A Tisket, a tasket, a windfall in my basket

Posted on March 25, 2013March 25, 2013 by Danielle

Jackpot (Photo credit: pirate johnny)

A lot of people daydream about winning the lottery, even those of us who never buy a ticket. But like many windfalls, lottery winners often have had a hard time holding on to it. Before we shake our heads at them, let’s see if we’re without sin. Have you held on to your tax refund (which you shouldn’t be getting if you’ve planned correctly, but that’s another matter)? How about that $50 you got as a rebate? The work bonus? An inheritance? Your most recent raise? Ahem.

Wealth is not what you make, it’s what you manage to hold on to. It’s the rare person who dreams about a windfall and thinks to themselves, boy, I can’t wait to invest that! If so, my guess is your profession is either 1) financial planner or 2) actuary. But let’s say you’re a normal person, what should you do? Of course, it depends on the amount (really, $50 is a little different than $500,000), but here’s my advice:

1. If it’s a large amount, park it in an on-line savings account, or CD, or some other safe place for at least 3 months until you get used to the idea. What’s a large amount? Anything where your first thought is OMG. You need time to calm down and think straight.

2. AT A MINIMUM, save half. Ideally, I’d like to see you save 50%, pay off debts with 40%, and spend no more than 10%. If you don’t have any debts, I’m okay with that 40% going to a long term, needed goal (kid’s education, home repairs, etc.). I’d still rather see you invest it.

Then what?

I’d do the following, in the following order. If one is already complete, move on to the next. This applies whether it’s $50 or $50,000. (Legal disclaimer: please see a professional who can advise on your individual situation. The following is intended as general guidelines only, and no specific recommendations are intended.)

Create or top off your emergency fund so that it’s at least 3 months’ worth of living expenses. Better if it’s 6 months.
Pay off consumer debt. DON’T pay off unless you have an emergency fund, or when the next emergency happens, you’ll just put it on the credit card. This is an ideal method to never get out of debt
Invest in a IRA or Roth if you’re eligible
If you’re not eligible, invest at least the same amount in mutual funds (or, preferably, that 50%) so you build an investment nest egg.
If you still have some of that 40% left, pay off student loans. No student loans? Pay down the principal of your mortgage.
Invest in yourself. Get some decent, fee-only advice from someone who won’t sell you a bunch of crap, get savvy tax advice, and nail a good estate attorney to update your documents. Once you’ve got a reliable team working for you, get more education—I don’t care if it’s knitting or an MBA, knowledge is something no one can take away from you, no matter what the market. Consider career counseling. Ignore no-money-down seminars for buying real estate, day trading schemes, and all the other garbage that makes money for the seminar leaders and no one else.
Invest. Educate yourself so you know what you’re doing, and only invest when you understand the reasons for the investment, how you will make money, and what the costs are.
Give something to charity. You’ll feel way better about yourself. If you live in the U.S., you’re already wealthier than most of the world. Check out Peter Singer’s website for guidelines on reasonable giving.
Make improvements to your home, but only if it will increase the value or repair something that’s really falling apart. This would NOT include a hot tub, pool, or Sub-zero refrigerator.
Blow a little. A LITTLE! Max 10%
Maybe consider the pleas of your deadbeat relatives.

So now I’ve covered how you should spend your tax refund, your raise, and the money you inherited from your aunt in Azerbaijan. Call me if you win the lottery. In fact, maybe you should call me even if you don’t! And, good luck!

Achieving your bucket list

Posted on February 6, 2013February 6, 2013 by Danielle

Whether we write it down or not, most of us have a bucket list. This is different from New Year’s resolutions. For example, most of us could probably list “lose weight” as a resolution, but it’s not part of a bucket list. A bucket list would be more like “climb Mount Everest” or “travel to Timbuktu”. Okay, probably not the last one these days, unless you’re part of the French military. But, is it all just dreaming?

It is if, like just about everything else that’s expensive and time consuming, you don’t have a plan. And if you’re old enough to be reading a financial planning blog , you need a plan to turn those dreams into reality. So, I’d like to suggest some steps which I am currently applying to my own bucket list:

Write it down. Writing it down makes it seem more real, and makes you really think through what you want. Two items on my own list which I’ll use as examples are travel to India and learn at least 4 new foreign languages.
Cost it out. I’ve traveled a lot, but India seems very exotic and very expensive. So I’ve started getting figures on exactly what the airfare would be and how much a two week tour might actually cost. It turns out that the trip might be significantly cheaper than in my imagination, and the web offers plenty of cost saving travel tips. Some bucket list items, like language study, don’t necessarily cost a lot of money but do require a time commitment. Once you know what you’re after, there may be good “angles” or ways to achieve the bucket item by taking advantage of the experience of others who have done the same thing. Especially if you expect to begin your bucket list when you retire, this should be an important factor in your retirement income needs planning.
Assign a time goal. I’d like to say deadline, but that might make it not-fun. So, my goal for India is two years, and my goal for languages is to spend at least 3 months and up to six months this year on one specific language, for at least one hour per day and if possible, two. I set the minimum goal so I have some chance of learning something, and the maximum goal because I can easily become bogged down in the “never-enough” syndrome. I also chose 4 languages: Spanish, Esperanto, Italian, & Dutch.
Decide what is good enough. I want a tour of India where the logistics are taken care of and I can count on a guide. In Europe I’m comfortable rambling around on my own, but I don’t want hesitation about language, transportation, and safety to prevent my actually seeing at least something of India.For the languages, good enough for me is being able to travel, read a newspaper, read museum signs and understand a docent tour, and be able to have a conversation with anyone (however imperfect). Sure, I’d love to be able to read novels and be mistaken for a local, and I may decide to develop one of the new languages to that level in the future, but right now I just want to be able to switch around comfortably between a few.
Nibble at it. Much of the fun of a bucket list may well be this planning. I’ve gotten interested in travel hacking–accumulating miles for airfare and especially upgrades. Business class to India, a long ride, would be especially nice. I’m raiding the library for travel guides. Indian authors, contemporary and classic, are calling to me.The web offers a terrific amount of information on how to become a polyglot (a person who speaks a number of languages). There’s practice available, reviews of programs and software, and meet-up groups where you can get over your embarrassment at how badly you speak. I’m particularly lucky that in Spanish there are plenty of Spanish language television stations in Chicago. Watching the evening news in Spanish, I’ve noticed that the emphasis in coverage is often quite different from English language news.
Begin! It’s easy to blather, but not begun is never done. Turning dreams into reality means making time to sort through what’s important, figure out what (if anything) it may cost and where the money will come from, and actually getting started.

See ya at O’Hare, if not before.

Can’t get no satisfaction–Consumerism 2.0

Posted on December 19, 2012December 19, 2012 by Danielle

Sometimes I think I could have had a very profitable, though aggravating, career as a professional complainer. I’m not sure if it’s me or the modern world, but hardly a month goes by without some problem with a utility bill, a credit card, a bank account, or some crud that I’ve purchased. I also find that I’m somewhat entertained by columns in newspapers that fix “what’s your problem” or assorted travel snafus.

Actually, I’d like to quit that job (complaining, not financial planning!), but life seems to present me with endless opportunities. Maybe it’s because I spend my days focused on finances, but I hereby admit that I cannot bear to be cheated. I’m not scamming anything, or looking for a free ride or something I’m not entitled to, but when I pay good hard earned money, I think I (and you) should get what you paid for. Not so easy.

A lot of people simply give up because it takes so much time to thread your way through whatever corporate bureaucracy you’re up against. Even worse if the customer service rep’s English is a little shakey (although, in fairness, they tend to be a lot more polite than our, ahem, native speakers). If I’ve talked to the proper channels and don’t get satisfaction, my first line of defense is to ask for a supervisor. My daughter thinks it’s quite a sport to listen to Mom on the phone, and at some point she choruses, “Wait for it….” and holds her breath until I say let me talk to your supervisor. She’s never waited long.

Sometimes this doesn’t work so I share a method that has worked for me every time but one. Email the CEO of the company. The only one I have emailed who utterly failed to respond was Leslie Blodgett, CEO of the makeup company Bare Escentuals. (I’d purchased one of their very expensive brushes, which proceeded to shed bristles like a porcupine). In every other case, I’ve had a prompt and effective response from some competent, knowledgeable staff person or attorney. After all, who should care more about customer satisfaction than the CEO? And if he or she doesn’t, well, I’d certainly consider shorting that stock!

The trick is finding the correct email, so I share with you how I’ve done it. First, google “CEO Widget Company”. Now you have the right name, but rarely will you find the email. So, go to the website of the company and start browsing. I usually start with investor relations or the “About” page. Somewhere in that website you can usually find someone’s email address and this allows you to guess what the pattern is: john.doe@widget.com; jdoe@widget.com; doej@widget.com, etc. Sometimes it takes a few bounced emails before you hit on the right format, but when it doesn’t come back, bingo. If this utterly fails you can send a snail mail letter, but usually an email is faster—the last time I sent a letter, the response took a month, but I’ve never waited longer than 48 hours for an email message. Be sure to include a phone number, as the staff person usually calls.

Sure, I want my problem addressed, but I also think I’m doing them a favor—they could spend a fortune analyzing their customer service, but I’m giving them some real world feedback and hopefully helping them improve their business. And now I’m off to deal with those two year old tires with dry rot.