This is a question that I am always asked. I respond by quoting Loren Dunton, Founder of the National Center for Financial Education, from his book Financial Planning Can Make You Rich (1987): “Most people need a planner. The ones who don’t need one are usually smart enough to use one.” In this age of the internet, Twitter, and the iPhone App, financial information is available at the flip of a switch or the touch of a button. But putting that information into a cohesive personal financial strategy is a bit more complicated. The risk is that the results end up being uncoordinated and reactive. Not a plan at all.

As a financial professional, I am passionate about educating and motivating women to take charge of their financial futures. Too many of us are so busy with our daily lives that we tend to focus financially more on the short term. Most of us have learned to live within our budgets and not go overboard with our credit cards. We even network to find the best deals on clothes, electronics, and online websites. While this short-term focus is important, it is not enough. What about your long-term investments? Are they positioned appropriately for your needs and goals? Are you on target for meeting your retirement savings? And what about paying for your children’s college tuitions?

So, do you need a financial planner? You can certainly go it alone when it comes to managing your money. But you could also try to do it yourself when it comes to auto repair or fixing the sink. In both areas, doing it yourself is a brilliant idea for some and a flawed plan for others. Mastering personal finance requires many hours of research and learning. For most, it’s not worth the time and ongoing effort.

As you get older, busier, and (hopefully) more wealthy, your financial goals—and options—get more complicated. A financial planner can save you time. There are rules of thumb that we can use to make our financial decisions such as: 1) save 10% of your income and 2) keep your total monthly debt payments below 36% of your gross monthly income. But they don’t cover all your bases. More detailed personal planning regarding asset allocation, investment vehicles, and tax strategies may be needed.

Financial planners can also help you remain disciplined about implementing and maintaining your financial plan. They’ll make the moves for you or hold you accountable for making them yourself. Procrastination, that 800-lb gorilla, can cause all sorts of money issues or unrealized potential, so it pays to have someone looking over your shoulder. A financial planner cannot make you a thriftier shopper, a better saver, or help you earn more money. Ideally, he or she will look at your financial “big picture” and help you work to enhance it via money management. Depending on his credentials, a financial planner may recommend specific investments, long-run investing strategies, insurance options, retirement planning, risk-management methods, and more. Many individuals refer to themselves as “financial planners,” but not all perform true multidisciplinary financial planning. Investment, insurance, and tax professionals sometimes specialize in certain areas of financial planning (such as retirement planning, estate planning, tax planning, or investment management), while others take a more holistic approach.

The cost of hiring a financial planner can vary depending upon whom you hire, where he is located, and what type of “fee structure” he uses. A fee-only financial planner earns a flat fee, hourly or otherwise, for the services. A fee-based planner generally prefers to charge advisory fees (often .50% to 2.00% annually of the assets under management) for his or her services rather than commissions linked to investments or product sales. Some advisors, like myself, have adopted a more hybrid model that takes into consideration the financial needs and risk tolerance of the client. In most cases, your initial meeting with one of these professionals will be free of charge (be sure to ask in advance about this), and you can discuss fee schedules and compensation arrangements at that time.

So how do you choose a planner? In two words…ask questions. Sit down with any planner you’re considering and find out how long he or she has been in business, what his or her credentials are, how he or she operates, etc. Most importantly, make sure if and when you hire a planner that your personalities will mesh. This is someone you may well be working with for the rest of your life, so you should choose someone you feel comfortable with. 

Story by Loretta Hutchinson MA

Loretta Hutchinson MA, NCC is a fee-based Financial Planner and licensed Insurance Agent with Harvest Group Financial Services in Langhorne, PA. She can be reached at lhutchinson@cfiemail.com or 215-860-6056.

Securities offered through Centaurus Financial, Inc Member FINRA, SIPC Supervisory Branch: 3902 State St, Suite #101 Santa Barbara, CA 93105 1-888-569-1982

I have recently joined the ranks of “the mature.” The point was hammered home (a bit reluctantly) a few weeks ago—I received a membership request from AARP. My mother tells me that moving into my fifties is really a mark of distinction. She is of the firm belief that “Older Americans command more authority and respect and their insight is highly valued.” Unfortunately, my fourteen-year-old daughter, while respectful of her elders, has yet to see the value of my insight.

