Why Is It So Hard To Talk About This Stuff?

We have had several discussions over the past few weeks about getting people excited to increase their financial Wellbeing. We find ourselves often comparing and envying the success of the fitness center here at the Gallup riverfront office. There has really been a grassroots enthusiasm about getting physically fit here on campus.

There are many similarities between financial fitness and physical fitness. Things like creating accountability, routine, discipline etc. But one thing that does not cross over is the cultural stigma associated with talking about personal finances.

It’s pretty easy to notice someone who has lost a few pounds and say “Hey, you look great!” It’s not so easy to notice someone who is getting their finances in order.

People are more than willing to talk about how they have “fallen off the wagon” on their diet over the past few days,  but it’s not so easy to talk about blowing a couple hundred dollars on credit cards at the mall last weekend. There is just something taboo about discussing your finances. The truth is that just like exercising with a partner, you are far more likely to be successful if you have a partner keeping you accountable with your finances. And you know what? - It feels pretty darn good to have someone notice your success and pay a compliment.

How can we encourage this type of community? Ronny and I love being accountability partners with people and we have several relationships just like that. But we are only two guys, think about how powerful it will be when folks take it upon themselves to have financial accountability relationships with their friends and those friends have relationships with their friends, and on and on.

Getting inspired and equipped are the first steps to starting this trend.

We know a guy – Dave Ramsey, who has put together an inspiring and equipping class that can help get you started. It’s called Financial Peace University and we are going to offer it here. If you have a desire to go from good to great, get back on the path to financial freedom, or be an accountability partner you should sign up for this class.

It’s thirteen weeks, two hours one time a week, and costs $99. Here is a video preview of the class:

If you are interested contact us by sending an e-mail to credit_union@gallup.com or call us 402-938-6800.

“How do we know a corporate hero when we see one?”

One of my corporate heroes is Arkadi Kuhlmann, founder of ING Direct, so I like to keep an eye out for mentions of ING or Kuhlmann. As I have mentioned before, I also love Harvard Business Review. So when Kuhlmann was mentioned in a HBR article I just had to share!

Where Have all the Business Heroes Gone?

Who are your corporate heroes? What have they done to earn your admiration or respect? 

 

The Best Audience In Weeks

I have been at speaking engagements all around Lincoln and Omaha over the last few weeks but none was better than the presentation today.

Today Ronny and I had the opportunity to speak to a group of 60 junior high students at the annual Gallup Kid’s Day. Our topic was of course, Financial Wellbeing but we took a refreshing approach from the usual content meant for adults.

We covered the 3 S’s and the importance of the order that the mnemonic translates to:

• Saving
• Sharing
• Spending

The kids guessed the saving and spending pieces of the 3 S’s right away. The sharing “S” was quite a bit harder to prompt the kids to guess. We also talked about saving first and foremost as well as making sure to take every dollar that you earn and decide where the money will be allocated t0 among the three options before doing anything else.

The best part was when I talked about the power of compound interest. I used a story of a girl who saved every month from the time she was 20 until she was 65. When I told the kids how much money she ended with, over 2 Million, one girl threw her pen in surprise and another boy burst out “No way! Is this for Real!?”

Guys, I had a chance to share a secret today - I had the  opportunity to spread the good news I learned way back in high school. Watching the eyes of the kids light up today when they heard about the power of compounding interest felt like I was watching them take their first steps toward financial freedom.

Albert Einstein called the compounding power of interest “The eighth wonder of the world” – I couldn’t agree more.

Check Out Our Free Member Appreciation Event!

Member Appreciation Day at Rosenblatt.

Date:  Saturday, July 24th
Time:  Tailgate open from 3:00 PM to 7:30 PM.  First pitch at 5:35 PM.
Where: Rosenblatt Stadium
Who: Omaha Royals vs New Orleans Zephyrs (double header)

Please RSVP to credit_union@gallup.com

Yes, Sometimes Fees Are For Being Naughty

Nobody likes to pay fees, especially not to the bank. After all, you are giving them your hard earned money. All they have to do is keep it safe! Right? Well, yes… but we also have to try to do more. For example, here at the credit union we are not too terribly concerned with turning huge profits. We prefer to use the money we earn to add valuable services for our membership. These services also take some money.

Traditionally we have tried to keep our fees to a minimum and attempt to make money the old fashioned way – through interest rate spread. This is the difference between what we pay you on your deposit and what we earn on a loan. If you want to know more about that, read a post I wrote last year called “The Fundamental Benefits of a Credit Union”. The truth is most financial institutions don’t operate this way any more.

Banking dates back to the Roman Empire and for the first time in its history, most banks do not make their money with the traditional interest rate spread model. They now make their profit through fees.

As I have said before, I hate fees - most of the fees being charged are useless and downright dirty.

There are fees that have to be charged – I call these the “Naughty Fees”. Unfortunately, these fees are a necessary part of doing business. Naughty Fees include NSF fees, stop payment fees, deposit item return fees, etc.

