Why Can’t We Keep Our New Year’s Financial Resolutions?

Did you start out the year like many of us, saying “I’m going to lose weight, get to the
gym more, reduce my debt, spend less and save more”… and have you already fallen
off the wagon? Why do we make the same resolutions every year but are continually
not able to stick with our goals?

And please don’t say we don’t want it enough. There isn’t a person out there who
wants to be in debt or scared that they haven’t saved enough money. I’ve never met
a person who wants to end up as a bag lady or working until they die as a greeter at
Walmart (not that there’s anything wrong with that)! No more than anyone wants to
be overweight or unhealthy.

So why can’t we stick to our plans and goals? My belief after 25+ years of counseling
people around money issues, is that we all have deep seated emotions surrounding
and defining our money lives. And until we address those issues, we are destined to
repeat the same patterns over and over again.

So if your goal was to reduce, pay off debt or save more, and you haven’t been able
to achieve this, ask yourself, “What’s behind your over spending?” Perhaps you
were raised without much and now that you are working and making a good living,
you feel like you deserve to have what you want. Perhaps shopping is a way you
reward yourself for all your hard work. On the other hand, maybe you are married
to someone who overspends, and you feel like no matter what you do, you can’t get
ahead. So if you can’t beat them, join them!

Maybe you believe that overspending enhances your happiness, and what if you
died tomorrow, think of all the spending you’d miss out on! It’s different for every
person, but trust me on this; behind overspending and not being able to stick to a
budget, there exists some emotional feeling fueling the behavior.

Gratefully, I am not an over spender. Never have been, never could be. But I have
bordered on what I call being a compulsive saver. Most people think, “Well that’s a
good problem to have”, and in some ways I’d agree. I’d rather be an over-saver than
an over-spender. But my belief system holds true. Behind all compulsive savers,
there are emotional forces fueling the saving.

In addition, don’t think for a minute that being an obsessive saver can’t cause you
problems; especially if you are in a relationship with someone who doesn’t share
your same belief system around money. Many relationships have ended over
couples not being able to agree about money.

I’ve seen savers who are close to money hoarders, who lose friends over the fact
that they count pennies between each other. I’ve seen compulsive savers deny
themselves the enjoyment around the wealth that they have created. So what
emotions lie behind extreme savings? Usually, there is a deep fear of never having
enough money.

In my case, my father was an immigrant to this country and while we were growing
up, we never had some of the nicer things my friends had. In fact, I thought we were
poor, but it turns out we were middle class. But instead of going off in the direction
of over spending (which could have happened), I took on my parents’ fear of not
having enough money. In many ways I mirrored their behavior.

But here’s the difference; I’m not an immigrant. My husband and I earn a very nice
combined income, and I work hard. I’ve been focused on saving for the majority
of my life. Yet I’m married to a man who has pined for a lake house or mountain
house for as long as I’ve been married to him (and that is over 23 years)! Now in
all honesty, for the first 10 years of our marriage, we could barely afford our first
house, but after the first 10 years it was doable. Yet I resisted over fear of spending
the money.

I had to do some hard work on myself; to let go of the fears that my parents planted
deep in my psyche, that I should not spend, but save, save, save. It didn’t happen
overnight but I’m happy to report, that I really don’t worry about money (much!)
and we are embarking on the purchase of a lake house property.

I’ve chosen to BELIEVE the financial plan I update for myself annually, which says
we are OK. We are on track if not ahead of a decent retirement, not too far down the
road (if that be our choice).

You too can overcome your financial behavior if it needs to be fixed. Is it going to
be easy? Not likely! But start with looking deeper at your patterns and take a good
honest look at what drives your behavior. This self honesty is the starting point to
change! You can do it…I did!

Happy New year!

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What Do Your Holiday Shopping Tendencies Say About Your Personality?

Being a lifelong student of human behavior, especially when it comes to money, I thought I would blog about the varied types of holiday shoppers that I’ve witnessed over the years. And I’ve got to believe that there are some undeniable personality traits inherent in these shopping tendencies.

