Quiz: Do You Know the Keys to Financial Security?

The following quiz has been designed based on economic journalist Knight Kiplinger’s “8 Keys to Financial Security”, an enlightening publication with Kiplinger’s own personal financial wisdom.  The article was first introduced in 1997 in the 50th anniversary of Kiplinger Magazine, and again in both 2002 and 2008.  Along with being an economic journalist and active philanthropist, Kiplinger is the Editor in Chief of Kiplinger Washington Editors in Washington D.C.

1. Where should your money be spent or invested first?
a. Giving money to my children
b. Investing in myself
c. Paying off debts
d. Increasing my investment portfolio

ANSWER: (b) Investing in myself.  Developing and increasing your knowledge and skills through continuous education and training should be considered your most valuable asset, since this will ultimately determine your overall earning power.

2. What is one of the most important items to acquire as you move forward in life?
a. Stocks/bonds
b. A house
c. 401K
d. Insurance

ANSWER: (d) Insurance.  Prior to investing in financial assets, make sure you have enough insurance to cover the big risks in life such as serious illness, disability, or early death.  If an emergency arises, insurance will take care of it and you will not have to dip into your financial investments as much.

3. What items should you purchase using borrowing methods (credit)?
a. Everything should be purchased with credit
b. Low price, short-term items that you can pay off quickly, such as clothing, travel, and entertainment
c. High price, long-term items such as education courses or a car or home
d. You should never borrow or use credit

ANSWER: (c) High price, long-term items.  Use your borrowing methods wisely to purchase investments of lasting value, and make sure to pay off as much as possible as quickly as possible to avoid interest fees.

4. In what order should your payments take place?
a. Investments, savings, bills, credit card
b. Credit card, investments, bills, savings
c. Savings, bills, credit card, investments
d. Bills, investments, credit card, savings

ANSWER: (a) Investments, savings, bills, credit card. Trim and prioritize your spending so that you are able to pay into your mutual fund, money market, or brokerage account first so these investments can continue to grow.  Then add money to your savings account/emergency fund and pay all of your regular monthly bills.  Finish up by making a payment toward your credit card or other debts.

5.  What is the best method to investing?
a. Take big risks; the more times you swing, the more homeruns you will hit.
b. Take moderate risks; you hit some and you miss some.
c. Take a risk and swing only when you think the time is right.
d. Don’t take any risks at all; you can’t lose if you don’t play.

ANSWER: (b) Take moderate risks.  Use dollar-cost averaging to invest regularly in markets whether they seem good, bad, or indifferent, and maintain the patience to wait out the occasional bear market.

6. What should be included in your investment portfolio?
a. Strictly liquid assets, such as savings and cash accounts
b. Only safer investments like bonds and CDs
c. Only high return assets such as stocks and high-yield bonds
d. All of the above

ANSWER: (d) All of the above. Successful investors know that each asset category will perform at some point, and on the reverse, each category will also have a time of lull.  Having a diversified portfolio with all of these types of assets will ensure the best performance over the long-haul.

7. Which famous quote should be your personal money mantra?
a. “We are what we repeatedly do; excellence, then, is not an act, but a habit.” –Aristotle
b. “I’d like to live as a poor man with lots of money.” –Pablo Picasso
c. “You only live once, but if you work it right, once is enough.” –Joe E. Lewis
d. “A penny saved is a penny earned.” –Benjamin Franklin

ANSWER: (a) Aristotle said it best.  Saving money is always a good idea (Franklin), but making investments allows for growth you wouldn’t otherwise experience.  Also, you shouldn’t have to feel as if you are living in poverty (Picasso), but living beyond your means (Lewis) is not the right concept either.  Instead, get in the habit of making consistent and informed financial decisions on a daily basis, and you can lead an agreeable lifestyle while keeping your long-term goals achievable.  If you need to, look closely at your current lifestyle and budget, trim back dispensable spending, and invest and save on a regular basis.