Believe it or not, I have conversations with people almost daily explaining why we have to charge a fee for these types of things. What it comes down to is that  if you do choose to be naughty (by abusing your account) we have to give you an incentive to stop. However, we also know that sometimes mistakes happen. If our member rarely has a problem with their account we will often work with them to help get their account back on track.

We don’t just charge Naughty Fees because we like being big brother or some other wild reason. If you think in very black and white terms, when you overdraw your account, you are taking money that is not yours. You wouldn’t take a few dollars out of the cash drawer at McDonalds would you?  - No  way!

Friends, if you are paying NSF fees, please change your ways.

Not only for the moral reasons I mentioned above but more so because it is literally making you poor. The credit union recently conducted an audit of the fees we have collected and we found that some folks are paying in excess of $2000 per year in Naughty Fees! That takes my breath away! That’s an extreme example, but think about it, if your salary was $40,000 last year now it is only $38,000 – for no reason other that bad financial management.

If you need to get back on the path to financial independence, sometimes it takes some help. If you are ready to change, we are ready to help. Please contact us and we will sit down with you to put together a plan.

Go Check Out This Book!

Dr. Thomas J Stanley wrote a book back in 1996 called The Millionaire Next Door - an earth shattering research study on America’s wealthy. Stanley performs an intriguing analysis on how wealth is built in this country – not with inheritance or advanced degrees. If you like this blog, you have got to read this book!

Dr. Stanley authored a new book last year called “Stop Acting Rich: And Start Living like a Real Millionaire”. It is a fantastic read that describes keeping up with the Joneses like you would not believe. I think Stanley’s writing is extremely refreshing, perhaps because rather than simply sharing his opinion he uses research to deliver the message.

Check out this review from The Washington Post and go pick up a copy tonight!

There Was a Moment When I Thought This Business Ruined My Life – Among Other Things

I have an acquaintance who is living the high life in a big west-coast city. Recently they were forced to make a decision that nearly all of us face at one point or another. The 2008 vehicle they were driving no longer cut it, obviously they needed to up-grade. After all, what do you have if you don’t have appearances? <I hope you are catching my sarcasm, I’m  lay’n it on pretty thick>

Oh decisions, decisions! Will it be the Range Rover? The BMW, the Mercedes, what about an Audi? Ultimately, after long debate, they ended up with the Mercedes.

I have to be honest, I heard about this and I was more than a little jealous.

After all, I am a red blooded man and I happen to have an affinity for automobiles! I started asking myself that age old question that everyone has asked once or twice. I said, “I work hard, how is it that they can get a sweet new car and I can’t?!” It’s not that I didn’t know the answer. The truth is, I know exactly how they can afford it. It’s called a lease.

At this point I was fairly certain that being in the business of wealth coaching had pretty much sucked all the potential happiness out of my life. I can’t go sign a lease because I know it is one of the worst financial mistakes a young person can make!

About the only time a person should ever lease a vehicle is if they can roll up hundred dollar bills and throw them out the window of their leased car while speeding down the highway.

I was feeling bad because I couldn’t use ignorance as an excuse to make bad financial decisions any more. I couldn’t live “the high life” with cool leased toys… I have to own the toys now. I think most of you know why leasing is raw deal. However, If you want to see the math on why a lease is less than wise, let me know. As always, I would be more than happy to break it down for you.

After I stopped wallowing in self pity, the clouds cleared and I realized:

HEY! Knowledge is power! 

Who am I kidding, I have a great life and very nice stuff. Do I have a brand new Mercedes? No but better yet, I get to spread the good news about finding peace with your finances and improving your financial Wellbeing.

If you guys are interested in increasing your knowledge I would love to help. We going to start offering some How-To classes and Financial Peace University here at the office later this summer. I would love to hear from you if you are interested in getting involved in something like this. Let me know!

What if I do Nothing?

I was recently turned on to entrepreneur/writer/speaker Jonathan Fields. He is a former private equity attorney turned lifestyle-entrepreneur and wrote a book in 2009 called Career Renegade: How to Make a Great Living Doing What You Love. Check out his website and read his blog at www.JonathanFields.com.

Obviously Jonathan Fields focuses on entrepreneurship, which I think is cool – but you might be asking yourself what does that have to do with personal finance? A lot actually! You are all entrepreneurs with your finances, think of your financial situation as a small business!

Fields spoke last week at TEDx - Carnegie Mellon University, on turning fear into fuel. Pay close attention to the section where he answers the question “What if I do nothing?” Here is the video of his presentation:

What if you doing nothing about your financial future? It will be a disaster! I love Fields’ quote: “Life applies friction, there is no sideways; there is up and down.”

Project out what life will be like if you do nothing with your finances for 5, 10, and 15 years. Is that scary? You bet it is!

Don’t let your fear of failure, or even your fear of success paralyze you from getting started. Take the first step and start making changes with your personal finances!

Developing Future Leaders

Stew Friedman of the Wharton School posted a fantastic article this morning on the Harvard Business Review blog:

How Are You Developing Future Leaders?

Go check it out!

Learning Algebra

“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.”

