Financial Awakenings

Steps to Take While You're Holding On

From Rick Kahler

This is not a “happy talk” column, suggesting all you need to do is hold on and things will be back to normal in 12 months. This is “real talk” on what you can be doing now to make sure you weather the coming years in as good shape as possible.

As summed up by my good friends and colleagues, Dick Wagner, CFP®, and Mike Haubrich, CFP®, what we need to do is simple: earn more, spend less, save more, and not do anything stupid.

These are simple concepts, but that doesn’t mean they are easy to follow. Most Americans have found these ideas to be profoundly difficult to practice. Here are a few suggestions that might make it easier.

1. Earn more. Your first response to this may be, “I can’t earn more,” and maybe you can’t. But maybe you can. For most of us, earning more will mean working harder. It may mean getting a second job or sending a non-employed spouse back into the work force. For the newly retired it may mean going back to work, even part time. Maybe it means babysitting for family members or offering to do domestic chores once a week. Maybe you have a hobby, such as quilting or woodworking, that could become a source of supplemental income. Be creative; have a brainstorming session with your spouse, friends, or others you respect to see what ideas you might come up with.

2. Spend less. To spend less, you need to first know what you are spending. This is important. Do whatever you need to do to become conscious around how you spend your money. Get a personal accounting package like Quicken or Mint. Entering your spending for the last year may take you a weekend, but it’s essential to know the past.

Don’t stop there; use the software’s budgeting feature to estimate what you will need to spend for the next 12 months. One suggestion is to divide your spending into three “buckets”: fixed expenses (rent or mortgage, health insurance, utilities, taxes), future expenses (emergency fund, saving for major expenses such as cars, retirement savings, college savings), and lifestyle expenses (groceries, eating out, entertainment, personal care, subscriptions, memberships). As you go through your expenses, stop and seriously consider each one. Which ones are genuinely fixed at their current amounts? Which are necessities you might obtain for less? Which are largely discretionary?

For a list of money saving tips, go to my website at www.kahlerfinancial.com and enter “thrifty way” into the search box.

3. Save more. This is where your future expenses come in. Start a savings account for any future spending goal like financial independence (retirement), holiday giving, vacations, house and auto repairs, college tuition, etc. If you need help, it may be a wise investment to hire a bookkeeper for a few hours, have a session with a financial planner, or enlist the help of a financial coach.

4. Don’t do anything stupid—quitting your job impulsively, investing a chunk of money in a home business without checking it out carefully, or falling for get-rich-quick scams. “Doing something stupid” might also include not making any changes. Continuing to do what you’ve always done will only produce the same results. You don’t keep books or have a budget? How has that been working for you?

What all these steps add up to is learning to do more for less. It requires effort, commitment, and creativity, but it can be done. Yes, getting through tough times means holding on and waiting. It also means doing what is necessary to take care of yourself and your family.

What's Your Reason for Watching "The Apprentice"?

My favorite TV show theme song is The Apprentice’s “Money, Money, Money.” On rare occasions I have even been known to join my five-year old son, Davin, in jiving to it. Being the entrepreneur that I am, I enjoy watching the show to see the creativity and management decisions made by the contestants as they are given their various challenges.

A recent survey by Pew Research Center, reported by USA Today, suggests that many younger Americans watch shows like The Apprentice for a different reason. It feeds their dreams of becoming rich and famous.

Now, I have no problem with someone desiring to be rich or famous. Youthful dreams are important. Still, having a dream that requires a lot of money, as many do, is completely different from having a dream that’s limited to having a lot of money.

The Pew survey found that 81% of those aged 18 to 25 have a number-one goal of being rich. The second most important life goal for 51% of the respondents was to become famous.

The interesting twist is that today’s youth don’t seem to want to become famous as entertainers, writers, actors, etc. Instead, they want to become famous for being themselves, as modeled by many of the winners of reality shows.