While turning fifty has a number of personal implications, this milestone has quite a few financial advantages. The banks offer low minimum or free checking and services to the fifty-plus crowd. There are many retail discounts available with that AARP membership. Even Uncle Sam awards us a few opportunities to increase our tax-advantaged retirement savings. Reaching this magical age means you can start making “catch-up” contributions to many types of tax-advantaged retirement plans.

This year, workers can contribute up to $16,500 to 401(k), 403(b) and 457(b) retirement plans. If you are age fifty or older by the end of the year, you can also kick in an extra $5,500 for a total of $22,000 in 2010. Others can contribute up to $11,500 to a SIMPLE IRA or SIMPLE 401(k), along with an extra $2,500 if they are age fifty or older. An added bonus, which has nothing to do with your age, is that your employer may have a matching contribution formula for your plan.

And there’s more. You can also contribute up to $5,000 to an IRA ($6,000 if you are age fifty or older by the end of the year), even if you contribute to your employer’s plan. You or your spouse might even be able to deduct some or all of your contributions to a traditional IRA or you may be able to fully or partially fund a Roth IRA, which offers no up-front tax deduction but provides tax-free income in retirement. Deductions for traditional IRA contributions are phased out if (a) you or your spouse is an active participant in an employer retirement plan, and (b) your income exceeds certain thresholds. Roth contributions are phased out only if your income is too high.
While you are looking to increase your contributions, this is also a good time to review your investment strategy. As you approach retirement, your investment mindset may have to be modified. If you are in your thirties or forties, the goal is accumulation – investing and saving to amass as much as possible for your retirement years. If you’re younger than forty, you will almost always be encouraged to invest for growth for two reasons: one, you probably have a very long time horizon until retirement (maybe as long as forty years), and two, as your earnings increase, you can potentially defer greater and greater amounts of salary for retirement savings.
When people are in their late forties, they usually begin to approach their maximum earnings potential. This is when many portfolios start to shift toward a mix of growth-oriented and preservation-oriented investments. For many people, this shift toward asset preservation gets more pronounced the older they get, although some growth investments usually remain in their portfolios because their retirement capital may have to last for another thirty or forty years.
When you are older, the goal changes to wealth preservation – the objective of making assets last through a combination of conservative investing, sensible cash flow, risk management and tax reduction.  A good wealth preservation strategy should outline how retirement plan savings will be reinvested and managed (asset allocation, investment objectives). It should establish a schedule of sensible income withdrawals. It should provide measures for tax efficiency (in investing) and tax reduction to potentially increase the after-tax return. It should incorporate an estate plan, in order to permit the tax-efficient transfer of assets to heirs and/or favorite causes.

The strategy should not expose an individual, couple, or family to dangerous levels of risk with the mission of obsessively pursuing the best possible stock market returns.

So here is a bit of wisdom from a “mature” financial planner. Having a retirement savings plan is critical, and it is never too late to start. Remember, at age fifty and over, you can add even more to both your employer-sponsored retirement plan and your IRA. And when you review your contributions, start to look at your asset allocation as well. Now might be the right time to consider a shift in emphasis from wealth accumulation to wealth preservation.

Story by Loretta Hutchinson MA, NCC, CDFA

Securities offered through Centaurus Financial, Inc Member FINRA, SIPC Supervisory Brach: 3902 State St, Suite #101 Santa Barbara, CA 93105 1-888-569-1982

Unless you’ve been living in a cave on a remote island in the Pacific (one without wireless access), you have probably heard a lot of talk among various parties trying to agree on a sustainable spending plan—and I am not talking about your friends or neighbors next door, but the state of Pennsylvania as well as good ol’ Uncle Sam. Not to get too political, but both sides are arguing for their right to certain expenditures. One party makes the point of detailing the need for this or that program, and the other shoots it down in favor of their own agenda.  It sounds very much like a conversation that I have regularly with my husband.

