Hope for the financially challenged
Sunday, February 25, 2007
Dave and I went to see a financial planner yesterday. It was quite a drive – to Oceanside – but the reason was this planner knows federal benefits. He turned out to be very thorough and organized, so we decided to have him write a plan for us. Luckily, the plan is free, and it’s up to us whether we want to implement it.
I was nervous going into it, because I have no idea how to do financial planning. My idea of personal finances is to check my bank account every so often and if there is money in there, great, look no further. While I embrace and absorb most new technologies and software that Dave introduces me to, Microsoft Money was not one of them.
But now that I am a working woman and an adult (supposedly), I want to take responsibility for planning for retirement, buying a house, children, etc. After several conversations with Dave since our wedding consisting of – “We should go to the bank and open a money market account.” “Okay.” Time passes. “We should look into an IRA since I have a real job now.” “Yeah, we should.” More time passes. – we decided we need professional help.
In the beginning of almost 3-hour session, the financial planner asked us about our goals and dreams, starting with “what is important to you about money?” and asking “what is important to you about [our answer]” for every answer until he filled a drawing of a staircase with an answer for each step. I wanted to cry. There was so much anxiety and bitterness built up in me from the frustration of not knowing how to plan my finances.
My parents didn’t teach me that much about money. It’s the typical Asian professional mentality – work hard, save your money, and don’t spend too much. My dad doesn’t believe in discussing the stock market and investments with others because he thinks everyone has their own financial luck or destiny (“ming4” in Chinese). He never gave us an allowance, preferring to buy us things as needed or wanted and to maintain complete control over the family’s finances.
Well, a lot of good that did me. It’s not entirely my parents’ fault obviously, since I am unfortunately also mentally challenged when it comes to numerical data and interest rates, but I am still somewhat bitter. Just for one example, I had my first real job at age 21. I should have opened my Roth IRA then and made contributions, and it would have been growing for the last 6 years. But instead, I didn’t know any better, and am only now getting my act together.
If you start saving for retirement in your 20’s and put 10 percent of your income toward it, you can retire comfortably. If you start in your 30’s, you have to put 15 percent. If you start in your 40’s, it’s 25 percent. If you start in your 50’s, it’s 50 percent. So I’m barely getting in under the wire, and once you combine me with Dave who is almost 30, as a couple we’re looking at more like 15 percent.
Anyway, I’m really glad I went, though it was embarrassing as I held back tears in the beginning. I’m thankful that Dave is humble enough to entrust someone else with our finances.
Be careful with First Command as they’ve had lawsuits filed against them and articles written against them in the NY Times, Wall Street Journal, Kiplingers, etc for misleading their clients and charging exhorbitant front-end loads (50% of your first year’s investments if I recall correctly). Make sure you’re not paying high front-end / back-end loads on your mutual funds and find out exactly what mutual funds your advisor is putting you in to. Pay attention especially to the funds’ expense ratios (that’s the amount the mutual fund is skimming off of your investments to pay for management, anything over 1% is really starting to cut into your profits). Just remember that the stock market, historically, has had a return of around 8%. If you’re paying a front-end load of 1% then another 1% to your financial advisor and a 2% expense ratio on the fund itself, you’ve already cut your profits in half which will severely impact your ability to retire on time. Your advisor is correct however in that you should start up your Roth IRAs. The tax advantages are too good to pass up and it’s not something you can put off an invest in later.
Here’s a link to one of articles on First Command:
http://www.sec.gov/news/press/2004-170.htm
Yes, caution! I have a friend who is a financial advisor and I asked what her best tip was and she said, don’t ever get one. They take too much of your money; in fact the financial advisor’s goal is to gouge you.
Whoa… Thanks for the advice. We’ll probably look into getting advice through our bank. I’m sure it’s best to do everything ourselves, but we just don’t know enough right now.
If you have any suggestions of books or websites, I’d love to hear them. Thanks!
Read the “Boglehead’s Guide to Investing”. It’s written by normal people, not financial advisors trying to get your money. Then visit the Diehards forum on the Morningstar website. It’s worth the $5 entry fee in my opinion. They’ll get your investing life straightened out by helping you put your money into low-cost, diversified index funds.
I think there’s a book called the smart couple’s guide to getting rich or something that’s a good read. I’m basing it on my enjoyment of the single woman’s guide to getting rich.
Chin up on finances, I highly doubt anything will be that bad in your financial life portfolio. If you want to cure the myopia, work in a homeless shelter to get perspective on what it means to be wealthy and what’s important in life.
Thanks for all the input. Just placed an order on Amazon for some books. Yeah, I had the same thought today – though I am not where I want to be financially, I’m already better off than many people in the world.
my suspicion is that the financial planner was psychologically manipulative and had the aim to make you upset so you’d be more prone to a buy in. Sometimes it takes a bit of time to wear off.
You might find these links informative:
http://www.fatwallet.com/c/52/
http://www.iwillteachyoutoberich.com
Dear E – Welcome! Thanks for the links. They look helpful. Do you have a blog or website?
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