8. How generous should you be when giving your time and money to others.
a. I should occasionally give a small amount to others
b. Giving to others should come first
c. I shouldn’t give anything to others
d. I should give what I can afford to give, when I can afford it

ANSWER: (d) I should give what I can afford to give, when I can afford it.  You own financial security is connected to the financial, physical, and spiritual health of others in your community, in our nation, and in our world.  Sharing your good fortune by donating your money, time, and talent helps to create a stronger economy and a healthier, safer world, which benefits us all in the long run.

Did Your State Pass?

  CNN Money presented an interesting article on high school personal finance education. The Center for Financial Literacy at Champlain College has reviewed all 50 states and graded them. Eleven states recieved an F, where personal finance is not a requirement for students and may not even be offered. Missouri is one of seven states to pass with an A. Missouri requires students to enroll in a minimum of one semester to learning about personal finance. It is an extremely important topic for students to learn about. Only 40% of states recieved an A or B when graded on personal finance education. To learn more about how states were graded and how other states performed, please click here. 



Avoiding college debt

College debt can add up quickly, as explained in CNNMoney's recent article, "The other reason grads are drowning in debt" by Jon Marcus.

The best way to avoid college debt? Plan in advance. There are several different ways to save for college, some of which include 529 plans, Uniform Transfer to Minor (UTMA) accounts, education savings accounts, and others. Check into all of your options, and also see which plans offer tax advantages. Talking to a professional could be extremely beneficial to make sure you receive all the benefits available.

Empower Your Teen!

KPVI News 6 (Pocatello, Idaho) recently wrote a story about the importance of discussing money with teenagers. They interviewed Dr. Brad Klontz, a financial psychologist who works with H&R Block Dollars & Sense, who suggested that parents start with five tactics:

1) Fight the urge to give advice; just listen.

2) If at first they don't succeed... let them try, try again.

3) Tell your teen to think before buying.

4) Model healthy financial behaviors your teen can follow.

5) Talk to your teen's school about efforts to reinforce financial lessons.


Click here to read the full story.

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Private schools: worth the cost?

By Robyn Davis Sekula

Here where I live in Indiana, our local school district announced four elementary schools are closing, including our school, Silver Street Elementary. My immediate reaction is dismay, followed by the natural question, "What are we going to do now?"

As I see it, a parent in this situation has three choices. They can home school, go with the new school the child is assigned to, or choose a private school. Our oldest child will be in the first grade this fall, and there are two more coming along behind her.

Whenever I don't know what to do, I do research. So, since I didn't know yet what elementary school would be ours next year, I started calling private schools and Googling private options. I discovered that all three of our children can go to a local Catholic elementary school for about $8,000 or less. That's a good price. I know it's a good education.

But I hesitate for this reason: if you start with a private school in the first grade, you're likely in it for the long haul, and just because costs are reasonable this year doesn't mean they will be in the future. That would leave us possibly having to yank our kids from private school down the road if our income dips, which is entirely possible. I'm self-employed, and my father's health is failing. I anticipate that I'll have more and more trips back home to Lynchburg, Va., where he is, and that one day, I'll also be caring for my mom. That responsibility will eat into my work schedule. I really don't want the pressure of paying for private school followed by college.

I've continued to gather information. The school district released maps showing us as redistricted to Fairmont Elementary School. I had a negative impression of the school, but as I thought about it more, I couldn't tell you why. So I decided to go on a fact-finding mission, if you will, and visit for myself. The school's principal and counselor took me and my husband on a 90-minute tour. We visited classrooms and every public space in the building, and I was incredibly impressed. I don't see private school as necessary.

The tough thing about evaluating education is that there are few ways to compare other than test scores and cost. Everything else is extremely open to interpretation, and usually is evaluated in more of an emotional way than anything else. It can be of vital importance for some families to have religion mixed in with their school day. For me, that's not preferable. I'd rather the school spend its time and energy teaching my child the stuff I don't know how to teach and that's factually based - math, science, history, English, etc. - and let me teach the religion at home. Religion is extremely easy to screw up, and the most subjective subject matter there is. I attended a very religious, conservative school, and I wince at some of the things I learned there. I'd rather teach my child that myself.

