TedCo Software Financial Matters Blog

It’s True: It’s What You Keep That Matters

As an investor you take on risk in the hope of receiving sufficient reward to justify that risk. That is just basic investing; where there is no risk there is no reward. Another basic reality of investing is that governments love to tax any profit you happen to make. It may not seem fair that you take the risk and they get some of the reward (ok, it more than seems unfair) but, “that’s the cost of living in a civilized society” (or so say those that take your profits).

The reality of investment-related taxes means that tax planning is an important part of your investment planning. Careful planning can help you reduce that cost. This planning won’t help you avoid taxes you rightfully owe, but with a little care you might be able to shrink the tax bite a bit.

Tip #1 – Keep Good Records
Whenever cash moves into or out of an investment you get some sort of receipt (often a trade confirmation). Keep all of these irritating bits of paperwork. With them you can establish your cost basis (how much you paid for the investment). Whether you use a computer or a journal you can keep track of your taxable gains and losses throughout the year. Track your tax liability as the year progresses and you might avoid an unpleasant surprise come tax time.

Tip #2 – Take Advantage of Tax Breaks
Investment accounts that allow you to defer taxes or even take income deductions can be a good way to manage investment-related taxes. 401ks and deductible IRAs are a nice way to push those taxes off for many years. When buying mutual funds outside of a tax-deferred account, pay attention to portfolio turnover (the lower the better). Another approach is to focus on index-based investment. They often have little turnover so produce little gains in the course of the year. Annuities can provide some tax deferral as well, but they do have a drawback. Though you do not pay taxes on gains until you draw the money out those gains are all taxed as regular income, even if the increase is mostly capital gains (which would normally be taxed at a lower rate).

Tip #3 – Use Those Losses
Have you taken losses in the last couple of years? Keep track of them. Capital Losses (usually from losses on stocks and stock mutual funds, but there are many other sources) can reduce your taxable income up to $3,000 a year. Whatever you do not use in a given year will carry forward into the next. Here is the trick: these losses offset Capital Gains dollar for dollar until they are used up. For example: I recently spoke with a woman who was heavily invested in stock mutual funds before the crash. Near the bottom of the market she finally gave up and sold her investments, switching to more conservative income producing investments. She has $180,000 in carry-forward losses. Unfortunately, she can only use $3,000 a year to reduce her income. At that rate it will take her 60 years to use up those losses. However, if she invests in something that produces Capital Gains those losses can offset her Capital Gain income dollar for dollar. That makes a lot more sense (assuming that sort of investment makes sense for her situation).

Keep your eye on the investing ball, including the tax implications of your decisions. To find out how these ideas fit into your investing plans consult your tax professional.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm. Phone (909) 373-5204 Facsimile (909) 912-8290 www.myfinancialcompass.net

Early in the twentieth century John Burchard was alive, but not for long. He was ill and in need of surgery that he could not afford. John had one asset though: a life insurance policy. Though worthless to him, if he could sell it he could get the money he needed. But how much was a life policy on a dying man worth? About $100, as it turns out. Mr. Burchard sold his life insurance policy to a Dr. Griggsby for that $100, and the good doctor agreed to maintain the premium payments from then on. I assume (but do not know for certain) that Dr. Griggsby was in a position to understand John’s situation, but was not John’s doctor or surgeon. Unfortunately, Mr. Burchard died shortly thereafter and Dr. Griggsby, now owner and beneficiary of the policy, asked for his payment. The insurance company said “NO,” and sighted reasons why they did not have to pay. The doctor disagreed and off went the whole bunch of them to court (except John, who did not care anymore, on account of his being dead).

On a cold day in 1911 the Supreme Court of the United States sided with Dr. Griggsby. (I really have no idea if it was cold, but the date was December 4th, 1911 and DC is cold that time of year.) The court declared that a life insurance policy has value and is an asset and is transferable for value. The court, in declaring the transaction between Mr. Burchard and Dr. Griggsby legal, created a new branch of the life insurance market: the Viatical (or Life) Settlement market.