First, let’s start with the type who shuns holiday shopping altogether. Those folks often use the staunch principle that we shouldn’t let commercialism take over the true meaning of the holiday and therefore they are opting out of shopping. Interestingly when it’s a bachelor, we cut them some slack saying,  “oh well, what can you expect”? (The same pass applies to wedding gifts). Yet, if a woman takes that approach, we are less easy going about it. So, are they cheap or simply bah humbugs? Or maybe they really can’t afford the excess money and are embarrassed to admit it? This one I haven’t really figured out! I’ve got to say; sometimes I am jealous of them!

Then of course you have the shoppers whom I would hold out as the most responsible of holiday shoppers. They write out a detailed list with a budget for each item. They think in advance of some ideas for each person on the list, so they don’t wonder aimlessly through the stores thinking of ideas. They spread the increased expenses over several months so it doesn’t all hit at once. They’re methodical and practical with shopping…they’re my heroes! These are the kind of people that make financial planners proud.

Then you have those who shop all year…like my sister! She called me earlier this week and asked me if I preferred gold or silver. I told her actually I wear both and prefer gold, but silver goes with more things I already own. However, I said to my sister, “I thought we decided on no more holiday gifts?” She said we did, but I found something for your birthday…which is in August next year!! My sister is the queen of shopping all year long. And I know plenty of other people just like that. Behind the excuses of, “But I found such a great deal” or “I saw this item and it was just perfect for you”.  I think at the heart of it, they just love to shop and look for justifications. I’m fine with it as long as I’m the lucky recipient!

On the other end of the spectrum you have the last minute shoppers. Some of them even wait to shop until the night before the holiday. One memorable holiday, my husband clearly did that very thing. It was the morning of the holiday and we sat down to open our gifts. Some of the gifts were a bit strange. First of all in several cases, there were 3 of the same gift, one for each of us. In addition, most of the gifts were things we really didn’t need; like 3 fleece blankets. I finally asked my husband, where and when did he shop? He humbly admitted that the night before he had walked the aisles of Walmart, filling his basket with items. When I mentioned that our linen closet was overflowing with blankets, he said, “But they were only $1!” that was 3 years ago and that $1 fleece blanket is still in the trunk of my car wrapped in its original package. So, what’s the personality trait behind this shopping approach? I say just a basic procrastinator!

What about those folks who hit the stores in the few days following the holidays? The game plan is to clean up on the post-holiday sales! Especially the holiday sale items like wrapping paper and such. I love the concept of buying whatever at 75%+ off, but who can really remember an entire year later that they bought those items? I have to admit that I did do it one year, and several years later found those gifts in the top secret place I hid them, having totally forgotten about them. So, North Fulton Community Charities received those items!

Holiday shopping says a lot about who we are as people, and our relationship to money. It simply magnifies our general tendencies towards shopping and spending. This year I’m especially impressed with the masses of people that turned out for Black Friday and Cyber Monday. Record sales increases were reported over last year.  Traffic nightmares still abound around the malls. From what I hear, Americans are still digging out of the recession, and in fear of elevated taxes due to the fiscal cliff, but it doesn’t seem to be impacting the holiday spending spree.

God Bless America! It takes more than a recession and a fiscal cliff to make us stop the holiday spending madness. But I’m not complaining, because it’s good for the stock market!

May you have a beautiful holiday and may your gifts be meaningful and the company of your friends and loved ones even more memorable.

Eventually It Gets Personal!

In keeping with the fact that November is National Hospice Awareness month, as well as our focus on caring for our aging parents, I decided to go personal with this blog and share my own experiences in each area.

Two years ago, my brother, sister and mother and I had to confront the reality that our 81 year old father/husband was terminally ill. He had liver damage from fatty liver disease and both his liver and kidneys were starting to shut down. The only treatment option would have been a liver transplant and at 81 that’s truly not an option.