The summary: private school education should be evaluated on a cost basis first. If you can't afford it, or are barely affording it, don't do it. That's your first hurdle. Too many people think private primary education is crucial, and I'm just not convinced. It's not a fundamental right, and you aren't entitled to it.

Before you dismiss your public school as not good enough for your child, visit, ask a lot of questions, and evaluate. We discovered that Fairmont has the district's English as a Second Language program, and the kids in it are mixed in with the rest of the students and speak English quite fluently for the most part, which is a big bonus to me in terms of diversity and learning about the world. We also learned that Fairmont has a terrific and active theater program, which I think my oldest child would enjoy. We learned that the principal is an advocate for the school in every fashion, and that the school has zero tolerance for bullies (which is confirmed by a parent I know).

I'd love to hear your thoughts on private versus public education. If you have children, what choice have you made?

Boo! Frightening college costs

Here's something scary: The 10 most expensive colleges in the United States are all above $50,000 per year. For a four year education, you're looking at probably close to $250,000 by the time you've paid books and fees at these universities.

As we've said time and again here, there is no good reason to spend that amount on an education. There are lots (and lots!) of good, solid state colleges and universities. It's what you do with your education that matters. If you are wealthy and you can afford to send a child to one of these universities, hey, have at it. But do not mortgage your home or do anything scary to pay for college for your kids.

Have a look at the list here:

http://bit.ly/1AcvcF

And here's something REALLY scary. If you have a baby this year, and you want to send that child to one of the universities highlighted that's $50,000 a year now, you'll pay $518,641 for their education by the time they're ready for college. If college costs rise at 5 percent a year, your annual cost will be $120,331 (up from $50,000 over 18 years). The total cost for 4 year(s) will then be $518,641.

Here's the calculator we used to get those figures. Use it to look at the cost of your education or your child's education.


http://apps.collegeboard.com/fincalc/college_cost.jsp

The true meaning of financial freedom

By Dan Danford

Financial freedom isn't what most folks think. Most people think about debt, but I find that too narrow. Debt can be a problem for some people, and freeing those folks from debt can be a worthy goal (think Dave Ramsey!).
My definition is different. Freedom means options. Simply, to lack freedom means that you lack financial options. When the refrigerator breaks or the lawn mower dies, what are your options? Do you have to rely on a credit card, or can you write a check to pay? Maybe a department store is running a sale, and they offer additional discount for opening a credit account with them; is your credit good enough to make an instant application? It might be worth 10 to 20 percent off.
I know it's an American Dream to pay off the mortgage, but I like this even better: I could pay off my mortgage if I wanted, but I choose to keep it because it's a real good deal. Maybe, I have a large portfolio growing at 8 percent a year, and I don't want to use it to pay off a 5 percent mortgage. That's financial freedom.
This extends to other arenas, too. Say your job sucks. Education creates options. With a quality education, you don't have to stay with a job that sucks, you can find a better one. Or, maybe, you choose to stay with a lower-paying job because you like the hours, or the people, or the quality of life. Having a nice savings account creates that luxury.
I've been helping people financially for almost 30 years. Flexibility is a key factor in financial freedom. Flexibility means that you keep options open. You can make changes when you want and you have the ability to adjust to new and better things when they come along. When meeting with high school or college students, I always emphasize the same thing. More money means more freedom. It's as true at 50 as it is at 18.

Lessons on the job, part 5

Editor's note: This week on Twitter, we're giving out tips on securing summer jobs for teens and college students. You can find us on Twitter @family_finances. Contribute your own thoughts on this in comments or in a separate e-mail to robynsekula@sbcglobal.net.

By Dan Danford

Three hours. As a teen, I spent three hard hours shoveling twelve inches of snow from Mrs. Townsend’s lengthy driveway. Finally finished, I requested $15 for the work. She gave me $10, explaining that’s what someone with a plow offered to charge. That day, I learned a painful economic lesson about the value of labor.

