So You Want to Have a Budget?

by Nicole Hanson, CFP®, CLU, MS
Director, Financial Advisory Services

A big part of reaching your financial goals simply involves stashing away money for the future.  Unfortunately, in this day and age, there never seems to be enough time or money.  Many clients have asked how to go about developing and managing a family budget.  There’s no right or wrong way to make a budget, though there are a few things to keep in mind.  A budget, like a diet, won’t work if it is extremely stringent and doesn’t allow for some sweets now and again.  Putting together a spending plan that is reasonable and livable is going to be much more successful. It is also important to commit to spending some time on getting a budget established and then checking in periodically to see how you are doing.  Finally, it helps if all members of the family are equally committed to working within a budget.

In terms of how you set up a budget, you can do so with paper and pen, a simple Excel spreadsheet (I like to use Google Docs so that my spreadsheet is saved in the cloud and can be shared with my husband), and there are also various online budgeting software.  I’ve pulled together a few resources which may be helpful.

Here is a book that you can get in paperback or on Kindle that walks you through the process of creating a family budget and also provides good tips for eliminating debt:

The One Week Budget: Learn to Create Your Money Management System in 7 Days or less! By Tiffany “The Budgetnista” Aliche

Here are a few articles evaluating online budgeting tools to help you select one that would work well for you:

The Six Best Budgeting Sites
Five Best Personal Finance Tools

Once your family budget is up and running, you will be surprised by how much money you find that can be put towards your goals and how much piece of mind comes from having a greater handle on your finances.

We would love to hear feedback from you about how it’s going and what is working well for you, so please drop us a line or send us an email.

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China is Not Collapsing

by Loren B. Kayfetz, MSFS, CFP®, ChFC, CLU

Every commentator has an opinion about what is happening in China and how things must be bad and will continue that way. Fortunately, with over 25 years of experience analyzing China and other Asian markets, including repeated trips there, I believe that the pundits are screaming “fire” so they can get the best seat. While this article is very analytic, the gist of it is that things are not so bad for China:

China is Not Collapsing by Anatole Kaletsky
Used with permission of Project Syndicate

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Strategies to Increase Social Security Benefits, Part 2

by Jonathan Spector, CFP®

Social Security Card

Image source:

We touched on the basics of social security and provided an example of the File and Suspend/Restricted Application claiming strategy that married couples can use in my last article on August 14th. In this article, we will cover the File and Suspend strategy for singles.

The File and Suspend strategy for singles is done more as an insurance policy against potential future health issues rather than an income maximization technique. As with the previous example, one must reach their Full Retirement Age to be able to File and Suspend their social security benefits. Take the following example: Linda has chronic health issues that may affect her longevity. Her full retirement age is 66. Linda is planning to take her social security benefit at age 70 so that she receives the highest amount possible. However, since she has health issues, she decides to File and then immediately Suspend her social security benefit at age 66. If Linda’s health were to deteriorate at age 69, she could re-file and retroactively receive all of the benefits that she would have received had she not suspended her benefits at age 66. Moving forward, her social security benefit would be based on her original filing date at age 66. If Linda, did not File and Suspend her benefits at age 66 and encountered health issues at age 69, she would only be eligible to collect 6 months of benefits in arrears.

We have gone over two strategies that people can use to make social security work for them in a more meaningful way. These two techniques barely scratch the surface when it comes to social security claiming options. Please give us a call if you have found either of these helpful. We would love to help you make the most out of your social security benefit!

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Planning for an El Niño Year

by Nicole Hanson, CFP®, CLU, MS
Director, Financial Advisory Services

RainWhile we are all doing a rain dance in California and hoping for a lot of rain, there can be too much of a good thing!

You may have seen in the news lately that this is an El Niño year—maybe even a “Godzilla” El Niño year, with some sources estimating we are going to get more rain in California than we have had in decades.

El Niño is basically a weather pattern caused by a warmer than usual Pacific Ocean along the equator that typically sends more rain up the West Coast of the United States.

Here’s a little more detailed information about El Niño:

El Niño, explained: Why this year’s could be one of the strongest on record

Q&A: What does “Godzilla” El Nino mean for California?

El Niño doesn’t always mean a lot of rain. However, current data seem to indicate slightly higher than normal rainfall. Also, heavy rains that follow a period of drought tend to cause more flooding because the ground is dry and is not as absorbent as it usually is.

What this means for you:

If you live on the West Coast, it would be a good idea to prepare for heavy rains and possible flooding beginning in October and lasting through February. Here are some things you can do to mitigate flooding and water damage to your home:

Inspect your roof

Look for any missing/damaged shingles and any roof debris in the gutter which are signs your roof needs repair or replacement.  Also, if you have had solar panels or skylights installed recently, make sure any holes that were made in your roof during installation have been properly sealed.

Get your gutters cleaned

This is an inexpensive service that I recommend homeowners do annually. As part of the service the technician will run water through your gutters and recommend any repairs that are necessary.

