Category Archives: Financial Literacy

How Do I Become Financially Independent?

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You are financially independent when your property generates enough income for you to have leftover money at the end of each month. How long can you keep up your standard of living without earning another paycheck?  Achieving this goal takes determination, stamina and a little bit of luck.

Make it your priority

Just like any goal, if you want to become financial independent, you need to keep this goal top of mind. Look at every financial decision in terms of how it will contribute to your goal. Financial decisions are not just whether to go on vacation. These decisions include whether to buy premium or store brand ice cream.

Take the time to learn all you can about growing your money.  This is not just investing. It includes your college major, your choice of careers and your choice of where to live.

If you are not self-employed, work where your employer will match your retirement contributions. Never turn down free money. Know what it takes to keep your job. If you don’t have a job, look at every possibility to get gainful employment. Mow lawns if you have to. Your luck will turn around if you never give up and you keep focused on your goal.

Marry the right person. I am not talking about marrying a rich person. I am talking about marrying someone who will give you the kind of support that helps you attain your financial goals. An unhappy marriage drains you both emotionally and financially.

Cut costs everywhere

Along with making it your priority, constantly look for ways to spend less. Can you get along without a car? Can you car pool? Can you live in less expensive housing? Can you take your lunch to work? Can you consistently choose the cheapest item on the menu?  You need to do these things if you intend to achieve the goal of financial independence.

Save and do not touch that savings

Put 20% of your income into savings. This is the part you do not touch. You will additionally need an emergency fund for things like illness, car repairs and appliance repairs. Be very serious about never ever touching this savings. While you are building up your savings, everything you can about how to invest and how to keep your taxes down to a minimum. Then, when you have reached a point where you have enough to take advantage of investment opportunities, you will be ready to invest and grow your money so that it generates enough income that you will have extra money leftover at the end of each month.

 

Most Neglected Divorce Homework

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I help Houston divorcing couples find mutually agreeable settlements. Frequently, part of that settlement is finding suitable health insurance for the unemployed spouse.

I give my clients homework. Get this document, copy these statements and so forth. The most neglected homework assignment is to obtain health insurance quotes. Perhaps it is a scary thing to do. I give them a referral to a great health insurance agent, but still, they procrastinate.

Many can get COBRA through their spouse’s employer. But it is important to check out all your options. COBRA coverage is usually more expensive than health coverage for employees, because the employer typically pays part of the premium for the employees. If you are the divorced spouse who is covered with COBRA, you are going to pay the entire premium without the benefit of an employer subsidy.

As a former spouse, you  can elect to continue the COBRA coverage for as long as 36 months. Check with your spouse’s Human Resources department for the exact length of time. In Texas, your coverage might be only for 18 months. The plan administrator for the health plan has about 14 days to notify the person of their right to get the COBRA coverage. The person needing COBRA coverage must contact the plan administrator within 60 days of the divorce or legal separation.

Most importantly, get your health insurance options straight early in the divorce so you can make an informed decision and negotiate for the premium expenses during the property settlement discussions.

Six Steps to Post-Divorce Health Insurance Coverage

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Many of my clients in Houston and College Station are facing a health insurance answer during their divorce. They are unemployed and rely on their soon-to-be-ex spouse for health insurance coverage. What to do if you are in that situation?

1. Find out if COBRA coverage is available under your spouse’s employer.

2. In Texas, there are two kinds of COBRA, federal and state. The former offers 36 months of coverage after divorce while the latter offers 18 months. Find out which one is applicable to your situation.

3. Get a quote on your cost of COBRA coverage from the employer.

4. Seek quotes on individual policies from an independent health insurance advisor. (If you need a referral in Houston, send me an email)

5. Compare the coverage and costs of the COBRA and the individual policies.

6. Be very careful with your timing when changing health insurance coverage from your current coverage to either COBRA or individual policy. Do not have even a day of lapse.

Most people want to put off this project. It seems intimidating. Break it down into these six steps. I cannot emphasize enough how important this issue is for your future financial security.

Spring Cleaning Cuts Divorce Costs

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Dividing “stuff” in a divorce costs money even if you don’t make your attorney help you get custody of the five Norwegian wooden dolls. Stuff = household items, collectibles that are not of great financial value, tools, furniture, pots and pans, etc.

In the 12 years that I have been advising Texans on the financial issues of their divorces, I have seen about three couples who have dealt with their “stuff” without incurring a dime of professional fees. These couples had physically divided their personal property prior to hiring any professionals.

Most couples aren’t that organized. Some couples spend thousands of dollars fighting over things like the five Norwegian wooden dolls. I am sure those dolls are adorable, but they could have flown to Norway and picked up five, ten, even fifteen more dolls for less than the cost of the custody fight. Instead, these couples spend time (and money) pulling me and their attorneys into the fight. I have been to meetings where the attorneys try to talk the couple into sharing or just making a compromise on “stuff.” Those meetings cost those couples thousands of dollars.

If you are like most couples, you need money for retirement or college costs or both. Many individuals in divorce are worried about mounting legal fees. Live life with less “stuff” and hold onto your money.

Six Rules for Social Security and Divorce

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If you are divorced and were married at least 10 years to your ex-spouse, you are entitled to a spousal or survivors Social Security benefits.

The following is from the 2011 AICPA CPA’s Guide to Social Security Retirement Benefits.

For ex-spouses …

  • You must have been divorced from this ex-spouse for at least 2 years before you can apply for the benefits.
  • You have not remarried before you turn age 60.
  • If you remarry before age 60, you will still qualify for the survivors benefit if your subsequent spouse dies or ends your marriage in divorce before you apply for the survivors benefit.
  • Your benefits as an ex-spouse do not change or affect on what children or new spouse (with your ex) could obtain.
  • As an ex-spouse, you can start collecting spousal benefits before the working spouse has begun taking his/her benefits.
  • If you remarry before age 60, you get to choose the better Social Security spousal benefits. You can compare your benefits under the ex-spouse rules and the current spouse rules and then pick the best.