-Leo Tolstoy

I recently started reading “The Big Short” by Michael Lewis, a book about the collapse of the American economy in 2008. The quote above is found on the first page. It really blew me away, it is so simple yet terribly profound.

I remember my first day of Algebra in 7th grade. Mr. Nylin, who still teaches at my old school, melted my mind with ideas of polynomial functions and quadratic equations. Before Algebra all I knew was arithmetic, I had mastered the multiplication tables and I could do long division with the best of them. All these new rules were completely foreign to me! My mind was moldable and I could accept the information that was being taught because I had no prior understanding of what was going on.

It’s too bad that they don’t start teaching personal financial management in 7th grade.

I got my first job in 8th grade, I was a bagger at the local grocery store. It was the first time I had my own money – it wasn’t much, but it was mine. This was where my first experience managing money started.

They didn’t offer a class at school on how to set up a budget, no one told me why I should save some of the money that I earned, and I didn’t have the internet to get some tips on improving my financial position. Until I was in college, everything I knew about money, I learned from making my own mistakes and watching other people make mistakes.

I get to chat with people everyday about their financial decisions. It has become clear that, in general, when someone has some experience managing their finances they become set in their ways - even when a change could serve them well. It is a challenge to convince people that it would be a good idea to change the way they have been managing their money… for the last 20 years.

It is important to know what you know and know that you know it - but the world wasn’t flat.

Be moldable, when someone is presenting you with some new information that contradicts what you have thought or done for the last 20 years, give it a chance. At a minimum you will be able to get a better understanding on your current process and who knows, maybe you will be able to improve your current situation! 

We Want Your Feedback!

People have been knocking down the door to have Gallup FCU come present about Financial Wellbeing. It’s awesome! If your group would like us to come present about Financial Wellbeing feel free to shoot me an email.

Wellbeing is about more than saving a few dollars and having an adequate insurance plan. It’s about finding peace in your financial situation and using your money to create memories.

We have had the opportunity to chat with a couple of different groups over the last week. From our conversations it has become pretty clear that you guys understand the basics of what Financial Wellbeing is all about. What you have asked for, are more solutions to help you get there.

I would love your input, try answering these questions:

• What do you expect from a financial institution that is improving your Wellbeing?
• What is Gallup FCU doing that helps you improve your Wellbeing?
• What could Gallup FCU do better to improve your Wellbeing?
• What can you be doing to improve your own Financial Wellbeing?

Think about these questions and leave a comment!

A Second Career – At Age 50

I was reading an article this week at www.Inc.com by John Brant called “How I Did It: Bob Moore, Bob’s Red Mill” and it really made me think. Bob Moore recently retired from his second career at 81. The kicker is, his second career was as the owner of a start up that generates $70 million a year in revenue. That’s awesome!

So often when we think about retirement we tend to picture quitting that ball-in-chain job at 65 and cruising the open road in a magnificent 40-foot  RV… for the next 20 to 30 years? I don’t know about you, but I don’t think that driving around the country or any leisure activity for that matter, would be enough to fill my time for  all of retirement.

Is it really appropriate to plan for retirement as if you were never going to work another day in your life? I don’t think so, at least not for me. Bob Moore’s ideal retirement was about being an entrepreneur and grow a business that he loves until he reached a point where he could give it away. 

What will you do in retirement? The funny thing is, we spend all our adult lives saving and dreaming about getting there but once it finally arrives often people don’t know what to do! For most of you retirement could be 15 or more years away but that doesn’t mean you can’t or shouldn’t start thinking about what will fill your time. Try answering these questions:

In retirement will your life be the same or very different?

Will you live where you are now or far, far away?

What will consume your time work or leisure?

Will your days be scheduled or spontaneous?

Will you prefer to be home or traveling?

To have success at saving for the future you must have an end point. If you don’t know what you are going to spend the money on, how will you know if you are saving enough? Take an hour and read about Bob and how he did it, and then dream about how you will do it.

The 15 Year Mortgage – Why It Makes Sense

I think most people know that a 15 year mortgage is a good deal. But I think a lot of folks don’t know how great of a deal it really is. I think there are two good reasons why you should consider a 15 year instead of a 30 year mortgage.

First, the math works - let me break it out for you:

The 30 year $150,000 mortgage at 6.00%:

Monthly payments of principal and interest = $899.86

Total interest cost over the life of the loan = $173,944.96

The 15 year $150,000 mortgage at 6.00%:

Monthly payments of principal and interest = $1266.31

Total interest cost over the life of the loan = $77,924.92

As you can see, the 15 year mortgage saves the borrower almost $100,000 in interest cost over the life of the loan! This example is even a little unrealistic – a 15 year mortgage will have a lower interest rate than a 30 year mortgage, which saves even more money! What is the extra cost to you? It only requires approximately $350 extra a month.

The second reason I like the 15 year mortgage is simple. How cool would it be to own your home free and clear in just a few short years? From that point on, all you have to pay are the taxes and insurance! Wow, I don’t know about you, but that gets me all kinds of excited.

