planning for middle-income people.
Stop the bleeding!
"The most important thing for middle income
people to overcome is their concept that, 'I don't make enough money
to warrant the need for a financial planner.' I find it's the opposite.
Since you don't have excessive income, it's most important to get
a handle on what are your expenses, where can they be cut and what
can you do to meet your retirement goals."
Those words are from David Bohannon, a certified
financial planner at Consultant's Corner in Louisville, KY. A self-serving
attempt to drum up business? I don't think so. Why are so many people
ready to throw money at Lotto tickets or the hottest stock when
a sure-fire way to pile up money is to quit wasting it? Paying for
a few financial planning sessions with a good planner might beef-up
your bottom line.
CFP James Knaus of LaBrecque, Jackson, Price
& Roehl in Troy, Mich., says he, also, doesn't base financial planning
on the size of the assets.
"I base it on the problems or concerns they
want to have addressed. I have a no-obligation meeting that probably
lasts 30 to 45 minutes to see if we can connect and if there's something
I can do for them. I tell them how long it will take and what I
charge. It's a low-key approach."
Do your homework
If you decide to see a financial planner, be prepared to do some
homework in advance. Knaus asks clients to bring in an approximate
balance sheet consisting of assets and liabilities and a cash flow
statement. He says most people are able to put them together reasonably
quickly if they don't have them.
"What's really important for you is to have
an idea of what you want to accomplish -- goals and priorities,"
says Knaus. "I ask an open-ended question and let 'em rip. It's
amazing how much people will divulge. My job is to shut up and listen
and take notes."
David Bohannon says a lot of people may not
need to see a financial planner on a routine basis, but they need
to sit down with a planner and do a complete financial makeover
to get on the right track.
"I try to stop people from doing things such
as maximizing their before-tax or after-tax contributions while
they're paying the minimum on their credit card debt. Or, maybe
they're not refinancing their house and getting a home equity line
of credit. One of the things I see most often is not knowing where
their money is going. They don't budget and pay themselves first.
If you don't know where your money is going, how can you possibly
tell me where you want to go?"
One of Bohannon's pet peeves is car leasing
-- people getting a new car every two or three years.
"Look at the cost of the lease vs. the benefit.
Look at the cost of insuring a new car -- it's quite high. I say
to them, let's project out the next few leases vs. if you bought
a car, paid it off so you have an asset and now you're paying less
Get ahead of the game
Bohannon's also a fan of homeowners paying off more on principal
each month -- it's easier, he says, than making an extra monthly
payment. For example, if the monthly mortgage payment is $560, Bohannon
suggests rounding up to $600.
As for maxing-out the contribution on the 401(k)
"It's a balancing act. See how much debt there
is in terms of the individual or the family. Typically, what's the
interest rate they're paying and how do we stop the bleeding? Let's
say I'm going to average 8 percent on my 401(k). If I'm paying 18
percent on credit card debt, I'm not getting anywhere."
Jim Knaus says a lot of people just don't pay
attention to the details -- what it takes to properly run their
financial lives. That leads to careless mistakes that last for years.
"Overpaying insurance, failure to take advantage
of employer matches in their retirement plans, paying too much in
fees for investments, continuing to pay PMI when they have enough
equity in their house," says Knaus.
If you decide to work with a financial planner,
get ready to make a commitment -- to yourself.
Be prepared to do some budgeting.
"I bet fewer than 20 percent of people use a
budget or a cash flow statement," says Knaus. "They say 'It's too
much of a pain or, I don't have enough, why bother?' It's a tool
that lets you know what's coming in, what's going out. I'll work
up a financial plan and it'll be a massive undertaking, but I want
them to be as self-sufficient as possible. It takes a lot of effort
for the rocket to get off the ground, but I want them to get to
the point of not needing me."
And get ready to do without some of the things
you think you can't do without, says Bohannon.
"It always amazes me that people think a new
car every two or three years is a necessity. It's mind over matter
-- if you don't mind, it doesn't matter. But you came here telling
me it does matter -- you want financial freedom. You have to make
it happen, and these are some of the steps you have to take."