Money Talks, LLC Newsletter                                                         May 2010
In This Issue

Who Needs a FinancialPlan?

Susan Hammitt, AFC, CDFA, Mediator, Life Planning Coach
Susan Hammitt, AFC, CDFA
Talk About Money:

Pay As You Go

One of the most pervasive issues in the financial services industry is lack of transparency in commissions, fees, and incentives.  There are excellent reasons for this. Americans like getting bargains on everything.  And, we are relatively easy prey for the promise of extraordinary reward. 

We like to be dazzled.  We enjoy being courted.  It's not surprising that financial industry hiring decisions are based more heavily on people skills than industry knowledge. Inferred promises of above average returns, vague answers to specific questions, unclear compensation and incentives, volumes of documentation called disclosure, all shroud the financial services industry in questionable reliability.  

Transparency will not happen until the two sides come together. Consumers need to be comfortable asking the question, "How will you be compensated for this advice, transaction, purchase, or service?"  Advisors and sales people need to feel confident that consumers respect the value of their services and expertise, have reasonable expectations, and willingness to pay as we go. 
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Personal Financial Sustainability

Financial Planning
is a cash flow plan for funding a valuable daily life until death.
Estate Planning is a plan for preserving  assets for the benefit of  third party(s). 
Keep it simple and add complexity as needed!


Who Needs a Financial Plan?

Everyone has a financial plan, if not formally by default. The question, "How is your plan working?" 

Last week I was having lunch at a local restaurant counter when a man, Ed, sat next to me. He was generous sharing his story.

Ed is a seventy three year old successful business owner, married more than 50 years, living in the same family home of more than 40 years. He told me his wife and he had raised three children.  He declared himself a pretty happy guy.

Ed told me about an attractive, smart financial planner who called on him earlier that day.  He said she was impressive.  She began by asking, "What dreams do you have for the future?"  He smiled and said, "I made those plans years ago, I am living my dream."   He went on to tell me about his wife, who is still working, and his daughters and grandchildren.

Ed asked if I had heard the market news that morning, it was bad.  He said that years ago he knew he didn't want to handle his own investments so he sent everything to a trusted investment advisor, a good friend.  He seemed satisfied with his decision.  Ed's expectations had been realistic and his advisor/friend had done a 'good job'; dependable and trustworthy.

Walking back to my office I realized I had been talking to 'The Millionaire Next Door' and he is a model of Personal Financial Sustainability. He and his wife had mastered the skill of establishing a strong foundation, remaining in long term marriage partnership, staying in their family home, and living well within their means. I thought it was interesting that he and his wife, both in their seventies continue to work, no doubt using income to cash flow their valuable daily lives.  I had no doubt that Ed and his wife had sufficient
resources to retire once they decided they no longer wanted to work.
I was impressed with his investment decision, resisting all the language of wealth building and get rich quick schemes, satisfied and secure in having someone reliable do a good job for his family.   

Many of us feel like we waited too long to plan for and achieve Personal Financial Sustainability.  However, with good planning, realistic expectations, and commitment to well thought priorities most of us can create a strong foundation and meaningful financial plan.  What is a financial plan?  It's a cash flow plan for funding a valuable life.  Whether or not we have significant assets, a need for financial products, or complex estate planning; everyone has a plan. 
The question is, "How is your plan working?"
 Make a Plan That Works For You!


Wealth Building and Financial Planning 

Decoding the language of financial planning can be difficult and discouraging.  As a financial counselor I find it useful to avoid the use of terminology that may confuse the purpose and need for a financial plan. 

The most over-used term in financial planning is: Wealth Building. Warren Buffet is a wealth builder.  Buffet decided early in his life to prioritize wealth building.  He has been quite successful.  However, most of us do not have the same commitment, nor will we achieve true wealth:
having large possessions, or larger than most men, as lands, goods, money, or securities; opulent; affluent; rich.

Wealth Management is another over used term. Wealth Management strategies require two things: (1) A deep commitment to wealth building; often resulting in a frugal lifestyle in order to preserve investment capital.  (2) Investments that are not subject to depletion for cash flow and can be left for growth and reinvestment.

The Personal Financial Sustainability model for financial planning focuses on an asset accumulation model. Accumulating enough assets to fund a valuable life until death is a reasonable expectation. The
Asset Accumulation Pyramid illustrates the three primary types of funds, Reserves, Savings, and Investments essential for sustainability.  The amount required to fund each of these categories depends on the unique financial circumstances of the individual or household.