In order to discover what's important in a client's life, I ask some rather unusual questions - a process called appreciative inquiry. For example, if your doctor called you and said "Your test results are in, and unfortunately, you only have three years to live," what would you do differently with your life? This helps me discover the client's deepest and most profound goals. Next, what if the doctor called again and said "I made a mistake, you only have three months." Would your actions change? Along the same line, if you died tomorrow, what is your biggest regret? Once these questions are answered, you can them start the process of setting goals. Many times, the answers to these questions involve something you currently are not doing. Now ask yourself why? Make it a goal for the new year.
The next step is a rather difficult exercise. Write down 30 personal goals in your life. The first 10 will be easy, the next 10 get harder, and the last 10 goals you will probably have to really dig deeply. It's in those last 10 goals that I discover some top 10 goals; you will as well. My charge as a life planner is to keep my client updated on achieving those goals and coach them on getting there. At the risk of seeming too esoteric, I will stop here with the life planning talk and move to some specific financial planning items.
Make Sure You Understand Who Works For Whom
If you are in the market for an investment product, be sure to find out who the salesman works for before consummating any financial agreement. It's hard to be a financial consumer these days, especially when it comes to knowing who you can trust. Millions of investors hire salespeople to give them investment advice - which is a little bit like hiring a used-car salesman to give you advice on which car to buy and how much to pay.
While most salespeople are pretty easy to spot, mercantile hacks can be shrewdly subtle. For instance, instead of referring to themselves as a broker or securities salesman, some representatives of Wall Street firms (the companies that recently took our global economy to the brink of collapse) have adopted more regal titles, like "vice president of investments" and/or "financial advisor." Many now claim to charge fees for their services like a genuine independent fiduciary when in truth their position is nothing more than a glorified broker pulling in a paycheck from a firm. All along the rep recommends products that are highly-profitable to his employer - which goes a long way to explain those billion-dollar employee bonus pools that you've probably read about. Cut to the chase: Ask any financial representative for his fiduciary credentials. If he is not willing to put your interest ahead of his own, perhaps that vehicle he's peddling belongs on a lot next to the rest of the used cars.
Covering The Basics
• Contribute to your 401(k) and if possible, defer the maximum $16,500. If you are over age 50, you have an additional $5,500 catch up provision.
• Consider a Roth Conversion in 2010 when there are significant one-time-only opportunities. In 2010 only, the $100,000 income limits are removed on converting your traditional IRA into a Roth. All Roth conversions require you to pay income tax on the conversion amount: However, those who do the conversion in 2010 can defer the resulting taxable income for the next two years, 2011 and 2012.
• IF you are age 55 and older, start shopping for long-term care (LTC) insurance. When considering how to plan for LTC, don't count on Medicare or Medicaid. Medicare doesn't cover LTC expenses, and Medicaid requires you to go broke before going into a welfare nursing home. Aside from the complications in applying and qualifying for Medicaid, simply visiting a government run nursing home and a private pay nursing home will illustrate why Medicaid is also called "impoverished care."
• Review your estate planning documents. If your documents are older than 5 years, dust them off, read them and see if changes are needed. In addition to examining your will, both the power of attorney document and advanced directive for healthcare document should be reviewed. The Georgia Advance Directive for Health Care Act was passed in 2007 and your documents should be updated accordingly.
• Make sure your homeowners insurance policy is for REPLACEMENT costs. Ask your insurance agent.
• If you have an interest in investing, join the American Associating of Individual Investors, AAII. Great organization for educating individual investors. (aaii.com)
Every new year brings another chance to begin anew, to wipe away past mistakes and write a fresh chapter of noble purpose and character. Your financial security is the foundation for all your good works, and it deserves your careful reflection. 2010 offers us the privilege to keep those promises we make to ourselves and to those we love-to be better, more generous, more understanding. It is a duty not to be taken lightly. For as the man I most admire used to say, "Nothing is more valuable than your word."-Grant Brown
Andrew Brown is a Certified Financial PlannerTM and a Fee-Only Registered Investment Advisor.