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financial planning

A Risk Management Checklist

Although many individuals have various risk management policies in place, sometimes those policies get brushed aside and every once in a while the dust needs to be wiped off of them and perhaps some updating needed. Here’s a checklist to consider the next time you review your risk management strategies. Auto Insurance – Review your coverage to make sure it’s still adequate. Liability limits of at least $250,000 should be the norm. Limits of $500,000 up to $1 million are better. If you drive an older car, consider raising your comp and collision deductibles or eliminating them altogether to save on premiums. Upside down on your car loan? Consider gap insurance. Better yet, don’t have a car loan. Home Insurance – Make sure your home is insured to its reconstruction cost. This is the cost to rebuild your home using today’s prices for materials, labor, etc. It is NOT the […]

5 Ways to Handle a Falling Market

Given the recent market volatility and the uncertainty that comes with it here are a few things to consider to reduce potential stress. Some individuals can perhaps make the best of a rocky situation. Do nothing. Before reacting or making a decision that could affect your returns and income in the future, take a moment to think about the situation. Is it as bad as it seems? Is it just like the previous market dips? What happened afterwards? If you’ve decided on the correct asset allocation for your portfolio then expecting market dips should be the norm, not the exception. Revisit your goals. Remember the reason why you’re investing in the first place. Is it for retirement and you’re in your 30s? Is it for a college education and you have a 6 month old? Is it for retirement income and you have a family history of longevity? This point […]

Tips for Tax Time

Given that it the start of tax season and individuals will be gathering and preparing their 2015 tax return information, I’d thought I’d put together some basic tax tips. Individuals may consider thinking about these items in order to have a smooth and (hopefully) stress-free 2015 tax season. Additionally, I’ve included a link to our 2015 Tax organizer. Please feel free to use it at your convenience to get your “tax ducks in a row”. Furthermore, please let us know if you’d like us to prepare and file your taxes for you. Many current clients have found Blankenship Financial to be cost effective and efficient compared to other big-named tax preparation services. As Enrolled Agents both Jim and I are well qualified to handle most tax matters and returns. And now with the tax tips… Beware the non-tax man cometh! Each year we field calls from clients and prospective clients […]

Why People Don’t Trust Financial Advisers (and Used Car Salesmen)

Based on some recent experience I’ve had in trying to purchase a vehicle, I thought I’d spend some time on helping advisers new to the industry trying to build their businesses the right way. Additionally, it may help some advisors who are or were being taught the wrong way to deal with clients and prospective clients. Perhaps this post will be better understood if I share my recent (and unsuccessful) experience trying to purchase a different vehicle. Over the last month I’ve inquired both private sellers and dealerships regarding certain vehicles they had for sale. Of the many features and benefits available, I’ve made clear (at least to the dealers) what features and benefits are important to me. Like many car buyers, I am looking for good gas mileage, reliability, and affordability. What I am not looking for is pushy salespeople, sales pitches and closing techniques. Nevertheless, it’s what I’ve […]

Without Action, Resolutions Don’t Matter

Given the start of the New Year it seems almost cliché to write a blog post about resolutions to make for 2016. While making resolutions is not a bad thing, I thought I’d spend some time talking about an arguably more important aspect to resolutions; and that is taking action. To help make some sense with the article I thought I’d share a personal experience. When I was in college I was considerably overweight. Between my junior and senior year I lost quite a bit of weight – about 75 pounds. I was never overweight growing up; I had just let poor eating habits and a sedentary lifestyle get the best of me. After the weight came off, several friends and family members asked me what I did and what my secret was. Really, there was no secret. It was simply eating less and exercising more. However, I became infatuated […]

Three Year-End Financial Moves

As 2015 comes to a close here are a few things to consider so you can make the most of your money for 2015. Take full advantage of your IRA contributions. For those age 50 and over, you’re allowed $6,500 and if you’re under age 50, $5,500. It may also be of benefit to see if you qualify for a deductible IRA contribution or if contributing to a Roth IRA makes sense. Make the maximum contribution to your employer sponsored retirement plan. Granted, there may not be much time left in the year to do this, but there is plenty of time to do so for 2016. Many companies have access to their plans online and employees can change contribution amounts when necessary. If you’re not already doing so, consider saving at least 10 percent of your gross income. Aim for 15 to 20 percent if you can. Pay yourself […]