Initially, we had to deal with the issue of whether or not Dad was a DNR (Do Not Resuscitate). Now, Dad was a really smart and incredibly practical man, so I was pretty certain that if his heart gave out at any point, he wouldn’t want to be brought back. But he was going in and out of consciousness due to drug interactions that a failing liver couldn’t process.  Therefore, my Mom was in charge. After 56 years of marriage, when the hospital asked us about a DNR, Mom’s only answer was that they needed to do whatever and go to any lengths to keep Dad alive. It took a lot of family meetings and then using moments of Dad’s lucidity to convince Mom that he was in fact by choice a DNR. This is a really tough conversation to have when someone is already ill. I urge you to have this conversation as a family far in advance of the potential need.

For the next two months, Dad would go into the hospital for a week, and then be too weak to go home, so he’d go to a rehab center for a week or two. Another drug interaction and then we’d repeat the process. After 8 weeks, I said to my family, “is this really how Dad wants to spend whatever time he has left or how we want to spend our time with him, going from hospital to rehab and back?” So we decided it was time to bring him home and call in hospice.

Hospice was incredible! They showed up in advance with a bed and everything we would need to take care of Dad at home. They took over medication dispensing, provided counseling and nursing assistance. They had 24 hour help available if we need to call someone. I was amazed at their service and even more so at their hearts. These people were incredible at helping the dying transition to the afterlife and help the living cope with the reality of their loved ones’ death.

The most amazing gift a hospice nurse gave to me was when I had been with my parents out of state for a week, missing the holidays with my husband and kids and really felt like I needed to go home. But Dad had been hanging in there and I didn’t know what to do. The hospice nurse told me to go home and be with my family, but make sure and say goodbye as if it was my final chance to speak with my Dad. I thought long and hard about what I would say to him. When I was about to leave, I asked for a moment alone and I told my Dad what he meant to me and what wonderful parts of me I felt like I inherited from him. What a blessing to have that chance! I went home and when he died a week later, I was totally at peace having said that final goodbye.

Fast forward one year… to early 2012, just one year after Dad died. I get the call from my sister, who lives near my parents, that my mom was having a stroke. It was a big one, but mainly affected her cognitive skills. She woke up not remembering that Dad had died, what year it was or much more than the names of her children and grandchildren. She also lost her ability to read. Immediately my mother lost her independence and we were looking at having to get her live in help so she could stay in her home. Over this year, many of Mom’s long term memories have come back, but the short term recall is shot. Her heart and blood work look great and she could continue to live a long time, but will always require care.

My sister and I started doing our research and called a variety of different care giving services that were recommended by the rehabilitation center. Interestingly, Medicare was done paying for Mom’s rehab after 2 weeks, and she was basically being kicked out. We were shocked to find out that the cost of care was $220 a day, which equals $80,300 a year (Holy crap!).  Now Mom and Dad had scrimped and saved their whole life so they could afford to pay for that for a while, but that’s a lot of cash! Gratefully, I had begged my parents around 12 years prior to buy Long Term Care insurance. The benefit I had sold them was only $100 a day, but with the cost of living adjustment, the daily benefit was now $165 a day, covering $60,226 of that $80,000 a year bill. Needless to say we breathed a big sigh of relief!

The total cost of the premiums they paid for that coverage over the 11 years was around $55,000. We have already recouped that cost. But the reality of insurance is you hope you waste those premium dollars! Who wants to have a car wreck, a house burn down, die prematurely or lose their independence in old age? Obviously no one, but the question is can you afford the cost if any of those things happen to you? If the answer is “No”, then insurance is the answer. If your parents can’t afford LTC insurance, consider paying for coverage on your own or with your siblings.

Next week kicks off the holiday season of Thanksgiving through New Year’s. This is a great opportunity to discuss all of these issues with your aging parents. Most people haven’t asked their parents these sensitive subjects. Don’t blow the chance to talk to them about their final wishes while they are healthy and can give you their input. You won’t regret it!