I just read a superb book. It should be required reading for every college student. Written by Harry Beckwith, it is called Selling the Invisible. The focus is on customer service. Two illustrations caught my attention and helped refine Mrs. Townsend’s lesson from my youth: value is determined by the quality of output, not the quantity of input.

Beckwith’s illustrations:

Three whacks. A squeaky floor provides the first lesson. The homeowner made several unsuccessful attempts to quiet the noise. A helpful neighbor recommended a local craftsman, known for quality work. The craftsman walked in, slowly paced the room, drew a hammer and nail and – with three swift whacks – solved the problem forever. Later, he submitted a bill for $45. But, the itemization provides great insight:

Hammering $ 2.00
Knowing where to hammer $43.00

Three minutes. The great painter Picasso made a related point. He was recognized one day sketching a street scene in a small café. An impressed tourist asked him to make a quick drawing of her, offering to pay an appropriate fee. The artist picked up a different tablet, penciled a brief drawing, and passed it – an original Picasso -- to the woman. “That’ll be $5,000.00,” he told her. Surprised, the woman reminded him that it took just three minutes. “No,” he explained, “It took me all my life.”

No one cares how hard we work. No one cares how many college degrees or years of experience we have. No one cares if we once made a touchdown or hit a gamewinning home run. In business, value is determined daily by the service we provide to customers. People – all of us – seek solutions and results. That’s what matters.

Pay attention to your credit score

Credit scores are a crucial factor that helps determine many things in the world of finances. This story, written by Janene Mascarella and posted on the AOL site Walletpop.com today, explains how what you do contributes toward boosting your credit score - or drags it down. Nice piece, and I'm happy to be quoted in it.

http://www.walletpop.com/credit/experian/make-or-break-your-credit-score

You need professional help, part 2

By Jason T. White, ph.D

Jason is a principal and director of investments for the Family Investment Center. As many families attempt to cut expenses, we’ve seen some question why the help of a professional advisor Is necessary. Jason had some thoughts on this that he wanted to share with our readers. He has a Ph.D. in Economics and Political Science from University of Missouri in Kansas City.
This is the second of a two-part series on why you need professional help. Keep reading below this entry for more.

GOOOOOOOLLLLLDDDD!

Some have sought the “safety and protection” of precious metals like gold. Actually, many investment advisors don’t mind using a dab of gold as a hedge against price inflation. However, traders gripped by the twin demons of fear and mania often take gold ownership to extremes. Unfortunately, adjusted for inflation, gold currently sells for approximately the same price it did in 1980. Professional advice can help you build a properly diversified long-run portfolio with much better outcomes.

Political headwinds

Politics is a philosophical, emotional and important discipline to many, including us. Invariably, there will be highs and lows as your candidates/party wins and loses elections, and the political pendulum swings right to left to right… you get the idea. Navigating uncertain political times is an important role of a professional advisor. Our job involves taking a dispassionate view of the political landscape and guiding investors in a prudent course of action. For the record, we are not currently recommending stockpiling guns and gold, but profit opportunities abound in many financial sectors that are quite different from the “sweet spots” we found during the Bush years.

The Resurgence of Lord Keynes

So, what is an investor to do when confronted with $9 trillion dollars in expected federal budget deficit spending over the next few years? In a word: hedge. And what has historically proven to be the best hedge pockets for prospering in an expected future inflationary environment – stocks and real estate. Your home likely accounts for a significant percentage of your net worth, so it is our view that when it comes to investment strategy, you should keep a reasonable portion of your investment portfolio in stock mutual funds. The stock price volatility of the past 16 months has made this a particularly gut-wrenching decision for many to stick to, but that is exactly why you need a professional financial advisor to coach you through this period of uncertainty.

Zigging when others zag

Traders are moving in and out of the market on daily, even hourly, news and data releases. This is not what professional investors do. While changing one’s overall asset allocation between stocks and bonds may be appropriate in your individual financial situation, and Family Investment Center exists to help you figure that out, jumping in and out of the market or radically altering your long-term asset allocation based on short-run “noise” is not a prudent strategy. In fact, this may be the single biggest impediment to long-term investment success. FIC will help you stay the course in these trying times.

Staying the course

During the period 1990 to 2007, which included two recessions, the return of the S&P 500 stocks averaged 9.5 percent per year. According to Advanced Equities Wealth Management, a fellow advisory firm like us, being out of the market for the 10 best days each year would have reduced this historical gain to an 11.5 percent average annual LOSS. It is axiomatic that the stock market will be volatile in the short-run, but it is the long-run steady players that find the pot of gold at the end of the rainbow.

Manage debt with prudence

We are in an era of consumer retrenching and deleveraging. The national savings rate among consumers has risen from none to 5 percent nationally in just a few calendar quarters. We strongly believe that our clients should work had to pay down high interest credit cards and other consumer debt. But given the choice of paying down principal on a 4 percent, 15-or-30 year home mortgage versus investing in the market, which sports the potential for twice the annual return over long-run, the advice from a professional investment advisor should be not to abandon a well thought out investment strategy in the face of short-term transitory challenges to the market. Market returns will return to their mean in time.

Media Doom and Gloom

Are we embroiled in the worst economy since the early 80’s, the mid 70’s or (gasp!) the Great Depression? We think not. In a predominately capitalist system, business cycle theory teaches that periods of bubble and bust are a normal part of long-term economic growth and stock market appreciation. Think of the fable of the tortoise and the hare. You can imagine all the little pink-nosed bunny traders lying panting on the side of the race track as they acquire positions and sell them minutes, hours or days later in an effort to capture a bit of appreciation from volatility. Family Investment Center advisors avoid that trap by adopting the behavior of the wise old tortoise; properly allocating assets for individual and institutional investors, plodding steadily forward in the face of short-run adversity, adjusting the portfolio on the basis of principal, not emotion, and emerging at the finish line happier, healthier and wealthier, and VICTORIOUS!

You need professional help

By Jason T. White, Ph.D.

Jason is a principal and director of investments for the Family Investment Center. As many families attempt to cut expenses, we’ve seen some question why the help of a professional advisor Is necessary. Jason had some thoughts on this that he wanted to share with our readers. He has a Ph.D. in Economics and Political Science from University of Missouri in Kansas City.
We’ll share his thoughts today and later this week.

Personal Training
A professional financial advisor is a little like a personal trainer. Their job is to motivate us to do things we might otherwise do on our own, and to know how to achieve long-term objectives.

Father’s Wisdom
Chances are dad or mom was the first person who took a real interest in teaching us how to save and accumulate wealth. You socked away a portion of your allowance, lawn-mowing or baby-sitting money for a rainy day. Your advisor can rekindle this forgotten or neglected family value of personal saving.

A Friend’s Ear
We have an unwritten rule at the Family Investment Center to talk about half as much of the time as our clients do. Our purpose in meeting with you is not to teach you advanced financial theory (although we will if you want!), but rather to clearly develop an understanding of your personal financial needs, goals, objectives, fears and values. A friend is there to listen and advise. This is what we strive to be.

Preventative Maintenance
When the engine blows a cylinder, the best mechanic in the world can’t save it. It’s toast. We manage our client portfolios designing backup systems, warning lights and stress tests to prevent you from laying a thick streak of Pennzoil in Turn 4 at Daytona.

Apocalypse Now?
Hardly. I have yet to witness the four horsemen on a final ride to destroy capitalism. But, if you watch too much CNBC, Fox, Cramer, Dobbs or even Leno, you might think the end is near. Hogwash! A seasoned investment professional will help you keep control of the trait most destructive to wealth accumulation: your emotions.

I Need the Market to Settle Down
Given a sufficient time horizon, I can guarantee you which way the market is headed – UP! It is not a question of “if” simply “when.” One of the biggest mistakes you can make as an investor is to “sit out a few plays” during a bear market. Odds are you will miss a big chunk up the upside rally when it comes – and they always do. A quality investment advisor will do everything he or she can to keep you in the game.