It usually starts with the cable bill, which seems to increase exponentially with every statement. What we once budgeted for no more than $50.00 is now over $200.00 a month. Those HDTV signals, cable boxes, and on-demand movies add up. Tack onto that an essential that was not even on our list when we bought our home—the internet. This discussion usually leads to a rather animated debate about our overall monthly expenses and ways to “cut the pork.” And alas, much like Congress, we seem to disagree on what exactly fits into that category. Although this process can be nerve racking, the end result is a renewed sense of feeling more in control of how we are spending our money.

Creating a realistic spending plan (a.k.a. “a budget”) requires a little preparation. The first step is developing an accurate listing of your income and expenses. This is not the most exciting assignment, but it is vital to keeping your household finances in order; it is the foundation on which your larger plan is built. Ultimately, the end result will show you where your money is coming from, how much is there, and where it is all going. The best way to accomplish this is to list all your sources of income for the month as well as your monthly expenses. This information can be obtained through a review of your financial statements as well as a review of your monthly bills.

When you list your expenses, break them into two categories: fixed and variable. The fixed expenses are those such as a mortgage, car payments, or electric bill. These rarely change and are required living expenses. The variable category consists of those that can change from month to month, including gasoline, entertainment, eating out, and gifts. The variable expenses will be important to review when adjustments in your spending need to be made.

It is important to review your budget on a regular basis to make sure you are staying on track. After the first month, take a minute to sit down and compare the actual expenses versus what you had created in the budget. This will show you where you did well and where you may need to improve. (Here we might digress into a chat about needs vs. wants, but that is a topic for another article.) If you are experiencing a transition in your personal and/or financial life, it is more important than ever to complete this exercise; it will help you to stay in front of any financial snags.

A big concern for women taking control of their financial lives is getting on a regular schedule of bill paying and budget review. Although there are great tools on-line to automate your bill paying, it is a good idea to review the monthly statement in detail.  This not only gets you into the habit of looking at your expenses but also creates a visual reminder of what those Jimmy Choos really mean in financial terms. It is okay to treat yourself on occasion, but you might have to give up that massage and manicure one month to stay on financial track.

A good idea to stay on track is to set one place, one day, and one time to pay your bills each week. As the statements and bills come in each day, put them into a folder. Then each week—perhaps on a Sunday night after dinner—sit down and review your statements. Any bills that are due that coming week should be paid. Remember to allow enough time for the check to reach its destination. File the statements and bills away in case you need to refer to them in the future.

To reduce your anxiety about your financial future, follow and regularly review your spending plan; it is vital to keeping your financial “house” in order. The same rules apply if you make $40,000 a year or $200,000. Spend less than you earn, and save the difference. By following your spending plan and using your creativity and self-control to make any needed changes, you will feel more in control of both your financial and personal life.

Story by Loretta Hutchinson MA, NCC, CDFA

I just needed a quick stop in the supermarket to pick up a few things. My daughter groaned, “I’ll wait in the car.” I pulled into the empty parking space next to the cart corral and quickly walked into the Superstore.  All I needed was toothpaste, a box of cereal, some salad dressing for dinner and a package of cookies for dessert. Little did I know how many choices I would have to make along the way. Did I want toothpaste with fluoride, tarter control, or whitener and what flavor (there were no less than forty different combinations)? On to the cereal—as I turned the corner to aisle 9, I found myself staring at a full corridor, stacked six shelves high with different brands of breakfast cereal. After much internal debate on what was the right one for both taste and nutrition, I moved forward, searching for the salad dressing. Just past the vinegar but before you get to the oils, I found the display of bottles…all 148 of them.

Life is a matter of choice, and there are alot of decisions to be made, including our selection of investments. Do we buy stocks, bonds, mutual funds, or ETFs? Indexed funds or managed funds, growth stocks or value stocks, small cap or large cap, international or domestic? And what about REITs and annuities? How do they fit in our investment portfolios?

Before deciding what types of investments to include in your investment portfolio, you need to first identify your personal investment goals. Are you saving up to buy a house? Perhaps you would like to start planning for your child’s college education, or maybe you want a head start on saving for retirement. The goals you would like to achieve through investing will depend upon factors such as your liquidity needs, time horizon, and risk tolerance.