So after you decide that this is the route you want to go, the natural question is: how much house should you buy? Well there is a simple rule of thumb we use in the industry. Your total housing expense (principle, interest, taxes and insurance) should not exceed more than 25% of your monthly take home pay. So here are two calculations to help you determine what that is for you.

If your household makes $70,000 annually and your monthly take-home pay is about $4650 (assuming a 20% tax rate) then:

$4650 x .25 = $1,162.50 total monthly housing expense

Conversely, if you are looking at a house and the monthly estimated costs of the home on a 15 year mortgage total $1600 per month. Your monthly take home pay would need to be:

$1600/.25 = $6400 total monthly take home pay

This is a very conservative way to determine how much house is affordable for you. Some other people might say that this is too conservative, but in my opinion I would rather be in a house I can afford with a few extra dollars to spare than the alternative. Once you start looking at mortgages and the costs associated with closing on a property it might get confusing. If you have any questions give us a call, we would be happy to help.

Want to be a Star? 10,000 Hours of Practice

I hope you read the Harvard  Business Review. It is fantastic.

Back in November 2009 Peter Bregman, CEO of Bregman Partners, Inc. published a guest post entitled “How Not Achieving Something Is the Key to Achieving It”. Bergman makes the age old argument that practice makes perfect. He references the Book Outliers by Malcolm Gladwell  that gives some really great insight on practice.

“Gladwell discusses research done at the Berlin Academy of Music. Researchers divided violin students into three categories: the stars, the good performers, and the ones who would become teachers but not performers. It turns out that the number one predictor of which category a violinist fell in was that number of hours of practice.

The future teachers had practiced 4,000 hours in their lifetime. The good performers, 8,000 hours. And those who were categorized as stars? Every single one of them had practiced at least 10,000 hours.

And here’s the compelling part: There wasn’t a single violinist who had practiced 10,000 hours who wasn’t a star. In other words, 10,000 hours of practice guaranteed you’d be a star violinist. According to Gladwell, 10,000 hours of practice is the magic number to become the best at anything.”

This excerpt really made me think. How much time do I give to practicing personal financial success? Better yet, which category do I want to be in? A teacher, good performer, or a star? Bergman states that he believes that anyone can do anything as long as three conditions exist:

1. You want to achieve it

2. You believe you can achieve it

3. You enjoy trying to achieve it

I agree with Bergman when I say that by far, the most important condition is the third.  You want to be debt free, you believe you can achieve freedom from debt – but unless you enjoy trying to get there, the brutal truth is that you probably won’ t.

To be successful at anything you have got to put in the time. You can want and believe with all your might, but until you try you will not have the opportunity to succeed – that includes achieving your financial dreams.

“Keeping Up With The Proverbial ‘Joneses’”

One of the really cool things that we get to be a part of here at Gallup is new science in the making. The latest and greatest research going on in the building is on Wellbeing.

A new book from Gallup Press called “Well Being: The Five  Essential Elements” by Tom Rath and Jim Harter will be released on May 4, 2010. I strongly recommend you go out and pick up a copy or pre-order it.

One of the five elements covered in the book is Financial Wellbeing - which just so happens to be up my alley. Here is an excerpt from the book:

“For years, traditional economists have assumed that people make rational decisions that are in their best interests. But the relatively new discipline of behavioral economics is proving otherwise. Consider the following two scenarios. and assuming the same purchasing power in both, which one would you choose?

A. An annual income of $50,000, while the people around you earn $25,000 a year.

B. An annual income of $100,000, while the people around you earn $200,000 a year.

Using a classic economic model, everyone should choose an income of $100,000 over $50,000. Instead, nearly half the people presented with these options pick the lower salary of $50,000 a year. They choose to make half the total income as long as it is double the income of their peers. It seems that the amount of money we make or the size of our home is less relevant than how they compare to others’ income and possessions. This plays out in the decisions we make every day, and that poses a real dilemma.”

Wow, that puts keeping up with the “Joneses” in an whole new light. Comparing yourself to the neighbors isn’t new by any means - in fact I would say that it’s a tail as old as time, biblical even! Cain and Abel for example, Cain kills Abel because he wants what Abel has.

Why is it that we are willing to make economic decisions that do not maximize our potential benefit? Why on earth would you take $50,000 a year when you could have $100,000?! That is absurd people!

Ok I get it, some of us are competitive by nature and beating your  neighbor with the latest 3-D television makes you feel good about yourself. But what if every time you spend a dollar, you started asking yourself: “What is this doing for my personal Wellbeing?” I think if you were to sit back and think about the purchases you made last month, you might start to become disgusted by how much money you are throwing away on “stuff”.

For my family, “stuff” is definitely fast food.  When I looked at our spending last month, I just shook my head in disgust. Did I add any memorable moments or improve my Wellbeing by stopping at Taco Bell 5 times last month… I don’t think so. I might have even made my physical Wellbeing worse!

I don’t think that improving your financial Wellbeing is about becoming a minimalist or taking a vow of poverty. It’s about using your resources in a way that creates stability and value in your personal situation. You can keep up with the “Joneses” for a lifetime and not ever improve your Wellbeing.

