Financial decisions: I shoulda done better


It’s taken me a while to realize that not everyone loves financial planning. I mean, when I first started this I assumed all my clients would be deliriously happy about what a positive future we were going to plan together, and untangling any knots would be fun along the way. I love it, so everyone else should too, right?

It took me years to realize that many people who came to me were scared, embarrassed, or at least nervous. The great thing about working with people is that, in almost all cases, I can help most people make a good plan and feel much better. But I continually listen and try to learn, and after hearing so many stories over the years, I can distill a few principles which I repeat over and over to myself in my own life.

  1. You can never fix the past. In all the (now) hundreds of people I’ve seen, perhaps one or two had no regrets about their financial decisions. That’s not to say there weren’t regrets about other issues. Nevertheless, you have absolutely no way to rewrite your past decisions. Most of them either seemed right back then, or you knew they were wrong but did them anyway for what seemed like the easier or better way at the time. You have absolutely no control over the past at this point.
  1. The only reason to go over your past mistakes is to learn how to do better in the present and future (and to make atonement if necessary). If you can learn from this review how to make better decisions now and going forward, it’s worthwhile.

My first ex-husband has a wonderful phrase he uses to evaluate his public speaking engagements. If he thinks it went badly, he tells himself I was not satisfied with my performance. This is just a wonderful way to characterize a less-than-ideal effort, with no blame and every possibility to learn to improve. And yes, he’s a wonderful speaker.

  1. If it’s not working for you, you have to change. You can’t keep doing the same things and expect different results. Sure, something may be too hard (break it down into smaller steps), not have taken into consideration all factors (then revise until it works) and the ideal outcome may not be possible (but some improvement surely is).
  1. It’s not hopeless unless you’re dead. I’m not speaking of actual physical illness here, I’m talking about money. You may not be able to create exactly what you want (can we ever?) but you can almost always make things at least a little better.
  1. Any change is more likely to succeed if you can set it up so you make the fewest choices possible. It’s much harder to decide to save every month if you have to write the check or make the transfer, than it is if you decide to set up automatic transfers and forget about them thereafter—you’ve only made one choice, not 12.
  1. The older you are, the more creativity it may take. You can go back to school, relocate, get rid of a car—things that may have been unthinkable in years past can actually become liberating and unburdening. You most assuredly do not need all the stuff you have—no American does. Will a yard sale fully fund your retirement savings? No, but a lot of littles can add up to big.

Bottom line: a financial plan isn’t a punishment where you review all your past sins. It’s a way to wrest control from chaos and fine tune your financial engine to hum along at a better velocity.

Nothing is Everything

I’m a fool for doing this, but I do read some comments on Facebook posts. I saw a rather touching one recently, where a young woman noted, “When you have kids, they’re your everything”. Boy, do I know what she means. In my uber-Mommy phase, I went so far as to wear a corduroy jumper  appliquéd with a teddy bear carrying a Christmas tree, just because it would delight my then-little daughter. Luckily there are no pictures.

Over time, I’ve also heard people declare their spouse, lover, job, and pets to be “everything”. Then there are the magic bullets we are asked  to believe in: the right eating program (vegan, low carb, low fat, clean eating, snore…), the cure for allergies, the perfect drug, the cure for pain—cancer—aging… Or the magic investment program that will make you a trillionaire without risk or worry or much effort on your part…gold, market timing, 1000s of methods of stock selection, buy and hold.

None of this is right or true.

Being the omniscient person that I am, I actually have the right method: diversify!

Let’s go with the personal, first. People who make kids, or a spouse, or any other person their everything tend to lose, not only that person, but just about everything else. So in the event of a divorce, or death, or just the time of life when they need to get their claws out of the other individual, they find they have nothing left.  My mom was my dad’s everything for more than 50 years; he disintegrated after her death. Kids grow up and you’re stuck with the spouse you used to have. Or you find yourself at 50, with no career, no wardrobe, out of date competencies, and a divorce. Sure, you love being with that adorable toddler, but make yourself get out without them. By 12 or 13, they won’t want to be your everything. I used to have a sign on my bedroom door:

Are you bleeding? Is the house on fire? Then, don’t knock.

Worked great with my kid. Not so much with the ex, which is at least one of the dozens of reasons he’s an ex.  And BTW, for heaven’s sake stop using your kid, dog, or cat as your FB profile picture. Your own identity will always be important.

All the magical bullet medicine is just one of the reasons I support universal healthcare. Hardly a day passes without some miracle nutritional scheme or magic cure on my Facebook feed.  The years since the discovery of penicillin and polio vaccines have made us all worship at the magic pill church—that there’s an easy cure for everything if we just swallow the (highly profitable to pharma and biotech companies) right pill or program of eating. Universal health care might put some restraints and cost controls on medipharma’s tendency to nuke everything, and if one bomb doesn’t work, 7 or 8 will be better. I’m way more worried about getting too much intervention than not enough.

Hearteningly, I am also beginning to see articles cautioning how over-medicated, endocrine disrupted, and un-resistant to bugs our bodies have become. Michael Pollan has offered us probably the most sensible advice: Eat food. Not too much. Mostly plants. No mention of juice cleanses or meal kits. Simple diversification.

And finally we get to my corner of expertise—investments. Scratch any two investment managers and you’ll find three opinions on what the correct investments are. What is the best allocation, the best asset classes, the best tax home? Does all this matter? Sure, that’s what we get paid for, and a good allocation can make a difference, a small difference but spendable in a big enough portfolio. But I’m here to declare something radical: the biggest difference is selecting a decent diversification and sticking with it.

That can be a target date fund. Seriously. I have some real problems and reservations about them, but it’s way better than putting all your money in the S&P 500 fund—which is still better than picking a stock or two that you’re sure is hot—or the so-called stable value fund. A target date fund gives you some diversity.

But should you put 50% of your stock allocation in U.S. and 50% in international? 2/3 US, 1/3 international? 10 funds instead of 12? In the big scheme of things, I can fiddle with allocation projections to give you just about any result you want, given your risk tolerance. But the best answer is—it doesn’t matter nearly as much as long as you diversify.

Accumulate something you haven’t spent on meal kits and Tofurky, then pick an easy, diversified fund. Once you get into 6 figures, you can start to benefit from selecting your own allocation—the small difference in specific allocations will start to be visible. And even though it’s heresy to many financial planners who salute the flag of mutual funds, I don’t think you’ll necessarily end up in a trailer by the river if you buy a few individual stocks. But don’t make those your everything, either.

Caveat: no specific investment advice is intended. Your individual investments should be selected based on your goals, risk tolerance, and other individual factors.



Should you stay home with the kids?

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.