Liquidity usually refers to how fast you can convert your investments into cash (or its equivalent). Real estate investments, for example, do not tend to be very liquid. By comparison, publicly traded stocks tend to be fairly liquid. Liquidity needs refer to when you will actually need the cash from your portfolio. For example, if you are saving money for retirement thirty years in the future, your near-term needs may not be very large. However, if your child is starting college in a year, you will obviously need some or all of the assets in your portfolio within a very short time. As a result, you want your portfolio to include the type of investments that can easily be converted into cash.

A second factor, which goes hand in hand with investment goals, is your investment time horizon. To find out your investment time horizon, determine when you will need the money. Are you investing for your young child’s college education? Are you investing to buy a house in three years or for your retirement in twenty years? The length of time that you plan to remain in a particular investment vehicle is referred to as your investment planning time horizon, and it will have a significant impact on the types of investments that you purchase.

The general rule is: The longer your time horizon, the more risky (and potentially more lucrative) investments you can make. Many financial advisors believe that a longer time horizon gives you more time to ride out any market fluctuations. Therefore, investments such as common stocks or real estate may be appropriate for you if you have a long time horizon. On the other hand, if your time horizon is very short, you will probably want to concentrate your investments in less risky vehicles, such as money market funds, Treasury bills, and other fairly conservative investments. With a short time horizon, you simply don’t have time to recoup losses.

Risk tolerance is another consideration. The definition of risk tolerance is twofold. It describes an investor’s capacity for risk (i.e., how much money he or she can afford to lose). It also describes just how comfortable an investor is with risk. This depends on many factors—objectives and goals, life stage, personality, knowledge, and investment experience. Your risk tolerance will play a major role in the types of investments you choose for your portfolio.

In order to determine your risk tolerance, you might want to start by considering some basic questions: What type of investor are you? Are you comfortable with risk? In other words, given the unpredictability of market fluctuations, how much of a portfolio drop could you handle without hitting the panic button? Maybe you can tolerate a greater amount of risk in the hope that you’ll make out with a better return on your investment. Or, are you the type of person who is going to get nervous every time there is a market drop? By answering these types of questions, you will have a general idea of your tolerance and capacity for risk.

Once you have determined your investment goals, the next step in designing your portfolio is to select the investments (e.g., stocks, bonds, and cash alternatives) that will help you meet your goals, commonly referred to as asset allocation. For example, if you are creating an investment portfolio to save for your retirement thirty years in the future, you may want to select investments that have the potential for significant long-term gain (e.g., growth stocks). Conversely, if you are creating an investment portfolio to purchase a house in three years, you may want to fund the portfolio with more conservative investments such as Treasury bills and money market mutual funds. An income investment portfolio might consist of some dividend-paying stocks, bonds and REITs.

The underlying principle of asset allocation is that different categories of investments have shown different rates of return and different levels of risk and price volatility over time. By diversifying your investments over different asset classes, you should minimize risk and volatility. Keep in mind that the manner in which you practice asset allocation today may not be appropriate in the future, as a result of economic fluctuations and/or changes in your investment objectives. In addition, any growth or decline within asset classes may cause your asset allocation ratios to shift. As a result, it is important that as you manage your investment portfolio, you monitor your asset allocation periodically and rebalance your portfolio as needed.

This process is a task that can overwhelm even the most educated investor. A meeting with a trusted financial advisor can help you to not only clarify your investment objectives but also to determine an appropriate asset allocation for you. It is certainly worth a conversation.
Story by Loretta Hutchinson MA, NCC
Securities offered through Centaurus Financial, Inc.,  Member NASD, SIPC Supervisory Branch: 3902 State St, Suite # 101 Santa Barbara, CA 93105 1-888-569-1982

Spring-cleaning for most women entails cleaning out the closets, discarding mismatched gloves, and sending the wool overcoats to the cleaners. But for others it takes a more personal turn. It involves reevaluating their life goals and relationships. Looking closely at where we are and where we would like to be allows us to take action and make changes. Sometimes this amounts to just fine-tuning career goals or our eating habits. And sometimes it means examining our marriages with a critical eye and deciding that drastic measures are needed.

