Make a Plan That Works for You!
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Money Talks, LLC  
Susan Hammitt, AFC, CDFA 
  Email:  - Telephone: 503-233-8142
Money Talks, LLC Newsletter                                                      March 2010
In This Issue

Building Block Two: Budget and Cash Flow Management
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Susan Hammitt, AFC, CDFA 
Financial Counselor
Divorce Financial Analyst

 Talk About Money
Hit Financial  Refresh Button or Get a Divorce?
I have met with many couples and individuals considering divorce after 25+ years of marriage. One of the common hidden issues is: the couples haven't hit the Financial Refresh Button in their partnership.
Somewhere along the way financial decisions were made out of necessity and habit; often skewed in favor of one partners sense of a valuable daily life. Meanwhile, the other partner began to create a vision of a more satisfying life away from the marriage.
Over time both partners became unhappy, concluding that divorce was the remedy. 
Divorce doesn't make people happy.  It's the vision of life after divorce that promises to bring happiness. Often that life can be achieved within the marriage. 
Hitting the refresh button on financial  plans for life partnership often facilitates valuable, restorative change .
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Personal Financial Sustainability

Last month the focus was on the first building block, Budgeting for a Valuable Daily Life. This month the focus is on the second building block, Budget and Cash Flow Management.


Budget and Cash Flow  Management:                   
The second building block for Personal Financial Sustainability
It's very important to understand the difference between budget and cash flow management. 

Budget:  A budget is a list of all income and expenses. It is a plan for allocating income and managing expenses. A budget must balance. When income falls short of expenses there are three options: increase income, decrease expenses, or supplement income through cash flow planning and management.

Budgeting is not easy.  Overlooked and under-estimated expenses can be disastrous, particularly if the budget will serve as a basis for a commitment to a payment plan, bankruptcy, or a divorce settlement.  Without benefit of several months for perfecting a budget it is essential to (1) assume the highest likely amount for each expense category, and (2) include all possible categories of expenses.  

A meaningful budget includes reserves for maintenance, replacement, and emergencies. Take the time, once a year, to evaluate and plan foreseeable expenses, purchases, and emergency reserves. Don't overlook planning for maintenance and replacement of your car(s). 

Be sure and include income taxes.  I am aware of hundreds of cases when under-payment of taxes has led to devastating financial consequences.  Go to the IRS Withholding Calculator to estimate your taxes and adjust your withholding. Be prepared to pay taxes without going into debt. 

I encourage everyone to have two budgets.  First, budget for a Valuable Daily Life, which is a financial plan for minimizing all expenses while sustaining quality of life based on your values and priorities.  Second, a budget for current income and expenses; which is likely very different.

Cash flow:  Cash flow is a financial plan for paying expenses regardless of income. The Personal Financial Sustainability model uses cash flow as the basis for creating a lifelong financial plan; which will be the topic of a later issue of this newsletter. A well managed financial plan provides for the necessary cash flow to balance your budget through the end of life.

Three great budget - cash flow tools are (1) impounds for property taxes and insurance, (2) tax withholding through payroll, and (3) retirement accounts.  Each of these (financial planning) tools provides the resource for budgeting major financial expenses and cash flow for payment of expenses at a future date.

For people who want to create and manage their own financial plan, budget and cash flow management skills are the strongest foundation for meeting financial goals and achieving Personal Financial Sustainability. 

Check out my Cash Flow by Category Worksheet.  I developed it as a hybrid for budget and cash flow planning.  It's a great planning tool that can be used in many different ways!


A Defendable Position
Important preparation for financial negotiations

One of the most challenging financial processes in personal finance is negotiating or severing a financial relationship. In preparation for the process I always encourage clients to begin by establishing a defendable position; clearly identify a position from which to negotiate. 

A clearly stated defendable position helps minimize painful, expensive, and unproductive outcomes.  Test your defendable position with these questions before proceeding to negotiations: 

1.     Are you very clear about each party's interest and responsibility in finding resolution?  

2.     Have you defined what it would take for you to resolve the issue, honor your commitment to the final agreement, and move on without looking back?  

3.     Have you identified concessions you are willing and able to make in good faith?  

4.     Have you prioritized your position in preparation for reasonable counter offers?  

5.     Have you determined the best process for resolution?  A rule of thumb: the more removed or adversarial the relationship the more controlled and documented must be the process. 

6.     In what venue will negotiations be conducted?   Some settlements are best conducted with no direct contact. Others are more appropriately conducted at the kitchen table. 

7.     Do you have a very specific financial plan for the future, after resolution? 

8.     Are you in a stable enough situation to honor the terms of a resulting agreement? 

The best negotiating position in financial situations is a well thought, reasonable, and defendable position. 


Credit Scores
Social and Economic Red-lining?

Credit scores are a hot topic in my world.  I believe scoring has morphed into a nightmare; powerful manipulation of our economy and social/economic red-lining.  

Our current economic problems are directly linked to misuse of credit scores. Commercial banks abused the use of credit scores to determine the qualifications of 'ready, willing and able buyers', one of the basic principles of a healthy market economy. 

Their abuses led to:

Hyper-inflated real estate values   → Destabilization of the foundation of our financial institutions   →   Collapse of our economy.  

Commercial banks and Wall Street made billions of dollars in the process. And, they continue to be in control of scoring the American public.  

I believe this scoring process has permeated our cultural psyche.  Concern about credit scores disproportionately influence how Americans make life decisions; afraid of losing access basic human services, employment, housing, healthcare, and education.   

Emerging from this economic catastrophe, fully employed people with high credit scores continue to have access to very low lending rates and premium services.  

Meanwhile, millions of households marginalized by unemployment, small business collapse, or underemployment have been denied access to relief. Those who have been forced into bankruptcy or lost their homes will carry forward the effects of poor credit scores; a form of social and economic red-lining. 

It is very important that each of us take a position regarding the use of credit scores.  

Credit scores are not life scores, or, are they?

Make a Plan That Works For You!