This is good stuff, more later.

Free Tools For Your Success: Mint.com

Last week I mentioned a couple of my favorite free on-line resources: Mint.com and Wesabe.com. After I posted, several of you asked me about how these work and what is so cool about them. So I’ll tell you a little about my experience with Mint.

At it’s core, Mint.com is an account aggregator. Basically that means that the Mint site pulls in the information from all of your accounts, that you give it access to. But the coolness doesn’t stop there, some intelligence is built into the site that automatically categorizes your transactions. Let’s say that you go to Starbucks twice a week for a latte – Mint is smart enough to recognize when you swipe your debit card for the purchase and it will automatically categorize the transaction as a “Coffee Shop” expenditure. Obviously some transactions won’t be recognized by Mint and you have to manually categorize them but it is surprisingly accurate.

This categorizing feature is really cool for two reasons. First, you can input your monthly budget into the site and then compare your actual spending to your budget. Since Mint catches most of the transactions with the auto categorization there is really not much work for you. Second, the site automatically generates money saving tips based on your spending and saving habits. If you carry a credit card balance it will give you ideas for ways to pay down your balance and save some money.

So you are probably asking yourself: “This site sounds sweet! How do they offer such a cool product for free?” Well, Mint also offers information from for-profit financial institutions like banks about their products example: high yield savings accounts and investment services. So essentially Mint.com keeps the lights on by selling advertising.

Some of you may have tried to use Mint in the past but found that it did not pull in your information from Gallup FCU, I am pleased to announce that we are now compatible with Mint.com! So try it out and let me know what you think!

Know What it Costs

I have been on a kick lately to encourage all of you to really understand what you are doing with your money. Where are you spending your hard earned dollars? What is affordable given your current income situation? Are you saving enough? etc.

Here are two great web sites you should check out that can help you have a better understanding of where your money is going:

Mint.com and Wesabe.com – The best part is it’s FREE (which also happens to be my favorite price)!

True story:

Like any good finance guy I personally started a Roth IRA as soon as I had earned income. I eagerly plopped down my hard earned money and took advice from a guy who I thought was an expert. Looking back I now realize that several “Not Cool” things took place and I understand that I was taken for a ride.

“Not Cool” Event #1: The advisor told me that I was investing in an international mutual fund. I really wanted to be investing in an international fund and I specifically wanted to be exposed to the asian markets. The reality was that he sold me a Large Cap Blend fund that has less than 15% in the international market – nice. I am a young man and I have a relatively aggressive investment profile so it makes me especially annoyed to now know that the fund he sold me also has nearly 6% in cash and fixed income! This was a completely inappropriate pick for me. 

“Not Cool” Event #2: The advisor sold me the most fee-heavy class of shares possible. For a long term investor, aka every young person who opens a Roth IRA such as myself, the suitable mutual fund classes are “A” shares and “B” shares. “B” shares are by far the best choice for a long term holder but are often unavailable. Really in no-event is the “C” share class appropriate for a retirement investor, unless of course the guy who is selling the product wants to make more money. Guess what? This advisor sold me “C” shares, the average annual cost of my investment: 2.43% – Outrageous!

“Not Cool” Event #3: Since we met for the very first time several years ago, this “advisor” has contacted me 1 time. So much for being an advisor.

My take away: I clearly did not understand what I was doing with my money.

I now have some more knowledge, experience and understanding of the investment world and can evaluate the quality of securities. The problem is, I already made the mistake back when I didn’t understand!

My experience is just one of what I am sure many of you have had dealing with less than scrupulous financial “professionals”. The guy that I worked with not only blew it with me but now has the pleasure of giving me content to blog about my terrible experience.

This is just one example of the type of stuff we are trying to help you avoid. I don’t think that I can say it enough: you have to understand what you are doing with your money! We are here to help fill in the gaps and give you insight into the decisions you are about to make. Stop by, give me a call or shoot us an email. 

The Unofficial Start of Spring: April Fool’s Day

This was Ronny’s office this morning courtesy of yours truly. Happy April Fool’s day!

For me, April Fool’s day is the unofficial start of spring. Temperatures are in the 70’s and the days are longer, only a few more weeks before summer! It’s about time for some spring cleaning but not just around the house, it’s time for spring cleaning of your personal finances too.

Ron Lieber recently published and article in the “Your Money” section of the New York Times online. His article includes a great checklist of things you should be doing to “tune up” your personal finances this spring.

The checklist includes topics such as Investments and Retirement, Loans, Credit, Planning, Insurance and Consumer issues. This is such a powerful tool that covers areas of life that you might overlook otherwise. Take an hour this weekend to work through the list, it will give you some really nice pointers for change and hopefully energize you to get back on the path to financial freedom.

Call me this week if you want to set up a time to talk about your financial checklist.

The 5 Policies You Shouldn’t be Caught Without

I have always been one of those advisors who is a reserved skeptic when it comes to insurance.

I am currently taking a few classes working towards the Certified Financial Planner designation and one of them is a risk management course. I went into the course excited to learn more so I could really make a great debate against insurance products… isn’t it funny how those are the famous last words in so many arguments?