Have an arborist inspect your trees

Another great service to have done every couple of years.  An arborist can usually spot if a tree is sick and can also remove branches that pose a risk in a storm.

Winterize the Swimming pool

Make sure it won’t overflow in a time of heavy rains.

Inspect your property

Do you see any cracks in any walls or foundation or any water rings or stains on the ceiling? Do you recall places where water has collected in the past? Do your doors and windows close and seal well? Make sure there is good drainage and the drains are not clogged with debris.

Secure Items

Secure or put away lawn furniture, trash cans and other loose items in your yard that could blow around in a storm.

Protect Items in your Basement

Make sure your valuables and heirlooms are off the floor and systems such as your water heater, furnace and electric panel are higher up.  If you’ve had water come in in the past, then it’s a good time to have the basement inspected.  You may need to install a drain or a pump or re-seal the basement.

Insure against the risks you can’t eliminate

Buy Flood Insurance if you are in a Flood Zone and make sure you have riders on your homeowner’s insurance for such things as back up of sewers and drains.

We don’t know for sure what our winter will bring but taking the above steps will help mitigate any damage that might occur and also allow you peace of mind as you continue your rain dance.

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Strategies to Increase Social Security Benefits, Part 1

by Jonathan Spector, CFP®

Couple Enjoying Retirement Horton

Those in or approaching retirement face the decision of how to select social security. Single people have a fairly straightforward task of choosing how to take their benefit while married couples have an array of different strategies they can employ to maximize their benefits. This is part one of a two part series that explores two strategies people can use.

The Basics

One receives what the Social Security Administration refers to as their “full” retirement benefits at their Full Retirement Age or FRA. This would be between the ages of 66 and 67 for those born after 1942.[1] Although you can take social security as early as 62, you reduce your benefit by approximately 5% for each year you take it under FRA. Conversely, you increase your benefit by 8% per year for each year you wait to take social security between your FRA and age 70. You cannot delay taking your social security benefits beyond age 70.

Strategy #1: File and Suspend/Restricted Application

This strategy involves the coordination of benefits between two spouses both of whom qualify for social security on their own earnings record. It works well when the lower earning spouse’s own benefit at age 70 is higher than their spousal benefit.

Take the following example: Suzy and John are married and both are 66 which is their Full Retirement Age. Suzy’s benefit is $2000/month while John’s is only $850/month. John is clearly better off taking Suzy’s spousal benefit which would equal $1000/month (1/2 of Suzy’s benefit). In order for John to be able make a claim on Suzy’s earnings record, Suzy also has to file for social security. Suzy files for social security, allowing John to file for the spousal benefit on her record. However, Suzy immediately suspends her benefit following John’s spousal application. This allows Suzy to grow her benefit by 8% per year until age 70 in which she ultimately files again with a monthly benefit that has grown to $2,720 per month. John’s benefit which is based on his earnings record continues to grow at 8% since he has “restricted” his own social security application in favor of the spousal benefit. At age 70, John switches from the spousal benefit of $1000/month to his own benefit which has now grown to $1,156/month.

[1] Normal Retirement Age, Social Security Administration

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The Cycle of Market Emotions

by Erin Hadley, CFP®
Director, Investment Management Services

Markets move through their cycles: our economy moves from recession to recovery, financial markets have boom and bust periods, and even “cyclical” industries, known as cyclical ones, go through their ups and downs.

And with these cycles, go our emotions: we can range from feeling elated to feeling defeated and anything in between.

While it might seem obvious that the emotions we feel are aligned with the market’s ups and downs (it’s pretty clear that we feel elated when our investments rise and defeated when they fall), the decisions we make as a result of these emotions are often not in our best interests. In fact, they might be downright detrimental to our long-term financial health. Take a look at the following chart:

Where do you find yourself on this chart? What is your gut telling you to do in your portfolio right now?

Often times, we make the wrong decision at the wrong time because of our emotions. This can include refusing to sell something that has experienced a rapid and dramatic rise in value (point of maximum financial risk on chart) because it is “a good investment” or a “winning stock” or refusing to buy something that has lost a larger percentage of its value (point of maximum financial opportunity) because it is a “dog.”

Meir Statman, known as a leader in the field of behavioral finance, writes in a recent Wall Street Journal article that explores the emotional component in greater depth: “So why do so many investors do the opposite, sell winners too early and ride losers too long? The answer is largely in our desire for the emotional benefits of pride and avoidance of the emotional costs of regret.”

It is very difficult to separate our emotions from the decisions we make, but becoming better aware of our emotions can help us to make better decisions.

