Financial Awakenings

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.

Holding the Boss Hostage

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Some years ago I had an acquaintance who owned a small business. After a burglary at a neighboring business, he had an electronic security system installed. He was so uncomfortable with it, however, that he refused to learn the code for shutting off the alarm. If he wanted to get into his own building after hours, he had to get one of his assistants to let him in.

This man had put himself in the position of being a hostage to his employees. The term “hostage” may be a bit of a stretch. Still, I have recently realized how vulnerable a position you are in as a business owner if you are ignorant about day-to-day operations. Staff turnover in my office has forced me to become more involved in those operations, including a crash course in learning some complex new software.

If you own or manage a small business and are too much of a “hands-off” boss, your position of authority may be more illusion than reality. If you can't find what you need in the files (paper or electronic), don't know how to contact the company that clears snow from your parking lot, or don't know how much money your company spent last month, you may be allowing yourself to be dangerously dependent on those who work for you.

Being the boss, as any business owner can tell you, means that you are responsible to your employees as much as they are responsible to you. Mutual trust is essential if you want your business to flourish. That trust, however, doesn't mean taking yourself out of the loop. Part of being a good manager is knowing when and how to delegate. At the same time, it's unwise to delegate so freely that you isolate yourself from the daily operations of your business.

Here's a basic list of obvious but often overlooked things an owner or manager ought to know:

· How the accounting system works.

· Exactly what money is coming in and what is going out, including signing checks or approving expenses and being kept up to date on accounts payable and accounts receivable.

· How to use essential software (accounting, invoicing, inventory, etc.), including access to all employee passwords.

· The filing system—how things are organized and what is kept where.

· Who does what—the job descriptions and specific responsibilities of all the employees.

· Contact information and contract provisions for companies or individuals who provide maintenance, technical support, or other services for your business.

If you operate a business, your education is probably in the "what" of that field rather than the "how" of running a business. Your training has taught you how to be an engineer, a plumber, a mechanic, a doctor, or whatever it is you do. It hasn't necessarily taught you how to run an engineering firm, a plumbing business, a repair shop, or a clinic.

Part of your job as a business owner, then, is to provide that training for yourself. You don't have to get an MBA to do so; all you have to do is ask questions. If you don't understand the monthly financial statements or know how to use your accounting software, ask your CPA or your bookkeeper. If you have no clue about the filing system, ask the secretary or office manager to explain it.

I'm not suggesting that the owner should have a finger on every detail. Micromanaging isn't a good way to run a business. Yet—as I can attest with my newfound software skills—knowing what's going on is a boost to a boss's security, confidence, and ability to delegate wisely.

A Question of Trust

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Having a nameless and unknown thief break into your house or office and steal would be a frightening experience. I've heard people who have gone through it describe feeling violated. It takes time to regain a sense of safety after your space has been invaded.

It is almost worse to learn that someone has been abusing a position of trust by systematic theft. In addition to having your security and comfort violated, there is a sense of betrayal. That's what my wife and I felt when we learned that the babysitter we liked and trusted had been cold-bloodedly stealing from us for months. Her recent sentencing has once again brought those feelings to the forefront.

As I’ve talked with friends and colleagues about this experience, several of them shared similar stories. All of our discussions had a common thread. We all had been left pondering two questions. The first was, "How can I keep this from happening again?" The second was, "How do you know when you can trust someone?"

The first question was in some ways the easier one. I had to ask myself what I might do differently in the future. How might I protect myself, yet not become paranoid and unreasonably mistrustful?

Some aspects of preventing this particular type of theft in the future were embarrassingly simple. First of all, I needed to stop keeping cash too easily accessible. In addition, it was my failure to review Jill's timesheets regularly that had allowed her to get by with overstating her hours. As the person who signs the checks, verifying a statement or invoice is ultimately my responsibility, one I need to do more carefully.

Several friends also said that such an experience had led them to review their systems for handling payments, invoices, and cash in their businesses. All too often, there was no systematic method designed to guard against dishonesty. A way of handling money had been developed, sometimes quite haphazardly, based on the undoubted integrity of one or more employees.

What needs to be in place instead is a system that is independent of the character of individual employees. It isn't a matter of trusting or not trusting specific people, but of having a reliable and neutral method of tracking what comes in and what goes out. This actually serves to protect employees as well as the employer.

