TedCo Software Financial Matters Blog

We Americans have a lot of revolving debt, about 850 billion dollars worth of it. Most of that is credit card debt, and more than a bit of it is overdue. If you are contributing to that ugly pile of overdue debt it is time to work on getting yourself out from under that ugly pile. Excess debt can damage your ability to save, invest, and achieve the things you really want in the future. Here are a few tips to helping get out of the hole.

1. Fix the cash flow. If you can’t get yourself to a positive cash flow your situation will just continue to deteriorate. Simply put, you can’t spend more than you bring home (for very long) without problems. Usually the spending side is easier to reduce than the income side is to increase, so get a handle on your spending.
2. Paying off debt is a type of investing. Prioritize paying down debt within a reasonable time frame over saving and investing. Work on savings after you have a handle on cash flow that includes paying off debt. As an example, say you have a credit card balance of $8,000 with a 14% interest rate. Given current market performance, paying off the card before investing is a no-brainer. But even if the stock market was experiencing an annual gain between 8% and 9%, paying off debt would still be your better bet.
3. Negotiate with your credit card companies. Just call them up and ask for a better rate. It can’t hurt. More than half of people who request a reduction receive one. A drop of seven to ten percent will sure help in the quest to eliminate debt.
4. Consolidate at a lower rate if you can. Not only does it make it easier to keep on top of the payment a lower rate means you can pay down principle that much faster. A few extra hundred dollars paid against principle is sure a nice way to speed up the process.

Even if it takes a few years paying off, that debt will be an important step in securing your future.

Editor’s Note: For an organized approach to reducing your debt load checkout the software application DebtDasher at www.DebtDasher.com.

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

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.

The next Financial Psych-out is not as pervasive as the “proxy money” effect, but still impacts most of us at some point in our lives. (I have met folks that have gone through this process several times.) It is called the “Wealth Effect”.

The Wealth Effect
“Asset Bubbles” form when the short-term demand for a given asset outstrips the supply. Eventually the market for nay given asset will stabilize, either by a drop in demand, an increase in supply, or some combination of the two. The problem is that the sudden increase in some asset’s value creates the impression that it will continue (temporal proximity bias – a topic for another day), so folks want to get in on the “action” creating even more demand and pushing prices higher. At some point there is a trigger event and people’s impressions change. Usually this creates a drop in demand, which puts downward pressure on the price, and the whole thing reverses rather dramatically. In the last twenty years we have seen this cycle in stocks, oil, and real estate. The real estate bubble was particularly impactful because so many people own homes. We are seeing a similar pattern in treasuries and gold now. Sorry if I am insulting your favorite metal (and maybe this time is different) but if it looks, feels, and smells like a bubble I will treat it like a bubble.

The bubble burst has a pretty dramatic impact on its own, but the impact of the “POP” would be much easier to take if it was not for the “Wealth Effect”. The wealth effect is a form of “equity-itis”, a misperception of our wealth based upon the equity we have in value-inflated assets. We begin to think of ourselves as wealthy because we own something that has increased in value dramatically and our increased net worth leads us to spend in line with our new-found wealth. I know what it feels like. My home tripled in value over a decade, and then promptly dropped 50% from the high. Bummer.

Imagine that you have a steady, disciplined, financial life. Your spending is in line with your net worth and you save a bit each month. Then someone walks up to you and hands you a closed box. Somehow they convince you that the box has a million dollars in it, that it is your money, and that you can tap into the money anytime you want. You go home feeling much wealthier. How would that affect your life? Would you expand your lifestyle? Would you buy a new home, a better car, or take a dream vacation? When you come back from your month in the Caribbean, you drive your new BMW to your new mini mansion and get ready to pay the bills. So far all is good, but when you open the box it only holds a half million dollars, or a quarter, or maybe nothing at all. Suddenly you are in trouble. You have to sell the house, give up the car, and are cutting back on everything to pay off the card you booked the cruise on. It is bad enough when it happens to you, but when it is happening to most of your neighbors as well: it is called a recession.

This financial psych-out is an easy one to fall into, especially when everyone around you is doing the same thing. The thing is to learn from the pain of others (or your own pain) and manage credit with the caution it deserves. Just because your house or your portfolio is big today, don’t assume it will be tomorrow.

