Wednesday, June 4, 2008

Financial Cartography II

“When you come to a fork in the road…Take it.”
-Yogi Berra

Many people that engage my services have only a vague idea – financially speaking – of “where” they are going or how they will get “there”. I like to use the analogy of a jigsaw puzzle or a map to describe what financial planning is and what it does. Think of putting together a jigsaw puzzle without a picture of what the finished puzzle should look like – pretty tough, huh? The financial lives of many people I meet resemble that jigsaw puzzle – all the client knows is they have a box of puzzle pieces but they don’t have a picture of what the finished puzzle should look like. And, without that picture they feel helpless in putting the pieces together.

Financial Cartography describes the series of processes by which I help clients determine their dreams, goals and objectives with the end result producing a financial map for their lives. I find that as this map is drawn, re-drawn and refined with new details, that clients become more engaged in planning their futures and discover that they do have the power to decide where they are going and how they will get there. When the map is completed to their satisfaction, I integrate the aspects of financial planning into their map so they can reach their objectives along the way.

Financial Cartography is not “retirement planning”, but life planning. “Retirement” is just a tactic for living a period in one’s life. Living a happy and fulfilled life is the ultimate goal and retirement is merely one part of that life.


Monday, June 2, 2008

Mortgaging the Farm

" The future ain't what it used to be "
- Yogi Berra

Zero savings (negative savings rate), falling home values (disappearing home equity), vanishing home equity lines of credit (banks are “dis-approving” previously approved credit lines), upward-adjusting variable-rate mortgages, increasing cost of living, $4 per gallon gas, job insecurity, etc, etc, etc.

What is the strapped U.S. consumer to do? Caught between the proverbial rock-and-a-hard-place and not enough room to roll over.

Repeat after me: WE DID IT TO OURSELVES.

We took the easy money. Why save when I can borrow from my house at a near-zero interest rate (in real terms)?

And what is government’s response? Throwing more money at us: Lower Fed Funds rates, “economic stimulus checks”, homeowner bailout legislation, Wall Street bailouts (see: Bear Stearns – though to be fair, I don’t think the Fed had any choice on this one), “Elect Me Gas Tax Holidays”. Say what you will about Obama, but he’s right on at least that last one.

$600 tax rebates? Does anybody really think these checks will be spent on anything other than rent, food and debt reduction?

All of this is designed to keep us spending every dime that we earn and dimes we don’t earn. Now that we can’t tap our homes for easy money, we’re going back to our credit cards: consumer revolving credit outstanding is increasing, not decreasing as one might expect it to do in the face of a recession. When that doesn’t work, we’re taking out loans against our 401k accounts and considering exotic home loans like reverse mortgages (for those 62 and older) and “equity-sharing” home loan arrangements. All to prop up that which shouldn’t have been built in the first place – by this I mean the massive debt pile, not your home ;-).

Here’s a simple question: what happens when all of the possible avenues to keep the ship U.S.S. Consumer afloat have been exhausted? What then?

A simple personal prescription:

Don’t buy anything you don’t need.
Don’t buy anything you do need with credit.
Open a savings account today – make regular deposits. Here’s an easy one:
Start a debt reduction plan today. Here’s an easy to use spreadsheet:

You can’t mortgage the farm if it’s already mortgaged. Change your behaviors, change your life. Put yourself in a position to choose rather than react.