A 2005 survey done by Higher Education Research Institute reported similar results, with 75% of college freshmen saying it was “very important” or “essential” to be rich. In 1967, only 42% said being rich was essential. It’s not surprising to note that, in 1967, 86% of college freshmen said it was “very important” or “essential” to “develop a meaningful philosophy of life.” In 2005, only 45% said the same.

The fact that eight out of ten young adults want nothing more in life than to be rich is troubling to me. I was under an illusion that the young people of today were actually more altruistic than when I was a teenager.

It is some comfort to realize that my own views on wealth and riches have changed over the years. Had I been one of those freshmen polled in 1967, I would been among those saying that being rich was essential.

Thirty years later, I see things differently. First, “rich” is relative and elusive. I’ve discovered that once a person earns more than $50,000 a year, rich is more a condition of the mind than the net worth statement.

Second, in my career I’ve worked with some very rich people and some very famous people. They have helped me see that being rich or famous offers its own unique challenges. I’ve truly come to value the previously unappreciated benefits of being upper middle class and unknown. One of those benefits is that I can be loved and accepted for who I am, rather than what I have or what I could potentially do for someone else. The rich and famous don’t have that luxury.

I wrote this on a plane, bound for a meeting in Florida. Sitting next to me was a 63-year-old retired CPA, a man well acquainted with money matters during his career. He told me what a privilege it was for him and his wife to live in the same town with their grandchildren. He summed it up by saying, “It doesn’t get any better in life than having good relationships with family and friends. That’s really what life is all about.”

If today’s 18-25 year olds are polled again when they are 63, I’m guessing at least 81% of them will agree. The older we get, the more we come to realize that it’s not about the money.

CFP With Passion Wanted

As our clients know, we are growing. As a result, we are looking for the right Certified Financial Planner to join our team. 

Being a CFP® in a fee-only financial planning practice, while a rare opportunity, is not for everyone.  A fee-only practice is far different from the brokerage world, where product is king and production is mandatory. At KFG, we don't sell any products, so the client is king and technical knowledge is mandatory. 

Candidates must have a CFP® designation or be in the final stages of obtaining it. More importantly, a candidate must resonate with our vision of integrated financial planning and be willing to relocate, preferably forever, to Rapid City, South Dakota.

If you know of someone who would fit our high standards, please let them know about this opportunity. We would love to visit with them.

Rick In The Washington Times

Rick was recently quoted in a Washington Times story by Karen Goldberg Goff, "Always In Hock."  The article, which ran on Sunday, January 7th, 2007, profiled overspending couples. 

Goff says of Rick, "South Dakota financial planner Rick Kahler, author of the book The Financial Wisdom of Ebenezer Scrooge, says overspending has little to do with how much money one makes. "I can think of one couple who makes $350,000 but spends $400,000 and one who makes $700,000 but spends $1.2 million," he says. "It is totally relative. One can make $30,000 a year and overspend as easily as someone who makes a million."

Probably the most notable aspect of the article to those close to Rick was the fact that he originally thought he was interviewed by the Washington Post and was calling his DC friends asking for copies.  He now has several copies of the January 7 Washington Post!

One other notable correction that was left out of the story was the fact that Rick is not THE author of The Financial Wisdom of Ebenezer Scrooge, but a co-author with Drs. Ted and Brad Klontz.

You can read the article by clicking here.

Home Ownership--The American Dream for Everyone?

Listen to Rick's Column Here or Watch Rick's Column Here

Owning your own home is an integral part of the American Dream. Like every dream, however, it isn't necessarily the right decision for everyone. Let's take a look at two examples of people who chose to rent rather than own.

Tony is a middle-aged man who has never married. For the past 15 years he has lived in the same small, inexpensive apartment. It is comfortable enough and certainly adequate, but that's about all that can be said for it. Tony doesn't care. He prefers to spend his discretionary funds on boating, snowmobiling, skiing, and travel. He also spends his free time on those activities instead of having to maintain a house and yard.

The Thompson family lived in a small rented house for nearly 20 years. The rent was low, which allowed the husband to do modestly-paid work he loved and allowed the wife to stay home when the couple's two children were young. Eventually, however, the marriage ended in divorce. Mrs. Thompson stayed for a time in the rental house, then decided she wanted a place of her own. Even though she was working and earning enough to live comfortably, she had a terrible time finding a house she could afford to buy.