Ben Stein Says Kids Today are Lazy!

Last week I had the honor of seeing Ben Stein give the wrap up keynote speech at the Pacific Life Educational Symposium in Huntington Beach, CA, where I too was a guest speaker. He was phenomenal and had many good messages to impart on his audience.

My main take away was his concern for the younger generation of teenagers, of whom I have two of myself. Ben seemed very disturbed that the discipline of work ethic has seemingly been lost on the younger generation. He also felt like our education system is lacking at best.

I had to agree on a few points. I’ve noticed a big difference between my children and their friends and the generation I grew up in. For one thing, I had a summer job from age 13 on. I don’t recall my parents telling me I had to work; I simply wanted to. My first two summers were just jobs at the local swimming pool, but by age 15 I was working in restaurants doing odd jobs and grunt work. Again, I don’t recall wanting the money as much as wanting the independence and the excuse to get out of the house. Perhaps only having 13 channels and no Internet contributed to a level of boredom at home that doesn’t exist today.

As a parent, I didn’t want my children to work during high school or college for that matter. Parents in my generation tend to want our children to “focus on their studies”. We also encourage them to have so many extracurricular activities that they really don’t have time to work. Are we in some way missing the boat as parents?  Perhaps working, even at a young age, encourages the need to be more structured about getting your homework done? If nothing else, there is something incredibly valuable about working a minimum wage job and finding out that you have to work two weeks full time or over a month part time to buy an iPhone or an iPod touch. Today’s kids only see their parents swipe the magic plastic card and suddenly they have exactly what they want. Making the connection between working and spending is a valuable lesson that I fear is lost on today’s children.

Another thing I’ve noticed about my children and their friends is that they aren’t lining up at the DMV to get their driver’s license on their 16th birthday. They seem to not be in much of a rush. Is this because there are more stringent rules on a 16-year-old driver than when I was growing up? Or is it just that they don’t crave the independence like we did? Are our homes a more friendly and fun place to hang out than our parents homes were, and again, is that a good or a bad thing?

As for our education system, I think we’d all agree that something needs to change. Ben Stein actually quoted Adam Smith who said, “Between your ears and in your heart is where prosperity comes”. Ben was referring to intellectual capital, which he believes is disappearing. We need to get our youth excited about learning. We need to provide the opportunity within our schools where children believe that learning is fun and knowledge is priceless. Learning through reading is one of the greatest escapes from boredom that I know.

So, is the younger generation simply entitled?  Are students today just lazy? Is this a result of being born into one of the most prosperous times in our history? Or living in an age of technology where everything comes so easily and with the simple stroke of a keypad?

How do we bring the principles of discipline, hard work and dedication back to our children? And how as small business owners do we hire this generation knowing that they lack the work ethic that prior generations had?

I wish I knew the answers to these many important questions, but at least Ben got me thinking! I’d love to hear your thoughts on this subject, so feel free to comment back to me below or at facebook.com/karenleetalksmoney.

Windfalls and Excess Income

It seems like we get news on a fairly regular basis that some professional athlete, movie or rock star is going bankrupt or owes the government taxes.  I’m flabbergasted by how anyone could make that kind of money and blow it. I always say, “Give me a person who earns over a million dollars for even 2 years of their life, and I can show them how to set themselves up financially for the rest of their life!”

Last week I watched a documentary on ESPN’s 30 for 30 Series called Broke. They highlighted why such a large percentage of NFL and NBA athletes end up broke instead of set for life. The Documentary cited the following statistics:

The average length of an NFL opportunity is only 3.5 years. 65% of players leave the game with permanent injuries. By only 2 years into retirement, 78% of NFL players have gone bankrupt or are under financial stress. Similarly, within 5 years of retirement, an estimated 60% of former NBA players are broke. (Sports Illustrated 03/23/2009)

This really is not new information for me. Over the 25 years of my professional life as a financial planner, I’ve read many studies of what the documentary called The Sudden Wealth Effect. In the past I’ve seen a similar study of why a large percentage of lottery winners eventually go bankrupt, and I’m sure many of the same explanations apply to professional athletes.