The problem of how much and whom to trust is more difficult. My wife and I have been severely shaken by this betrayal, and so have other long-time and trusted employees. I also am questioning my ability to judge someone’s character. It was amazing to watch Jill's behavior once we knew she had been stealing. She was as friendly and apparently open as she had ever been. It was as if she were able to completely dissociate her act of stealing from her relationship with us. That is perhaps the scariest issue about her theft.

I now am assessing all my relationships. Who else might be stealing from me? Who else is in my life that I should not trust? I am wondering whether I have been too naïve when it comes to trusting employees. My style of management requires a high level of responsibility and trust from my employees. I don’t want to give up that style and that attitude. I don’t want to believe that most people cannot be trusted.

My conclusion is that I should not give up trusting, but should offer my trust more consciously and responsibly. Perhaps I need to follow the old Muslim proverb: “Trust in Allah, but tie your camel.”

The Case of the Nefarious Nanny

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About a year ago, I filed felony theft charges against one of the last people I ever thought would steal from us—our children’s primary babysitter. Jill (not her real name), a college student, worked for us for three years. She stayed with the children several times when my wife and I were out of town. She was a trusted employee who became a family friend.

Everything was fine until we began missing cash from my wife's purse and from the spending money I kept hidden in the house. We weren't leaving cash around in plain sight; someone had to be searching systematically for it. We started an investigation, including setting up a surveillance camera, and before long we caught our thief in the act. My wife and I were dumbfounded that the culprit was Jill.

We were even more shocked when we reviewed Jill's time sheets. She submitted them to one of my staff members who made out checks, and we hadn't been checking them because we trusted Jill. We learned she had been overstating her hours by four times.

At first we were tempted to just confront Jill, get as much money back as possible, and let her go. Because we had known and trusted her for several years, it was hard to consider turning her over to the police. Maybe just being caught, we rationalized, would teach her a lesson.

Finally, though, we decided we needed to press charges. This was no impulsive, petty theft, but systematic robbery of significant amounts from people who trusted her implicitly.

I also remembered the experience of a friend who had discovered a trusted employee was embezzling from his business. He found out later that she had done the same thing earlier in a previous job. That employer had chosen not to press charges, but had let her go after she reimbursed what she had stolen. Instead of learning from the first experience not to steal, she was merely released to go and steal from a new employer.

This story reinforced the position that it would be wrong to let Jill get by without serious consequences for her theft. It became clear that we would be doing no favors—either for her or for her possible future victims—by failing to hold her accountable for her actions.

When we confronted Jill, she admitted she had been stealing from us. She had no explanation for her behavior other than to say she realized she had a problem and had no clue why she stole. I gave her the name of the detective I had previously talked to, and she agreed to turn herself in. When she did, she confessed to stealing around $2,000 in cash. In actuality, it was many times more than that.

It took over a year for Jill to finally agree to a plea bargain and plead guilty to the felony charges. At a recent hearing, the judge sentenced her to 10 years in the penitentiary, suspended her incarceration and put her on probation for 10 years. She will serve 90 days in the county jail on work release, pay a $1000 fine plus court costs, go to counseling and do community service. She will also have to make restitution, in an amount to be set at an upcoming hearing.

My wife and I are relieved that the case has finally been heard. Yet it doesn't feel "over." This whole incident has left us feeling sad, angry, and confused. We still struggle with the reality that someone we regarded as a friend could betray us so badly.

Money Secrets or Money Privacy?

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One of the projects I'm currently involved in with co-authors Ted and Brad Klontz is a book for couples about financial infidelity. In that work, a question that came up is the difference between financial secrets and financial privacy.

Our society does not encourage us to talk about money in personal ways. For example, making a public announcement of your salary, your net worth, or the amount of your debt would be a social faux pas. On the other hand, we tend to expect couples to be completely open with each other when it comes to money. In most cases that expectation is reasonable and useful. Keeping financial secrets within a marriage can have lasting and destructive consequences.

Yet where do couples draw the line between keeping harmful secrets and respecting one another's privacy and autonomy? This can be a complicated question for any couple. It gets even trickier for two-career couples, those in second marriages, and those in non-traditional families.

One thing we tell couples in our Healing Money Issues workshops is that each of them needs to have a certain amount of money that is theirs to spend in any way they wish. The amount will vary according to the family income, but having this separate personal allowance is important. It gives both partners a chance to spend some guilt-free money on themselves. This money is clearly private.

Other situations are less clear. Here are some possible circumstances where limits on a spouse's knowledge might constitute privacy rather than secrecy:

· The couple has agreed to keep their income and assets separate and has established a method of sharing the expenses (such as housing) that are their joint responsibility.