The concept behind viatical settlements is simple; Mr. Adams owns a life insurance policy which he and his loved ones do not need and he is either terminally ill, very advanced in age, or both. For this example we’ll say the policy has a face value of $100,000. Now Adams would like to use some of that money before he dies. Maybe he wants to pay for an experimental medical procedure, or just wants to buy a really cool car before he kicks off. On the other side of the equation is Mr. Baker. Mr. Baker has about $75,000 he wants to invest and is willing to take on some risk for a potentially outsized return. Between these two players stands a life settlement broker who puts the deal together in a way such that neither Mr. Baker nor Mr. Adams know who the other party is. Mr. Adams walks away with $75,000, and Mr. Baker will get $100,000 when Adams dies. If Mr. Adams and his advanced illness cooperate and he dies in a year or two it is a pretty good return for Mr. Baker. The risk is that Mr. Adams doesn’t pass on. If he somehow survives Mr. Baker may be waiting a long time for a return on his investment. Of course, Mr. Adams gets to live with the thought that somewhere out there is a guy who would really like him to die already. At least he can take comfort that though there have been occasional information security problems, there is no record of someone being murdered for a viatical settlement.

Those are the basics. The rule of thumb is that if the insured is expected to die soon (within two years) then it is called a viatical, if longer then the deal is a “life settlement”. There are significant complexities, costs, and tax issues with these deals; make sure you fully understand the pros and cons before signing the check (or signing over a life insurance policy). The most important point for you, whichever side of the ghoulish equation you want to be on, is to work with a reputable broker. Check out your middleman. When these deals work as they should, the situation is a win-win for everyone involved.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm. Phone (909) 373-5204 Facsimile (909) 912-8290

Helping your kids develop a healthy attitude toward work is an important life skill. Even though some kids seem to be natural hard workers, most need some specific parenting to develop a good work ethic. Here are a few guidelines.

1. Attitude: your attitude toward work is a key component. If you come home every day grousing about your job, your kids will pick up the lesson that work stinks. If this has been your practice (and if you really dislike your job), suddenly changing to an “I love my job” attitude will set off your kid’s fake detector. When you talk about work, focus on the positive, but don’t sugar coat reality. Develop an attitude of joy in the things you can derive joy from. It is OK to say something along the lines of, “My boss and I are not getting along, but my job allows me to do this really cool thing.”
2. Assign age appropriate chores to your children. A good initial approach is to make it a family affair. Have them help you set the table, rake the leaves, or clean out the garage. If chores start out as quality Mom and/or Dad time it changes the dynamic of chores for the better. If it seems inefficient to have two people doing a chore, it is. The purpose is not to get the leaves raked; it is to teach your child the value of work. Patience is a key here; the job your kids do will, at first, be less than acceptable. Guide them by encouragement and gentle correction. Eventually you will be able to say, “You do such a good job I trust you to do it on your own.” To your kids it will feel like a promotion. Even if you have the resources to hire household help, the value of chores is too great to not use; leave a few things for the kids to do.
3. The time will come when your child, if they have a good work ethic, will find some work outside the home. This will probably start small: helping a neighbor with yard work, babysitting, housekeeping, and the like. As they grow into the teen years this will probably shift into a regular job: Fast-food, retail clerk, stock person and that sort of thing. This is a good development in their lives, but one that requires your continued, if distant, supervision. Here are a few things to keep in mind:
   1. Make sure that it is a safe environment. Who will they be working for? What sort of environment? Parents have a responsibility and a right to check these things out. A job that requires your 15 year old daughter to work alongside a 25 year old man for extended periods without any other supervision is an example of an unsafe environment.
   2. Getting paid for their labor does not translate into getting paid to do household chores. If the new job impacts their responsibilities around the house then you, Mom and Dad, decide how, or if, that happens.
   3. Their education comes first, as do some family activities. Work can’t be allowed to interfere with education.
   4. Parents: if your child does a poor job, resist the temptation to jump in and rescue them. Getting fired is a learning experience too, albeit a rough one. If junior sleeps through his alarm clock and misses his paper route they will need to deal with the consequences.
4. If the job in question is unpaid, that is OK. Just make sure the elements of a real job are present. A child of a client was named her school’s yearbook editor. The assignment required a fair amount of time, was filled with deadlines, and had specific supervision. These kinds of activities can be tremendous growth opportunities for a young person.

