Should you stay home with the kids?

Posted on by

I did, and don’t regret it for a minute. It was tons of fun and a chance to do all the things I hadn’t done in my own childhood. Staying home with your children is not primarily a financial decision, but it does have some profound financial consequences. So as you are making decisions about whether you will be a stay-at-home parent for some portion of your child-rearing years, here are some financial points to consider.

  1. Consider your Social Security benefits. Sure, collecting Social Security seems like a million years away. But since benefits are based on your entire record, taking into account your 35 highest earning years, taking 20 years, or even 10 years, out of your lifetime earnings record can hit hard on your future benefits. (see more information here). Stay-at-home parents who later get a divorce can have a much bleaker retirement picture than someone who has worked consistently. If you have been married at least 10 years, (or stay married), you will be eligible for spousal benefits—generally, ½ your spouse’s primary benefit. However, this may be much less than if you had maintained employment at a relatively high earning job.
  2. Consider disability benefits. If you do not have a recent work history and become disabled, you may not be eligible for Social Security disability payments. If you are not employed, you will probably not be able to get private disability insurance either, since generally this insurance is based on earning. There are some ways to approximate disability insurance and protect you, but it’s complicated—contact me to discuss this if the situation applies to you.
  3. Evaluate your life insurance. Many people have life insurance primarily through their workplace. If you are not employed outside the home, consider what replacing your services would cost your family, and investigate appropriate life insurance.
  4. Be careful about working for your spouse’s business for free.  If the spouse owned the business before marriage, you are probably not going to be entitled to any share of the business’s worth in the event of divorce. Also, you are not building up Social Security benefits. Finally, if you are unpaid you will not have an employment record should you need to borrow money, secure credit, or purchase disability protection.
  5. Keep some credit in your own name (not joint). Too many people decide to cancel all those old individual-account credit cards in favor of joint accounts when they marry. Or let those accounts lapse over disuse. In the event of the spouse’s death or disability, or divorce, a stay-at-home parent may not be able to qualify for a credit card. Always keep one major credit card as an individual account, and use it from time to time to keep it active. The easiest cards to get are department and discount stores, but one with a significant limit that will allow you to book travel, rent a car, or pay for a hotel or emergency daily expenses is the one to have.
  6. Know how staying home will affect your student loans. If you are on a repayment forgiveness plan because of working for a non-profit, your loans may kick back to full repayment. Be sure you calculate what this might cost you. I have seen cases where leaving non-profit employment would increase loan repayment by the mid-five figures!
  7. Start a small business and run it like a business. It’s much easier to take a part-time business to full-time than it is to start from scratch.
  8. Keep your network and your professional contacts alive. Same reason as #7.
  9. Take every opportunity to upgrade your professional skills. At some point the baby goes to college. You will have the rest of your life. Upgrading skills keeps you current and marketable. Most people will eventually return to work.

Sure, this is disaster planning, and my sincere hope is that you will never have such a disaster. All decisions require weighing the choices and consequences, however, so do some planning and–enjoy your children.

 

 

 

Financial Advice—Whom Should You Trust?

Posted on by

Embed from Getty Images

Given the stuff I’ve encountered in the past week, you’d think I was living in Scam-a-lot. It’s been a banner week for schemes designed to hoodwink the consumer and get us all to buy questionable stuff at unquestionably high fees. It’s made me think about a few predictable trends to watch out for.

If you’re reading about it on the internet, consider the source.

This morning I had a lovely 20 minute conversation with someone representing himself as a reporter on deadline. Now, this guy sounded pretty good—had a voice better than Ron Burgundy—and told me his research staff had identified me as someone unique in the field. Well, I like compliments as much as the next victim, er, individual, and I figured the guy said he was in radio. He had a pretty good angle—asking me the type of reporter questions I always get for background.

I probably hadn’t had enough coffee yet, so it took a while for my BS detector to go off. First clue was the voice—most reporters I talk to are slurping a cup of coffee or chewing on a paperclip while they talk to me. Second clue—no key clacking in the background. Third, he just had a lot of time and most reporters are trying to get the info and get you off the phone stat. And they don’t like you all that much.