For more information, check out the Social Security website.

 

Divorcing? Will you be able to retire?

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Four in ten Americans are at risk for not being able to maintain their lifestyle in retirement. Are one of them?

If you are contemplating anything other than a collaborative divorce, you won’t find the answer in that process. In fact, you will have more chance of being one of those four people after your divorce.

In the collaborative divorce process, you get to have a neutral CPA on your team. For less money and more expertise, your neutral CPA will quickly and effectively do the financial work. Attorneys are not quick and effective with numbers. They also don’t give financial advice. One thing your neutral CPA can do for you is analyze your chances of being one of those four Americans.

All my collaborative clients are worried about their financial future. Divorce is scary. Divorce is an unplanned large expense.  Will you be able to retire? Will your children get to go to college? Will you be able to live like you have been?

These are all questions that your neutral collaborative divorce CPA can address.

Don’t be one of the four Americans who are looking at a reduced retirement lifestyle. Get your answers now.

 

Alphabet Financial Planners #3

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In the past couple of days, I have covered some of the 210 different professional designations for financial advisers. The topic continues today.

CSFP (Chartered Senior Financial Planner) Requires minimum of 2 years experience directly or indirectly within the insurance, security or banking industry OR 2 years having been licensed within the insurance or security industry. Experience requirement is waived if you are an attorney or CPA. Three day review course and two-hour exam.

EA (Enrolled Agent) A tax professional licensed by the Federal government, who can represent a taxpayer before the IRS. Must pass a two-day exam and clear the IRS background check OR be employed by the IRS for 5 years in a position that required the application and interpretation of the Internal Revenue Code and regulations.

CWM (Certified Chartered Wealth Manager) Granted from by the American Academy of Financial Management (AAFM), which grants no less than 18 designations. According to the website no exam is required for any of the 18 designations. Let’s save some space here and I’ll just list the other 17 designations:

CAM (Chartered Certified Asset Manager)

MFP (Master Financial Planner)

AFA (Accredited Financial Analyst)

CPM (Certified Chartered Portfolio Manager)

CRA (Chartered Certified Risk Analyst)

CTEP (Chartered Trust and Estate Planner)

RFS (Registered Financial Specialist)

CMA (Chartered Market Analyst)

CCA (Chartered Compliance Analyst)

CAMC (Certified Anti-Money Laundering Consultant)

CAPA (Certified Asset Protection Analyst)

CEC (Certified E-Commerce Consultant)

MCP (Management Consultant Professional)

CTS (Certified Transfer Pricing Specialist)

MPM (Master Project Manager)

CITA (Certified International Tax Analyst)

RBA (Registered Business Analyst)

I think this is probably enough to give you an idea of how many light weight credentials are out there. You can check on the credentials of any financial advisor at FINRA. Click on “Please select a record” and you will see a drop down list of credentials. Or enter the initials in the search field. Easy peasy.

 

 

Alphabet Financial Planners #2

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Yesterday I covered a few of the 210 different professional designations for financial advisers. Here are a few more.

CLU (Chartered Life Underwriter) This is generally thought of as the highest professional designation for a life insurance agent. They must have extensive experience and courses from The American College.

ChFC (Chartered Financial Consultant) These are typically insurance agents with several years of experience. They have passed courses in financial planning from The American College and want to expand their business into other kinds of financial planning.  They may also have a CLU credential because the academic requirements are the same.

CDFA (Certified Divorce Financial Analyst) These folks have to pass an exam and take 20 hours of continuing education every two years. I have this designation. It focuses on the sub-specialty of divorce financial planning. On its own, it is not a heavy weight credential. Look for a certificate holder who is also a CPA, CFP or both.

CSA (Certified Senior Advisors) To get this, you need to pass a 150 multiple choice question exam and have some experience or training in working with seniors. According to the WSJ report, in 2007, the Society of Certified Senior Advisors “began requiring CSAs to disclose to clients that ‘the CSA designation alone does not imply expertise in financial, health or social matters,’ among other things.”

And more to come…

 

Alphabet Financial Planners #1

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There are 210 different professional designations for financial advisers. How are you supposed to know which ones are credible and which ones are lame?

Credentials help advisers make more money. Jason Zweig and Mary Pilon in a Wall Street Journal note that according to a “2007 study by the Financial Industry Regulatory Authority (Finra), 46% of older investors are more likely to accept financial guidance from someone with a professional designation – and 17% of investors would be more receptive to advice from a ‘certified adviser for senior investing,’ even though such a credential doesn’t exist.”

Here are a few of the 210 for you to think about.

CFA (Chartered Financial Analyst) Only 42% of candidates pass the three required exams after 900 hours of studying in accounting economics, ethics, finance and math. This process can take several years.

PFS (Personal Financial Specialist) and CPA (Certified Public Accountant) Every PFS holder must be a CPA. Usually you will see “CPA/PFS”. These CPAs have met education and experience requirements and have passed a comprehensive exam on financial planning. Many PFS advisers focus more on tax-efficient financial planning than just tax work.  CPAs must pass a 14-hour exam and must get 40 hours of continuing education on an annual basis.

CFP (Certified Financial Planner) These advisers must also meet education and experience requirements and pass an exam. They must get 30 hours of continuing education every two years.

RIA (Registered Investment Adviser) This is NOT a credential. It simply means that the person has registered with the either the SEC or the state securities board and has paid a registration fee.

More later…