I should prefaces this article by saying that I do not sell insurance, nor do I anticipate selling insurance any time soon. So I am really not trying to convince any of you that you should call me up to buy some. I do have a couple friends who would be  more than happy to help you out though!

When it comes to insurance I think the over arching motto to remember when thinking about a policy is: never buy something you do not understand. With that being said, here is my list of insurance policies that you should never be without.

Renters/Homeowners Insurance – You cannot stay in good graces with your mortgage company if you don’t have a homeowners policy but many renters think that they can get away without it. Don’t be silly, a renters policy costs about $20 a month and is well worth it. If your building burns down, if you are burglarized or if someone is hurt in your space you will wish you had this.

Automobile Insurance – I think every state requires that you carry insurance on your vehicle to register it. Most people don’t understand how much coverage they have or need. Review your policy to make sure you have enough coverage, the last thing you want is to be in a terrible accident and not have enough insurance.

Health Insurance – If you are young and healthy, good for you. But you still need some form of health insurance, even if it is just  a catastrophe policy. The leading cause of bankruptcy in this country is due to medical bills. Don’t be a statistic, get some health insurance – oh by the way, you will be required to have it in 4 years any way thanks to the new health care legislation.

Disability Insurance – The odds are that you will not die prematurely, but the odds are fairly high that you will either be temporarily or permanently disabled. In terms of the impact on your finances disability is far worse than death. Loss of earning power and increased medical expenses will cripple your assets. This leaves your family with the responsibility to pick up the slack. You need this policy, check with your employer benefits program, often they have an affordable policy available.

Life Insurance – There are a bunch of different types of life insurance policies out there. Most people are fine and dandy with a term life policy. Remember what you are insuring against here, premature death. You want to have a policy that covers your present debt obligations such as your mortgage and covers your future earning potential. Whole life policies are where insurance agents get a bad wrap, most people do not need these types of policies but they are pretty profitable for the agent. Remember, only buy what you understand!

The definition of insurance is: “a financial arrangement that redistributes the costs of unexpected losses.” It’s not an investment guys! If you meet with an insurance agent and they try to sell you a policy under the pretense that you are buying an investment – run away as fast as you can.

How Much Do I Need to Retire?

A friend of mine forwarded me a sobering article this week called “$1 Million Doesn’t Cut It for Retirement” by Joe Mont. I would urge you to go out and read it this weekend but the basis of the article is this: Conventional thought for the last decade or  so was that you need $1 million to retire comfortably, the new perspective is that you will need double that amount.

Does that notion melt your mind?! DOUBLE!

I think  a lot of times we don’t fully grasp how much 1 million is. So to put it in perspective, if you had $1,000,000 today in a savings account earning 2% you could spend $1000 every day for the next two and a half  years or you could spend $10,000 a month for more than 14 years before you ran out of money. That’s a lot of money!

But according to the article “…Seniors are the only generation that may come close to needing only $1 million. Forty-four percent of advisers said $500,000 to $1.5 million is sufficient for average families in that age bracket.”

So how much do you need? Well there is this little factor called inflation that you have to take into account. Inflation is the depreciation of your purchasing power over time. For example, if a pen costs $1 today and next year that same pen costs $1.03 then there was 3% inflation over the year. The average inflation rate over the last 100 years has been about 3%.

So how much do you need? Well the answer is… it depends. Because of inflation the younger you are the more you will need. Joe Mont’s article suggests that Generation Y (ages 18 to 26) needs to save at least $2 million to $3 million and  Generation X (ages 27 to 42) should save at least $2 million.

What can you do to reach the goal and have enough for retirement? Well, no matter how much time you have whether it is 2 years or 20 years it is never too late to start saving. As little as $100 per month will help you reach your goal. If you saved just $100 per month for the next 20 years and earned an average of 8% on your investment your balance would end up at a little less than $100,000. There is a start!

Normal

I started working as a teller at a local bank during the last few years of college. I remember when I first started doing transactions for customers and seeing the  balances in their checking account. It was eye popping for me to see the range in account sizes. This was where I first realized that I didn’t want to be “normal” any more, I didn’t want to drain my checking account to $0.15 every two weeks. “Normal” is in quotes because it is all too normal for this to happen.

We recently had an operations manager contact us looking for ways to help improve the financial education and in turn the financial positions of his team members. He was looking for a way to quickly infiltrate his large team with impactful information and strategies that will help them change their habits. He doesn’t want his staff to be normal any more!

When you go to do missions work they say that if the people are hungry they can only hear the growl of their stomach and not the message you are bringing, so you need to feed them. The manager that contacted us knows that if his team members are struggling with their finances, all they can think about is the next paycheck. These employees are bound by their needs and are not free to focus on the work at hand.

So how do we show the world that you do not have to live paycheck to paycheck? How do we communicate that their quality of life is being depleted by draining their checking account?