· One spouse owns a separate business with which the other spouse is not involved. It's reasonable for the non-owner spouse to expect to be kept informed of the business's earnings, significant changes or problems, and the like. The details of its day-to-day affairs aren't necessarily the non-owner's concern.

· One spouse manages the financial affairs of an elderly parent or other relative.

· Spouses in a second marriage have children from previous marriages and have brought separate assets into the marriage.

In any of these examples, it's not possible to define a one-size-fits-all boundary between privacy and secrecy. Each couple needs to draw that boundary for themselves, depending on their particular circumstances.

One factor in establishing such a line could be how much support or help spouses might need from each other. If you are paying your mother's bills, for example, you might want your spouse to be able to step in at times you aren't available. If you own a business, you might want your spouse to know enough about it so you can discuss problems or plans for the future.

Another significant factor might be other relationships and commitments within the family. Suppose you are in a second marriage and have adult children who have previously been told they will inherit your assets. Keeping those assets separate from your spouse's assets might be the best way to avoid confusion, misunderstandings and hurt feelings.

The key to deciding whether keeping a money issue separate is secrecy or privacy is the reason behind the decision. If you don't have a lot of energy around the matter one way or another, it's probably a privacy issue. If you would feel embarrassed, ashamed, or otherwise uncomfortable with your spouse knowing something, it's probably a potentially destructive secret. There's a simple way to judge: if you really, really don't want to talk about it, talking about it is probably exactly what you need to do.

Baby, It's Hot Outside

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Having lived in Rapid City all my life, I thought I'd experienced about every type of weather there is in this region. Our weather can change on a dime. I've seen the temperature go from 20 below to 67 above within 36 hours. I've witnessed hailstorms, tornadoes, drought, and devastating floods.

But recently I've experienced something new—temperatures of 110 and higher. For the past two weeks, we've had almost daily temperatures over 100 degrees. One day the mercury climbed to 113.5 degrees at my house. Thank God, the humidity was only 10 percent. I can't even imagine what 110 degrees must feel like in Miami or Chicago.

The Dakotas are taking the brunt of a drought that is affecting the entire midsection of the United States. I also notice that London hit a high of 98 degrees a few weeks ago. This is devastatingly hot in England, where anything above 80 is a serious heat wave.

All of this leads me to believe that the "theory" of global warming has become reality. A friend of mine observed that the only question left for debate about global warming is why it is happening.

About six months ago I ate dinner with a high-ranking official from Shell Oil. I asked his opinion of global warming, and his answer surprised me. He said the fact that the planet is warming is a foregone conclusion and that CO2 emissions play a significant role. I had expected quite the opposite reaction from one of the largest petroleum companies in the world. He indicated that Shell was aggressively developing alternative fuels.

Global warming is the main topic of debate on one of the online financial planning forums to which I belong. The general consensus among scientists seems to support the Shell Oil executive's statement. I've been told that CO2 particles in the atmosphere have averaged below 300 ppm (parts per million) for most of history. These levels have recently risen to 379 ppm and are currently increasing at about two ppm per year. At this rate, in about 10 years CO2 emissions will reach 400 ppm, which one source has determined to be a tipping point where reversing the trend will be improbable.

One source indicates that the US is not the main culprit in global warming, as we account for only about 25% of the elevated levels and none of the increase. According to a DOE report, the US, Europe, and South America have virtually frozen annual CO2 emissions increases since 2000. (www.eia.doe.gov/pub/international/iealf/tableh1co2.xls)

Who, then, is the biggest culprit when it comes to increasing CO2 levels? It is China, with a 60% increase in emissions since 2000, and more specifically, it is Chinese coal. According to the DOE, in 2003 China accounted for over half of the total global increase in CO2. "The International Energy Agency in Paris predicts that the increase in greenhouse gas emissions from 2000 to 2030 in China alone will nearly equal the increase from the entire industrialized world." (www.healthandenergy.com/china_burning_more_coal.htm)

Realistically, there isn't much the US or anybody else can do to control China's consumption of energy. It appears to me that, contrary to the picture painted by environmental extremists, the US has done a good job in addressing and capping its CO2 emissions. Certainly, more can be done, like starting to build nuclear power stations as opposed to those that burn coal.

How will global warming affect our day-to-day lives and investments? It's too soon to tell, but it definitely will be a factor, and investment analysts are paying attention to it. In the meantime, investing in swimming pool and air conditioning businesses seems like a really cool idea.

