Money Talks, LLC Newsletter                                               June/July 2010
In This Issue
 Bedrock or quicksand of financial planning and decision making
Balancing Moral and Financial Actions
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Money Talks, LLC
511 SW 10th Ave.
Suite 805
Portland, Oregon 97205
Susan Hammitt, AFC, CDFA, Mediator, Life Planning Coach
Susan Hammitt, AFC, CDFA
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Personal Financial Sustainability


Financial assumptions are a critical starting point in planning for long-term Personal Financial Sustainability. Assumptions are best guesses based on personal beliefs and historical data.


Financial Assumptions:

Bedrock or quicksand of financial planning and decision making


The divorcee sat across the table from me and told me her financial advisor assured her she can count on $3,500 a month in investment income for the rest of her life.  I knew she had a portfolio currently valued at $500,000. She was a healthy 57 year old woman.  I asked her, "On what assumptions is he basing his projections?" She bristled, uncomfortable, and annoyed.  She had no idea how her investment advisor arrived at his calculations.


Later in the interview she stated she thought she would live into her 90s.  And, it was very clear that income requirements for her current lifestyle exceeded $5,000 a month. She had no healthcare insurance. She had no plans for employment and the investment portfolio was her only source of cash flow/income.  She had been married nine years so she would not be entitled to share in her husband's Social Security benefits.  


The situation was perilously defective, riddled with faulty assumptions. However, the client was focused on my obnoxious habit; asking too many questions.


All financial plans from global economies to personal finance are prepared using assumptions. Assumptions are the bedrock or  quicksand supporting financial planning and decision making.


The Six Rules For Assumptions


(1)    Assumptions must be realistic.


(2)    When in doubt use shorter time horizons. Short-term assumptions are easier and more reliable to forecast.  Using short-term assumptions provides an opportunity to build confidence and skills for setting longer term assumptions as your plan becomes more complex.


(3)    Assumptions must be reviewed and, when appropriate, revised annually. Reviews provide an opportunity to adjust for life changing events and economic trends. Don't be discouraged or timid about adjusting financial assumptions.


(4)    Work with advisors who respect your assumptions.  Advisors may not agree with your assumptions but they must be willing to provide all projections using your numbers as well as their own. Professional advisors have a lot more information than the average client. However, most of their information is based on statistical evaluations and historical trends.  Your assumptions are based on your unique lifestyle and beliefs.  Melding the two is ideal for planning.  Think of it as using the statistical data and skewing it in the direction of your unique situation.


(5)    Assumptions are never guarantees.  Whenever you are working with an advisor and find yourself swept into believing their assumptions are guarantees it's a red flag for a scam or predatory situation.  If an advisor provides assumptions that sound like guarantees, ask for it in writing and beware.


(6)    Document all assumptions used for financial decisions and projections. All financial decisions, from grocery budgets to investment allocations, are based on assumptions and subject to re-evaluation. The first step in re-evaluation is a review of the assumptions made when the decision was finalized.  


Almost every case of regret for previously made financial decisions can be traced back to faulty assumptions.  



Make a Plan That Works For You!

 Talk About Money
Balancing Moral and Financial Action

I consider myself a moral person and I have been questioning my own morality lately.  Over the last three years I have worked with a hundred clients who have suffered serious financial hardship as a result of the economy.  I can honestly say that I have not encountered one incident of a major commercial bank providing compassionate regard to their clients.  Instead, at the first sign of financial struggle interest rates have been increased, late fees have escalated, customer service phone lines demand long wait times, each call requires the client to relive every painful detail, customer service reps lack capability to make call backs or authority for meaningful action, and ultimately, the emotionally devastated clients are forced into foreclosure and/or bankruptcy.  

I remember years ago standing in line at a branch of Bank of America and a small group of seasonal laborers were in front of me with their Bank of America paychecks in hand.  The teller informed them that the bank was going to charge $10 for each check they cashed because they did not have personal accounts with Bank of America. There was no denying the painful response of these polite and vulnerable men.  Ten dollars was a significant cost to them. I watched them walk out of the bank, cash in hand, expressions of defeat.

When I approached the teller's window I asked if that was a new policy and the teller said, "What does it matter to you? You have an account."  Twelve years after that incident I still feel the shame of not having taken a stronger stand. Although I believe the fee policy was changed I am constantly shocked by the audacity of large commercial banks willingness to prey opening on our citizens who are in weakened and vulnerable circumstances. 

Regulations cannot keep up with the agility of banks to find loopholes for increasing profits.  Regulation must follow the construct of law.  The more meaningful regulation in a democracy is the moral regulation provided by each of us.  Why, after all I have witnessed in the last three years am I still banking with Bank of America?  I am ashamed to say, "Complicity."  I need to own it.  Treated with a greater degree of respect, having my fees waived routinely, knowing that I am reasonably immune from predatory practices, I continued to endorse Bank of America's amoral conduct. I still have open accounts. However, with the writing of this article I commit to holding myself to a higher standard.

My most radical response has been a belief that all commercial banks are evil and should be phased out.However, candid conversations with regional bankers have shifted my position. 

The question is, "Is it enough to quit doing business with institutions when we are personally assaulted?" or "Do we quit doing business with institutions that will do whatever the law allows without regard to human impact or the greater good?"  This is not a political stand.  It's an exercise in personal morality and democracy. And, in my case humility.


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