Separation and divorce are two of the most challenging and difficult periods that a woman can experience in her life. While many things may still be uncertain, one aspect of your life that you can make sure you’re in control of is your finances.

Financial planning for divorced women is not much different than financial planning for married couples. Several basic elements are the same. The good news: you can make plans and decisions based solely on your needs and goals. There won’t be miscommunication or conflicting ideas. The bad news: it’s all in your hands. Any mistakes will be your own and a poor decision can’t be salvaged by the income or assets of a partner.

The following action plan offers a few things worth considering while going through a divorce.

Find a trusted professional

Now is a good time to consider finding a professional who can help you make sound financial decisions for your new life. To find one, start simply. Ask friends or acquaintances who it was that helped them when they went through a divorce. The attorney who handled your divorce may also be a good source for a referral. It’s important to have someone help you who has previously assisted or, best of all, who specializes in helping divorced women. Selecting the right financial professional is a critical step. After all, this person will be helping you with the important financial decisions you now have to face. She can also help you determine the financial consequences of losing your spouse’s employer benefits, such as health and disability insurance and hidden tax costs of the choices you make.

Consider long-term care insurance

Long-term care policies are designed to cover the costs of care if you are unable to care for yourself because of age or if you become ill or disabled. Long-term care is especially important for women because they often pay more for it than men do. The reason is simple: women typically live longer than men and usually require longer care during those additional years.

Review your retirement income plan

The reason that women usually need long-term care insurance more than men is the same reason that retirement income planning for women may be more important. Women live on average 5 to 10 years longer than men. Eighty-five percent of people over 100 are women. This means a woman’s retirement savings usually must be stretched out over more years.

While retirement planning for a single person is easier in many ways than for a couple, remember that you can no longer rely on a spouse’s financial resources. It’s important to review your social security estimates, pensions, and retirement assets. You can then compare that to the kind of lifestyle you would like to have during retirement.

Because retirement may be more expensive, you may want to make an employer-sponsored retirement plan a larger deciding factor in any job search. Also, you may decide that you must retire at a later date than you had originally planned.

Update life insurance details

People often forget to update the beneficiaries of their life insurance and retirement accounts after a divorce. If not changed, your ex-husband may stand to inherit a large portion of your assets. Also, the estate laws give certain breaks to married couples that are not available to a single person. Establishing the proper type of legal trust may be a way to pass along more of your assets to your heirs, rather than to the IRS.

Look before you leap

Finally, after you have moved on from your divorce there may come a time when you consider remarriage. It’s important that you understand the financial effects this may have. If you were married longer than 10 years you may be collecting or entitled to 50% of your ex-husband’s social security benefit. If you remarry you will no longer have that right. While you will become entitled to your new husband’s benefit, you must know if your new husband’s benefit will be lower or higher, and how that will affect your retirement.

Remarriage can also lead to blended families, blended assets, and blended income. Your new husband may have his own family from a previous relationship. A financial professional can help the two of you prepare for this blending that satisfies the financial needs of each of you, as well as for your new family.

While it’s all in your hands, partnering with a financial professional can help you move on to the next phase of your life with a more solid plan for your financial future.
Story by Loretta Hutchinson MA, NCC

“$941.00!” I shouted with bill in hand. It was February, 1984 and we had just returned from a weekend with family to find not only two feet of snow in our driveway (unshoveled) but an oil bill in the mailbox. When we were contemplating buying our first home, the size of the oil tank or the driveway length was not on our checklist. When we saw the white-shuttered, brick-front capecod lined with forty-year-old azalea bushes, we knew this was where we would start our life together…a romantic notion. It did not take long before the nuances of homeownership became, at times, a shocking reality.