Real Friends Don't Let Friends Make Oral Agreements

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Which is likely to be the wiser business deal—one with a friend or one with someone you don't like? All else being equal, you might be better off doing business with the person you dislike. Making business deals with friends can carry a high risk for both the transaction and the friendship.

A case in point. The son of one of my clients set out to buy a house from a couple who were friends of his. The deal was made informally, without the involvement of attorneys or real estate agents. The house needed some updating and repairs before the buyer could move in.

The buyer was assured by his bank that he would have no trouble obtaining a loan. However, the process was going to take longer than either he or the sellers expected. If he waited until after the closing to make repairs, he would have trouble getting the house into livable condition before he had to be out of his rented apartment. The sellers assured him that he could go ahead and do the repairs before the closing.

The buyer, despite his eagerness to get into the house, realized the inherent risk in spending money to update a house he did not own. He came up with a plan he thought would protect both parties. He drafted an amendment to the purchase agreement specifying that, should the purchase not go through, the sellers would reimburse him for the cost of any repairs he had made.

The sellers refused to sign the agreement. How, they asked, could the buyer not trust them? They were going out of their way to be helpful by letting him have access to the property before the closing—and he wanted them to sign a contract? They weren't willing to accept the risk of having to pay for the repairs if the deal failed, even though they would get their money back by increasing the price of the updated house if they had to put it back on the market.

The buyer wisely decided his best choice was to wait until after the closing before he so much as washed a window in the house. Yet his attempt to get an agreement in writing left all the parties angry. The transaction survived, but the friendship didn't.

In this case, the buyer's attempt to get a written agreement about the repairs was a good idea with bad timing. Had it been included in the original purchase agreement, the parties might have been able to negotiate a satisfactory arrangement.

The moral to this story isn't necessarily, "Don't ever do business with a friend." As someone with clients who become friends and friends who become clients, I know that business relationships among friends are common. I also know they can and do work well.

The moral is to proceed with caution and common sense. The wisest approach is to put the transaction on a businesslike basis from the beginning. This includes involving professional advisors as appropriate, just as you would with any transaction. It's far easier if both parties start out with the expectation that agreements will be put in writing and standard business procedures will be followed. Trying to switch from friendship to business in the middle of a transaction only creates mistrust and misunderstandings.

If you begin discussing a business deal with a friend, and that person is not willing to proceed in a businesslike manner, you know up front that this arrangement is not likely to work. Then you can change your mind before you jeopardize both your investment and your friendship.

"Your Call Is Very Important To Us"

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Our phone system via the Internet. Even screening for unwanted sales calls can now be automated. The cost ranges from $10 a month for a residential phone to $1,500 a year for a small business like KFG.

Being able to get my voice messages via my Blackberry was almost enough to seal the deal right then and there. Still, I called several local phone companies to see what a typical digital system would offer. Interestingly, I found out that a digital system can provide almost everything an online system does. The initial cost is considerably higher, as you’ve got to buy the equipment. However, if you can afford the up-front expense, it is cheaper in the long run than the annual fee of an online provider.

One idea I’ve considered for several years is an automated phone system. I say “considered” because rambling around in some firm’s automated telephone system is one of my pet peeves and often leaves me screaming, “I just want to talk to a human!” Still, eliminating this time-consuming task could free my staff to be more efficient. For example, we get at least two sales calls a day from all types of financial wholesalers. Screening those calls alone could save us 10 minutes a day, or 40 hours a year.

It became clear to me that I needed to find out how my clients felt. Turning to technology for the effortless answer, I created an eight-question survey at www.surveymonkey.com and emailed it to my clients. In two days a majority had responded.

The result? Most considered it important to have a live human answer the phone. Most also said they would be okay with automation if it would result in a very short and easy commute to a human being.

My business is very “high touch,” delivering personal service. My assumption is that my clients deserve to speak to a human when they call. I also know they deserve the good service that comes with higher staff efficiency.

It’s a dilemma. For now, my search for the right solution continues.

"Can I Afford It?"

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"Can I afford this?" It's a question we commonly ask when we're considering a purchase. That's true whether "this" is a four-dollar fruit smoothie or iced coffee, a suit on the clearance rack, an expensive pair of shoes, a vacation cruise, a weekly housecleaner, or a new car.

Honestly, for the majority of my clients, the literal answer to that question would generally be "yes." Many of them are retired or close to retirement age, and they have assets and cash flow at a sufficient level for them to be able to buy or do most of what they might want.