In this ESPN special, they cited many reasons why players are ill equipped to handle the sudden wealth that occurs upon entry into professional athletics. Generally speaking, most come from the lower middle class on down to poverty level and don’t have the money skills to plan for their investments. They are naturally drawn to investments that are sexy versus safe. Many put their money in the hands of agents who are not financially savvy either. The best explanation I heard in the show was that the NFL or NBA (or for that matter a movie career, hit TV series, or bestselling album or book) is an opportunity, not a career. In each of those examples, people are given a limited amount of time to earn big bucks, but it’s unlikely that it will be forever.

People that experience sudden windfalls, can also succumb to similar downfalls. The chapter titled Windfalls and Excess Income in my book, It’s Just Money, So Why Does It Cause So Many Problems?; details stories about salespeople who had a banner year of earnings and people who came into an inheritance or business windfall that could have made a serious impact on their future financial success, but instead, frittered the money away.

There is a tendency for anyone who experiences a significant increase in earnings to believe that this is going to continue indefinitely. That is in essence, the big mistake. Perhaps you will be one of the lucky ones to experience a long-term run of significant financial success. But if you are more like a professional athlete, where it’s a short period of time, you might miss the opportunity to capitalize on those earnings for your future. The even bigger mistake is leveraging a future on the necessity of those increased earnings to maintain that lifestyle. This is where people tend to go broke.

In so many instances it comes down to the fact that as Americans, we simply like to spend. We feel entitled to nicer things, we feel compelled to “Keep up with the Joneses”, and quite frankly, spending is more fun than saving. This generation, unlike those of the past, is more about living in the moment, versus worrying about the future.

But as a Financial Planner, totally invested in helping my clients get to a point of financial independence, it’s been a bitter pill to swallow. One of my most challenging situations is watching people I know struggling financially, that could have made better financial decisions along the way to prevent the situation they are currently in.

The American Dream: Buy vs. Rent

After the Real Estate market imploded during 2008 – 2009, many people changed their opinion that Real Estate was the BEST investment they had and there was no need to diversify into anything else. The debate continues to rage on from the possibility that home ownership isn’t for everyone and perhaps the American dream could include just renting, to what kind of mortgage a person should consider if they are going to buy.

In today’s blog, let’s first review the past mistakes that people have made with their Real Estate purchases and finish with a good sense guide to buying Real Estate in the future.

I’ve always advised people that there are two different types of Real Estate purchases; one being their home and the other being investment property. I think many of the troubles started for Americans when people confused the two. Because Real Estate prices were rising so precipitously in the prior decade, it seemed that even one’s home was a great investment. But like any market sector that experiences great run up in values; what goes up, must come down. Remember the technology stocks in the late 90’s that imploded between 2000 and 2002? Many of those companies never regained their prior value even a decade later. The same will be said of much of the RE properties that peaked in 2007.

Your home is a place you live. The American Dream was to buy a house, pay it off, and own it outright. I remember watching the news with my husband when the concept of the interest-only loan came into play many years ago. I said to him, “This will be a house of cards, just waiting to fall.” Because I understand human behavior, I knew that unfortunately, too many people would use this inappropriately. They would stretch to buy a higher-cost home based on the fact that it was made more affordable by the lower payments of an interest-only loan. Don’t get me wrong, it’s always good to pay less interest on borrowed money. But use the lower interest to help you pay off your loan more quickly with the underlying goal still being to pay off your home!

The next big mistake was the equity line. With home values rising so quickly and interest rates dropping, why not take equity out of your home for a renovation, new car, special trip, whatever? Why not use the equity of your home as a savings account? Because you really DON’T OWN YOUR HOME! And once again, borrowing on the equity of your home, is the antithesis of the American Dream to OWN YOUR HOME outright! The excuses were endless…well I’m planning on selling this home one day anyways….so how did that work out???