In the next entry of this series of Financial Psych-outs, we’ll take a look at “Financial Inertia.” Stay tuned!

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.

A large component of the work I do with individuals is to gain a clear understanding of their relationship and understanding of money. There is an increasing body of study that looks at the link between how we perceive money and worth and the reality of wealth. Over the next few entries I want to touch on six issues of Behavioral Finance that may be impacting your understanding of money and hindering your financial success. These points are far from the only psychology of money issues, and they are not universal, but they are fairly common issues that most folks will see in their financial life.

Layer it on thick
It seems that most large retailers have some sort of credit card and the vast majority of stores take plastic. If asked I am sure that these stores would say that it is for customer convenience, but there is another reason that retailers accept these proxies for money: the “layering” effect. It is the same reason casinos use chips for gambling. The further the proxy for money is away from “real” money the more psychological distance we feel from the act of spending. Casinos have learned to take advantage of this psych-out. If we laid ten and twenty-dollar bills down on the craps (or roulette, or poker) table it would have a much greater impact in our heads. We see bills and coins as potential items for our life. When we see things that represent food, fuel, and shelter scooped up by the blackjack dealer it scares us a bit. However, colorful plastic chips do not have the same impact, so no money on the table means customers are more willing to part with these plastic proxies for rent money.

You don’t gamble? I bet you still use plenty of proxies for cash. Paying for that Venti Mocha with a Starbucks gift card just doesn’t hurt quite the same way as handing over a fiver. For the real whammy we can now combine online bill pay services with our credit cards. Our employer deposits our earnings directly into a bank account. We then buy a new TV with our Visa card and do not see the bill for a few weeks. When the charge shows up on the credit card statement (delivered electronically) we direct the bank to pay the bill via on-line bill pay. Each layer between cash in our pocket and the purchase makes the loss of the cash a bit more comfortable, and the sale a little easier.

It would be difficult to give up the electronic money world, but this proxy effect can lead us to make poor money decisions. So try to give up the electronics for just one month. For one month convert your paychecks to cash for just a bit so you can see it and feel it. Then, for the whole month pay as many things as possible with cash and use checks for the rest. Odds are your landlord or mortgage company will insist on checks, but your supermarket, gas station, and local Starbucks will be perfectly happy with taking cash. Keep track of where and how you spend your cash. At the end of the month you will be shocked at where you spend your money, and will have found several ways to spend less.

Next week in Financial Psych-Outs Part 2 we’ll tackle “the wealth effect”…

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.

It doesn’t take much these days to damage a credit score. Before the recession, late payments and blasting through credit limits would take its toll. But in the past year, Fair Isaac,& Co. the company that developed the algorithm that is the leading determinant of our credit (FICO) scores, made an important change in its formula.

It’s now putting much more emphasis on the size of your balances and how close they are to your total credit limit. It’s a behavior trigger that creditors see as a bigger worry than ever. So the best thing you can do for your credit score is to get your balances down to under half of your credit limit.

Even better, pay them off entirely and use them only when you know you can pay them off at the end of the month. Inactive accounts will ding your credit score, but quick payments can only help.

The latest revision in the FICO system will actually allow a bit of lenience on late payment – something that might affect more than a few consumers with the downturn in the economy. Obviously, this won’t mean that someone can chronically pay late, but once or twice won’t make the same impact as in earlier FICO versions.

Yet credit utilization – the amount of credit you’re actually using relative to your credit limit – is a much bigger deal simply because high balances are still prevalent among consumers. From the lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers.

So, one more time. What’s a good target utilization rate for all your revolving credit accounts? No more than 50 percent of your credit limit, and if you can get it significantly lower than that over time, that’s a good plan. The lower your credit utilization, the better your score.

What does that mean for ordinary Americans who don’t meet that under-50 percent goal? It means you shouldn’t be applying for new credit or refinancing for awhile, and that includes something as innocuous as a department store charge.

So maybe that means deferring gratification for awhile until you get things under control. But look at it this way – you can use this time as a way to develop more knowledge about credit and be in a better position long-term. Here are some things you need to know:

You’ll need at least a 740 score for the best rates: You’ll often hear that credit scores of 700 and up will get you best customer status with lenders. That’s true, but you need to aim significantly higher. For the lowest rates and best terms, you need to get your credit score above 740 (the top credit score, by the way, is 850), so keep that target in mind.

