Free Money Finance

20 Reasons You're Not Rich

Here's a list of 20 reasons you're not rich from Yahoo:

1. You care what your neighbors think.
2. You are not patient.
3. You have bad habits.
4. You don't have goals.
5. You aren't prepared.
6. You're trying to make a quick buck.
7. You rely on others to handle your money.
8. You invest in things you don't understand.
9. You are financially afraid.
10. You ignore your finances.
11. You care what your car looks like.
12. You feel entitlement.
13. You lack diversification.
14. You started too late.
15. You don't do what you enjoy.
16. You don't like to learn.
17. You buy things you don't use.
18. You don't understand value.
19. Your house is too big.
20. You fail to take advantage of opportunities.

Wow, too much to comment on here. But I'll pull out a few of these and add my own two cents:

1. If you want to be rich, you just need to take three simple steps.

2. As my neighbors can attest, I don't care what they think (though I do try and control what I wear out to get the mail.) ;-)

3. Ouch on #7, huh? Looks like Yahoo isn't pro-financial planner.

4. I used to invest in things I didn't really understand. Let's just say I didn't do well with that strategy. Since then, I've moved on to index funds -- something almost anyone can understand.

5. Unfortunately, I think the mass amount of people ignore their finances. They don't have a budget, they spend what they like, and really don't pay attention until they get into trouble. In addition, most don't have goals, so they end up not saving enough for college, retirement, etc.

6. Don't care what my car looks like. How can I -- I have kids? The outside is fine, but I'm still finding crackers from 1999 in my back seat cushions every once in awhile.

7. Entitlement? All of American feels entitled to an ever-growing laundry list of products and services. A few off the top of my head: cable TV, cell phones, computers. And it's spreading big-time into government. I think the year we shifted to an entitlement society was the same year we abandoned personal responsibility. Yikes! Let me move on to the next issue before I get myself in trouble.

8. Starting early (having enough time) is one of the keys to becoming rich. Wait too long before you save/invest and you are certainly doomed.

9. Guilty.

That's about all I can comment on at this point. Do you have any additional thoughts that stand out to you?

Your Year 30 Financial Checkup

Here's a list of six financial milestones we all need to reach before we turn 30 (according to MSN Money.) Their list:

1. Scale back the credit cards.
2. Own a home -- or have a plan.
3. Develop a set of marketable skills.
4. Establish a regular charitable giving plan.
5. Get a firm grasp on your priorities.
6. Have strong advisers in your life.

It's been quite awhile since I was 30, but I can remember back that far (I'm not THAT old). Here's where I stood on each of these points when I was 30 as well as some comments I have on these suggestions:

1. I never had credit card debt. Never. I have always paid off my balance every month. I'm not sure why, but early on (I got my first card in college) having a credit card balance just didn't seem like something that was reasonable. I used credit for convenience, but I only charged what I knew I'd be able to pay back that month. Today, I am much more aggressive -- using my two-card strategy to maximize my cash back credit card rewards.

2. We owned two condos when we got married, then spent the next two years trying to sell them both. We finally did, got a home (I was 29, I believe), then promptly move a year later. It was in this new house where we first paid off our home fully and we haven't had a mortgage since.

3. By 30 I had gotten my MBA and my career was on fire. I was doing very well and had already seen dramatic growth in my income -- something that would lay the groundwork for my long-term salary growth.

4. We had started giving (tithing) by age 30, but not really giving beyond our tithes yet. It would take us a few years to grow into that.

5. Ha! I had a GENERAL feeling about what I wanted to do when I was 30, but as I got older and my desires shifted, everything changed. Not in an immediate way, mind you, but slowly through the years. I could never have guessed at 30 what my life would be like today. That said, my life is much better now than I would have thought it would be when I was 30.

6. I'd change this one to "learn about finances yourself." At 30 I was just in the initial stages of learning about personal finances and starting to apply the principles that I've now seen be successful over many years -- things like getting out of debt, spending less than you earn, growing your career, and so on, the sort of stuff I write about here at FMF.

So, that was me at 30. How about you? Where were you (or where are you planning to be) at 30?

A Billionaire Tells How to Get Rich

Mark Cuban certainly has an unorthodox style and reputation, but no one can argue with the fact that he knows how to make money. In a recent blog post, Cuban shared his thoughts on how to get rich. He lists three steps required -- here's the first:

Save your money. Save as much money as you possibly can. Every penny you can. Instead of coffee, drink water. Instead of going to McDonalds, eat Mac and Cheese. Cut up your credit cards. If you use a credit card, you don't want to be rich. The first step to getting rich, requires discipline.

If you can, you will quickly find that the greatest rate of return you will earn is on your own personal spending. Being a smart shopper is the first step to getting rich. Yeah you have to give things up and that doesn’t work for everyone, particularly if you have a family. That is reality. But whatever you can save, save it. As much as you possibly can. Then put it in 6 month CDs in the bank.

So you create a cash cushion. Then you start to educate yourself:

The 2nd rule for getting rich is getting smart. Investing your time in yourself and becoming knowledgeable about the business of something you really love to do.

This is not a short term project. We aren’t talking days. We aren’t talking months. We are talking years. Lots of years and maybe decades. I didn’t say this was a get rich quick scheme. This is a get rich path.

Finally, you wait for the right moment and you pounce:

Now you wait for times of uncertainty and change in your business. The time will come. It may  come quickly, it may take years and years. But it will come. The nature of our country’s business infrastructure  is that it is destined to be boom and bust. Booms are when the smart people sell. Busts are when rich people started on their path to wealth.

You will know when that time is here for you because you will know your business inside and out. You will be ready because you will have been saving up for this moment in time.

I know, it's a bit vague on details, but I think most of us can see where he's coming from, and it does make sense. Then again, if you simply do step #1 and keep doing it for a long, long time, you'll get rich as well -- and probably have a better chance of doing so. Interesting ideas for consideration, though.

His list is different than my three-step method of getting rich, but we do at least agree on the first step. ;-)

The Seven Steps of Financial Preparedness

The following is a guest post from Marotta Asset Management.

When a hurricane threatens, making a plan and gearing up for emergencies is imperative. Economic emergencies happen too, but it may be less obvious how to prepare. Here are seven steps you should take to weather any financial storm.

First, put $1,000 aside. It doesn't amount to a real emergency fund, but it will do until you get your finances in order. You can accumulate the $1,000 by allocating $10 a day for just over three months.

Most people go into debt because they live hand to mouth, spending 100% of their take-home pay. Then life happens: The car breaks down, the roof leaks or someone needs medical care. Without $1,000 in the bank, families spend the money anyway and go into debt. Having a mini-emergency fund can help you get out of debt and stay out of debt.

The second step to prepare for financial emergencies is to extricate yourself from credit card debt--forever. These first two steps are part of Dave Ramsey's financial peace course, offered in churches around the country. Ramsey suggests paying off your credit card by starting with the smallest balance in order to achieve small successes and then working to snowball your payments as you tackle the larger balances.

He also notes that the only way to get out of credit card debt is to adopt the intensity of a gazelle whose very life depends on outrunning the cheetah. If you are in debt, I highly recommend Ramsey's financial peace course.

