Complete Your Personal Financial Statements

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This is the third exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

Cash Flow Statement

Through the online banking systems of most banks, you can now view a history of your expenditures for specific periods of time in seconds.  If you prefer to do things the old fashioned way, your recent bank statements will also show you your spending past. Seeing what you’ve spent is step one in creating a cash flow statement.  Step two is categorizing your spending—where exactly have you spent your money?  This can be an eye-opening experience.

Balance Sheet

Collect all of the statements (online or paper) for every bank account, investment account, 401k, IRA, and so on, along with every statement detailing your debts—mortgages, auto loans, college loans, credit cards and such.  Add up your assets and your liabilities and then subtract the latter from the former.  The resulting balance is your net worth.

Budget

Every dollar that you expect to receive in the coming month should be allocated to a budgetary category.  Your fixed expenses are the easiest to plan for, but you must also estimate what your variable expenses are going to be.  You also can’t forget about those expenses that come quarterly, semiannually, or annually.  This should include things like your water bill or insurance premiums that you pay on an interval other than monthly, but it should also include those personal expenses like vacations.

Click HERE to access an online exercise to complete all three!

Financial Fact and Fiction

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by Jim Stovall

It is difficult to make good financial decisions even under the best of circumstances.  There are a myriad of tools and an endless supply of information available to us, but it’s difficult to sift through the debris and get to the true treasures that lie underneath.

In listening to one of the recent political debates, one candidate who felt his opponent was bending the truth was heard to say, “My opponent is certainly entitled to his own opinion, but he is not entitled to his own facts.”

As we try to boil down financial news into information we can utilize, we must separate the fact from the fiction.  Here are a few examples.

If you follow the news reports and talk shows, you might think that rich people don’t pay enough taxes or don’t pay their fair share.  This fiction would paint a picture of idle rich people frivolously spending hoards of money without contributing to the tax burden.  The facts are that the wealthiest few percent of people in America pay the majority of taxes while over half of working adults pay virtually no tax at all.

The fiction one might derive from the media would tell us that most U.S. consumers buy and consume goods that were made in China.  While China has a robust, thriving economy and will certainly play a significant part in global financial matters for the foreseeable future, the financial facts are that only 2.7% of goods purchased by Americans were made in China.  Over 88% of American money is spent on goods and services provided in America by American companies.

Another Chinese fiction would have us believe that China owns virtually all of our government debt which they might refuse to refinance at any point in time, putting the American economy into a tailspin.  The financial facts are that China owns 7.6% of our U.S. Treasury debt.  Our own government owns three or four times more than China, and state governments, municipal governments, and private investors like you and me own more than anyone else.  Our growing national debt is a concern, and once again, China is a factor, but when we’re evaluating the situation we must deal with fact, not fiction.

An alarming fiction tells us that the majority of the energy that the United States uses to keep our economy and defense going is imported from unstable or unfriendly governments in the Middle East.  While the amount of oil imports is certainly a concern and we can all agree that energy independence would put the United States in a more stable position, the fact is that currently the United States imports 9.8% of its oil from the Middle East.  This is down nearly a third over the last decade.  Almost half of our energy is produced right here in the United States with twice as much coming from Canada and Mexico as comes from the Middle East.  This means that approximately three-quarters of the oil consumed each day by the United States comes from right here in North America.

There are plenty of facts to be worried about without creating anxiety over fiction.

As you go through your day today, make good financial decisions based on facts, and eliminate the fiction from your thinking.

Today’s the day!

Personal Principles and Goals

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This is the second exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

Deliberate over that which you want to mark your life.  Write down a word or phrase that will be your Personal Principle—your value—and then give a sentence or two of explanation.  These are yours, but I encourage you to share them with a good friend and your spouse, if applicable.  (One of the nuanced difficulties and benefits of marriage is the necessity of allowing your Personal Principles to be folded into those of your spouse.  If your spouse is a willing participant, encourage him or her to complete this exercise as well to develop a set of Unifying Principles for your family.)

You might benefit from reviewing Ben Franklin’s list of personal principles—his “Thirteen Virtues.”  The goal is not to make Franklin’s your own, but to be informed by his intellect, entertained by his wit and inspired by his wisdom:

Your GOALS—especially your financial goals—may be better informed when you complete this entire process, but practice now writing down a few goals that meet the specific, measurable, attainable, and meaningful criteria, then come back to them after completing the full plan series.  Financial goals will then be broken down into specific steps to meet those goals in your Action Plan in the final step.

Mice and Men

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by Jim Stovall

Recently, there was a university study done using white mice as the subjects for a psychological experiment.  The mice were put into a cage with a red light and a green light on opposite sides of the space.  The experiment was designed in such a way that when a bell rang, a mouse could rush to the red light or the green light to receive a treat.  The treat was only presented for a few seconds, so that if the mouse guessed wrong and went to the green light when the treat was being presented at the red light, the mouse didn’t have enough time to rush across the cage and get the treat.