Next week we will look at the other side of the money coin: learning generosity.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm. Phone (909) 373-5204 Facsimile (909) 912-8290

A friend of mine recently lamented, “My girls think I am an ATM”. We might be tempted to snicker about Daddy’s little girls, but the truth is we want to give our kids whatever they need, regardless of gender. The key here is what they need, as opposed to what they want. One of the things they need to learn about is how to manage money and build wealth. That may seem obvious, but what tends to escape us is that their teacher is going to be you, their parents, intentional or not. Our kids pick up all sorts of direction on how to live life from us. Our attitudes and practices have a much greater impact than our words. Think about where you learned many of your money habits, good and bad. A lot of those habits come right from Mom and Dad. So it is with your children.

Right about now a few of you are thinking, “oh my, I hope my kids are not paying too much attention; my financial life is a mess!” Your kids are not messed up for life, and you would be surprised how well they learn from your mistakes. However, if you want to teach them good habits you may need to develop a few of your own. Consider getting some help. Many fee-only Certified Financial Planners will be willing to help you develop a budget and work on habits, and they might give you a few pointers on teaching the kids, too. Either way, passing to your children a good understanding of money and wealth may turn out to be one the best investments you can make for them.

One great truth that never seems to change is that it will be easier if you start now. If your child is an infant they may not be ready to learn about money, but you can certainly work on putting your own house straight. It is never too early to plan or save, so get started now.

Before we jump into the four principles, remember that no one plan will work just as well with every child. Kids bring their own personality, temperament, and learning style to everything they do. It is OK to tweak your approach to match the kids; use their uniqueness to help you teach.

Now that you are working on setting a good example, here are the four general principles for training financially wise kids.

1. Work is not a bad word. If the first thing you do when you get home is complain about your job you may want to work on that attitude. Children will pick up on the bad vibes quickly. Be ready to give them jobs to do around the house. Make the chores age-appropriate. Younger kids can help set the table (no glass for the really little ones), with cleaning and gardening coming as they grow older. An allowance can be a great teaching tool, particularly for teaching about budgeting. Actually, we will have a whole column on the subject soon, so stay tuned. Not everything they do around the house is about money; some things you just do because it is proper (like cleaning your room). The sooner they learn the connection between work and money the better they will be equipped for life. Oh, mom and dad, please be patient with their work. You are going to need to praise a genuine but ineffective job more than a few times. Your kids are not the only ones learning patience and grace.
2. Giving, when to give and how much is appropriate, is a principle that needs to be part of raising your kids. Some kids are naturally generous, easily sharing their toys, food, and even money with friends and strangers. For these kids the job is to learn to discern between those in need and deserving of generosity, and those who want to take advantage of it. Other children are naturally conservative. For these kids saving money comes easy, but learning proper generosity will take some intentional teaching on your part.
3. Budgeting is simply planning how to spend what money we have. The skill of managing and monitoring cash flow will pay huge rewards in adulthood. During the booming parts of the nineties, nearly two-thirds of Americans lived with a negative cash flow. Less than half of those were aware they had a problem. (Golly, I wonder why we developed a credit bubble.) Helping your kids develop sound spending habits will steer them through good times and bad.
4. Savings and the value of delayed gratification is our forth principle. Your sweet, generous, open-handed child will benefit from learning the value of savings and patience. The careful, cautious, or even a little stingy; kids will reap great benefit from learning that, in the end, money is for spending. Savings should have a purpose and a plan; it should not be viewed as a way to contentment. The overly generous or spendthrift is always broke, but the miser is never happy. Helping your kids to find the right balance is a powerful life skill.

Over the next few weeks I will break down each of these principles in more detail, bringing tips and anecdotes I have picked up in my 23 years of helping people make better financial and investment decisions. So keep checking back and I will update soon.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm. Phone (909) 373-5204 Facsimile (909) 912-8290

The emergency is on and you or your loved one is in the ER (or worse); what do you need to consider?

1. One of the first things is to talk to your insurer to inform them on the situation and get the ball rolling on any authorizations. Do not be afraid to push a bit if the answers are not making sense. If you are uninsured start asking about costs. Hospitals and doctors both appreciate a patient who is up front. Ask about cash discounts and start negotiating a payment plan that won’t break you.
2. Some things are not about the money. A huge medical bill can derail a retirement or other savings plan but caring for your loved one should be paramount. A fee-only Certified Financial Planner will be able to help you determine how to make the changes to respond to your new circumstances.
3. Remember the documents we covered in the prior blog entry? If those documents are not ready it is time to get going and get them in place. That is assuming that everybody you need to do this is able to fulfill his or her obligations.
4. Any incomplete parts of the estate plan should be addressed, if that is still possible.
5. Ask the doctors about drug samples and generic drugs. These can save you a large amount of money.
6. Swallow your pride and talk to friends and family. You might be surprised at the love that pours out when you reach out and ask for help. Anyone can give a gift to help out another, but there can be tax consequences if you give more than the amount allowed under the tax code. However, payments made to a medical provider for another person do not count toward the annual limit.