The Power of Compounding

Many individuals understand the power of compound interest. They understand that compound interest means money or interest earned on interest received. That is, if I earn 5 percent interest annually on one dollar, in one year I’ll have $1.05, but in two years, I’ll have $1.1025, not $1.10. Granted, this may not seem like a lot; and it isn’t. But on several thousand or hundred thousands of dollars it really starts to add up. This post is mainly for those individuals who haven’t heard of this concept or haven’t started utilizing it to their advantage. Mainly, I’m addressing millennials and college students. Those individuals in the cohort I’m address have one powerful thing on their side: time. We’ve written before on this blog about the power of time and starting to save early. We showed the comparing of someone starting right away either during or right after college and another […]

Your Year End Financial Checklist

As 2015 winds down it may be an ideal time to consider wrapping up (pun intended) some loose ends regarding your finances and getting ready to welcome 2016 financially prepared. Here’s a list of things to consider as 2015 comes to an end. Have you made your maximum IRA contribution for 2015? If you have yet to contribute the maximum to your IRA there’s still time. Individuals under age 50 can contribute $5,500 while those 50 and over can contribute $6,500. Individuals have until they file their 2015 taxes or the 2015 tax deadline (whichever comes first) to make their 2015 IRA contributions. Expecting a Christmas bonus? Your IRA is a good place to put it. Consider increasing the amount you contribute to your 401(k). If you’re not already maxing out your employer plan contributions ($18,000 if you’re under 50 and $24,000 if you’re 50 or older) consider increasing the […]

5 Ways to Avoid Overspending for the Holidays

Tis the season! With just over three weeks until Christmas day arrives there’s still plenty of time to get your Christmas shopping done and be able to do so without breaking your budget. To help individuals manage their Holiday spending, here are five tips to keep your Holidays budget from exceeding your limits. Set a budget. This can be done by setting a budget per family you are giving to, or per child in your home. In addition, you could also set a budget regarding how much you’ll give to charity as well. Stick to your budget. A budget is not any good if it’s not adhered to. Avoid using credit cards to make your Christmas purchases. This gets a lot of folks into trouble and is truly the gift that keeps on giving in the form of excessive interest on the credit card balance. Only use your credit card […]

Advice I Would Give My Younger Self

  Last week marked the 30th anniversary of the date Marty McFly traveled 30 years into the future, from 1985 to 2015. A lot has happened in the past 30 years. Smartphones are part of our regular vocabulary, millions of individuals do their shopping online, and markets are still unpredictable. Naturally, I’ve changed over the last 30 years. And if I had a DeLorean that could take me back in time I’d try to impart some wisdom on my younger self. Unfortunately, the closest thing I have to a DeLorean is a silver mini-van (with sliding rather than gull wing doors) lacking a flux capacitor. My hope is that younger readers can benefit from what I am about to tell my younger self. From the moment you start earning money, save 10% of what you make. Whether it’s mowing lawns or stocking shelves you have the gift of time to […]

The Hot Stove Analogy

We’ve all been there. Cooking dinner around the stove and mistakenly touch the burner or element with our finger. Instantaneously and instinctively our hand immediately withdraws from the heat and we quickly look to see if we need to run it under cold water or worse, grab the bandages. Individuals can have a similar instinctive reaction when they are burned by the market. When the market is highly volatile they’re gut reaction may be to pull their hand away quickly and easing the pain by selling and getting out. It would seem almost malapropos to keep a hand on the hot stove knowing that doing so will result in further pain and injury. And it would be unthinkable to place the other hand on the stove so both are feeling the heat. Naturally, no one likes to lose money. When markets go down it is perfectly understandable for individuals to […]

An Emergency Fund for Retirement

Many individuals have heard about having an emergency fund while working and saving for retirement. Generally, the rule of thumb has been to keep 3 to 6 months of non-discretionary living expenses on hand in case one loses their job, becomes disabled, or an unforeseen emergency occurs. But what about those individuals who are nearing or already retired? What should their emergency fund look like? Do they even need one? One of the bigger risks that pre-retirees and retirees face in retirement is sequence risk. Sequence risk is generally defined as the risk of even lower portfolio returns due to making withdrawals from a retirement account when the market has experienced a downturn. In other words, a retiree experiences sequence risk when their retirement account drops in value due to market volatility, and they make a withdrawal (or withdrawals) after the account has dropped in value. Another way to put it […]

Are You Biased? (Hint: Yes, You Are!)