So finally, after blathering on about how great fee-only was and how I got into the business and yadda-yadda, I pulled up short when he started showing me his lovely slick website and how they were going to make two shows featuring me AND HOW I COULD APPROVE AND REVISE ALL CONTENT. Uh-oh—so I asked, “Is there a cost to this?” Guess what.

This is not journalism, where a reporter has at least some credibility and isn’t promoting industry interests. Ethical journalism still keeps a barrier between the news and the advertising. So if you’re reading some kind of advice on a website, click that “About” tab to see who these people are. Check the footnote on the page to see if they mention “securities sold”. If you’re really diligent, check out the little link (if it exists) that says “information for advisors” or “how to be selected”—it will tell you what the “experts” have paid to be included as experts.

And BTW, you won’t be hearing me on Blogtalk Radio any time soon.

If someone is in the public eye, it doesn’t mean you can trust them

I’ve written about Dave Ramsey before, but someone else walked into my office with livin’ breathin’ proof of why you should be skeptical.

I like Ramsey’s advice about getting out of debt, and his principle that you should budget for charitable contributions as well as all the junk you and I waste money on. He’s inspired a lot of people with the confidence that they can turn their lives around, and he focuses on the everyday Joe, not those “high-net-worth individuals” so beloved by the brokerage industry.

And then he turns right around and finds a way to scam those same Joes. When you click on his referrals to financial advisors, as far as I can determine every single one of them is a commissioned broker/salesperson or insurance agent, and the main screening ole Dave has done is whether the hefty check he requires has cleared the bank. So much for Dave’s “trusted providers”.

Now, I’m not totally against commissions, especially when clients can understand the product (for example, real estate purchases) or are made aware of exactly what it will cost them (a few low load type insurance providers). But you ought to know what screening, what “referral fees”, and what membership dues have been paid for your referral.

For example, I belong to the Garrett Planning Network, which has a referral service on their site. To be listed there, I have to be a CFP®, be fee-only, not accept referral fees, and half of my engagements (at least) have to be on an hourly basis (as opposed to AUM). I do pay dues to Garrett, and for that I get continuing education, industry updates, and a community of people to ask questions of.

I also belong to NAPFA, which offers referrals to people that visit their site. Again, I have to be a CFP®, be fee-only, and in NAPFA’s case, had to submit a sample client plan to be reviewed and approved. I get approximately the same benefits from them, although they also charge me for continuing education, and require that I report a minimum number of hours each two years.

My blog is sometimes re-syndicated via Garrett and NAPFA to other organizations that are supposed to promote reliable advice to consumers, such as Fee-Only Network. I do what I can to control where my information appears, but various business services often pick up my information, and I don’t have much control over that—in fact, I often do not know until I get a promo from them trying to convince me of the value of going from their basic service to “premium”. I don’t.

Especially beware of people who scream on TV or give you a limited-time offer. You should never be in a blinding hurry to invest.

If it seems too good to be true, it is

The other big beef I have with Ramsay is that he has repeatedly stated that you should be able to achieve a 12% return on your investments. Rotsaruck. Most of the people he speaks to—trying to get out of debt and accumulate initial savings—should not be investing in anything risky enough to earn that kind of annual return. Even over a very long time, that would be an unusually high return on legitimate investments.

Almost every scam I read or hear about involves someone “guaranteeing” that the investment will pay a higher than market rate. Bernie Madoff sucked people in by offering just 8%. I’d guess close to 100% of investment scams could be avoided by the people they bite if individuals were just a tiny bit more skeptical of oversized promises, and a teensy-weensy bit less greedy.

Don’t buy because someone wraps themselves in religion

See especially Dave Ramsay, above. Or the person who trades on belonging to your church, or religion, or alumni association or is your cousin. Not that you shouldn’t have something in common with your advisor, but you should check to make sure they’re competent, credentialed, and reputable as well. In the case of relatives especially you shouldn’t invest because you feel sorry for them just starting out. Every broker is trained to lean on family and friends first to harvest low hanging fruit. And how bad are you going to feel at family gatherings after your relative has lost all your money? Can you ever fire him? Better just to give him a few hundred bucks–it’ll be cheaper in the long run.