In these two examples, renting was clearly the right choice for Tony. To me, at least, it was the wrong choice for the Thompsons. One important difference? Net worth.

Tony spent his money on things that brought value to his life, which included securing his financial future. While living in his modest apartment, Tony was investing. The money he didn't need to spend on housing went into mutual funds. Today, he has a substantial portfolio. If he chooses, he can quit work in another ten years, with enough income to travel, ski, and go boating as much as he wishes.

The Thompsons, on the other hand, saw renting instead of buying as a way to live on one income and raise their children in the way that was important to them. This was certainly admirable and worked well for them. However, the couple never managed to invest anything substantial for their retirement. Even when Mrs. Thompson took a job after the children were teenagers, her earnings went to help put them through college.

When the Thompsons divorced, they had no debt. Neither did they have any substantial assets. With no equity in a house, no investments, and little savings, to call their net worth "modest" would have been an exaggeration. Buying a house some 20 years earlier would possibly have been difficult and involved some sacrifice for the first few years. As their earnings increased over the years, however, the payments would have stayed the same and therefore taken a smaller percentage of their income. By the time the marriage ended, the house would have been nearly paid for. The shared equity would have given each of them something with which to start their new lives.

The second mistake the Thompsons made was to devote the wife's earnings to the children's education at the cost of their own future financial security.

Financial planners generally do not consider clients' homes as part of their assets. We consider home ownership as providing a place to live rather than as an investment. In most cases, however, it does also help build net worth.

Renting instead of buying can certainly work well for some. It is essential, however, to create net worth at the same time. Long-term renting can be a wise choice when renting costs substantially less than owning (think beaches and big cities), when you move frequently, or when you invest enough to assure your financial independence.

It's OK To Spread Our Newsletter Around!

KFG clients are certainly spreading the word about our services. In the past six months, we've taken on more new clients as a direct result of your referrals than ever before. We are honored and humbled every time we receive a referral. In our book, that is the highest compliment a client can give us.  We want to thank all of you who have told your family and friends about us. Referrals are the number one way we grow our business.

Some of you have asked how you can put information on KFG into the hands of your friends and family. The easiest way is to simply put our weekly newsletter in their inbox! Just give them our website address, www.rickkahler.com. By going to our website, anyone can sign up for our weekly newsletter by entering their email address in the upper left hand corner of our home page. That is all that is required. It's quick, simple, and non-intrusive. 

Then, every Tuesday, they will receive the "non-client" version of our newsletter. The "non-client" version leads with our weekly column and eliminates any news items that would only be of interest to KFG clients. So, go ahead and spread the KFG newsletter!

Past Performance is No Guarantee of Future - Even with Cruise Lines

Listen to Rick's Column Here or Watch Rick's Column Here

My family and I spent Christmas taking my daughter's "dream vacation," a Caribbean cruise. I'm not much of a sun, sand, and sea guy, so my enjoyment of cruising is based on relaxation and good food. I prefer to select a larger ship that has all the amenities and a well-rated specialty restaurant.

On this particular trip, however, I decided to make cost the priority. I selected the smallest ship in the Celebrity fleet, the Zenith, knowing it didn't have a specialty restaurant. Still, the price was attractive; almost too low, in fact. There had to be a catch.

I asked the reservation agent what the catch was. He said the ship was being sold in April 2007 to another company. Since this was an obvious red flag, I asked why the ship was being sold. I was told it was because it lacked Celebrity's trademark balconies, and it was being replaced with an even smaller ship that had balconies. I decided this wasn't a problem. Being the value-oriented shopper that I am, I don't purchase outside cabins, preferring the cheaper inside staterooms.

Still, I thought I should do a little more checking on the Zenith. I grabbed my trusty Berlitz Guide to Ocean Cruising and Cruise Ships and looked her up. They gave the ship four out of five stars and a pretty good review. I checked with www.cruisecritic.com, which gave her a favorable review and rated her equal to the Galaxy, a ship our family had previously enjoyed. Having done my due diligence, I booked the cruise.

