Making Cents

Times Change; You Should Change Too

You may be lucky enough to have friends and family from the World War I and World War II eras. Or perhaps you’re part of one of those generations yourself. These people are known for their toughness, fortitude, resourcefulness and frugality. Even during the best of times that followed in the ’80s and beyond, these hardy, values-driven citizens held on to their frugality and their money as if it were their last cent.

Yet, I don’t recall many yearning for what they did not have. Instead they reveled in what they did have: family, a home, their health and a few well-kept possessions.

Their frugality had roots in their immigrant parents, the Great Depression, unemployment and being without for so long. Many wondered how they were so satisfied with so little and why the baby boomers are so self-focused and intent on having everything. Even though today’s recession may be coming to an end, these memories and the times are testing our abilities to act in a similar fashion.

I’m thinking that this new mentality on debt and spending may be with us for a long time. Forget about a return to normal times when frivolous spending and unnecessary luxuries ruled your mind. This slowdown may well send another generation or two right back to where our parents and grandparents were on spending. Spend it if you have it and maintain a substantial cushion for unforeseen emergencies, and say no to debt.

Potential outcomes from this recession may include lower auto sales forever, the need for fewer restaurants and fewer golf courses, and less attendance at outrageously priced professional sporting events. The potential positive outcomes may include more house parties and dinners at home, and an increase in the use of health clubs and similar mini-luxuries that cost very little and have redeeming benefits for a long time.

Don’t be fooled by the stock market’s short-term recovery. Don’t be fooled by banks saying that they have plenty of money to lend, because they’ll only lend it to you if you have a fantastic credit score and really don’t need the loan. “Spending is down, saving is up, paying off debt is now cool” – and I believe that these fiscal values will be with us for a long, long time. Please adjust your lifestyle, investments and retirement plans accordingly, and appreciate what you have.

Just Graduate From College? Stay Positive

Having seen my share of high school and college graduation speakers in the past few years, I’d like to give a college graduation speech of my own:

Don’t be depressed because you don’t have a job or jealous of your classmates who do have a job. That would be a horrible way for you to celebrate four years of hard work. Be happy for employed classmates and congratulate them. Not only may they be in a position to pick up your happy hour tab but they are potential referral sources.

Your attitude is most important during the job search. If you are feeling pessimistic about your options, it will show in your resume and your voice. The big opportunity is to find something you love and want to do. A year from now, you’ll be surprised how many of your employed classmates are changing jobs.

Be confident that you will find something that you like doing. If this sounds easier read than done, stay with me. I have a few ideas for you.

If you can’t get fired up about what you are doing every day, success is that much more elusive. Start with the type of job you think you’d like, and then expand to the types of businesses or companies that may offer such opportunities.

You have probably already thought about some of this stuff, but got shut out of an interview at your top choices. Well, guess what? Right now may be a perfect time to follow up with every one of them. And while e-mail is surely an acceptable means of communication, there is no substitute for a phone call or a visit.

Maybe someone they made an offer to has had a change of heart or perhaps they will hire someone before next year’s flock of new grads starts the interview circuit. There may even be a lower-level position that would lead to the desired position in the near future. Don’t be too proud to show them what you can do.

Hunt down an internship – even if it has no pay. You are more employable if you are working somewhere and have real professional experience than if you do not. You need to muscle your way into the job or company of your choice and tell them that you’d like to work for free while you hunt for a job. This could be a win for you, but also for the business; many are short staffed.

Think Inflation When Planning Financial Future

Most of us would agree that it simply costs more to do just about anything today than 10 or 20 years ago. While inflation has abated somewhat with this very slow economy – I wouldn’t rule out the “I” word as out of the question for the future.

For financial planning purposes, inflation has a very significant role in your future financial security and how you may plan for it today. For openers, make sure that you are factoring in some cost of living increase in your financial projections.

This is especially true if you are saving for future expenses that have historically risen even faster than the overall consumer price index such as a college education or future health care needs. For general living expenses, I’ve seen a range of between 3 to 5 percent a year commonly used by planners.

There is widespread concern that the influx of federal stimulus funds into the economy could cause higher inflation. While government policy makers had success at suppressing the inflation rate through their monetary policy decisions, the future for inflation remains unclear.

Add to this lack of clarity some global unrest, hyper growth in the need for resources in the emerging parts of the world such as China and South America, and an energy-thirsty Western world, and higher inflation starts to sound plausible.

Let me add another variable to this scenario if you are planning your retirement. When you retire, and I mean full-time retirement where leisure and family dominate your agenda, add an extra measure of inflation into your calculations.

Whether it’s improvements to the house, more time on the golf course, more trips and time to buy gifts for grandchildren or more time on cruise ships – retirement living can be much more costly than your working lifestyle. In addition to having more time to spend money, it also seems like the cost of stuff that you want to do in retirement often inflates at a faster pace than consumer staples or basic raw materials.

There are many calculators that you can buy or go online to use to estimate the effects of inflation on your desired savings or retirement. This isn’t something that you need to look at every month, but getting it done right the first time and periodically checking on it as circumstances or your needs change makes a lot of sense. 

Thoughts on Long-Term Care Insurance

If you’ve cared for an elderly parent, you know why there’s so much fuss over long-term care insurance. After living one’s whole life paying taxes and insurance premiums, many people over age 50 figure their health insurance or Medicare will pay for care for illnesses lasting longer than 90 days. Nothing can be further from the truth.

In a recent survey conducted by AARP, 49 percent of respondents stated that their preference would be to receive care at home with professional aides coming in a few hours per day. If you were to spend $200 per day for professional assistance, that totals more than $70,000 per year – in addition to heat, light, taxes and general living expenses such as food and toiletries. Maybe these numbers fit comfortably into your budget. But for many people, it can be a financial nightmare.

Many clients tell me that their children will take care of them or the children tell me that they wouldn’t mind if the elderly parent moved in with them. To me, this option sounds a lot better than it may be in reality.

That’s not to say that you don’t really love your parent – but it is meant to say that it simply may not be possible to deliver the needed care.

It is possible that you need to work or care for your own children, or that mom’s needs require more skilled care than you are capable of delivering. Even if you beat the odds and can deliver the care, after about 9 to 12 months as the caregiver, it is common to feel run down and defeated by this daily grind. 

Another possibility is family resentment. The caregiver may begin to resent siblings who do not provide care, causing relationships to deteriorate. And if you don’t resent them now, they may resent you later after mom leaves all of her assets to you for being such a loyal child and providing such great care.

I’m not saying that this will cause a family feud, that you’ll hate your life as a caregiver or that you and your siblings are destined for battle. What I am saying is that way too many of us take this huge risk without much forethought.

The U.S. Department of Health and Human Services estimates that at least 70 percent of couples over age 65 will require some long-term care services at some point in their lives. The next time that you are talking to your financial advisor, ask for an opinion regarding what you should do.