Know what you’re paying

Have I said this enough? Well, if Dave Ramsey sent you to some guy who sold you an annuity where 70% of your quarterly investments were going to pay the quarterly fees, would you be in my office wondering how to get out of this “wealth-building” investment? True story.

Even people who ought to be on your side can give crummy advice

Another true one—client met with a plan advisor from his company’s new retirement plan provider. “Advisor” recommended some excellent, low cost mutual funds—ones I often recommend as part of a portfolio. “Advisor” told client these funds were doing great right now. True. However, client already has plenty of money in these asset classes, and when an asset class is “hot”, you ought to be buying the opposite. Buying the “hot” asset class or fund means it’s already run up in value, and you will be buying at the peak of the market.  Buy LOW, SELL high. But most people end up doing the opposite, and with “professional” advice.

So, that’s the blowback for the past week. I await with bated breath what new scams lie ahead. Meanwhile, I’ll continue to recommend boring. And prudent. And understandable. And sleep at night.

 

The cost of food

Posted on by

Embed from Getty Images

It’s not easy to make money selling food. Dear daughter and I have been engaged in a summer long project of exploring an artisanal jam-making business and once you use those calculators to figure your retail price, well, let’s just say now I know why stuff at a farmer’s market costs so much. Once you add up the cost of top quality ingredients, transportation, packaging, etc., and do it on a small scale (so you don’t get the kind of wholesale discounts Wal-Mart can command), you come up with a pretty big price. On the other hand, you can also come up with a fresh and excellent product.

So, if I have to sell an excellent product for $9 a jar, how can these big companies make money selling for $4? Besides the economies of scale and bulk pricing, read the ingredients. As Michael  Pollan says, how many? Ones your great grandmother would recognize?

In his book In Defense of Food, Pollan describes how the food industry can and does make money. After all, it’s a somewhat inelastic market—even a dedicated trencherman can only eat so much. After we lick the plate at around 3,500 calories, most of us are way beyond caloric needs, and probably at as much capacity as our stomachs will hold. So how to make money? Repackage the plain stuff in ever more attractive ways—Go-gurt instead of the plain variety—using ever cheaper ingredients, otherwise known as high-fructose corn syrup, chemical flavorings, and value-added vitamins, fiber, or health ingredient of the moment (whether oat bran or Omega 3). You can charge more for the fruit leather than the amount of apples that might be in it, and individually packaged containers can make more money than a tub. A lot of it is fake, not very good for us, and high calorie.

Pollan, in his many books, blasts the food industry (organic is not spared!) but blasts us, too—our willingness to trade “convenience” for effort, our loss of taste in favor of a shot of sugar or salt, the demise of conviviality and unity represented by a sit down meal with friends or family.  It’s all a sad cycle. We grab a convenience dinner because we’re too tired after paying time and money to work out at the health club, we eat at a restaurant after a too-long day working to pay for that restaurant meal (the restaurant  spending is probably the single most outsized cost I see in budgets); we invest in family vacations because otherwise the only time we spend with our kids becomes driving them to after-school activities.

Yet, I can’t help feeling a certain utopian-ness to Pollan’s works. As anyone knows who has ever cooked primarily from scratch, day after day, it’s real work. And not only the cooking, but the shopping, and just plain thinking up what to eat, week after week, year after year. Add to that the cost of organic, of pasture raised meat, of the inevitable spoilage of some portion of the fresh vegetables, and you’re looking at a big bill.

If anything, Pollan’s books might slow up your buying a little, when you realize how long a chain is attached to any purchase decision you make—environmental, taste, time management, employment issues, government price support policy, nutritional bang for your buck.  I don’t have the right answers here, but he’s given me a lot of thought provoking questions.  The most pressing of which, for the moment, is whether I can wrap my mind around ordering a heritage turkey that will cost about what I normally spend on a week’s groceries.