The experimenters designed the study so that 80% of the time, the treat was presented at the green light.  After a short period of time, the individual mice became aware of the discrepancy between the results of guessing the red light versus the green light, and they would only go to the green light when the bell rang.  In this way, all of the mice—by only going to the green light—were successful in receiving a treat 80% of the time.

The conclusion of the experimenters was that the mice were relatively intelligent and acted in their own enlightened self-interest.

Then the plot thickened when a similar experiment was done with human beings.  Individuals were put in a room with a red light and a green light on opposite walls.  When the bell rang, they could collect chocolate candy directly beneath one of the lights, but they had to guess correctly between red and green as there wasn’t enough time to get across the room if their first guess was wrong.

Like the mice, after a short period of time, the humans observed that most of the time, the chocolate candy was presented directly beneath the green light; however, unlike the mice, the humans tried to outguess the pattern and rushed toward the red light periodically.

The mice, by recognizing a prevailing condition and only going toward the green light, were rewarded 80% of the time.  The human beings, by trying to outguess the experimenters, were only rewarded 67% of the time.

By any measurable scale of intelligence, human beings can out-think and out-reason mice; however, human beings are susceptible to the thought that they can out-guess a prevailing system.  One need go no further than a casino to see relatively intelligent human subjects participating in a system where they intellectually know they cannot succeed on a long-term basis.

As you go through your day today, think like a mouse when you have no control over the conditions, and think like a human when your effort, energy, and ingenuity can make the difference.

Today’s the day!

Your Personal Money Story

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This is the first exercise in a series designed to walk you through an entire financial plan.  The spreadsheet is embedded in an Excel spreadsheet you can download and save for personal use.  You can get the background for this exercise in my Forbes post HERE or just jump right in with the instructions given below:

Write your own Personal Money Story.  What is the earliest memory you have about money, and how old were you?  For many, it will involve some combination of a piggy bank and an allowance or birthday gift somewhere between ages 3 and 6.  Then, rate this experience numerically between +10 for a great experience and –10 for a scarring memory.  Continue this pattern, marking all of the notable experiences you had with money—good and bad—throughout the course of your life.  As you fill in the columns in chronological order, you’ll see the graph begin to populate.

As you reflect on the completed exercise, what story does it tell?  Is it notably fortunate, happy, tragic or sad?  Is it relatively level or particularly volatile?  The answers to these questions might just explain the health of your 401k or your burdensome credit card balance.

As you develop your own realizations about your money beliefs, consider sharing your story with a select family member or friend, especially a spouse or loved one upon whom your Personal Money Story might have a meaningful impact…and suggest they do the same.

Repetition Helps and Hurts

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By Jim Stovall

The tasks we repeat are the tasks we master.  The thoughts we review are the thoughts we remember.  Practice doesn’t make perfect.  Practice makes consistent.  Only perfect practice will make a perfect performance.

I have spoken in many arena events with thousands of people in attendance.  It is interesting to observe when the event organizers conduct a brief experiment.  An announcer will get onstage and quote the first half of an advertising slogan that hasn’t been used in decades.  Without hesitation, thousands of people in unison will recite the second half of that obsolete and outdated slogan.

Cigarettes have not been advertised on broadcast TV or radio since the 1960s; however, when the announcer at the arena event says, “Winston tastes good…”, the entire audience recites, “…like a cigarette should.”  While I’m glad that cigarette advertising has been outlawed, and future generations won’t be exposed to that harmful habit in the same way many of us were, it is important to realize that the slogan has been deposited into our collective consciousness in a way that it can be recalled by the masses instantly.

It’s not memorable because we care about cigarettes or like the ad that ran years ago.  It’s memorable because the message was repeated countless times.

I’ve heard the same announcer simply mention the first ingredient listed in a McDonald’s commercial by saying, “Two all-beef patties….”  Without hesitation, 10,000 people recite in unison, “special sauce, lettuce, cheese, pickles, onions, on a sesame seed bun.”

You may not like Big Macs and may not have had one in years.  That particular ad hasn’t run on TV or radio in several decades, but because of the repetitive nature of the advertising campaign, we all know it immediately.

While repetition in delivering your message is important, there is a type of repetition in the digital age that is counterproductive.  If I receive one email from a person or organization, I’m likely to give it some of my attention.  If I receive two or three of them, I instantly know it is part of a bulk email blast, and I don’t have to pay attention to it.  If I get an envelope in my mailbox addressed to me with some type of offer or incentive, I may review it for a moment; but if I get two or three duplicates of the same mailing in my box at the same time, I realize it’s only a mass mailing, and I don’t have to pay attention to it.

