Wi$e Up Teleconference Call

By Micheal Murphy,2014-05-19 01:58
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Wi$e Up Teleconference Call

    Wi$e Up Teleconference Call

    Financial Planning for Life Events

    October 31, 2006

    Speaker 2 Dayana Yochim

    Sarah Miller: Now let’s turn the program over to Gail Patterson to introduce our second

    speaker. Gail

Gail Patterson: Thank you, Sarah. For the past decade, Dayana Yochim has demystified the

    basics of money and has pulled the curtain back on all areas of consumer

    finance including savings, spending, home buying, credit cards, insurance,

    couples’ finances, IRAs and the [psychology] of money. Dayana’s ability to

    make money-saving and money-making strategies accessible for millions of

    people is one of the reasons she is a frequently sought-after public speaker and

    commentator. She has appeared on ―The Today Show, Fox News, PBS and

    CNN, NPR, and has been quoted in such publications as The Washington Post,

    Newsweek magazine, Glamour, Details and Jane. Dayana is the [co-

    ]author of two books, The Motley Fool’s Guide to Couples and Cash: How to

    Handle Money with Your Honey and The Motley Fool Personal Finance

    Workbook: A Foolproof Guide to Organizing Your Cash and Building Wealth..

     She is currently one of the advisors for GreenLight, The Motley Fool’s

    personal finance newsletter service. The Motley Fool is a multi-media

    financial education company whose mission is to educate, enrich and amuse

    individual investors around the world.

     Prior to joining The Motley Fool, Dayana spent six years writing for business

    publications in Kansas City and New York, before becoming the editor of the

    online edition of Worth magazine. Welcome, Dayana.

Dayana Yochim: Thank you very much. The best part of a teleconference is I don’t have to

    worry if I’m having a good hair day or not, so I love this – talking on the

    phone about money.

    As Michele said, this can be a daunting topic. It’s overwhelming. Entire books have been written about preparing for every financial inevitability in

    life. You know, life events -- the typical ones -- are marriage, moving,

    divorce, college, having kids, but even things like buying a car, getting a pet

    or getting a nose job those are also financial events. They’re life events that touch your finances in some way. But what inspires most of us to actually

    prepare financially for a life event is one thing it’s panic.

     A few years ago, my car was stolen. That’s the panic event that actually got

    me to finally review my insurance coverage after years of simply paying the

    bill and, you know, going on my merry way. And, that’s when I learned that I only had liability and not comprehensive coverage. So, my stolen car --

    although an older model -- I was out that and wasn’t going to get an insurance

    check in the mail. You know, it’s human nature to wait until there’s a four-

    alarm fire to get our finances in order, and studies show that people, after they

    lose a job, get divorced or married, have a medical emergency. Those are the

    times that they often seek help and they start to really dig into their financial


     The point here is not to wait for a major life event to send you into money

    triage. As Sarah mentioned in her opening remarks, preparation is what turns

    a potential financial setback into [an] opportunity. So, having a formal

    financial plan in place can eliminate a lot of the stress and uncertainty that

    many of us face every day and don’t even realize it’s stressing us out.

     In general, your financial priorities tend to age with you. In our twenties and

    thirties, we focus on building a decent future. There should be two goals here.

    Number one is keep your debt in check -- and we can’t emphasize this enough.

    Live like a poor college student as long as you can stand it. Have roommates.

    You know, eat take-out. No, your entire diet shouldn’t consist of Ramen

Noodles, but really watch the spending here, and also don’t rely on other

    people who are telling you how much money you actually have to spend.

     The credit card industry lots of lenders depend on you spending up to your

    potential and beyond it. That’s how they make money. That is not how you make money over the long term.

     And, Number two, in your twenties and thirties get into the habit of saving.

    When you’re young, it’s much more important how much you save, not

    necessarily the rate of return because of something magical called compound

    interest. And Michele mentioned a couple of calculator sites you can go to,

    and we have calculators as well savings calculators on Start

    running a few scenarios. You will be surprised at how everyday savings -- if

    you start young -- really builds on itself and can make you pretty wealthy at a

    younger age.

     The next life stages are forties and fifties, and luckily these are peak earning

    years. But, try not to make them your peak spending years either. At this

    point, there are a lot of big-ticket items that are going to be fighting for your

    dollars -- things like covering college costs for the kids and retirement savings

    for you. Here it’s important to consider the aid that’s at your disposal when

    you’re allocating your money. So, in the example there of [saving for] college

    versus retirement, remember there’s no such thing as a scholarship for retirement. So, ―Sorry kids, you’re going to have to study hard, get some

    scholarships or foot the college bill on your own.‖

     And, also at this point, it’s important to balance your priorities elsewhere, to

    think about your insurance needs and your savings and to make sure that

    you’re really concentrating on your returns at this point, as you’re still in the

    working world.

     And, finally when youre approaching retirement -- you’re age 55 and up --

    it’s more about protecting your wealth and also your family’s wellbeing, and

    again here, adequate insurance -- long-term care, for example -- is extremely

    important. It’s something to look into. A serious medical condition can wipe

    out a lifetime of retirement savings if you’re not careful.

     Also here, you want to make smart choices about sheltering your income from

    taxes. Estate planning is very critical. It ensures that your family -- and not

    Uncle Sam -- will receive the bulk of your bounty when you do finally pass on.