I hope that no one reading this ever has to manage this sort of emergency, but the reality is you or someone else reading this will. Keep your head, take care of your loved one (or yourself), and reach out to friends, family, the medical providers, and financial advisors for help. You and your family will survive the storm.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm. Phone (909) 373-5204 Facsimile (909) 912-8290

My apologies to all for the long break. My laptop died in its sleep a couple weeks back and the restoration process was long. Then that was followed by the catch-up on all the work I get paid for and a great NAPFA conference in the middle. I am back on track, I hope, for regular updates. Oh, if you are not sure what NAPFA is go to www.napfa.org and check us out. It really is the source for financial advisors dedicated to a no commission model.

Returning to the topic of dealing with medical emergencies, we already discussed the need for emergency savings and the importance of knowing how exactly your disability insurance works. This time we will consider two other important preparatory steps.

There are a number of documents you really should prepare today. Every adult should have a general power of attorney and a medical power of attorney. A power-of –attorney (POA) is a document that gives another person the authority to make decisions and act on your behalf as if they were you. You want to make these “springing”, meaning they become effective only if certain circumstances come about (like your incapacitation due to illness or injury). Obviously you want to give this power to someone you trust to make good decisions for you. Often it is a parent, sibling, or spouse but can be just about anybody. You should discuss the appointment with your chosen person and make sure they are willing to serve. Also take a look at Advance Directives (sometimes called a Living Will) that allow you to state what your wishes would be in certain extreme situations; the doctors concluding that you will remain in a vegetative state and are unlikely to improve would be an example of extreme. Also the Do Not Resuscitate (DNR) form for people who have a terminal disease and would prefer that the medical folks not take “extreme measures” to prolong life. A sad example that I witnessed: an older (late 70s) man was suffering from terminal cancer. He was near the end and needed regular pain medications. He was struck by a sudden and serious heart attack, which should have ended his life. Unfortunately the paramedics and the hospital were required to try to prolong his life. The emergency bill was astronomical, and then he died from complications from the cancer a week later. That is what a DNR is designed to avoid. These documents and the rules vary between the states, so check out the requirements for where you live.

An important prep step for all kinds of emergencies is the “where is all my stuff and here’s what I want to happen” list. This is a list of critical phone numbers, people who need to be informed, accounts, wills, deeds, insurance policies, and all that stuff that someone might need if you are not around to tell them where it is. This letter or book should also discuss funeral arrangements and other end of life issues. Don’t forget pets in the process; who is your vet, and who gets to watch the cat are important questions if you are incapacitated. That book might also state who doesn’t get to take care of the cat. My cat hates my buddy Dan, and he is none too fond of her.

In my next blog post we will look at reactive things to do when an emergency strikes.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm. Phone (909) 373-5204 Facsimile (909) 912-8290

A week or so ago a friend and client suffered a heart attack. It was quite serious; one of the medical folks told us that the procedure that saved his life (and had him back home in four days) became available just a few years ago. Without that new procedure he would have likely been dead.

The medical bills will likely leave him wondering if survival was the better option.

There is no way around it; medical costs are expensive and unlikely to improve. The current steps to artificially bring down the cost will likely result in a decrease in the availability, or the quality, of our healthcare (maybe both). I am not going to write about the politics of healthcare, the causes of the current mess, or why I believe the new legislation will make the mess worse. I could write a volume, but that would just get me flamed. What I am writing about are the steps to take to protect you, your family, and your savings from a health care crisis. This is a real problem. Medical bills have a significant hand in some 60% of personal bankruptcies; of those, more than three-quarters had health insurance.

I have heard, “I feel fine” many times from customers and clients over the years, but a medical emergency can be, well, emergent; by definition unexpected. A few days before Valentine’s Day 1995 I felt great. I was standing on top of a snow-covered mountain in the San Gabriels on a clear winter day. Thirty seconds later, after a thirty-foot free-fall and a slide of some 100 feet down an icy slope, I did not feel so great. That’s not true; I was happy I was still breathing. I was fortunate that, as a family, we were prepared for what happened. You can be too.