These first two steps, having $1,000 and paying off debt, simply prevent you from facing a financial emergency by starting out wounded and bleeding. The third step is to improve your ability to handle fluctuating monthly expenses.

Set up a monthly budget so your day-to-day expenses are less than 65% of your take-home pay. No matter what your income, living off a smaller percentage of what you earn is the way to grow rich and be better prepared for financial emergencies. The difference between those growing rich and those remaining poor is not the salary they make. It is the salary they keep.

Relative to their income, the rich are frugal. They save and invest. They spend less than 65% of their take-home pay on day-to-day expenses. They save at least 10% in their retirement accounts and another 5% in taxable savings. They direct another 10% toward unknown big purchases. And they even live frugally enough to give another generous 10% to charities.

Setting aside 35% for unanticipated expenses is the minimum. When my wife and I first started our life together, we did not make very much. But we still lived off about half of our take-home pay. We were fresh out of college and did not have a very high lifestyle. After starting a family it becomes much more difficult, but not impossible, to save money. Remember that even if you don't earn very much, probably a family somewhere is living on half of what you make and doing just fine.

If you are well off, you can set your sights even higher. Think of learning to live frugally and still be content as part of the emotional training you need to weather a financial storm. That training starts with living within a budget even when financial conditions are good. Some productive families live off less than 15% of their take-home pay and still save, invest or donate generously with the other 85%.

Frugality is a skill needed to live a good life. It is a mindset best learned from parents, but even if yours were spendthrifts you can reeducate yourself and learn to view money differently. The poor buy things; their homes are cluttered with them. The middle class buys liabilities on which they have to make payments, such as second homes, luxury cars and boats. The rich buy investments that pay them money.

If you want to break your poor or middle-class mindset and learn how to be frugal, help is available. In addition to Ramsey's course, I recommend Dana Adams's blog "Frugal in Virginia" (www.frugalinvirginia.com), which describes where to find deals, both locally and on the Internet, that will stretch your family's budget. Not only will these suggestions save you money, but the mindset of frugality is contagious and will help you overcome any bad habits you may have learned growing up.

Once you've set your budget so money is left over after paying the bills each month, in step 4 you automate your cash flow to promote saving and investing.

Every month, have 10% transferred into your retirement account before you receive your paycheck. Then automate the transfer of 25% of your take-home pay into an investment account a day or two after your paycheck is deposited. Automating your savings makes savings a high priority and ensures that you pay yourself first. This investment account will grow over time, and you can use it to pay for big emergencies and charitable gifts.

Keep the balance in your checking account between two and three times your monthly expenses. If you are paid monthly, your bank account should cover two months of expenses the day before you are paid and three months the day after. You'll have both a generous cushion for your checking and money for unexpected repairs or big purchases. Whenever your checking account exceeds three months of take-home pay, consider moving some of it into a higher paying investment.

You need an emergency fund in case you are unemployed. The first three months of the fund are safe in your checking account. Now invest an additional three months in vehicles you could easily sell within 90 days. Your emergency fund investments should not be in a retirement account, but they do not need to be in a money market account. Many people use no-load, no-transaction-fee mutual funds. They should also be stable enough to guarantee three months' worth of expenses. Therefore if your emergency reserve funds are large enough, you can diversify them fully into investments that fluctuate more but pay a higher rate of return.

Step 5 is creating an asset allocation for your investments that's diversified for safety while being invested for appreciation. Diversification works, and it's never more obvious than in times of market turmoil.

Without diversification, portfolios can have a zero return over a decade. After being well diversified, the likelihood of no return over a decade drops significantly. Your asset allocation should be a guideline in times of trouble. Whenever you are worried or glad about what is happening in the markets, rebalance your portfolio back to your target asset allocation.

Rebalancing means buying stocks after they have gone down and selling stocks after they have gone up. This contrarian move is always wise. When stocks are hitting new highs, rebalance. When stocks are making new lows, rebalance. Studies suggest that the simple act of rebalancing annually earns about a percentage and a half more.

The sixth step toward emergency preparedness is using your taxable investment account properly. You are putting in 25% of your take-home pay each month: 5% is taxable savings and should start to accumulate real wealth, and 10% is for charitable gifting. Each month you buy investments, some will grow in value and become highly appreciated. Each year, find the investments that have appreciated the most, and use these for your charitable contributions.

Done properly, this method of annual charitable gifting plants the seeds for gifts that may not be realized until ten years later. Thus your charity can survive for ten years after you have stopped contributing on the front end.

The last 10% is for unknown large purchases. If your first response to this suggestion is to ask, "Like what?" the answer is "Exactly." Most people who run up credit card debit keep their regular spending within 100% of their take-home pay until some unexpected expense causes them to deficit spend. You can't anticipate unknown unknowns, so the best you can do is set aside some money to cover them when they arise.

Having the discipline to budget for small financial emergencies will help you be prepared when you encounter larger financial crises. When some unknown spending need strikes, take the money to cover the expense from your growing emergency fund. Then, determine if you have been budgeting for this level of unknown expenses adequately.

You should be able to budget for car repairs, medical bills and house repairs. If the expense truly swamps what you have been saving, you may need to increase the amount to better anticipate the level of emergencies.

The seventh and final step is mobilizing during an actual emergency.

In a real financial emergency you should have two to three months of spending in your checking account and another three months in your taxable savings. You should have a pile of money for large unknown purchases (that 10% of your pay) and another pile of taxable savings (that 5% of your pay you have never touched). Finally, you should have been planting seeds toward future charitable gifting that will last through the next decade.

Usually emergencies don't happen. So the money you have socked away makes more money. Keep an emergency fund for several years and it should double in value, giving you an additional emergency fund. Whether you need it or not, being prepared for a financial emergency means peace of mind, knowing that your lifestyle is sufficiently frugal so you won't be in trouble.

Six Financial Mistakes You'll Soon Regret

Dumb Little Man lists six financial mistakes you'll soon regret as follows:

• Subscription Nation -- This is more than magazines and cable TV. Consider gym memberships, website forum memberships, cell phone data plans, the Wifi card subscription you don't need at Starbucks anymore, etc.

• The Power Purchase -- I'd challenge you to consider your reasoning behind every purchase that you make over $50. At $50, you can catch a lot of mistakes. That's when a pair of jeans is no longer just a pair of jeans, it's a designer pair of jeans. $50 is when you're paying for the name on the shoes, not the shoes. If you need motivation to do this, create a goal or a savings account that you can send that $50 to. You may not get the jeans but you're $50 closer to being able to pay cash for that vacation, college tuition, etc.

• Procrastination -- If there is one thing you get out of this article it's this: Whatever you are saving, it's not enough. The key is to start NOW.

• Assumptions -- You have to plan your finances in a way that will all but guarantee your needs are met. If you do get a windfall or if Social Security exists in five years, you need to treat that as a bonus. You can NOT rely on anything that you don't personally control.

• Misguided Matrimony -- Getting married for the wrong reasons can and will cost you dearly. Treat your relationship with unprecedented respect. Consideration, compromise, trust, etc. You get the point - don't get married on a whim.

• Letting Schools Teach your Kids about Finance -- Parents, aunts, uncles, and anyone that cares, needs to teach kids about money.

My thoughts on each of these:

1.I've whittled my magazine subscriptions down to four (Money, Kiplinger's, Consumer Reports, and Family Handyman) from what was once about 10 to 12 subscriptions. For me it was just as much about saving time as money. As far as other subscriptions, we don't have cable, don't belong to any clubs, and have my cell phone paid by work. The only thing that's close to needing a cut is our landline phone. When we move, we're thinking of replacing it with a cell phone for my wife.

2. Good advice. If we all stopped and thought a minute each time we had a purchase over $50, we'd probably skip some $50 buys or at least make a change and spend less than $50. It wouldn't take much for these to add up to big bucks.

3. Save as much as you can as soon as you can. I wish I'd started earlier. I've made HUGE gains in the past decade or so, but the first five years of my working life were wasted as I saved very little. Those are precious years and can make the difference between retiring now or ten years from now.

4. I'm assuming that Social Security won't be around at all when I retire and I'm saving accordingly. If it does pay me anything, I'll consider that a bonus.

5. For many of us, the die is cast marriage-wise. Thankfully, I married well and don't have a worry in this area.

6. Yep. I'm in the process of developing a "class" on personal finances for our kids in addition to what we already teach them on a daily basis.

The Real Deal On Finding A Good Financial Adviser/Planner

The following piece is written by Free Money Finance reader BigBuddha. He and I had a discussion on my post titled How to Pick a Financial Planner and I offered him the chance to express his views on a post.

Let me say this right up front, I am a Financial Planner (FP), I own my business a FP business.  I have seen, heard and read a lot of things about how to find a good Financial Adviser/Planner (FP).  Generally most will rank these in this order of importance.

1. Fees - how much and how they are paid
2. Potential investment returns
3. Education and Experience Level

Although these factors are important they pale into comparison to what I think is the most important factor. STRUCTURING.  A really good FP will always look towards structuring your financial and personal situation first.

When you wish to engage an FP, the FP should always during the initial stages talk about how to structure your situation.  This is the core of things, can the planner take away most of the financial risks to your current and future estate through structuring your financial situation appropriately and regularly reviewing it.

Firstly Personal Insurance in all it's forms should be discussed, because if you are inadequately insured, what's the use of a wealth creation plan when you don't have the income or capacity to produce income any more due to ill health, injury or death.  Insurance is, at least in my eyes, the base platform, and Income Protection (IP) is crucial.  Look at it this way, if you had a machine that could produce money, would you insure it? Of course you would.  Well, you are that machine, you work, you earn income, you must protect your earning potential, it's that simple.  Other forms of insurance like Trauma, Death/TPD are also very important for crisis and estate planning issues.

The next stage, should be all about structuring your cashflows (hopefully increasing it) and taxable income payable (hopefully reducing it).  Before you start looking at any fancy investment strategies or products, you have got to look at your cashflows.  I like to make clients look at their cashflows and finance like they would a business.  Cashflow in should hopefully be greater than cashflow out, and if it's not, the FP should be able to make structural changes to balance the equation.  Some people say why wouldn't I look at my cashflows before the personal insurance,  look at my cash machine statement again I made earlier.

Unless you are already paying no tax, then there's room for potential improvement, now I'm not against paying your due income taxes, but I'm against giving the government a free ride with my hard earned cash.  Reducing your tax payable, through proper and legal structuring is ethical, financially sound and is what all business do, so you should to.

Finally, we come to the "sexy" part of FP work, investments and retirement accounts.  I know a lot of PF Blogs are pro-index funds and etfs.  As a qualified FP for the last 8 years, who must do at least 50 hours each year on investment, tax and insurance education, I whole heartedly agree. 

Index Funds/ETFs are a great tool and I would highly recommend them to form the "core" of your investment assets, other actively managed investments or managed/mutual/unit funds or trusts can be used as "satellites" to your core of funds to help smooth out returns over the medium to long run.

ASSET ALLOCATION is where most of your returns will come from, and buying at good value is as well (yes I'm a Ben Graham/Warren Buffet fanatic).  Trying to chase returns will get your caught out.  If the best investment minds in the world can't do it consistently, and that's all they do, then I'm thinking someone with a full time job and family commitments probably can't do it to successfully either over the long run.

If your potential FP stalks talking about investments straight away, just walk out the door friends, these people are just salespeople nothing more nothing less.  The proviso to this is if the adviser is just that, an INVESTMENT Adviser (IA)

I think there's a lot of confusion in the general public about the difference between an IA and an FP, they tend to think the two are interchangeable or the same.  An IA only looks at investments (think stock broker types), a true FP does all the things I discussed earlier and structures it properly.

Now let's touch on fees.  It is my greatest belief is that how a professional is paid is between the professional and the client.  They should agree upfront how much things are going to cost and how that cost should be born.  It shouldn't matter whether the fee is charged via upfront fees, charged on an hourly basis, or a flat fee for service or that most dirty of words, commission.  As long as both parties fully understand the cost and why's it's being charged, that should be adequate, end of story.

Education and experience, well education should always be a given when seeking advice from any professional, why even bother giving that as a TIP, if you’re someone who ignores someone’s education level on the field they say they are a professional in, then you deserve to lose out.

Experience well, each to there own on this issue, in my view, if the person is fully versed in the area I am looking for advice then that really trumps any so called "experience" that person has, I know people who say that they have 20+ years in an area of work, but don't really know squat, they have just stumbled there way through moving from company to company, leaving train wrecks behind them.

Well that's pretty much it from me, I would like thank FMF for allowing me to have my rant.

Financial Advisors Make Over $100k

In this list of six-figure jobs for ordinary people, I found this tidbit:

Career Spotlight: Personal Financial Advisors

Personal financial advisors work on a one-on-one basis with their clients, recommending investments and products for wealth management. In another career expected to see a lot of growth, about 72,000 jobs for personal financial advisors are projected to enter the field through 2016. About a third are self-employed, often working from home.

• Recommended Training: Bachelor's degrees in finance, business administration, accounting, statistics, or economics are recommended for personal financial advisors. Those looking to make six figures in their work may be encouraged to earn an MBA.

• Earn Six Figures: Mean annual wages across the occupation were $89,220 in 2007. Personal financial advisors working in New York earned $131,660, and those working nationwide in financial investment earned $101,890.

A few things were interesting to me about these comments:

1. A personal financial advisor is listed as a job "for ordinary people", implying that almost any Jane or Joe can do it. Really? Is this true? And if it is true, do you really want to turn your finances over to such a person? Then again, if it's that easy, why can't you do it yourself? (which is something I always say, so maybe this is a job for ordinary people.)

2. Lots of job growth projected in the future. Not surprising.

3. Interesting they list education as "training" but not any sort of certification like a CFP degree.

4. Over $100k if you work in "financial investment." I wonder if this includes only planners or brokers, etc. Anyway, my guess is that these people make more than regular planners ($89k) because of the fees they charge on their recommended investments.

How to Pick a Financial Planner

For all the grief I give financial planners, I do realize that they are useful for many people (those that can't or won't learn about finances themselves, those who are dealing with complicated financial issues, etc.) But the problem is, how do you find a good one? How do you find a planner that thinks of you first -- not one who's simply a salesman trying to turn your money into his money? The new York Times gives us four areas you need to consider to pick a good financial planner as follows:

Experts pinpoint four critical topics — credentials, experience with clients whose situations are comparable to yours, personal chemistry and the payment method.

They then give some details on each of these four. Here are the highlights for the credentials area:

Financial advisers and planners are not regulated by any government agency, but the industry has developed two sets of commonly used qualifications, one for a certified financial planner, or C.F.P., and the other for a chartered financial analyst, or C.F.A., who in addition to giving financial advice manages investments. Both require passing tests administered by industry-run boards.

Financial advice might also come from trust or tax attorneys, certified public accountants or a qualified person with a finance degree from a business school. “The single most important thing is to have a core degree” related to finance, said Rich Kohan of PricewaterhouseCoopers’ private company services unit, which provides financial advice to clients with at least $2 million in assets.

Education is good -- you want to be sure they know what they're talking about. But to me, experience is even more important. Their thoughts:

Of course, education is only the beginning. Experience is also important — in particular, experience with people like you.

Exactly. That's why I favor a planner with some time under his/her belt.

The piece also gives what I consider the best advice in getting a planner -- get personal references:

One of the best ways to find a planner is through references from friends in similar situations.

The only things I'd add are to get references from someone who's doing well financially and who's used the planner for a decent amount of time. These two steps dramatically improve your chances of getting a good planner.

By the way, once you get a recommendation, I suggest you also ask the planner for five more references from clients like you -- then call them and ask what they do and don't like about the planner.

The piece goes on to say that you should interview a potential planner before you select him -- another step I agree with. Your main objective here is to see if you're a "fit" with your planner. In other words, do you get along? Can you work together? If you can, it will make the process a lot better/easier. If not, it's probably best to pass on this planner and find one suited to your working style/personality.

Finally, the piece says you need to find out how the planner is paid:

Another large issue is how the adviser is paid. Planners can charge a flat retainer, an hourly fee, a percentage of the assets under management or a commission based on the products the client uses.

Avoid commission-based planners like the plague. Commission-based is simply another term for "salesperson" and it's likely they'll focus more on selling you stuff they earn money on than steering you to the right decision. Most "experts" agree that a fee-only planner (one who charges by the hour and/or task) is the best option for most people. I tend to agree.

Anything I missed? Disagree with me on any of these thoughts?

Is Money Education is a Waste of Time?

We've talked about the value of money education in many different situations. For example, there's an obvious value in teaching kids about managing money. Furthermore, we've discussed the potential for teaching those on government assistance about handling money.

Well, here's a law professor who "specializes in financial products regulation" that says teaching people about money is the wrong thing to do. Her thoughts:

Teaching them is a waste of money. Studies show that sending people to either high school personal-finance classes or adult retirement seminars does not result in better financial behavior.

It may do the opposite. Financial literacy classes give people the illusion that they can successfully manage their finances. So rather than seek help, they end up making worse decisions.

So, what does she suggest we do instead? Here's her advice:

Stop trying to turn everyone into a financial planner. Instead, try to get everyone to understand that the people selling you financial products often don't have your best interests at heart.

What's more, politicians need to regulate financial products and make them into things that will benefit consumers, rather than expect education to be the cure-all it is not.

Ok, I agree that teaching people to be smart consumers (and realize that many financial planners are simply salespeople) could have some benefit. But I can't agree with the "more regulation" argument (though what suggestion would you expect from a law professor specializing in regulation). I'm in favor of calling in the government in the case of safety issues and the like, but when we enter the area of "helping people make smarter decisions" or "protecting them from themselves", I start to draw the line. After all, when does the bad decision-making protection end? It seems like it could be a very slippery slope and I for one prefer making mistakes and having my freedom over having Big Brother tell me what I can and can't do all the time.

Besides, we're not talking rocket science here. Learning just the basics (maybe 10 principles in all) of money management can make a HUGE difference in a person's life. In fact, if the average person would simply take THREE simple steps, they'd become rich.

And finally, I'm not willing to concede that we've had a great attempt at financial education. I got nothing at all in school related to personal finances and I've had many others comment that they've had similar experiences. Have we really given financial education a chance in this country?

What's your take? Is financial education a waste of time? Is government intervention the right solution?

Behavioral Finance: Patience Is Its Own Reward

Here's a guest post courtesy of Marotta Asset Management. To me, the key is the last paragraph, but I thought I'd include the whole piece for those of you who want more. ;-)

To process financial information, our minds often attempt unwise shortcuts. By understanding behavioral finance, we can limit the information we use and keep our decisions balanced and on track.

Financial information on the Internet is excessive and changes daily. This overload leads to excessive trading, which in turn results in lower returns. Studies suggest that analysts who depend on all this overwhelming advice make poorer decisions even though they feel more confident about them.

Another reaction to information overload is paralysis. When investors have one attractive option, they tend to invest. When they have two or more appealing choices, they may fail to act because they are afraid of making a wrong decision and looking stupid. This regret aversion motivates them to go with the status quo, which is often more costly than either of the promising alternatives.

Over the long term, the U.S. stock markets go up an average of 11% annually, beating inflation by about 6.5%. But to earn this great typical return, studies in behavioral finance indicate that we must be able to tolerate the year-to-year volatility.

In each of the last five years, the stock markets were up. The three years before that (2000 to 2002), the markets were down. Many people worry about the timing of getting into or out of the markets: Will 2008 be an up year? What about 2009?

I will give you the forecast for the next ten years in the U.S. markets: up, down, up, up, down, up, down, up, up, up. These predictions are not in chronological order. This year could be one of the "up" years or one of the "down" years. It is a gamble, but unlike most gambling, the odds are in your favor. About seven of every ten years are up years, and they are usually stronger than the down years.

If you are an investor, the odds are in your favor. But not everyone who buys and sells stocks is an investor. Some people play the markets looking for short-term gains and follow hot tips or quickly timed movements. These people are speculators, not investors.

Compare an investor with an orchard manager who goes to a nursery to buy some peach trees. He buys the trees because he understands about growing and selling fruit. He knows how to care for the trees, harvest the peaches, and deliver them to market. He understands what is involved across the whole spectrum of his business: from nurturing the natural juicy fruit to savoring it baked in a delicious peach cobbler.

Speculators buy some peach trees when they see the nursery's supplies are dwindling. Then they stand in the parking lot hoping to resell the trees at a profit. Speculators do not care what they are buying or selling so long as the price moves quickly. So they never really buy peach trees. Speculators purchase snow blowers when the blizzard is forecast or generators as the hurricane gathers strength, or whatever else they think might show a short-term spike in price.

If the blizzard misses or the hurricane fizzles, speculators lose money. The possibility of more demand raises prices appropriately. If the likelihood increases, prices go up even higher. If the likelihood decreases, so do prices.

As soon as it is feasible, speculators sell quickly because they believe the spike is short lived and temporary. This tendency led to the investment truism "Buy on rumor and sell on news."

In other words, even if speculators are right, their profits depend on being faster to buy and faster to sell. For the speculator, speed is everything. Not so for investors.

Investors, like farmers, substitute seasons of patient labor and care for speed and market timing. They make their money off the gradual growth in the value of their investments. In contrast, salespeople must keep their merchandise moving because their product isn't getting any more valuable. They make their money off commissions on the transaction itself. For them, what is important is the speed and number of transactions. Brokers and those who sell "loaded funds" are salespeople, not peach farmers. Their livelihood depends on the number and rate of trades in an account. These incentives for speed can lead to abuses.

Frequent trading in an account for the purpose of gaining commissions is called "churning," measured by the turnover rate in an investment portfolio. Turnover is the percentage of an investment account's asset that are bought or sold during a year. Churning can be defined as a turnover rate of over 300%, meaning the entire portfolio value is bought or sold every four months.

An important criteria we use for equity mutual fund selection is a turnover ratio of under 50%. We advise you to be patient and try to ignore the market's ups and downs.

Studies show that mutual funds with a lower turnover rate perform better. Short-term trading has a cost and usually reduces performance. To make money, speculators usually must guess the highs and lows in the stock market within six weeks.

This investment philosophy does not depend on what the markets did in the last four months or what they will do in the next four months. We can't imagine a peach tree that would look good to buy and hold for only four months. Investing is like planting a peach tree: You have to wait for the fruits of your labor.

So don't worry too much about the timing of getting in and out of the market. Focus instead on having a diversified enough portfolio to weather any market--up or down. Once you have a brilliant investment strategy, a successful investor's greatest virtue is patience. As scientist and mathematician Georges-Louis Leclerc said, "Patience is genius"--and it is often the best defense against short-term noise that can ruin your long-term results.

Becoming a Money Manager

The following is a guest post from Jeff at Minding My Own Business.

Handling your finances comes with myriad tasks.  You earn, you pay bills, you invest, you write checks, you plan, you, you, you....  I think you get the idea.  Handing the finances is a lot of work for you.

I view the tasks involved with handling finances as being divided into two distinct and different roles.  Just like at work you have worker bees/followers and managers/leaders.  I like to call these roles the Money Handler and the Money Manager.

The Roles

The Money Handler gets his hands dirty doing the bits and pieces necessary to keep your financial vehicle running.  He changes the oil, adds wiper fluid, puts air in the tires, replaces light bulbs etc.  To quote an English friend of mine, the Money Handler "works at the coalface."

From a personal finance perspective, Money Handler tasks include:

1. Paying bills - writing checks, stuffing envelopes and licking stamps.
2. Making investments - filling out paperwork, writing checks or making e-transfers.
3. Moving money - between accounts as necessary (e.g. on payday, etc.)
4. Reconciling accounts - balancing checking, savings, etc.

The Money Handler focuses on the details necessary to implement the financial plan.

In contrast, the Money Manager is responsible for seeing the forest rather than the trees.

He provides the strategic leadership for your financial vehicle.  Where are you going?  What route are you going to take in order to get there and when will you depart?  If the Money Handler “works at the coalface,” then the Money Manager is a chief executive officer.

From a personal finance perspective, Money Manger tasks include:

1. Setting Goals – deciding where to go financially.
2. Developing plans and strategy – necessary to achieve financial goals.
3. Monitoring earnings and expenses – focusing on creating and maintaining positive cash flow.
4. Guiding, monitoring and assessing the execution of financial plans.

Bottom line: the Money Manger develops a financial plan for the Money Handler to implement.

Both roles are necessary in order to properly handle your finances.  However, the Money Manger role is more important as it will determine your success.  I’ve often said that a “failure to plan is a sure fire plan for failure.”  If you’re not a Money Manager you need to become one sooner rather than later.

That means finding ways to accomplish Money Handler tasks without monopolizing your time.  If your spouse is willing to help, you can divide the responsibilities between the two of you.  If you’re single, you don’t get much of a choice in the matter, you’re stuck with both roles.

In today’s world of the Internet, e-commerce and e-banking there exists another viable option.  You can outsource the tedious tasks.  I don’t mean hire an employee to pay your bills, but rather take advantage of modern day conveniences to automate routine Money Handler tasks.  Doing so will enable you to spend your valuable time being a Money Manger instead.

Ways to Automate

• Sign up for direct deposit.  Your paycheck will be deposited automatically into the bank account of your choice.  I’d be surprised if your employer doesn’t offer this service and shocked if your bank couldn’t handle its receipt.

• Sign up for online access to all your banking and investment accounts.  One of best ways I’ve found to automate my Money Handler tasks has been to take advantage of on-line banking and investing.  It only takes a small leap of faith to begin dealing with your financial institutions via the Internet.  Security and convenience is important and they know it.  You’ll have a hard time finding any financial institution that doesn’t offer online access with both features.  Instant access to my accounts 24/7 means I can conduct my Money Manger tasks when it’s convenient for me.

• Set up automatic transfers, if required.  Each month I automatically transfer a certain amount of my paycheck from my primary bank account to higher interest bearing money market fund at a separate financial institution.  It’s the same amount, every pay period and it happens whether I remember to do it or not.

• Set up automatic bill payments.  Talk about convenience.  You never have to worry about being late or forgetting a bill.  No more stamps, no more checks and no more envelopes.  Save that for your Christmas card list.

• Set up automatic investments.  This is a great way to make regular investments and take advantage of dollar cost averaging.  For many years I enjoyed making investments manually (albeit electronically).  I liked the feeling of empowerment I had each time I invested in my future.  I’m disciplined, but I admit to being tempted at times to spend that money on some extravagance instead.  Putting your investments on autopilot removes the temptation and frees up valuable time.

• Use a credit card to pay for everything.  Your automatic bills can be on the credit card.  Your monthly expenses can be on the credit card.  What’s the advantage you ask?  No more check writing, no more cash carrying and no more tedious balancing of your checkbook.  I truly cannot remember the last time I wrote a check and I haven’t reconciled my checking account in a couple years.  By maximizing credit card use, you dramatically decrease the number of transactions in your traditional checking account, making reconciliation almost not necessary.  A quick glance online and I can usually spot anything that might be amiss.  At the end of the month you pay your credit card automatically and electronically as well to complete the circle.  One final advantage of adopting this method is the rapid accrual of credit card rewards.  Points, miles or cash back, the choice is yours.  I personally like cash back.

DISCLAIMER - You have to be responsible with the credit card technique.  I recommend taking advantage of it, but you need to be in the habit of paying off the balance each and every month.  Carry nothing over; otherwise you can get yourself in trouble fast.

There you have it, tips to automate and simplify your finances so you can focus on managing your money rather than handling it.  Becoming a Money Manager is vital to ensuring your long-term financial success.   

How do you handle your money?  Is it automatic?

Stupid Money Moves

MSN Money calls this a list of seven ways to stay poor, but I prefer the simpler "stupid money moves." Here's their list and my comments on each point:

Getting the big stuff wrong. A lot of "save money" advice focuses on the little stuff: how to cut back on lattes or trim your utility bill by a few bucks. But those who are chronically short of cash often overspend on the big stuff, especially shelter and transportation.

I think everything is important -- the big stuff and the small stuff. Of course you can lose a ton a lot faster on the big stuff (like severely over-paying for a car or buying a house you can not afford), but the small stuff is a lot sneakier and easy to miss, so a ton can be lost without you even knowing it (for details, see Even a Small Leak Can Empty Your Money Bucket Quickly and Keeping Small Spending Under Control.)