Within two hours of boarding the Zenith, I knew I had made a big mistake. The ship was a broken down mess. There was peeling paint and rust everywhere. The decks were dirty, the furnishings were worn and tattered, and my toilet didn't work for two days. The computers didn't support the programs I use to access my office desktop. The gym didn't have complete sets of weights, yoga mats, or fully functioning treadmills. The kids' play area was so small and sparse that we had to beg our kids to go there—a first.

It was what you might expect of a ship being sold soon, where the owners were doing everything possible to minimize capital improvements and milk every last bit of use out of her.

Fortunately, not everything was a mess. The food was very good and the showers had plenty of hot water.

All in all, London's "dream vacation" wasn't what I had hoped for. Still, I can't look back and beat myself up too much about my selection process. I was reasonably thorough in my due diligence. There simply are limits to what one can research.

In part this is because the information available about a product, a cruise ship, or an investment is based on past performance rather than current or future conditions. Brokers who sell investments often rely on "past performance" as a selling point. What they tend not to mention is the fact that changing market conditions and many other factors can turn past performance statistics into a bunch of irrelevant numbers. In addition, there is always the occasional investment where everything appears to check out fine, but reasons no one could have anticipated make it turn sour.

Is it a mistake to trust a brand name or rely on past performance? Not necessarily. What is a mistake is to assume that those elements are a guarantee of satisfaction. Whether it's a cruise ship or an investment, it's important to do as much research as you can. It's just as important to accept the truth that sometimes the reality won't live up to your expectations.

Olivia Mellan Interviews Rick on Marriage and Money

Listen to Rick's first interview of 2007 with talk show host Olivia Mellan, on WWDB-AM 850, an exclusive financial news and information station in Philadelphia, PA.  The topic of today's interview was how money issues can destroy a marriage relationship.  Learn how you can identify trouble spots and what to do, before it's too late. Click here to listen.

KFG Clients Can Now Automatically Reset Passwords on AdvisorClient.com

Upon login to the AdvisorClient website, KFG clients will be given the opportunity to enter a secret question and answer to help you access your accounts if you forget your password. The new process can then be used to reset the password you were given initially. Rather than calling our office, you can now simply click the "Forgot Your Password?" link on the login page. This new enhancement should save you time and make accessing your account at TD Ameritrade easier.

Thoughts for a Prosperous New Year

On the first day of a new year, my thoughts and hopes for each and everyone of you is for a rich, prosperous new year.  Of course, being a financial planner, that would include hopes that you will make wise money decisions and that your net worth and income will increase. 

My wish goes further than increased financial gains, it is a wish that your money will be more of a servant this year than it has ever been to support your dreams, desires, and values. 

For some, prospering may include increasing your net worth, cutting spending, or raising your income.  For another it may include decreasing your net worth by spending more than you ever have in the past to support what is really important to you in life.  As my coach often asks me, "What do you want to do with your one precious and wild life?"

Every person has the opportunity to write and live our definition of "rich" and "prosperous."  The first step in writing your definition of "rich" and "prosperous" is knowing what those words mean to you, maybe that's a great place to start the new year.

My hope and prayer for each one of us is that the definition we write and live is the definition that makes our heart sing and allows our spirits to soar.

Giving Liberally? Or Conservatively?

Watch Rick's Column Here or Listen to Rick's Column Here

Until recently, I was convinced that Ebenezer Scrooge was a conservative, at least before his transformation. His refusal to give to the poor at Christmas time personified our perception of a conservative as cold-hearted, stingy, and even miserly. I would also have given you high odds that his loyal clerk, Bob Cratchit, was a liberal.

Now I am not so sure.

In late November, John Stossel’s ABC special 20/20 report, “Cheap in America,” changed that probability 180 degrees. Indeed, the preponderance of the evidence suggests the stingy-hearted Scrooge was most likely a liberal and Cratchit a conservative.