Budget: If you’ve never reviewed your spending and picked out areas where you can cut, you’ve never done a budget. Start tracking your spending either on paper or with financial planning software (such as DebtDasher) and start pinpointing what spending you can shift over to paying off debt.

Get some advice: Remember that debt is just one part of your overall financial picture. It might not be a bad time to sit down with a financial planner to talk about your debt issues, planning for retirement, your kids’ college education and any other key financial goals.

Monitor your credit reports: Remember that you have the right to get all three of your credit reports — from Experian, TransUnion and Equifax — once a year for free. You can do so by ordering them at AnnualCreditReport.com. Order them individually at different points in the year. That means you’ll get an extended picture of how your credit picture looks because the three bureaus feed each other the latest information. You’ll also be able to clean up errors as you find them — errors can drag down a credit score – and you’ll also keep an eye on identity theft. Oh, and make sure you use the site above and avoid the businesses that use “free credit report” in their title or a singing pirate as their spokesperson. It’s easy. If they ask for your credit card number, don’t do business with them.

Make electronic payments: Electronic bill payment will allow you to save on postage while guaranteeing on-time payment, and the budgeting advice mentioned above will allow you to put a few more bucks toward getting that loan or credit card bill paid off. It’s important to always pay more than the minimum payment on your bill – otherwise your balance will barely move.

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.

Schedule a holiday budget and credit check: When the triumphant freshman returns home for the holidays, schedule some R&R, home cooking and the first reading ever of their fall budget figures and their first credit reports. Since credit reports can be ordered online, parents and student should sit down with each of the child’s three credit reports from Experian, TransUnion and Equifax and review them for activity and errors. Since everyone is entitled to one free report from each of the agencies each year, go to www.annualcreditreport.com for theirs.

Help them open their first IRA: If your 18-year-old child is earning wages by working part-time at school, at home during breaks or for your own company, have them open a Roth IRA in a growth fund. Make sure they understand this is essential to their future savings so they don’t cash it in. Ask your planner about this.

Discuss identity theft: Personal financial data left on laptop computers, cell phones and other electronic devices can be readily stolen on campus or in a dorm or roommate environment. Tell your son or daughter to keep all paper records in a safe place and introduce passwords to keep all their digital information safe.

Get them networking: Internships and jobs in their chosen field during summer breaks can give your student a head start on their career path. Encourage them to research these opportunities in their freshman year so they’ll be in the front of the line when it’s time to apply.

Handle mistakes carefully: Most kids will make money mistakes in college. If they overdraw a checking account or overdo it with their credit card, make the criticism constructive but firm and always come up with a corrective plan you’ll work on together.

This time of semi-independence can be a great learning time for your children, but it is only semi-independence. Help them through it and the lessons they learn will pay dividends for the rest of their lives.

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.

It’s time to review your goals, personal, financial, and professional. Those personal and professional goals are important, but they are outside the scope of this BLOG, so I will keep to some financial ones. I would share with you my new weight loss goals, experiences in launching a business, or how I can’t get a dog, but I don’t have a personal blog so you will just have to guess.

All your financial goals need periodic review. Is the asset allocation still in line with your time frame? Has the goal changed, or what adjustments do you need to get back on track?

Retirement is the big one, the goal most everyone has on the top of their list. As this very long term goal tends to be the most aggressive allocation it is the hardest hit by market craziness. Just because the target is many years away does not mean you can’t take steps now to build it up. If you find you are behind you may be tempted to try and “catch-up” by taking on more risk. Consider instead making some adjustments in your expectations. Often pushing the target date out a year or increasing savings slightly will get your plan looking healthy again.

With college savings and other goals you typically do not have the extended time frame. If the big bear market of ’08 put you way behind you will need to look at your allocation to begin with, you may have been too aggressive to start. Also, look for ways to reduce these costs. On the education front start situating your student for scholarships and consider completing some GE at a junior college. Saving for a house? Maybe it is time to consider a smaller one, or waiting another year before you buy.

Remember that financial goals are based on assumptions that are, more likely than not, incorrect. The best plans are flexible, dynamic, and can be tweaked to respond to the ever shifting circumstances of the world, and our lives.

Want some help with this? Find a fee-only Certified Financial Planner near you and ask them if this is something they can help you with.

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.