and people die needlessly.  So it’s not the fire that kills people, it’s the fearful actions of people at the scene of the fire.  The fire is dangerous and people shouldn’t just sit on their hands and see what happens if they don’t take action, nor should they take that particular moment to study fire safety or look for where the fire started and scold the people who caused it.  But actions guided only by fear will only make the situation worse. 

 

Is the current economic situation in this country bad?  Of course it is!  And it was brought about by big businesses that made decisions they could see were unwise.  Along the way many consumers contributed to the problem.  Some were uninformed about the risky deals they made, others were greedy.  So what do we do now to keep from getting injured in the current panic?

 

(1)    If you’ve got a good financial plan that has some “what if” safeguards built in, stay the course.  That good financial plan will have diversified investments and savings you can access if you need them. 

(2)    If you don’t have a good financial plan, get one.  Start today spending less than you make and putting some money in emergency savings.

(3)    If you’re part of the problem, start making informed decisions about what you’re going to do to remedy your role in the turmoil.  That may be financing your home to a traditional mortgage, selling your home if it was one you could never have afforded, getting out of your job that preys on those less informed than you, or giving a job to someone in your community that needs one. 

(4)    Don’t let Congress get away with pointing fingers instead of taking action.  This isn’t an accusation against either party.  The news out of Washington since the Treasury Secretary and SEC Chairman made their proposal is beyond disappointing – bipartisan as the disappointment is.  What the mainstream news gave us was lots of our politicians saying ”I don’t know what we need, but that ain’t it!”  There are many potential paths to take us forward and only one, which in fact may have many flaws, has been presented so far.  At this juncture, we don’t need politicians; we need statesmen and public servants.  Let your Congressional Representatives and Senators know that you expect bold and decisive leadership now, not mudslinging at those who come forward to make proposals.

 

And that goes for all of us.  Now is the time to be part of the solution, not part of the problem.  So don’t contribute to the problem by participating in a stampede.  Calm down, take stock of where you are, and make some wise decisions. 

Picking a Divorce Attorney

Most people, when they’re going through a divorce either are determined to keep attorneys out of the process or feel that hiring an attorney is their first move.  A divorce is a legal process, so going through without so much as a consultation from an attorney is probably not a good move.  Attorneys each have different styles, though, and finding an attorney who will approach the divorce in a way you can life with.

 

There are lots of ways to find attorneys.  Referrals are probably one of the best ways to find an attorney.  Ask friends who they’ve heard is good, then ask about what the attorney did well.  If someone tells you that their attorney slaughtered their ex-spouse think seriously about whether or not if that’s a direction you want to go.  You don’t want to lose your shirt in a divorce, but you also don’t want to lose your self respect.  Everyone will have their own definition of a good divorce attorney.  My definition of a good attorney is one who assumes that a settlement can be negotiated outside of court that works for both spouses and any children they have, but who isn’t afraid to go to court if it’s necessary to get a fair deal. 

 

Even if you think the first attorney you talk to is perfect, it’s probably a good idea to interview at least three.  Ask them about their experience and philosophy on the issues in your family.  Ask about:

 

-         Experience and outlook on parenting if you have children.  If you and your spouse agree on the way you want to approach your co-parenting, be careful that you don’t end up putting your kids in the middle of a fight you didn’t pick. 

-         Whether the attorney promotes only litigation, or if negotiation, mediation, or collaborative divorce are part of the attorney’s practice.  If you aren’t told about anything other than litigation, you may be talking to a gladiator who sees every divorce as a battle to the death. 

-         Retainers and hourly fees.  Don’t make a decision based just on fees, but in talking to several attorneys, you’ll get a sense what you’re willing to pay and what you’ll get for that. 

-         Other issues specific to your family – a family owned business, a pension, a special needs child, an inheritance.  Some experience in issues that apply to your situation is advisable.

 

An attorney might not be the first professional you need to hire.  We’ll look at some other experts who might help you in the next posting. 

 

Do It Yourself Divorce

I get folks all the time that come to me wanting to do their divorce without attorneys.  They’d like to save money – keep the attorneys from getting it all – but they have a few financial answers they want that they’re willing to pay a little money for.  Divorce is an area where no one should be penny wise and pound foolish.  There are few things in life more final than the final legal orders in a divorce.  “Gee, I didn’t realize it worked that way” or “No one at the court house told me I should look into that” just won’t hack it if you get a bad divorce settlement because you didn’t get professional help.  The next few postings are going to deal with some of the professionals you can have help you through the divorce process, how to know a good professional when you see one, and what they can bring to the table. 

Part of the Whole Package

Teaching kids about money is only one element of parenting.  But it’s part of a whole package.  Everyone – including parents and including kids – is going to have strengths and weaknesses.  We all grow as individuals if we can build on our strengths and do our best to mitigate our weaknesses.  Child need parenting that helps them do this. 

 

So if your child is doing well with managing the budget you give her for auto fuel, but she’s flunking algebra, make sure all the parenting pieces are fitting together well.  Do you need an algebra tutor or just the motivation for studying is in place?  Financial lessons needs to make logical sense.  For instance, parents need to be careful about “paying” for grades.  It might send the message that academic achievement will automatically bring financial rewards.  As any public school teacher who had a brilliant academic career can tell you, that’s not necessarily the case.  And yet a teenager’s primary job is generally agreed to be to get an education and find out enough about what her passion in life is to build a career.  So if working hard enough on grades is worthy of some financial support from parents, that’s worthwhile. 

 

As a parent of three teenagers, every once in a while I have to take a couple of steps back and ask myself, “Is it realistic that this child of mine who’s making me crazy right now should get a clothing allowance?”  If all the pieces aren’t fitting together for comprehensive responsible parenting, reassess.  And when you do reassess, remember that parenting isn’t about making your kids into clones of you.  It’s about helping them find who they are and maximize their sense of responsibility. 

Freddie, Fannie, and Indy

There continues to be quite a bit of hubbub about the condition of the mortgage industry.  Just how concerned should the average person be?  Let’s use the analogy of a car wreck on a major road. 

 

Assuming you weren’t in the accident, the traffic that has slowed down on both sides of the road will slow down everyone.  The vehicles going the same direction as the folks in the accident will get really slowed down.  The ones going the other direction will also probably get delayed, because traffic needs to go a bit slower to avoid hitting the accident.  But also, people on both sides of the street slow down to look at the carnage.  Where I grew up, we called that rubber necking.  The rubber neckers weren’t in danger, but if they didn’t pay attention to their own path, they might end up in a wreck, too.

 

So if you’ve been going on the same path as the wreck – if you’re in an interest only loan that might have a floating rate now or in the future – you’re on the same path and want to look at how to avoid the wreck.  Get out of your mortgage when you can.  Don’t expect the same terms your got now.  Be willing to get the right loan or, if necessary, move to a house that’s more suited to your situation.  If you’re a rubber necker going a different direction – good fixed rate loan that you’re paying as agreed, saving regularly, diversified investments – don’t get too caught up in what went wrong.  Stay on your path and pay attention.  Even people who are doing the right things financially and have clean credit will probably experience delays in getting loans approved.  That’s so we can all be safer.  And, if you’re like me, say a little prayer for the people in the wreck.  Some of them may be scarred for life, or worse.

 

What caused the wreck?  It might have been a combination of poor road conditions and bad driving.  What if you’re in the wreck?  First of all, be willing to claim your part in it.  If you were tailgating, speeding, not paying attention, own up to it.  So if you got in a loan that you never should have agreed to, you might have to sell your home or even have it foreclosed.  Look for programs that can help you minimize the mess, but you may have to make some tough changes, some of which you don’t have much control over.

 

And going forward, let’s all try to drive safely.