Over the next few columns we will take a look at what steps to do now to prepare, and what to do when the crisis hits. Even getting caught without proper insurance doesn’t have to mean disaster (though that makes it tougher). It is all about pro-active preparation and active response when the time comes. (Yes, I know pro-active is not a real word; but it conveys the concept well.)

So start now preparing for what might happen tomorrow. Most of these preparation steps are basic financial planning concepts, but it never hurts to work on the basics.

1. Create an adequate emergency fund. What is adequate? A minimum of three months expenses in readily available savings. Six months of savings is even better. If you know you will be facing a time without insurance you might consider as much as year.
2. Know your disability coverage. If you are covered by your employer ask to see what is actually covered. Many employer policies are not adequate and have unexpected limitations. Disability Insurance has many definitions and rules for what is considered disability, what is viewed as acceptable work, and what and how long they will pay. Contrast this to Life Insurance, which is fairly simple (show a death certificate, get a check). This is a good place to consult with a fee-only CFP for guidance. Disability policies can be very confusing to those unfamiliar with the terminology. (Yes, that is a shameless plug.)

Next we will continue the list of prep steps before we talk about the reactive things to mitigate the impact of a sudden medical crisis.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm. Phone (909) 373-5204 Facsimile (909) 912-8290

The Bias sisters can really mess with your head. If you are judging your own performance or that of an advisor these two odd behaviors can prevent you from pursuing a sound investment strategy. The Bias sisters, outcome and hindsight, are quite vain and spend most of their time looking in a mirror (a rearview mirror).

Outcome Bias
In a 1988 study Jonathan Baron and John Hershey presented participants descriptions of several different medical situations facing a doctor. The descriptions included what the doctor knew, the treatment provided, and the outcome. However, in some instances the outcome was described as a success, while in others it was deemed a failure. All the other factors (available data, treatment, etc.) were identical. Here is where the bias appears; by a factor of around 5 to 1 the successful outcome was rated as representing higher quality decision-making. This result appeared despite the fact that 88% of the participants agreed that the outcome shouldn’t be included as a factor in rating the quality of the decision. When combined with the tendency to give more weight to the most recent events (myopia) this has many investors beating themselves (or their advisors) up when the market turns against them. Even a really well considered decision can go bad, so take a deep breath and stick to the plan. Even House, M.D. loses one once in a while. Particularly if the loss was related to a macro event (market drops, housing slows, and the like) then hindsight bias comes along and beats on you some more.

Hindsight Bias
Whenever the equity markets (stocks) have a big move the market “experts” appear within minutes of the close to explain what happened. These pundits always explain events with great confidence. The impression you walk away with is that any dope should have known that was going to happen if they just paid attention. Where were all these experts before the market went south? They didn’t know either, they are just good talkers. Markets experts humbly admitting their surprise doesn’t make for good television/radio/print/internet/pod-vidcast ratings. This is where experience can help. I remember a market newsletter writer that predicted the 1987 crash. She translated that success into huge circulation for her newsletter. It would have been more impressive if she had not also predicted the crash of 1984, and 1985, and 1986. If you do not remember the crashes in 84, 85, & 86 that’s because there weren’t any.

We can see this in the news this week. There is a lot of “buzz” about the Hindenburg Omen. This technical indicator has triggered before every major market drop for years. That sounds good. However, the omen has triggered four times for every drop. Its’ accuracy is only 25%. Interesting, but not a reason to buy ammunition and hide under the bed.

Don’t let hindsight and outcome bias beat you up. The markets are by nature unpredictable and no approach works every time in all situations. Stick to your plan. There is nothing wrong with adjustments, but if the plan was sound to start with, it will likely work out just fine.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm.