If you’re going to use the power of repetition, use it in a way that benefits your message, not in a way your message becomes marginalized.

As you go through your day today, remember:  Repetition can make you memorable or annoying in the eyes of those you want to reach.

Today’s the day!

The Real Point Of Financial Planning

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Whether you’re a do-it-yourself-er or working with a professional financial planner, the real point of financial planning is often obscured in a process so deep and wide that it’s easy to get lost.  The most prominent mistake in financial planning is to allow the process to be reduced to an exercise in which success is solely derived from a single number—your net worth, today and projected into the future.  In truth, the real point of good financial planning isn’t to have more money, but a better life.

One may argue this point suggesting that more money is simply more…better, that few financial plans have suffered from a surplus of financial resources.  This is true at a moment in time, but the problem with making “the number” the ultimate goal of a financial plan is that it steers behavior to get there.  But that is the point, many of my esteemed colleagues may insist, that we subordinate our todays to our tomorrows in hopes of securing comfort and prosperity in both.  Then I ask you this:

Is comfort and prosperity the chief end of life?

I’m privileged to teach the Fundamentals of Financial Planning at my alma mater, Towson University, and every semester I pepper the class on the first day with a barrage of questions, among them, “How many of you are HERE because you WANT to be here?”  The average positive response is 10% of the class.  Most of them are accounting majors, so I engage them in discussion to determine WHY they chose that course of study.  The primary reason given is to secure comfort and financial prosperity in life.

“So you’ve chosen,” I ask, “to dedicate four-to-six years of your life becoming educated sufficiently to spend the bulk of your waking adult hours thereafter in a job you don’t particularly love to hopefully secure financial prosperity?”

Unfortunately, too many financial planning processes look just like this.  They begin with numbers and back into the actions—and life—necessary to achieve those numbers.  Planners may justify this by disclaiming that the client dictated the data (in the questionnaire designed to force the client into a box that can be managed by the planning software du jour).  The recommendation is simply the output.  But that’s because the process is backward.

It should start, instead, with three simple questions:

  1. WHO are you?
  2. WHAT do you want to be about?
  3. And, WHY?

Then and only then should the numbers come into play.  And the numbers shouldn’t exist to extinguish the who, what and why, but to support them.  If I’m really a good teacher, I may have to recommend you consider an alternative educational or vocational path.  If I’m really a good planner, I may have to recommend a course of action that could have a negative impact on your bottom line—today and in the future—but which leads to a better, more fulfilling life.

At best, the benefit of financial planning is minimized when reduced solely to a process intended to give you more money, today and in the future.  At the very worst, such a process could temporarily or permanently derail your entire plan for life.

Your financial plan must submit to your plan for life.

In the coming weeks, I’m going to take you on a blog journey through an entire financial plan, including an examination of topics you’d expect—like how to judge your investments and determine how much life insurance you should have—as well as many you might not anticipate—like how to create your own Personal Money Story and articulate your Personal Principles.  We’ll discuss everything from homeowner’s and disability income insurance to navigating death and taxes.

Each week’s blog post will be on a different topic, building on the last, and will include online exercises you can download (at no cost) for your own personal use in developing your financial plan.  It’s not designed to supplant the intangible benefits of a personal financial planner, but to be a starting point, a supplement and/or a second opinion.  And throughout, we’ll work to maintain the real point of financial planning—a better life.

The Most Important Love Letters You’ll Ever Write

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You don’t want to write estate planning documents because you don’t love meditating on the prospect of your own death.  Sure, you might think you’re mature enough to face that eventuality and plan responsibly to care for anyone or anything you might leave behind.  But even if you’re perfectly cognizant of your own mortality and confident of a secured eternity north of the border, you may not rank a discussion on splitting up your worldly assets and responsibilities with an attorney particularly high.

But your estate planning documents aren’t for you.  Think of them as the most important love letters you’ll ever write.  Find inspiration in knowing that you’re caring for the people and causes you love, even if you’re not here anymore.

The most important recommendation in every financial plan is successful completion of thoughtfully prepared estate planning documents.  So, no matter your age (unless you’re still a minor), marital status or net worth, you need to be considering how to write your WILL, DURABLE POWER OF ATTORNEY and ADVANCE DIRECTIVES.

Here is an estate planning crash course in the form of three videos addressing each primary document in under 90 seconds.  Enjoy!  (Then, act.)