Now I’m regularly asked, “Is home ownership still the way to go” and “Is now a good time to purchase a house?” The answer is a resounding YES! Interest rates are at a 50+ year historic low, and prices have bottomed out. Some people would say, “But is it too late, haven’t I missed the bottom?” The answer is, “Who cares, it’s your home and you’re going to try to pay it off and live there a long time!”

So let’s review Karen’s rules for prudent investing in Real Estate:

  • Put 20% down – this shows the bank you have some skin in the game and will get you the lowest interest rates available.
  • Get a fixed-rate mortgage; ignore ARMs and interest-only loans even though the rates are lower. Most people don’t have the discipline to make extra payments towards principal.
  • Don’t stretch your budget for the most house you can afford the payment on. What if you (or your partner) lose your job, or unforeseen financial issues come up? Better to get something you can afford to keep even in the worst of times.
  • Work towards paying your home off, even if you hope to have a different house in the future. Things don’t always work out the way we plan!

So, for those of you who aren’t homeowners yet, or aren’t underwater on your current home and looking to move…go for it and happy house hunting!

Could You Be One Paycheck Away From Financial Disaster?

Of course you couldn’t be, right? You’re educated, on top of your game, and have a good job or business! The people who fall victim to financial disaster live extravagantly, lost their jobs and couldn’t find work for longer than a year or perhaps took too much risk and bet the farm on a get rich quick scheme.

Well, I’ve recently been given the honor of serving as a Board Member for The Drake House which is near my home in Roswell, GA. The Drake House offers transitional crisis housing for single mothers and their children. The residents must adhere to some very strict rules, including zero tolerance for drugs and alcohol, as well as mandatory programming and planned savings. For meeting these requirements, the women and their children receive free housing for 90 days with up to 3 – 30-day extensions, as well as access to a food bank and laundry facilities.

As part of the mandatory programming, the women take a 9-week course on basic finances. I was honored to run week 3 of the last series and got a chance to meet the 15 women currently residing at The Drake House.  We talked openly about our relationship with money, and some of the women shared specifics on how they found themselves teetering on homelessness.

I was BLOWN AWAY by what I learned! I assumed they would be a room full of uneducated, lower class, inner city women who simply never earned enough to make ends meet. Boy was I surprised! The group was diverse, including Caucasians, African Americans and Latinos, and the ages were from mid 20’s to upper 50’s. What was really mindboggling was the number of women who had gone to and completed college, held upper-level jobs, and come from relatively affluent upbringings.

The stories were across the board; many including broken marriages. However, they all shared the common thread of how our relationship with money greatly affects our spending behavior and thus the inability to live within our means. Bar none, the group admitted to the emotional attachments they have to money and stuff, and the sense of entitlement that being an American fosters! It’s hard to live in one of the most affluent countries in the world and not feel somewhat entitled.

It made me realize that many of us, our families or dearest friends could be one paycheck away from a financial train wreck! Here are a few basic tips to help prevent you and yours from becoming the next casualty:

  • Don’t just live WITHIN your means, live BENEATH your means.
  • Have a MINIMUM of 6 months expenses as an Emergency fund, but 12 months is better.
  • NEVER EVER spend money you haven’t already earned.
  • Know your budget intimately and be prepared to slash discretionary expenses, BEFORE things get really bad.
  • Don’t SKIMP on insurance. One bad claim can destroy your financial plan if you aren’t adequately covered.
  • If you are already in trouble with debt, seek debt consolidation help IMMEDIATELY.

As I have said for over 2 decades, Financial Planning is the science and art of planning for the worst, and praying for the best. I hope that each of you gets everything you hope and dream for, but you must prepare for the worst case scenario. As we have all now experienced since 2008 – 2009, things can get really bad, really quickly. Believe it or not, you can navigate even the worst financial storm if you are set up correctly.