Let me explain. Stossel’s report centered on Arthur C. Brooks' new book, Who Really Cares. The book examines our societal myths around giving and then reveals the facts. The focus of the report was on what and how much Americans give. It caused me to pause and consider a few of my own unconscious beliefs around giving.

One of those was a belief that “liberals” give more than “conservatives.” I’ve always assumed that those who are philosophically identified as champions for the poor and downtrodden would give more to those in need than would conservatives. Conservatives, after all, philosophically embrace individual responsibility and capitalism, both attitudes having less "heart" than a more liberal philosophy, right?

Not true. According to Brooks, of the top 25 states where people give the greatest amount of money in relation to their income, 24 are "red" states. In fact, conservatives give 30% more than liberals and actually make less. This turns my stereotyped money scripts on their noses. There must be some mistake. Why are the people identified more with championing the issues of the poor apparently champions in word only and not in their actions? That almost sounds hypocritical.

Stossel suggests that at the core of progressive philosophy is a belief in large government, as well as a belief that it is the government’s responsibility to aid and support the poor through the redistribution of wealth. People who believe it is the government’s job to make incomes more equal are naturally less disposed to giving.

Another predictor of a person’s generosity is whether the person is religious. Religious individuals give four times more to charity than the non-religious, and interestingly enough, not just to their churches. They give more to other charities, to the homeless, and even more blood to local blood banks.

I found it interesting, however, that Stossel suggests the best thing for billionaires to do is not to give away their money at all. He contends that the wealthy, through investing their money, create more jobs than government or charities. According to him, “Creating jobs is a better way of helping people than giving money away.”

Maybe tight-fisted rich liberals who don’t give to charities aren’t as selfish and "Scroogish" as Brooks' findings would seem to indicate. By keeping their money working to create more money, via creating jobs, they may actually be doing more for the poor. To me, this sounds like what I've always thought of as classic conservative thinking and behavior. Now we know it is just the opposite, since conservatives are givers and liberals are hoarders and even the real “job creators.”

Could it be that the conservatives who give are really the liberals, and the liberals who keep their money are really the conservatives? I suspect that once this information is disseminated, there are going to be a lot of very unhappy liberals who find out they are really conservatives.

That shock may be greater than the shock Ebenezer Scrooge felt when he saw his ghostly visitors. But who knows? The experience may be equally life-changing.

The "Best" Gifts

To Watch Rick's column:  Click Here or To Listen to Rick's column:  Click Here

One of the concerns parents of young children have around Christmas is teaching the kids to value giving as well as receiving. Many of us have difficulty with our own contradictory impulses. We don't want to turn our kids into greedy little monsters, but at the same time we want to give them the best gifts and experiences we can.

This week I had a chance to think about this dilemma in a new way. I was talking with my daughter about our cancelled November family vacation. Due to last-minute chicken pox, we weren't able to go on our planned Athens/Istanbul/Egypt/Rome/Barcelona cruise. Instead, we're taking a shorter and, to me, less interesting cruise. As you read this, I may be on a beach somewhere in the Caribbean.

My daughter almost certainly will be on the beach. As we talked about the changed vacation plans, tears welled up in her eyes and she said, "Dad, the Caribbean cruise is my dream vacation."

"So you're really glad that Davin got the chicken pox and our European cruise was cancelled?" I asked.

"Yes. Dad, I've wanted to go to a beach for years now. I mean, you can only look at so many columns and crumbling rock."

Twenty years ago, I am positive my reaction would have been, "Oh, no! Am I raising a spoiled little brat?" At the ripe old age of ten, London has been to Europe at least four times. At that same age, I was pretty much resigned to the fact I would probably never have enough money to travel abroad.

Instead of responding in that manner, however, I was intrigued by her thoughts. Actually, quite pleased. While I do my best to find great values in cruises, it still costs about 50% more to take the kids to Europe than to the Caribbean. Before London had finished her sentence, I had calculated that Marcia and I could hire a babysitter for two weeks of "Parents Only Time," plus take the kids on a separate Caribbean cruise, for the same money it would cost to take them on the European cruise. It would be a win-win for all of us—a beach and kids club vacation for the kids, plus time for Marcia and me to pursue our passion of seeing the world.