“Not until the pain of the same is greater than the pain of change will you embrace change.” Dave Ramsey

For me the pain of the same was living life as a broke college student, always worried that if my truck broke down I would be in serious trouble. I knew that I didn’t want to add my wife to this precarious situation and I wanted more for the future of our new family.  But the only real change happened when I realized that I could no longer be “normal”. Normal is just not good enough, normal is being one missed paycheck away from disaster. Normal is having credit card debt, leased cars and a McMansion in the suburbs.

As with most things worth doing, the steps to break the cycle are clear but difficult:

1. Put together an emergency fund.

2. Pay off your credit cards, car loans, student loans and any other type of consumer debt.

3. Build up your emergency fund to 3 – 6 months worth of expenses.

4. Save 15% for retirement.

If you do these 4 things then you wont be normal any more.

Patience is More Than a Virtue

Growing up my dad would always break out into song when my sister or I would start to whine. “Have patience, have patience, don’t be in such a hurry….” you might have heard the same song at some point in your life. He would always follow the song with a statement like “patience is a virtue”.

I’m here to tell you that when it comes to wealth, patience is more than just a virtue - it is solid gold.

In my post last week Curiosity Made the Rich Man, I wrote about some people that I have worked with and what made them successful in terms of the accumulation of financial assets. I narrowed down the traits that these clients had in common and I was able to identify two core values: Curiosity and Patience.

As important as curiosity is when it comes to money, patience is either equally important or maybe even more important.

The major finance reason to maintain high levels of patience is because of the cyclical nature of markets. We all know that the business environment has its periods of both boom and bust. But the real question is why does it matter to have patience? Carl Richards from www.thinkingcarl.com describes the need for patience due to the “Behavior Gap”. Check out what Carl has to say about investing:

“During the last few years, you may have noticed that your returns fell short of the returns you kept reading and hearing about in the media. If so, you’re not alone. A fund’s reported return is only part of the picture. The other half, well, it’s not always pretty, and you rarely, if ever, hear it mentioned. Driven by investor behavior, the investor rate of return doesn’t always match a portfolio’s gains or losses.

Let me explain.
Your potential to earn the fund’s published return rate is based on two criteria:
1. You bought AND held the fund for the entire time.
2. You didn’t add or withdraw any money.

Sounds easy, right? The reality? Few people actually invest this way. Instead, investors chase past performance, buying funds too late (after they’ve already peaked) or selling funds too early (before they turn around).”

I love this explanation. Because investors are driven by human emotion they tend to make decisions at precisely the wrong time - hence Carl’s phrase the “Behavior Gap.” Without massive amounts of patience and self control the average person just cannot wait out losses and take advantage of gains.

Have you ever met someone who wanted something so badly that they end up becoming reckless and end up flailing around like a two year old at the grocery store who wants a toy? It’s not very productive is it?

For most of my life I was a long distance endurance swimmer. Endurance sports are different than other sports most people are familiar with, it’s all about technique, efficiency and - yep you guessed it patience.

When you watch a really talented endurance athlete it looks like they are barely trying for most of the race. Think of Sven Kramer from this year’s winter Olympics. This Dutch long track speed skating phenomenon is so efficient that it looks as though he is barely trying while he sets world records.

I can speak from experience that in reality it is all about self control, establishing sustainable pace and finishing strong.

It’s funny how easily sports analogies translate to personal finance, but it is absolutely accurate. Guys, I am here to tell you that the most financially successful people I have worked with did not get there by day trading, winning the lottery or inheritance. These folks made a decision early on to be financially independent, then they set the course and followed the path no matter what was going on around them. Oh and it helped that they were a little curious about the tools that were helping them get there.

Curiosity Made the Rich Man

I often speak at different team meetings all across the city and have even been known to get outside of our state on occasion. Everyone knows that when you start to put together a presentation one of the most important things to do is think about your audience. You really want to tailor your topic to the people who you are engaging. Time after time, I have found the common denominator that almost everyone has when it comes to money.

Most people want to here about wealth and how to build it.

So a couple years ago I started thinking about the people I have worked with and what made them successful. I found that I should really break out success in two ways:

1.) Satisfaction – I have written a few times about this topic in blogs such as Find Satisfaction in Your Means and News Flash: Your Hero Might Let You Down. The main point being that money will only magnify your situation. If you are happy and satisfied in your life with modest means then adding significant wealth will only expand your satisfaction level.

2.) Accumulation of significant financial assets – Wealth is more than just money but for the purpose of this study, looking at financial assets helps to narrow it down.

So I made a list of the people that I have spent time with that embody both of my success criteria. Believe it or not the list is rather short - only about a dozen names or so.

And then I started to think about what else they had in common.

Outside of the obvious factors such as good annual income, effective savings habits, a little luck etc. I really came down to 2 commonalities that these individuals shared.