 How to Create a Will in 90 Seconds or Less

 

How to Create a Durable Power of Attorney in 90 Seconds or Less

 

How to Create Advance Directives in 90 Seconds or Less

Commercialism In Valentine’s Day

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So a couple days ago, my beautiful wife, Andrea, posted a seemingly random thought on Facebook:

I know I am going to sound like a grumpy old lady…But I don’t actually like Valentine’s Day.  It’s so fabricated and commercial.  Too much pressure for me ;-)

Thanks to direct access to this particular source, I was able to delve further.  She told me, “It’s hard to feel romantic when everyone is trying to do the same thing.  It feels forced.”  What makes it feel forced, she concluded, was the overly commercial aspect of it.

Speaking of commercials, did you happen to catch the Teleflora ad during the Super Bowl?  My reaction to supermodel Adriana Lima’s floral sales pitch was to awkwardly preoccupy myself with the chips and dip to hide the spontaneous nervous laughter that erupted at its conclusion, as Ms. Lima instructed my gender: “Guys, Valentine’s Day’s not that complicated.  Give, and you shall receive.”  Feeling the stares of all the women at a small Super Bowl gathering, I attempted to declare, foolishly, with as straight a face as humanly possible: “That commercial was…um…effective.”

The ladies present gave me grace and laughed at my helplessness, but I can’t but wonder whether the forced romanticism of which Andrea spoke wasn’t perfectly personified in Teleflora’s wanton objectification of women.  (For a discussion on the wanton objectification of MONEY itself, check out my post on Forbes this week, “For Love, Not Money.”)  After all, my guess is that Teleflora didn’t spend $3.5 million to stir a healthy discussion over the inherent self-interest in gift-giving, but to sell a boat-load of roses!

Teleflora wants guys to give flowers, and there is no question what they implied guys should expect to receive.  So, we give this and we get…that.  Sounds much less like a gift and more like a transaction.  A transaction no respectable man should be willing to make.  A transaction that strips every ounce of romanticism out of Valentine’s Day, or any occasion for that matter.

A gift from a heart of love simply isn’t a gift unless it’s given without reciprocal intent.

It’s no wonder that the results of my unscientific poll, based on Andrea’s and my Facebook and Twitter comments and questions, revealed that 60% of respondents share generally negative sentiments about V-day, with an additional 20% blithely apathetic.

While I recognize all the reasons for turning our back on V-day as valid, my not-yet-completely-extinguished optimistic streak inspires me to redeem, instead of discard, this beleaguered day.  My friend and colleague, Joe Pitzl, put it well in his poll response:

Valentine’s Day has become a commercialized “Hallmark holiday,” but that doesn’t mean you have to let that destroy the spirit of what it really stands for.  Our society has effectively redefined celebrating a holiday (and why we celebrate it) as spending money on stuff.  We ought to remember WHY holidays exist in the first place…and pausing from our busy lives to simply celebrate our love for one another (whether you spend anything or not) is a great a reason to celebrate as any!

What do you think?  Are we capable of redeeming Valentine’s Day from its commercial, transactional devolution?

Customer Service and Survival

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by Jim Stovall

Customers are like teeth.  The only ones you need to maintain are the ones you want to keep.

I hear news stories and ongoing news media coverage about how bad the economy is and how consumers are not spending money.  You wouldn’t know this from going into the average retail establishment today.  The majority of businesses you might enter to purchase a product or service do not provide a level of customer service that you would expect from someone that is not having enough retail revenue.

There is a local establishment near my office where we purchase sandwiches for lunch.  They do not deliver, so we go across the parking lot and pick them up.  They have asked us to fax our orders to them.  This was acceptable, except they explained that they don’t often hear their fax machine receive an incoming order, so they asked if we would call them after we fax in the order.  We set up an account so our staff can simply sign for the lunch when they pick it up.  I mistakenly assumed they would bill me monthly, but when I did not receive a bill for close to a year, I contacted them and had to go through an accounting nightmare simply to pay for all the sandwiches.

One day it occurred to me that I’m working way too hard in a bad economy to spend my money.  If I have to write down the order, fax it in, call and alert them they have an order, and provide them with accounting so I can pay my bill, I’m doing everything but making the sandwich myself.  This situation would be laughable if it wasn’t so commonplace.

I travel often for speaking engagements and movie or TV business.  A polite and professional flight attendant is rare enough that you really notice it when you get one.  This is unfortunate because, due to rising fuel prices and the economy, the airline industry is struggling.  Most airlines’ flight routes and fares are just about the same from one airline to another.  The real differentiating factor they have to offer would be great service, but this is not the case.

In most customer surveys, good service and a polite, professional staff rank high in the criteria prospects use to make buying decisions.  In most cases, great customer service and polite, professional attitudes don’t cost anything but a little effort and energy.  In fact, it is invigorating and enjoyable to serve others.

If you want to succeed, you’ve got to make it easy for people to do business with you, feel good about spending their money, and want to tell others about their experience.

As you go through your day today, determine to separate yourself from the crowd by providing stellar customer service.

Today’s the day!