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Balancing Act: Accumulation, Preservation and Utilization

by Loren B. Kayfetz, MSFS, CFP®, ChFC, CLU

BalanceMuch of the financial services industry is stuck in the acquisition and maintenance of assets mode.  It matters little to them what your life is like, your present and future personal needs, other than those that can be shown two-dimensionally on a spreadsheet. They want to and, frankly, need to, sell you something to make money and add to their big pots of money they manage. And yes, we do this type of analysis too, as it is a necessary component of financial planning.  But, unlike the financial service behemoths such as Fidelity, Schwab, or other traditional planning/brokerage/insurance entities, we recognize that we are dealing with a third dimension to this otherwise flat picture: Who you are, where you are, what you would like to be, both now and into the future.

The Big Guys Want to Control Your Money

As silly as it sounds, the only thing that the big guys want to really do is to control your money.  They do, of course, always have the “best way” to manage it… whether you have figured out the real cost of their services and whether those services are worth what you are paying for them.  But still, they talk about growing your money and living off your money and helping you die with lots of money (so that your beneficiaries can keep on piling that money up with the big guys).

But who are they kidding?  You want to live now, you want to live later, plus you want to be comfortable, relatively safe and assured that your life will be without deprivation. You want to spend some of that money on other things, both now and in the future. How about vacation homes?  How about paying for the kid’s and grandkid’s college?  How about paying off the mortgage? How about travel? How about a more comfortable and safer car?

Achieving a Comfortable Balance

I like to think that we are a step ahead of the big guys, because when it is appropriate and reasonable in regard to your financial position, we tell you to pay off the mortgage, take the trip, buy the condo in Cancun… and we tell you to spend real money out of our management assets to do that.  Perish the thought… we take a pay cut!  But, guess what? This is really what you are paying us for: to help you live comfortably and to do the things you want to do that make financial sense.  Many older generations saved every penny, deprived themselves of many opportunities, and have passed on large sums.  While this is a laudable goal, it isn’t necessarily what most of you reading this want to do.  So, here at Personal Financial Consultants, we want to help you achieve the balance you are comfortable and happy with. We will help you accumulate, preserve and… spend, so that your life is balanced, both now and in the future.

Best regards for a great summer!
Loren B. Kayfetz

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Greece and the Crisis Du Jour

by Loren B. Kayfetz, MSFS, CFP®, ChFC, CLU

Greek FlagEveryone is on the edge of their seat, watching with dismay, as the stalemate between creditors and Greece hurtles down an uncertain path, almost changing dynamics by the minute. Markets throughout the world have been churning up and down in anticipation of this most uncertain of events.

I am reminded of one of Warren Buffett’s most famous takes on the stock market: “To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying – except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”

Well, the possible exit of Greece has certainly frayed investor confidence and given stocks a very bad taste.

But there are a few other concerns on the horizon for shares. The US Federal Reserve is poised to raise interest rates, global economic growth is hardly robust, and the bull market in stocks has been going for a quite a few years now, prompting worries it has to have a correction at some point.

While we are vigilant here at Personal Financial and are watching markets keenly, we know that the best solution is to not try to anticipate sudden events. We concentrate on longer term objectives of a reasonable return with reasonable risk. We know there is opportunity in times of uncertainty. We are comfortable in the knowledge that markets overreact at the moment of crisis and then adjust going forward. However, we know that this type of situation is nerve wracking. Please feel free to contact us with your questions and concerns.

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In The News: Fed Meeting and Interest Rates

by Jonathan Spector, CFP®

Federal ReserveIn our latest Investment Committee meeting, we discussed interest rates. Rates have been near zero for over seven years, and the Fed hasn’t raised rates since 2006. Based on the statement made on Wednesday by Federal Reserve Chair Janet Yellen, the Fed seems to be serious about raising rates by the end of this year.  Many believe that the Fed will raise rates as early September.  Once they begin raising rates, it will be a gradual process over a number of years to return rates to average levels.  We discussed how, historically, rate increases had a positive impact on markets in the initial stages.  We reviewed how we are currently diversifying clients’ bond holdings in light of impending rate increases, which can negatively impact bond performance.

We also discussed that, from a financial planning perspective, now is a good time to refinance debt such as home loans, auto loans and student loans, as the current rates will not last too much longer.

For a couple of good reads regarding the impact of the Fed’s rate increases, check out these articles:

When Will the Fed Raise Rates?

Who Wins, Who Loses When Fed Raises Rates

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Money Can Buy Happiness

by Nicole Hanson, CFP®, CLU, MS
Director, Financial Advisory Services

AdventurersAs financial planners we are often encouraging people to save and invest money for the future.  However, we also know it’s healthy to spend money to a certain extent and new research indicates that when it comes to spending money, experiences matter, not things.

This is a great article on how you can spend money in such a way that can increase your happiness: The Science Of Why You Should Spend Your Money On Experiences, Not Things. Hint: it doesn’t involve buying material things. As Dr. Thomas Gilovich observes in his research: “You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”

We see this reflected in many of our happy clients’ spending.  For example, we’ve had many clients take their families on a cruise, to Disneyland, or on a summer vacation by the lake.  These shared experiences are a source of good memories and joy that last for years to come.

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