Confusing needs and wants. This is a biggie, and it's a problem for people at every economic level. But when you're broke, the consequences of deciding you need something that's actually a want can be devastating.

What do people really "need?" Food, clothing, and shelter (plus a few other basics, maybe.) But do people really "need" cable TV, high-speed internet (not for business, but I'm talking personal use here), a brand new car, a 4,000 square foot home, a big-screen TV, etc. Of course we all want some of these and this is the reason many of us work -- to afford the finer things in life.) But when we "need" them all and buy them whether or not we can afford them, there's bound to be financial trouble. And, unfortunately, many Americans can't differentiate between needs and wants, buy whatever their hearts desire, often on credit, and get themselves in deep financial trouble as a result.

Considering only the monthly payments. Whole businesses thrive on getting you to ignore the total cost of your purchase. Payday lenders, rent-to-own shops and car dealerships want you to focus on the short-term payments, not the long-term expense. Avoid the first two.

Focusing on the monthly payments is one of the tricks car companies use to get you to pay them more money than you want to. Don't do it! Pay attention to the total cost, not the monthly payment. And why should you even need a monthly payment, aren't you saving up and paying cash?

Failing to track where the money goes.

You must, must, must budget -- at least until you have a firm handle on your finances. Here's how I've budgeted through the years and a resource on how to budget for those of you who need suggestions.

Carrying credit card debt.

Do I really need to dignify this suggestion with a comment? If you're carrying credit card debt, you certainly have some big problems and you need to address them immediately.

Living close to the edge.

No matter how much you make, you need to spend less than you earn. Then save and invest that amount for a long time and you'll be rich. Spend MORE than you earn, no matter your income, and you'll go backwards financially.

Squandering what you have. Most workers contribute to some kind of retirement fund, typically a 401(k) account that they can take to their next job or roll over into an individual retirement account.

In other words, you make money mistakes. Instead, focus on making great money moves.

Your Planner May Be Charging More than You Think

Here's a piece from Money magazine that says your financial planner may be charging you more than you think. The highlights:

I've had many clients come to me saying they were paying their old adviser somewhere in the neighborhood of 1% a year. Arguably, that might be appropriate, especially if the adviser provided a valuable service. However, when I show them that they were paying 3% or more in total fees, they are usually stunned.

Think of it this way: If you're buying investments through an adviser, you're paying him or her a fee. But that's not all: Everything you buy may come with its own set of fees. You should know how much your adviser is collecting from you, but a more important question to ask is how much you're paying in total.

Fees are about as transparent as the alternative minimum tax and as easy to figure out as an episode of "Lost." So lob this ball back into your adviser's court and ask him or her to write down your total fees in these four categories:

• Adviser fees.
• Mutual fund annual expenses.
• Fund turnover.
• Insurance fees.

For one recent client, I had the sad task of estimating that he was paying 4.7% a year for an annuity, broken down as follows: 1.6% to his adviser, 1.6% on his funds and 1.5% in insurance costs that provided virtually no benefit.

All I can say is "yikes" and offer you two posts: How Fees Eat Your Lunch -- It Still Adds Up To Dollars and Costs Matter If You Want to Maximize Investment Returns. Read these and then consider all the ways you might be paying fees (to an advisor, to a mutual fund, etc.). If you think about them, there are probably ways you can rid yourself of a good portion of the fees without hurting performance of your investments, the quality of your advice, and so on.

How to Find a Good, Young Financial Planner

Here are some suggestions from a reader in the financial industry on how to find a good, young financial planner. He submitted them in response to my comments on financial planners where I said, “a younger planner simply wouldn't have had the time to get the experience I felt was needed to advise me.” His thoughts:

Here is how I would advise finding good young financial planners:

1. Works at a reputable fee-only – meaning he does not take commissions etc, and got a good job.  Does not count if a relative is a partner at the firm.

2. Has a CFA or CFP (takes some effort and smarts to complete these by a young age)

3. Has direct investment experience (i.e. worked at an investment manager before becoming a planner/advisor)

4. Ask test questions – When you ask things that the planner could not possibly know the correct answer to, make sure he tells you that he doesn’t know the answer and either needs more info from you or needs to seek expert advise.  For example, ask a complex tax or legal question, or ask him whether a particular investment is “right for you” without giving him enough detail about your finances for him to truly know the answer.

5. More test questions – Ask him what his portfolio is invested in, and why.  His reasons are more important than his allocations.  For example, good answers would include “I’m about 50% cash because I am about to make a downpayment on a house, and the other 50% is spread across 15 individual stocks in my IRA” or “I’m 100% invested in the vanguard total stock market index fund, because it’s the only equity index fund in my 401k, and I get a great company match and should be 100% equity due to my high risk tolerance and young age.”

Ok, but why not find an older planner who could fit the bill AND have a proven track record and good experience? Of course the question for me is, why use a planner at all? ;-)

Suze Orman on Picking a Financial Advisor

As a follow-up to our discussion yesterday on financial planners, here's Suze Orman's suggestion for finding a financial advisor you can trust:

The best ones tell you right up front how they make their money, and they'll ask you something besides "How much do you have to invest?" Want to find a good adviser? Go into his office and tell him you have $25,000 in credit-card debt. See how he responds. A good one will say, "Let's set up a plan to get you out of debt and only then, when you're out of debt, will we put you into some good investments." That's how you'll know if they want to help you or only make money off you.

Thoughts on Financial Planners

In Get Advice from People Who Are Where You Want to Be, I again stated my bi-monthly rant on financial planners who have lots of "head knowledge" but aren't doing well in their personal finances. A reader (who is a financial planner and also blogs at Swim Upstream to Wealth) left the following comment that I found insightful:

This is good advice although as a financial planner who is younger and doesn't have a multi-million dollar portfolio I think you need to do more than look at a financial statement. I know lots of older planners who have made a lot of money by pushing product.

One time I attended a Financial Planning Association meeting where a planner (really a broker) who made a million dollars a year was speaking. Trying to model myself after him, I asked how he did it. I figured someone who made that kind of coin must be a great planner who provides strategies that really builds his clients' wealth.

He said, "I recommend whatever fund offers the highest commission or best trip." So his clients weren't getting the best investment portfolio. Rather, they got what paid him the most regardless of the fund's performance. And, as you can imagine, the poorer performing funds tend to pay higher commissions because they can't stand on their own merits. And, most folks don't know that insurance and mutual fund companies give trips, merchandise, and even cars to salesmen who sell the most product.

So I agree that you need to learn from experienced people. Just don't assume that a fat wallet means they really match your vision or principles.

This comment left me with several thoughts:

1. How does one decide whether a younger financial planner is good or not using my criteria since the planner hasn't had time to do well financially? I'm not sure of the answer, but I know what I'd do -- I'd probably avoid them simply because of their lack of experience. If I was to seek financial advice from a planner, I'd want a good combination of knowledge and experience (like I would with a doctor, gardener, and almost any other service person I'd pay), and a younger planner simply wouldn't have had the time to get the experience I felt was needed to advise me. So I'd opt for someone who had been a planner for some time, and also look at her personal finances (or at least inquire about them) to see if she was successful at applying her own advice and doing well as a result.