Curiosity & Patience

Let’s start by looking at curiosity. When talking about investing Warren Buffet once said “We try to stick with businesses we believe we understand.” I’m sure most of you have heard that quote, but how many of us truly take it to heart when thinking about our own personal investing? Mutual funds, ETF’s, index funds, stocks, bonds and everything in between – there is a lot to get lost in. The few that made my list have a natural curiosity that makes them very dangerous. These folks are constantly asking for more information. They invest in their own companies because they believe in their own abilities and they understand the business their in. They make investments in their education because they believe they can generate more return with more knowledge. They buy ownership in other companies because they understand how they make money and can project future value. And maybe most importantly, when they do not understand something they are not afraid to ask for explanation.

I recently heard a very tenured asset manager from a major local investment firm, speak to a group of financial professionals. One of his quotes especially struck me. He said, “You can either humble yourself now and take the time to ask questions or you can be humbled later when you fail.” That’s pretty blunt but extremely powerful if you are willing to listen.

More on Patience later….

CPA or Software

People look at me funny when I say that this is my favorite time of year. I love tax time. It’s true, I am a nerd - I think my love for it has to do with the planning piece. That‘s neither here nor there. During this time of year, many people ask me which I think is better, tax software bought off the shelf or a professional CPA.

I have to disclose my bias here, I am an accountant by training and most of my college buddies are practicing in firms across the city. However, I do see value on the other side of the fence as well. Let me break it down for you.

Software

I must say, the idea to create tax software was one of the better uses of technology over the past 20 years. What did we do before the question and answer personal income tax format!? At the formation of our tax code, the income tax system and the 1040 specifically, was intended to be simple enough for an 8th grader to complete. Whether or not the government succeeded at that level is… debatable. Truth be told, the software out there is a fine solution for those of you who have a relatively straight forward tax situation. Even if you had a scenario such as the first time home buyer credit take place last year, the software is robust enough to easily guide you through the maze. Most software now even offer a storage function that saves your past returns in electronic format for up to 3 years for no extra cost. (**side note: please also print out a copy of your return and save it for at least 10 years**) This is nice and can provide a valuable reference point when doing your taxes year to year assuming that you completed your return correctly in the past.

Which leads me to my critic of the tax software world. Ultimately the software is only as good as the user answering the questions. Let’s face it, most people do not have a clear understanding of the forms they are completing and would have no idea if a specific schedule were missing. At the end of the day this is the biggest and most looming issue out there, so much so that any other issues I might have had are irrelevant.

Certified Public Accountant (CPA)

I am only going to talk about CPA’s here, there are companies out there that offer tax preparation by folks who are not CPA’s, I would just as soon buy the tax software and attempt it myself. A CPA is a professional who has completed rigorous collegiate education, has passed an even more rigorous series of exams and has logged significant work experience. Needless to say, using a CPA will probably cost you a few more bucks than purchasing tax software but you get what you pay for.

The biggest plus that comes from working with a CPA, in my opinion, is not only the fact that you have a seasoned professional completing your forms; but it is that they actually sign the return as the preparer. If your return is audited by the IRS, the CPA that signed your form can act as support when generating responses and can help answer your questions about what is being requested.

For many people the cost of working with a CPA might not make sense until their financial situation becomes increasingly complicated. Every person’s financial scenario is completely different, choosing between tax software or a public accountant is not only a dollars and cents choice but also a personal preference. Do what feels comfortable.

Similar Name but Completely Different

Many times people confuse Gallup Federal Credit Union with Gallup Inc. and I would like to set the record straight.

Let me first say that Gallup Inc. is our sponsor corporation and we absolutely love and appreciate them for all the support and encouragement they provide to us. Yes, our office does reside in their building and yes we have access to all of the resources that a normal Gallup employee does. It is truly a relationship that we will never even begin to take for granted, they are very good to us.

It is important, however, to clearly define what type of influence Gallup has over the credit union and our member information. Gallup Federal Credit Union is a federally insured credit union that is regulated by the NCUA (our version of the FDIC) and is held to the same privacy laws that  all financial institutions abide by. Our member records are held with the highest privacy standards and our books are separate and independent from all sources. In a word, the access that Gallup Inc. has to private member information is none. 

People have also, on occasion, expressed concern to us regarding whether or not the credit union is influenced by Gallup Inc. when making loan decisions. Let me tell you, our loans are meticulously inspected by our own internal audit committee and by independent auditors as well as our federal governing body, the NCUA. We are required to document all reasons for both approval and denial. If there were ever any indication of discrimination based on any factor, including relationship with an outside entity, the penalties and fines for such a violation would be devastating.

The real bottom line is that although we do share a similar name and location these two entities, Gallup Inc. and Gallup FCU, are independent of each other. Because of heavy regulation there cannot be and there is no information  sharing regarding private member data. Gallup Inc. does not have access to your loan files, deposit account balances, transaction history or even the fact that you are a member. All of this information is extremely private.

One of our most important assets is our reputation as a financial institution. In fact, if we were to ever tarnish that reputation by sharing inappropriate member information, our business could be compromised beyond repair. We realize that the appearance of independence may be blurry at times because most of you see us every day but we want you to know that your information is protected.

If you ever have a concern or question regarding your privacy please do not hesitate to come talk with us about it. The last thing we would ever want is for you to hesitate to use our services because of a fear that your information might be used inappropriately.