We humans are an odd lot, and we have some odd behaviors wired in us that are not always helpful in the realm of personal finance. Loss Aversion is just such a behavior. First documented by Daniel Kahneman and Amos Tversky in their 1979 paper “Prospect Theory: An Analysis of Decisions Under Risk”, Loss Aversion is the tendency to perceive the impact of a loss as greater than an equal gain. Other studies have indicated that losing a sum of money is twice as painful as receiving the same sum is pleasurable. So, losing $100 creates twice as much pain as gaining $100 creates pleasure. That’s why casinos use chips and other proxies for money; they want to reduce the pain of losing. When viewed clearly you can see that the change in net worth is the same, but there is something about possession and loss that wires us to have never wanted to have the asset in the first place. It creates a skewed understanding of portfolio performance. As a financial adviser, I’ve had clients that express very high tolerance levels for risk until a loss appears on the statement, and then they become very unhappy. I try to avoid these clients.

Another part of his psych-out is our tendency to view the most recent short-term performance of a long term investment as more important than the long term performance. That is a fancy way of saying we tend to be short sighted when evaluating performance. We weigh the most recent events more heavily than long-term issues. Even when there is a 30-year time frame we tend to evaluate performance and make decisions on what has occurred in the past year or two. When you combine this tendency with Loss Aversion you get Myopic Loss Aversion, an even more damaging behavior. For example: An investor places $100 in an investment and has great returns. Over the course of five years the money doubles to $200, then the crash and the investment drops 25% to $150 dollars. Even though the average return over the six years was about 7% the typical investor remembers the drop from $200 to $150 most acutely, and emotionally feels cheated even though they experienced a solid return. This emotional reaction occurs even if the investment has outperformed its’ peers. If you want to read more about this track down a study by Shlomo Benartzi and Richard Thaler from 1995, “Myopic Loss Aversion and the Equity Premium Puzzle” (currently available in PDF format here).

If you understand that your emotions, (your “gut” can be your enemy as well as your friend in finance) you are better equipped to make an objective decision about your future. Before you jump to an action, take the time to look at the long-term performance of your investment as well as your actual experience and compare those figures to the average performance of that type of investment. Simply refuse to take a leap until you know where you really stand.

In the next post we will take a look at Hindsight.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm.

Sorry for the extended break between posts. Vacation’s over now so we’re ready for Part 3: The Number Crush

Sometimes numbers are so big that they stop having any real meaning to individuals. The budget deficit here in the US is a good example. Some time in the past year US deficit spending went from the Billions to over a Trillion, while the actual debt is over 13 trillion. Once you get past nine zeros most people just see “big number”. Really, from an individual perspective what’s the difference between millions, billions, and trillions? (Note: if you are not sure, consider running for congress.)

So when we start looking at the kinds of numbers it takes to have a secure retirement it can be overwhelming. Worse yet are advisors (myself included) who tend to throw in inflation, interest rates, guarantees, insurance, alpha, beta, risk, return, and a ridiculous number of factors when trying to introduce a plan. We are full of opinions that contradict what the other advisor said (or ourselves). It is all overwhelming and confusing. Most financial issues have significant complexities. A favorite quote of mine from H.L Mencken is, “For every complex problem there is an answer that is clear, simple, and wrong”.

The unfortunate downside of the huge numbers, complexity, and contradictory information is that folks become overwhelmed and do nothing. All the information creates sensory overload and we respond by hunkering down and freezing. However, the big rig of the future just keeps coming right at us and we better determine what we’re going to do and get moving or risk road-kill status.

So what to do? First is accepting that reality is complex. Yes, the number is big, but that doesn’t mean it is unattainable. Yes, there are a lot of moving parts to a financial plan, but they can be integrated. Know that you will need to dedicate some time to developing a good plan and be wary of those who promise a simple and clear answer to complex problems. Just keep moving.

While you are gathering data and developing a plan don’t lose sight of basics: strive to maintain a positive cash flow, saving is better than not saving, debt is not your friend, and set & pursue realistic goals.

Remember that big numbers are just a lot of smaller numbers put together. Even if the amount you can save today seems insignificant when compared to the target, every amount helps get you closer to success.

To address the complexity of planning you should seek out a planner. (That may seem a bit self-serving but hear me out.) Look for someone who focuses on planning and not product sales. A good planner will take the time to both understand your situation thoroughly and to help you understand how a suggested solution works. The National Association of Personal Financial Advisors has a great set of questions to ask a prospective advisor in the “Financial Advisor Diagnostic” at www.napfa.org/tips_tools/index.asp. That should help you find an advisor who meets your needs.

The most important thing to avoid is the tendency to do nothing. Just keep moving forward toward those long-term goals.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm.