Making Cents

Reflect, Re-evaluate and Act

As we look back on 2008, it will go down as one of the most difficult years in modern history.  We saw record volatility in the financial markets, more business closings than any time since the great depression and more crushed dreams and visions than most of us can remember.

 

While 2009 may not be any better, let’s take a journey of trying to figure out what all this means to you specifically.  To begin this process, you need to update your financial plan for the reality of 2008.  If you never had a plan, there is no time like the present to create one.

 

What I mean by a plan is the process of evaluate your goals, objectives and top priorities for you and your family.  Perhaps you feel a bit different about that list today than you did a year ago.  Then you attempt to manage your financial resources through the constant of changing circumstances to stay on a course that you believe will get you where you want to be

 

Next, look at the resources that you have to fund those goals.  That would include the value of your assets, your costs of living, income and job stability.  Does it all still fit and get you where you’d like to be when you wanted to be there?  For many, the answer will be no.  This wake up call may put a realistic light on issues like how much you can afford to spend for a house, when you may be able to retire or what college your children will attend.

 

At first, this may seem like an act to deepen your already sunken heart, but actually, it is the start of lifting your spirits to new highs that can propel you into doing what needs to be done.  By learning that you may not retire until age 75 or that you won’t be getting that vacation home anytime soon is better than the anxiety caused by wondering or guessing about it.  Before the exercise, you were in doubt.  After the exercise, you know exactly where you stand.  There is peace to be had in knowing where you stand.

 

As you focus on the goals and life plan, you will begin to get energized about these plans.  After all, this is your life and you have the freedom in this great country to do whatever you can legally do to make that happen.  As the energy appears, the opportunities for you to make it happen begin to surface.  You’ll wonder if it is time to change jobs, or obtain a second job, or sell the second home.  You’ll re-consider your spending habits and ask whether these current costs are really important compared to your long term goals and life plan.

 

And do remember this, as fast as some dreams disappeared in 2008, new ones will appear in 2009 and beyond.  They may even be the same old dreams resurfacing because of very favorable results.  Isn’t it possible that your future will include greater earnings, more savings, greater growth in your 401K and an invigorating list of goals and priorities that make your life exciting and worth living?  Of course it is.  And I’ll be here every week to help in any way that I can.  Happy 2009! 

Difficult, but Essential Discussions

Now that the holiday season is in full swing, families will be gathering from all over the country and reminiscing about the good old days. At some point in the conversation, your sister who moved to Ohio 15 years ago will secretly ask you - ``How is Mom doing''? Discussions will range from her driving abilities to her medications, and all with the best intentions. But the person in question often feels violated and under-appreciated by the interrogation.

These discussions can be very difficult. The best way to start the conversation is to put all the worry on your shoulders. Make it clear that it is you who is worried about Mom, and that you want to make sure that she is getting everything that she needs. You might look for local news stories about community services available for the elderly, or get some information from the local council on aging to look for support or programs that you think may be of interest.

Another way to assist is to just give the help, and allow the aging family member to feel your love and concern. So while you are hanging around the house wondering what to do with all of the leftovers, perhaps you can prepackage a few dinners for Mom so that all she has to do is take them from the freezer and heat them up. And while you're in mom's freezer, take a look around and see if the food and perishable supplies are well stocked and fresh.

From this you'll develop a sense of how well your mother is eating and decide if she needs help with meal prep and clean up. After the fridge review, offer to take her on a shopping trip and ease the burden of buying, transporting and storing the groceries.

The last discussion should be with your siblings and others concerned about the care of the elderly. Some of the potential caregivers are not local, and can't provide hands-on help regularly. When these discussions do not happen, the local child simply gets absorbed in the care and then is lost about how to ask for assistance. It may also breed resentment and negative feelings toward the other siblings. Do not allow your sibling who happens to be local to Mom be the only person involved. This is not fair, and may create further problems for the local person with their jobs, family or own personal well-being.

Have You Checked With Social Security Lately

Whether you are approaching retirement or just looking for ways to plan for that eventual day, the Social Security website is a great place to start.  There is a new podcast regarding the decision of when to retire and there are worksheets to help you plan.  Check it out!

Last-Chance 2008 Tax Moves

This article by CEO John P. Napolitano is full of useful end of year information. 

This article was the number one Editor's Choice at Horsesmouth today.  Horsesmouth is a repository of informative articles for Financial Advisors.

Benefits of Dollar-Cost Averaging

The term dollar-cost averaging has been around for years, but it seems to get a lot more use when the markets are turbulent.

Whether it's justification for continuing to invest in your 401(k) plan or a term to make you feel better and look smarter, dollar-cost averaging is here to stay. For those who have continued to send money to their 401(k) or 529 college savings plan, you have been dollar-cost averaging.

The term is rooted in algebra, and is merely a way of calculating your total average cost in an investment. Let's face it: with investing, the theory is to buy low and sell high. But how many people have had the mettle to go full steam ahead with their investment plans over the past few months?

Here's how it works. Let's say that you invest $200 per month into a systematic investment plan. When you made your investment last month, imagine that the price was $10 per share.

Consequently, you purchased 20 shares of that investment with your $200. Over the month, the value of that investment has declined by 20 percent. Naturally, you are a little upset and are wondering what to do now. But as with most systematic investment plans, the $200 comes out of your paycheck or checkbook, and you now have bought another $200 worth of that investment. Except this time, with the share price at $8 because of the 20 percent decline, you actually acquired 25 shares instead of the 20 you received last month.

The result of the two months of purchases now has you holding 45 shares for a total cost of $400. That brings your average cost per share down to a little under $9 per share. You calculate this by taking your total investment of $400 and divide it by the number of shares you hold, 45. So now if the share price goes back to your original purchase price of $10, you have a gain of over $1 per share on your total holdings in this investment.

Of course, the theory of dollar-cost averaging sounds great as long as the investment eventually starts to go up. And as we all know, past performance is no guarantee of future results. And because of that, don't just keep sending money blindly toward an investment unless you are completely comfortable in the fundamental attributes of that investment and your belief that it is a good place to be investing money.