2. Good point on the "top" financial planners -- many got that way simply by recommending high-priced options that weren't really the best options for their clients. I have two thoughts on this:

• Always remember that many financial advisors are salesmen first and advisors second. Forgetting this could cost you a fortune.

• This is another reason you need enough financial knowledge yourself to determine what is and isn't a good investment.

3. "Just don't assume that a fat wallet means they really match your vision or principles." Well said. And since it's often hard to sort through all the variables, this makes picking a good financial planner even more difficult. As a result, I prefer my method -- learn financial principles yourself and manage your own money.

The Automatic Millionaire

Here's a summary of chapter three from 50 Prosperity Classics: Attract It, Create It, Manage It, Share It (50 Classics). This chapter is written by David Bach, author of The Automatic Millionaire.

Key Quotes

"In order to become an Automatic Millionaire, you've got to accept the idea that regardless of the size of your salary, you probably already earn enough money to become rich. I can't stress enough the importance of believing this -- not just with your mind but with your heart as well. It's an 'Aha!' moment that can truly change your life financially."

"Please trust me on this. Nothing will help you achieve wealth until you decide to Pay Yourself First. Nothing. You can read every book, listen to every tape program, order every motivational product, subscribe to every newsletter there is, and none of it will get you anywhere if you let the government and everyone else have first crack at your salary before you get to it. The foundation of wealth building is Pay Yourself First."

Summary of the Chapter

There is no easier or surer way of attaining wealth than through the habit of paying yourself first through automatic deductions.

My Thoughts on This Subject

1. I loved the book The Automatic Millionaire and named it one of my best financial books ever. The simple concept of setting up your accounts to automatically save and invest has made a great deal of impact on my finances over time.

2. I know many people will disagree with the statement that "regardless of the size of your salary, you probably already earn enough money to become rich", but I agree with it. That's why spending less than you earn is a key to growing your net worth -- it frees up money to save and invest regardless of your income level. Of course it's also a good idea to do all you can to make as much money as you can.

3. By "pay yourself before the government takes any" he's suggesting you invest in a 401k or like program as it's money that gets set aside before taxes are taken out (in his way of thinking at least.) I agree that investing/saving in a 401k is a good idea -- especially when it's matched by your employer.

4. Personally, I like David Bach. I especially like his take on giving (you can find additional information at More on Giving from David Bach.)

5. Bach takes a beating for his "latte factor" idea -- the suggestion that cutting out small spending can add up to significant savings -- but it's true that pennies can eventually add up to millions. That said, your net worth isn't ruined if you want to kick back a little and spend some money on something you enjoy.

6. I have automatic transactions all over the place: I make automatic donations to my 401k and HSA each month, my work check goes into my checking account automatically each month, a portion of my checking account automatically gets moved to Vanguard each month, and I make various investment buys each month automatically from both taxable and IRA accounts. I simply "set them and then forget them." ;-)

I'm Letting My Kiplinger's Subscription Expire

I've been a subscriber to Kiplinger's Personal Finance magazine for a long time (several years.) It's one of the magazines that I kept around even as I purged my subscription list to less than half of what it once was. But when I get my June issue, that will be the last one for me. I thought I'd detail for you the reasons I've decided to let it lapse in no particular order:

1. Not enough time to read. I've been REALLY focusing on freeing up my time and reading magazines is one area I've cut back over the past year. I've cut subscriptions to Forbes, Fortune, Business Week, This Old House, Sports Illustrated and my rose magazine (can't remember the title) from the American Rose Society. Letting Kiplinger's expire is just a continuation of this effort. (BTW, I only get Money, Family Handyman, and Bicycling at this point, and I'll be letting Bicycling expire when it's up -- it's not really giving me any new information.)

2. The content is free online. About 75% of Kiplinger's content and 90% of the content I like is now put online. I have my RSS reader set to show me almost everything they have for free, so why pay for it?

3. Helps the environment. Less paper needed. 'Nuff said.

4. Not much new information. I'm not getting much new information from Kiplinger's -- they run the same sort of pieces I see all over the web. Money still has some unique articles/facts that are unlike others I've seen and that aren't usually put on their website.

5. Cost. It's a minor consideration, but given the factors above, a Kiplinger's subscription just isn't worth the cost. Why spend another $15 (or whatever it is) for nothing?

So it's so long to Kiplinger's for me. I really have enjoyed the magazine but it's just come to a time and place that it doesn't work for me.

How about you? What money-related magazines do you read? What other magazines in general do you like/subscribe to?

Inheritances and Life Insurance: Tax Issues at Death

The following is an excerpt from A Parent's Guide to Wills & Trusts: For Grandparents, Too (2nd edition), copyright 2007, 2008 Don Silver and excerpt reprinted with permission.

QUESTION: I have a simple question. I am very ill. I have one child, a son who’s 44. I have some stocks that I bought many years ago for $20,000. They are now worth $120,000. This is the only asset of any value that I’ve ever had. After I die, my son will be selling the stocks to get cash. Will my son pay less to the IRS in taxes if I give the stocks to him before I die?

No. Because the total value of all of your assets is below the federal gift-tax and federal death-tax exclusion amounts, there would be no federal gift tax or death tax whether your son received the stocks now or after your death. But if your son received the stocks from you now as a gift (rather than inheriting them from you later), he would pay more in federal income tax on the sale of the stocks after your passing. That’s because the income tax basis is different with gifts and inheritances.

In some cases, last-minute gifts will save on taxes. Whether gifts or inheritances will save taxes depends on a number of factors. See pages 181-191 for more information.

QUESTION: I am a widow with two adult children. My assets total $2 million. I’m about to buy a life insurance policy that will pay $1 million to my two children upon my death. I’ve heard that there is no death tax on life insurance. Is that true?

Whether life insurance will be subject to death tax depends on four main factors: (1) whether you own on control the life insurance policy, (2) the total value of your taxable estate, (3) the year you pass away and (4) state death-tax laws in your state.

Owning or controlling life insurance

If you own and/or control life insurance, it is counted in calculating your taxable estate for federal death-tax purposes. See below for ways to keep life insurance from being counted as a taxable asset. But even if insurance is part of your taxable estate, no federal death tax may be due. Whether your estate will owe federal death tax depends on when you pass away.

Federal death-tax exclusion amount

Under federal law, the amount excluded from death tax changes over time. There is a federal death tax exclusion of $2 million for deaths that occur in 2008, $3.5 million for 2009 deaths, an unlimited amount for deaths in 2010 and $1 million for deaths that occur in 2011 or later.

If you pass away in 2008, the exclusion would be $2 million but you’d have $3 million in assets (if you owned or controlled the $1 million life insurance policy). The $1 million above the exclusion would generate $450,000 in federal death tax
($1 million times the 45% death tax rate). 

So, instead of your two children being the only beneficiaries of the life insurance policy, your children would share the proceeds with their “Uncle Sam”—the government.

State death-tax laws

Finally, state law may not be the same as federal law. There could be state death tax whether or not there’s federal death tax.

HINT: There are two ways to keep the insurance proceeds from being taxable for federal death-tax purposes: (1) have an irrevocable life insurance trust (i.e., a trust that cannot be changed) or (2) have your adult children own, apply for and pay for the policy.