 Home ownership has been the cornerstone of the American Dream for generations. And despite rough economic times and challenges in mortgage qualification, this is a fine time to be buying a home. There is inventory all over the country and bargains to be found. This has many homebuyers asking, “just how much home can I afford and if I find a home I like will I qualify for a mortgage?” Knowing the answer to these questions will allow you to focus your search on affordable options.
Unless you can afford to buy a house outright, you’ll need to get a mortgage to help you pay for it. Determining how much house you can afford is often a case of determining how much of a mortgage you can afford. An old rule said that you could afford to buy a house that cost between one and a half and two and a half times your annual salary. In reality, there’s more to take into consideration. You’ll want to know not only how much of a mortgage you qualify for, but also how much you can afford to spend on a home. To calculate how much you can truly manage financially, you need to take an honest look at your standard of living, as well as your income and how you choose to spend it.
Start with simple math: Take your monthly income and subtract all non-housing-related expenses. What you’re left with is the amount per month that you have available to allocate toward housing. In determining what you can afford to spend on a home, you should also take into account other housing-related expenses, like oil bills and snow removal. The total amount of expenses may depend in part on what type of home you buy and where it’s located. Consider:

• Maintenance costs — everything from weekly rubbish removal to a new roof
• Utility costs — electricity, heating and air-conditioning, gas, water, and sewer
• Homeowner association fees or condominium assessment fees
• Taxes and insurance

Deduct the monthly portion of these expenses from your estimated monthly housing allowance, and you have an approximate budget for a monthly mortgage payment you can afford. Of course, mortgage lenders have a more sophisticated way of determining how much they think you can afford.
The most important factor that lenders use as an upper limit for a loanis the debt-to-income ratio. This ratio takes into account a mortgage payment plus your other personal debt such as car loans, credit card balances, and student loans. The ratio is expressed in a percentage of how much of your income is being used to make debt payments. The typical guideline used by most lenders is a ratio of 36 percent as the upper limit. Ratios above this may carry a higher interest rate or be denied altogether. Lenders also like to see that generally no more than 28 percent be dedicated to all housing expenses.
Lenders use formulas called qualifying ratios to calculate how much of a mortgage you qualify for. These ratios are based on your gross monthly income, housing expenses, and long-term debt. The first qualifying ratio a lender scrutinizes is your housing expenses to income ratio. According to the Government National Mortgage Association, your housing expenses generally should not exceed 28 percent of your gross monthly income. Your monthly housing expenses include mortgage principal, interest, taxes, and insurance; consequently, this ratio is often abbreviated as PITI. The ratio is also known as the front ratio.
The second ratio that a lender considers,known as the back ratio, is one that takes into account your expenses that extend 11 months or more into the future like a car or student loan. These expenses are considered long-term debt. Your monthly housing expenses, plus your other long-term debt, determine what’s known as your debt ratio, or PITIO. To qualify for a conventional mortgage, Ginnie Mae indicates that these expenses generally should not exceed 36 percent of your gross monthly income.
Remember that the figures provided are estimates. Qualifying ratios may vary from lender to lender, and each mortgage application is considered individually. Lenders generally use both ratios, since the two provide information about different aspects of your financial picture.

Remember that mortgage lenders can only tell you how much of a mortgage you qualify for, not how much you can afford. If homeowners insurance and property taxes are escrowed with your lender, these expenses will increase your monthly mortgage payment. The payment amount will be higher if you’re required to carry specialty policies such as flood insurance in addition to homeowner’s insurance. And if property taxes are especially high, you may find that you’re unable to afford the home.
Also keep in mind any future plans that may affect your budget. Perhaps you’ll buy a new car in a few years or starta family soon. If you have children, you’ll need to save for college expenses. No matter how much of a mortgage a lender tells you that you qualify for, you must always be sure your mortgage payment is not beyond your means. After all, it’s the roof over your head.
Story by Loretta Hutchinson
 Loretta Hutchinson MA, NCC is a fee-based Financial Planner and licensed Insurance Agent with Harvest Group Financial Services in Langhorne, PA. She can be reached at lhutchinson@cfiemail.com or 215-860-6056.
Securities offered through Centaurus Financial, Inc  Member NASD, SIPC Supervisory Branch: 3902 State St, Suite # 101 Santa Barbara, CA 93105 1-888-569-1982