Tough Love and Fairness
When a fee-only investment advisor (no commissions) takes a position, it is with your best interests at heart. Our objectives are perfectly aligned with yours – we want you to growth wealthy, and when you do, we both prosper. The 20th century commissioned brokerage world is disappearing fast because of a misalignment with client objectives.

The Rise of the Equity Class
Wealthy people are made during hard times. Family Investment Center understands the transition to the ownership society. Stock market fortunes are NOT made in bull markets; they are made when the bears are roaring and traders start looking for the exits. You need an advisor to remind you why you have chosen to be an investor, and what the ultimate benefit of that choice will be.

Dollar-Cost Averaging Discipline
When stock market averages decline, the trader often feels he or she is “throwing good money after bad” when it comes to continuing his or her monthly savings program. The investor comes to recognize, through professional guidance, that these rare major declines should be viewed as generational buying opportunities. Instead of ceasing contributions like the trader, the investor digs a little deeper and tries to maximizing savings in their 401(k), IRA and other investment vehicles. Be an investor, not a trader.

Recognize the Obvious – Then Execute!
Everybody knows the name of the game in investing: “Buy Low and Sell High.” The biggest problem we see is do-it-yourself investors having the chutzpah to buy when others are capitulating. A financial coach or leader on your team can make all the difference in your long-term investment success.

Are You Selling Your House Now?
Across the country, housing prices have nosedived with the same velocity as stock prices. Rational behavior would be to treat both asset classes equally. Why would you sell your stock portfolio after a price decline, but not sell your house? Stock prices are likely to bounce back much quicker as the recession becomes a memory. A professional advisor can help you navigate these land mines.

The 60-minute family finance makeover

What can I do to improve my situation quickly? A great question. I've outlined the steps everyone should take below.

Consolidate similar accounts. One reason families fail financially is because they are overwhelmed by monthly papers and statements. It might take a few minutes, but transferring all IRA accounts to the same place makes it much easier to follow each month. The same with other accounts. Find a convenient place where you can consolidate all your mutual funds, stocks, bonds, and bank certificates.

Simplify your investment process. Simple is good. For most families, a diversified portfolio of good mutual funds will earn solid results without all the bother and fees. A few investment hobbyists love the complexity. Most people, though, benefit from the simplest possible approach. Eliminate clutter and confusion.

Tune out “market pornography.” You’ll be happier and more successful if you ignore market clutter. Almost everyone agrees that a long-term investment approach works best for most people. Yet, we’re smothered by minute-to-minute coverage of all the markets. Just skip it completely. Enjoy life without the daily noise.

Study a good investment book. An hour reading the right book can change your financial life forever. Try Ric Edelman’s “Ordinary People, Extraordinary Wealth” or Andrew Tobias’s “The Only Investment Guide You’ll Ever Need” or Jonathan Clements’s “25 Myths You’ve Got to Avoid If You Want to Manage Your Money Right.”
Our book, “Million Dollar Management: Simple Lessons to Use Wealth Management Principles for your Family Investments” is an easy-to-read explanation of investment things that really work. Learn the basics, and you’ll succeed.

Create a simple filing system. People hate all the paper, and who can blame them? It all seems important, but it’s not. Keep a temporary file for each account, then empty it and start over after tax time each year. You accountant can help decide what’s necessary. A simple system helps reduce monthly paralysis and anxiety.

Meet with a qualified, commission-free financial advisor. Most quality advisors offer an initial meeting for a reasonable price. Bring your investment statements and a list of questions, and they’ll offer immediate insights and advice. Many families I meet with don’t need a second meeting because we can answer their most pressing questions on the spot.

Interview and hire a qualified, commission-free financial advisor. This flies in the face of today’s conventional wisdom, but many people aren’t interested in or suited to investment management. These families can hire an advisor on an ongoing basis. The world has changed and it’s cheaper and easier than ever to find quality help. Many, maybe most families, could be better off with a trusted financial advisor.