This conversation reminded me that choosing "the best" for our kids doesn't necessarily mean getting the gift or experience that is the most expensive or that seems the most attractive to us as adults. A good example of this might be the traditional family dream vacation to Disney World. For toddlers, who need naptime and who are too little for most of the exhibits, a place like Disney World is too big and overwhelming. They'd be happier with a couple hours at a local attraction like Rapid City's Storybook Island.

So if you weren't able this Christmas to get your kids "the best" gifts, don't feel you've failed them. They may well be just as happy with something less lavish. Remember, too, that today's must-have toy often ends up as tomorrow's disregarded clutter.

A case in point. My son, with enough toys in his room to fill a flea market booth, has spent hours this week playing in the dirt of a planted pot. He assembled the volcanic rocks into a manger for the baby Jesus from our nativity set. Today the only other actors are a few sheep. Mary and Joseph were there yesterday, but I guess today they are out shopping. Maybe they are looking for the perfect gift for their special child.

The "Plum Pudding" Was To Die For!

OK, so the cake didn't flame properly, but that didn't really matter. It was the best plum pudding ever. At least that was the opinion of those who had ever had plum pudding. And the brandy butter that topped each steaming hot piece was scrumptious.

You may remember, in the movies made of A Christmas Carol, that the highlight of the feast is when the lights are turned out and Mrs. Cratchit brings in a flaming dessert, the plum pudding. This presentation is traditional in England, so when the cake doesn't flame, they consider it a disaster, as did our English caterer, Cathrine. However, she was the only person who thought the lack of a properly flaming pudding was a problem. The pudding was so good, no one else really cared!

This is not to say that the dozen or so other goodies handmade by Catherine weren't good, too. We had scones with clotted cream, mince pies, marscapones, and other goodies, of which I've forgotten the names. 

We even had English "poppers," a traditional English Christmas tradition where two people pull on a wrapped up tube and the person left with the majority of the popper wins the nifty little gift inside.  Here is a picture, including all of your loyal staff--Tyler Pruess, Darla Creal, Rick Kahler, and Lindsay Luper--wearing their "popper" gifts. I want to assure you that there had been no over-consumption of alchohol or plum pudding that induced those in the picture to don the silly hats and mustaches! 

When you added the wonderful conversations and interesting people that were at the party, our annual Christmas Open House was indeed a heartwarming event. Our thanks to all who attended.

More Scrooge Reviews

The financial press is taking advantage of the season to review The Financial Wisdom of Ebenezer Scrooge, the book I co-authored with Drs. Ted and Brad Klontz. So far the reviews this month have reached a readership of over 1,700,000 people. I am hoping that just 10% of them will buy the book!

Here are the links to the recent reviews by Eileen Smith of the New Jersey Cherry Hill Courier-Post, Susan Morris of the The Pittsburgh Tribune-Review, and Greg Wiles of the Honolulu Advertiser.

In her review, Morris pens, "If you like self-help books (I do), you may find the exercises in the book useful. Ebenezer Scrooge transformed himself in 12 hours. It's likely the rest of us will take considerably longer. But it's never too late to start."

They were both great reviews, even considering the fact that the copy desk of the Tribune decided to improve upon the spelling of my name.

Silent Heights

No, I am not talking about the famous Christmas carol, Silent Night.  Neither am I talking about a chemical high or scaling a mountain at night. I am talking about the Dow's new high that it hit last Thursday that, once again, was found anywhere but on the front pages of newspapers. 

This is good news! When any investment or financial trend starts gracing the front pages and the covers of financial publications, the party is usually winding down. I said last month that this bull market would probably be with us for a while, and so far that's been the case. The fourth quarter was another outstanding one for diversified investors, just like the fourth quarters of the past three years.  Maybe there is something to the "sell in warm weather and buy in cold weather" philosophy.