     So, really it doesn’t matter what life stage you’re in or what life event you’re

    facing, having a formal financial plan in place again removes stress and

    uncertainty at every turn.

     Now, since you probably have plans this weekend, or a full-time job, or don’t

    do money for a living like the rest of us do, we’re going to take a financial

    planning shortcut. I have broken this down into five easy steps.

    First, Step One take a simple financial inventory. The math here is really

    easy. A financial inventory is simply your assets minus your liabilities, and

    that equals your net worth. So, your assets [are] things you own, your savings,

    your retirement accounts, you know, your Beanie Babies collection that you

    could sell on e-Bay for some quick cash.

     Next you subtract what you owe other people liabilities. They’re like credit

    card debt, a car loan or student loan, and we’re leaving the home equity

    mortgage out of this equation just to keep it simple. The number that you get

    equals your net worth. That’s Step One.

     Step Two you’re going to freak out because your net worth is not going to

    be anywhere near the net worth that you’re reading about in Forbes and Fortune and People magazine.

    Step Three follow the money once you’re done freaking out. See where it goes on a day-to-day basis. Now, this doesn’t have to be a torturous exercise. You can simply track your money for a week, take out cash and write down

    keep a little notebook and write down exactly where youre spending your money. It’s a very eye opening exercise, and it leads directly into Step Four,

    which is freak out again.

     And, finally Step Five take deep breaths. Remind yourself that this is not a

    permanent state. Consider this the before shot of your finances, before the

    make-over. Why this is important why getting a snapshot of where you are

    now is critical is because vague ideas about your finances, about how you

    spend and save don’t serve you very well when you’re making a financial plan.

    You cannot re-evaluate your finances until you evaluate them in the first place.

     So, now you have a snapshot of where you are right now. Next comes the

    planning part. There’s the emotional, the mental preparation. I call this the virtual shopping trip, and if you’re coupled, you do this exercise with your

    significant other. First, write down your goals. Break this into three parts.

    [First write down] your immediate goals, the things that are important to you

    in the present that require some cash to keep going. Next, write down five

    things that you envision for your near-term future, for the next five to ten

    years. Maybe it’s a down payment on a house or finally funding an emergency stash of cash, all of those things that you see happening in the sort

    of mid-term future.

     And, finally long-term where do you want to retire? When do you want to

    retire? Where will you live? What will you spend your days on? How much

do you think you will need? Then, take a break. You’ve got this list of your

    goals. Revisit this list with fresh eyes and start prioritizing them. Add some

    tangible money milestone markers to each of them. What you do is you break

    down that vacation into, you know, check for the prices on the cruise you

    want to take your family on next year. Break it down to a monthly savings

    goal. Write all these things down by your goals so that you have really a more

    concrete action plan to get to where you want to be.

     What you have in your hands - these financial goals - are an actual plan.

    Don’t skip this goal-setting part. There are a lot of psychological and

    practical bonuses to setting these goals. First of all, they give you a reason to

    save. Again, it’s avoiding the vagueness of not knowing what you want to do

    with your money. So, they help you funnel your money to the things that are

    really important to you and your family.

     Also, being specific helps you pinpoint how to spend your money. Just

    having this idea, ―Oh, I’m saving for the future,‖ isn’t good enough. Pie

    charts, graphs; they totally rock. There are a lot of financial tools out there

    that help put your finances in union a three-color pie-chart glory. So, use those to see exactly where you stand now. And, finally, goals really

    crystallize the fuzzy thinking about finances and inspire people to take action.

Now, financial planning also has a lot more formal items that will help make

    your plan go without a hitch, and I’ll only touch on a few of these briefly.

     Legally, you want to make sure that things are in place so that you and your

    family if you’re caught off guard – because, unfortunately, a lot of life events are ones you don’t necessarily see coming … if you’re caught off guard, you

    want to make sure you have the important papers in place to make sure

    everything goes well.

     The three most important documents are a will, number one. It details exactly

    what should happen to your property or your assets if you die, and if you have

    children, this is a must. Not having one really complicates things and really

    needlessly puts the pressure on your loved ones at really one of the worst

    times of your life, so you’ll want to see an attorney to get this.

     A living will or an advance medical directive is a second item that you want to

    get. You can get this free at virtually any hospital. It details your medical

    wishes so that if you are unable to do so yourself, there’s this document that’s

    in place that tells people what you wish to happen and finally, there’s the

    Durable Power of Attorney and Medical Power of Attorney. Again, should

    you be unable to make legal or financial or medical decisions on your own,

    this designates someone or some ones to do so on your behalf. Again, this is

    something that you’ll probably need to see an attorney to get.

    So, all of these things, if you have a family or a significant other, keep them

    up to date. Review this annually, at least. Review your goals and again those

    milestone markers on a regular basis. Quarterly, that’s great. The financial

    world loves to issue quarterly reports, and at The Motley Fool, we recommend

    that’s probably a good thing to mark your calendar with too. You want to see

    how you’re progressing and where you might need to make some tweaks in

    your plan.

     And remember, you don’t have to wait for a major life event, like a stolen car

    in my instance, to scramble to come up with a money plan to see how you’re

    doing. Take a few simple steps right now and you’ll be amazed at how much

    better and more prepared you feel. Thank you very much.

    Sarah Miller: Thank you, Dayana.

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