If you have a two-million-dollar investment portfolio and an income of $50,000 to $100,00 a year, of course you can afford things. You could walk into a dealership and buy a brand-new Hummer, or you could book a cruise to any place you wanted to go. And it's absurd to say you "couldn't afford" an expensive cup of coffee any time you wanted one. Heck, you could even go whole hog and have a scone or a muffin with it.

Yet, if I went through the list of examples in the first paragraph and asked my clients whether they could afford each one, a good many of them would answer "no" to several.

However, they wouldn't literally be saying, "I can't afford that." More accurately, it would be, "To me, that isn't worth what I would have to pay for it," or, "There are other ways that I would rather spend my money."

When you decide whether to spend a certain amount to buy or do something, you aren't only thinking about how much disposable income you have. You are deciding whether the amount you spend will bring you an item or experience that is of value to you. That's a separate question, one we don't often think of in those terms.

Just because you could afford to buy something at full price doesn't mean you think it's worth full price. That's why many of my wealthier clients continue to shop for bargains and to stop and think before they buy. That's why some of them make a habit of buying clothes of excellent quality, but waiting until they are on sale. That's why others travel in the off season or find other creative ways to see the world on a budget.

The flip side of this idea, of course, is that no matter how much of a bargain something might be, it's of no value to you if you don't want it. For me, a steeply discounted cruise represents a wonderful opportunity for a family vacation. If you get seasick in the bathtub and think the only way to get away from it all is to go backpacking in the mountains, that bargain cruise would give you no value at all.

What if you aren't currently in the enviable position of being able to afford most of what you want? Learning to ask yourself the right questions before you buy might help you get there sooner.

Don't limit your thinking to "Can I afford that?" If you have $20 of disposable income in your wallet, you probably can buy the movie popcorn or the Italian soda. Try asking instead, "Will this give me real value for what I spend?" or, "Will I get more value if I spend that money another way?"

You might still decide to get the popcorn, or instead you might put the money toward an IRA, a health club membership, or next week's groceries. It all depends on what value you feel you're getting for your money.

Why Wait for Retirement?

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When you think of the word “retirement,” what is the first thought that comes to mind?

Here are some typical responses to that question: To some, it means that you no longer work at a job you've tolerated or even hated. It is what you do after you gave the same company 20, 30, or even 40 years of service and then quit at age 65. It is that period in your life after you receive your gold watch and your pension, and you no longer work.

In my parents’ generation, retirement often meant the age at which you were forced to stop working whether you loved your job, were exceptional at it, or hated it. That age was usually 65, but for some professions it was (and still is for pilots) age 60. For others, retirement means “quitting” or doing nothing, patiently waiting for the end of life.

Some baby boomers will tell you that retirement is a non-event because they don't ever plan to retire. That attitude is probably a good thing, based on the fact that the boomers haven't saved for retirement any better than their parents did, and, unlike their parents, won't be able to count on social security and Medicare to bail them out.

I have another definition of retirement. I define it as the period in your life when you get to do what you want to do, when you want to do it, with the people you want to be with. By that definition, I am retired, my kids are retired (and will probably come out of retirement at around age 14) and my wife is anxiously awaiting retirement (probably around the time the kids go to college).

So it probably makes sense to you that retirement is a word I am struggling to eliminate from my vocabulary. I say struggling, because for a financial planner, it's a tough word to eliminate. We constantly refer to “retirement plans,” “retirement projections,” and “retirement age.”

In the place of retirement, I am attempting to use words like financial independence, authenticity, and integrity. If retirement means doing what I want, when I want, with whom I want, to me we are talking about a life that is lived authentically and in integrity. When my kids ask me what those two big words mean I tell them, “It is when your insides match your outsides.” Granted, that’s a bit simplistic, but easy enough for a five-year old and a nine-year-old to understand.

Age has nothing to do with having a job that gets you out of bed happily in the morning and leaves you wondering what part of it is work and what part is play. By that definition, it took me until age 50 to “retire.” Julie just “retired” at age 34, when she accepted a position with my firm as a junior financial planner. Dee, our company cook, is happily “retired” fixing gourmet meals for our clients. How do I know they are retired? It isn't because they aren't receiving paychecks. It is because both of them love what they are doing so much, it doesn't feel like work to them.

If retirement means doing a job you love, then why not start making plans to “retire” as soon as possible? Think about what it would mean for you to do what you want, when and with whom you choose. Then start thinking about how you could incorporate more of that into the life you live now. When you define it this way, the idea of “retirement” becomes joyful and fulfilling. It can be a beginning rather than an end.