(By the way, a life insurance trust is not the same as a living trust.)

Recession Proof Career: Financial Advisor

Here's a piece I had to chuckle at. It says that one recession proof career is that of financial advisor. The details:

A lot of jobs are in trouble in today's tough climate, but doom and gloom are the bread and butter of a personal financial planner.

Combine an economy on the edge of recession, brewing inflation and an aging boomer population, and you have a growing market for someone who can find a safe place to put your money.

The demand for personal finance planners is expect to soar, as baby boomers who want to safeguard their financial future look for help in getting through retirement. The Bureau of Labor Statistics projects that jobs in this category, which includes certified planners and other financial advisers, will surge 41% between 2006 and 2016, adding 72,000 jobs for a total of 248,000. The wage is competitive, according to the BLS, which estimates median earnings at more than $66,000.

And the current economic climate is fueling further demand.

I personally don't have anything against financial planners. No, really, I don't. I just think it's a better option for people to become educated on finances themselves and manage the majority of their money affairs personally. Then they can get expert/professional advice on more complicated matters. This is what I do myself. I manage almost all of my finances, but call in people like CPAs (taxes), lawyers (estate plan), and insurance agents (life and disability insurance) when I need help in a particular area that's a bit over my head.

Furthermore, I have a bias towards people who have the CFP designation and are fee-based (versus commission based). They appear (at least to me) to be less likely to be the type of "financial advisor" who's more interested in taking your money -- and they seem more likely to be qualified individuals that truly have your best interests at heart. That said, I wouldn't hire one that I didn't get some pretty solid references on from someone I knew well and I knew was at least semi money savvy.

The Courage To Build Wealth

The following is a guest post from The Shark Investor.

Just imagine you had no mortgage or rent, no debts and bills to pay, health care was free and food was cheap.

How would this change the financial decisions you take? Would you build your wealth better if you had no fear?

"If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability." - Henry Ford used to say.

I live in a country which survived a hyperinflation in 1997. I was still just 18 but I had already saved an amount of money which most of my friends couldn't imagine.

The hyperinflation nuked my savings. Simply erased them all to zero. But I am thankful for that. It didn't nuke my self-discipline, knowledge or talents. It just gave me a lesson.

Making mistakes is not scary. Losing money is not scary. But we are all taught the opposite - don't take risks, get a safe job, invest wisely in a retirement fund and you may eventually get wealthy at 65. Uh.

The fear of losing money is your main enemy, and it's a strong enemy. It's the fear of getting broke. The fear of having to leave your home and move to a smaller one. The fear of changing your job. The fear of asking for salary raise. The fear of starting a business. The fear of your friends reaction when they realize you are in bad financial situation.

If you can fight this fear, you will be able to get rational investment decisions. You will be able to work on exciting projects, to try starting a business or playing aggressively at the stock market.

To beat this fear you need to go through several steps.

Step One: Evaluate your current financial situation

Many people rate their monetary situation as "OK". If you are like them, that's probably because most people around you are in similar situation. Chances are if you think your financial situation is OK, it's actually mediocre. If you are just one salary away from a financial trouble, then your situation is not OK. It is horrible.

Your real wealth is measured by the time you can live without having to work. How long is that? One month? Three months? You are almost broke - right now.

Step Two: "There is no spoon"

Like in the Matrix you must realize the problem isn't really a problem. It is not nice to be broke, unemployed or overworked because you've made a bad investment or financial decision. But after passing Step One you'll most probably realize there is not much to lose. If you are almost broke like most people from the middle class are, you have almost nothing to lose.

Wouldn't you prefer to risk almost nothing hunting for a real, fulfilling and wealthy life? Or, like most do, you would prefer mediocre life because of a false financial security?

Your money, your home and your job aren't your real assets. Even if you lose them, you will still be the same person with same knowledge, talents, self-discipline and courage. So is it really wise to waste your talents, knowledge and skills on unfulfilling job just to save your home and money?

Step Three: Start little actions

The courage to build wealth will not come suddenly and in a day. If this article raise some awareness in you, then great, but I don't expect you to sell your home and start a business or invest in forex tomorrow.

Build your financial courage step by step. Define the things that scary you the least and try to do them first. Don't worry about the exact outcome. Losing small amounts will be useful to build more awareness. Then grow further by taking more risky steps and trying with biger projects and bigger changes to your financial life.

Times of recession are best for training your financial courage. In such moment it is much easier to see how fake the ordinary assets are and that the only real value is in your internal resources. It's much easier to risk now rather than at times good for the economy - when just placing your money in mutual funds would bring you sweet income.

Don't let your dreams die because you have a mortgage to pay. If you have a business idea start working on it. If you want to make a high risk investment, evaluate and jump. The only sure way to never build your wealth is to never take action.

The 10 Habits of the Prosperous

The following is an excerpt from the book DoesYour Bag Have Holes. Chapter 20 of the book organizes the principles followed by the wealthy into “The 10 Habits of the Prosperous.” Below is a brief description of each of the habits which are discussed in depth with examples in the book.

1.  Clear Monitored Financial Goals -- Charles Coonradt, author of The Game of Work wrote, “If you put one hundred people in a room and ask them how many would like to be financially independent, all the hands will go up. If you then ask them how many have a personal financial statement detailing assets, liabilities, and net worth that is current in the last ninety days . . . ninety of those hundred people will not raise their hands. If you ask those remaining ten people how many have that financial statement laid out in a pro forma goals format for one, three, five, ten and twenty year periods, nine of the people will sit down. The one still standing will be a millionaire”

2.  Delay Gratification -- The prosperous have learned to resist the temptation to lose what matters most long-term for the short-term pleasure of something now.

3.  Value Financial Independence -- The prosperous enjoy the security and independence of owning their possessions more than social praise and status.

4.  Live Below Income -- For every $10 the prosperous make they spend $7. For every $10 dollars the poor make, they spend $13.

5.  Save Money for Tomorrow -- Many spend tomorrow’s resources for today’s pleasures. The financially independent save and invest today’s money for tomorrow.

6.  Earn Interest -- Interest is a very powerful tool that either builds or diminishes wealth. Those who understand interest earn it and those who don’t understand interest pay it.

7.  Pay Themselves First -- You can become financially independent simply by paying 10 percent of your income to savings and investments first, and then living on the rest.

8.  Buy Wholesale -- You can greatly decrease your expenses by learning how to buy items at wholesale and by always asking for a discount.

9.  Create Gold-Laying Goose -- The prosperous create a gold-egg-laying goose (assets with passive income) and then live on the eggs. Those who have reached the ranks of prosperity have learned that money is of a prolific generating nature.

10. Master of Money -- A 17th Century Proverb states, “If money be not thy servant, it will be thy master.” The prosperous have their money work for them, while the poor work for money.

Parting Words of Wisdom from Jonathan Clements

Popular Wall Street Journal personal finance writer Jonathan Clements is leaving the publication to begin a new job at Citigroup. He'll be the director of financial education for a new unit created to advise the "emerging affluent," investors with less than $500,000 in assets. Jonathan has always been one of my favorite personal finance writers. His advice was practical and basic, and as a result was very, very effective.

Clements recently did an interview with NPR