There are several behavioral heuristics and biases that can lead to poor financial decisions. For brevity, we will focus on a few; mental accounting, the endowment effect, loss aversion and status quo bias. For each bias, we will provide a definition and then provide examples of how the biases can lead to poor financial decisions. Mental accounting is the way individuals code and evaluate transactions, investments and other financial outcomes. An example is when employees with access to company stock have 50 percent of company stock in their retirement plan and the remaining money split evenly between stock and bond funds. These employees make the mistake of owning too much company stock (not enough diversification). Mental accounting puts company stock into its own “asset class.” The endowment effect, developed by Richard Thaler is the tendency to place more value on an object once an individual owns it; especially if it’s […]

Advice to the Masses May Not Apply to Individuals

Last week on my ride home from a meeting I had the opportunity to tune into a nationally syndicated talk show regarding personal finance. The host is very popular among listeners and has written several best sellers. Many churches and schools follow the financial program designed to educate individuals on how to set a budget, get out of debt and save for retirement. Generally, the advice given is applicable to many individuals. Sometimes it’s not. A listener called into the show and explained that she had approximately $100,000 in an annuity in an IRA. The annuity paid an interest rate of 2% and had a current surrender charge of 4% – just over $4,000. The caller was asking the host whether or not she should surrender the annuity and roll it over to a non-annuity IRA invested in mutual funds. In a matter of seconds the recommendation was to surrender […]

Personality Influences Financial Decisions

The recent volatility in the stock market has everyone a bit uneasy – even folks who have worked with a trusted financial adviser for years. But if you’ve never worked with an adviser before, you may be surprised to find that one of the first things he or she will do is ask you to fill out a risk analysis questionnaire. This questionnaire is designed to help you understand your financial decisions and the process of making decisions. It’s all tied to your personality, your own unique world-view. Why is risk analysis important before you make decisions with your money? Risk tolerance is an important part of investing – that should be understood at the outset. But the real value of answering a lot of questions about your risk tolerance is to tell you what you don’t know – how the sources of your money, the way you made it, how outside forces […]

Book Review: The Opposite of Spoiled

Last week I had the opportunity to read Ron Lieber’s book, The Opposite of Spoiled. The book centers on raising kids that are well-rounded and responsible when it comes to money. As a father of two kids myself (and supposedly a financial planner), the book offered many insights to me as a father and as a planner. After all, even I have questions about how to get my kids to think about the way money works and the family finances. Mr. Lieber’s book does an excellent job of how to answer the money questions kids ask. Naturally, kids see the world through different lenses and it’s in their nature to ask question. Such questions about money Mr. Lieber covers range from the “Are we rich?” to handling what kids see their friends have that they do not. Taken right from the cover is Mr. Lieber’s take on how to teach […]

How to Interview Your (Potential) Financial Adviser

As individuals need help with their finances and investments they will likely turn to the help of a qualified professional. Their future financial adviser may come via referral from a trusted friend or family member, or through an extensive Internet search. The following is a list of questions (and answers to look for) that individuals can ask their potential adviser to see if he or she is likely to be a good fit and more importantly, act in the client’s best interest. Are you a fiduciary? If yes, move to question 2. If no, thank them for their time and move to the next adviser on your list. Advisers that are fiduciaries are legally bound to put their clients’ best interests first. In other words, regardless of compensation, products offered or company affiliation, fiduciary advisers must act in the best interest of their clients. Everything else is secondary. How do […]

How to Prioritize Your Time and Money

Sometime ago I wrote about needs versus wants. Along those lines I’d like to talk about priorities. It’s pretty common that we heard our friends or family say “I don’t have the time” or “I don’t have the money” (of course, we’ve never said these words). And periodically, I’ll hear these words uttered by my students (no time to study), generally after a not-so-good exam score. But what these folks are really saying is “It’s not a priority right now.” For many of us, it’s not about having more time or more money. It’s really about prioritizing the time and money we have. When we reprioritize what’s important to us, it’s amazing the things we can accomplish and the money we can save. Here are some tips to prioritize your time and money. In fact, for many folks time is money. Prioritize your savings. This can be done by paying […]

Correlation, Risk and Diversification

Many investors understand the importance of asset allocation and diversification. They choose among various assets to invest in such as stocks, bonds, real estate and commodities. Without getting too technical, the reason why investors choose different asset allocation is due to their correlation (often signified by the Greek letter rho ρ) to the overall stock market. Assets with a correlation of +1 (perfect positive), move identically to each other. That is, when one asset moves in a particular direction, the other moves in the exact same fashion. Assets with a correlation of -1 (perfect negative), move exactly opposite of each other. That is, when one asset zigs, the other asset zags. Generally, the benefits of diversification begin anytime correlation is less than +1. For example, a portfolio with two securities with a correlation of .89 will move similar to each other, but not exactly the same. Thus there is a […]

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