Nowhere in the US Constitution or Declaration of Independence does it say that anyone is entitled to certainty in anything. All we can do is be as prepared as we can for the uncertainty life throws at us-particularly in the field of finance. Dealing with financial challenges requires careful planning. Regardless of whether you will face unemployment, sickness, or something worse, you can take steps now that will help you and your loved ones in the future. You can also fix damaging behavior and improve your management of risk. Being happy and accomplishing your goals could be as simple as saying "yes" to an opportunity. In this financial guidebook, you'll learn how to balance demands from family, friends, and colleagues; embrace challenges you face with your spouse or significant other; pick investments that match your risk tolerance; pay for college, retirement, health care, and other major expenses. Preparing for financial challenges now will pay off in the future. Build wealth, take advantage of opportunities, and discover a better way of managing your finances with Leveling the Playing Field.
Leveling the Playing Field—Part I
What You Need to Know to Develop a Financial Game PlanBy William E HauensteiniUniverse, Inc.
Copyright © 2012 William E Hauenstein, MBA, CRPC
All right reserved.ISBN: 978-1-4759-3471-7Contents
Preface...........................................................................xiAbout the Author..................................................................xiiiIntroduction......................................................................xvii1. PREPARATION....................................................................12. FINDING YOUR BALANCE...........................................................173. UNDERSTANDING CHANGE AND EMBRACING IT..........................................214. RISK...........................................................................295. PLANNING ESSENTIALS............................................................376. EDUCATION PLANNING.............................................................517. RETIREMENT.....................................................................598. RETIREMENT DISTRIBUTION PLANNING...............................................699. HEALTH CARE....................................................................7310. LEGACY........................................................................7711. COMPENSATION..................................................................9112. PUTTING IT ALL TOGETHER.......................................................97Appendix A—Questions to Ask a Financial Adviser.............................103Appendix B—Time Budget Worksheet and Instructions...........................109Appendix C—Lifestyle Planning...............................................113Appendix D—Risk Tolerance Questionnaire.....................................117Appendix E—Questions to Ask an Estate Planning Attorney.....................127Appendix F—Family Budget Worksheet..........................................133Appendix G—Identifying Your Financial Values................................137Reference Websites................................................................139Bibliography......................................................................141Disclaimers.......................................................................143Index.............................................................................147
Chapter One
Preparation Someone is sitting in the shade today because someone planted a tree a long time ago. —Warren Buffet
Success, however you define it, doesn't just fall into your lap; it is earned over an extended period of time.
Section One—Factors to Consider
Prepare to succeed. We have all heard the clichés about how practice and preparation are essential for success, and we all know that the more effort one puts into preparation, the more likely success will follow. The difficult thing to figure out is this: "What do I practice and how do I prepare?" The answer depends upon many factors, including time, knowledge, ability to trust, understanding, and innate ability. Let's discuss each of these factors.
Time
First, and foremost, is time. The clock never stops, and neither do the demands placed upon us. Everyone has the same 168 hours per week. What we choose to do with those hours is, hopefully, more controlled by our choices and desires than by necessity or the demands of others.
According to the 2010 American Time Use Survey (US Department of Labor, Bureau of Labor Statistics, 2011), an average American's day is composed of sleeping for eight hours and twenty- three minutes; performing work and work-related activities for four hours and twenty-four minutes; watching television for two hours and thirty-one minutes; leisure and sporting activities two hours and nine minutes; household chores for one hour and forty- one minutes; eating, drinking, and personal care for two hours and one minute; leaving two hours and fifty-one minutes for everything else, such as education, shopping, caring for household members, telephone calls, e-mail, social networking, and religious activities.
Since this is an average, your day is probably much different, and you are wondering how you accomplish so many things in such a short period of time. Many of us forego sleep to work extra hours or take the children to their soccer games, while others are retired and spend more time volunteering or babysitting the grandchildren. Since time is the one thing none of us can manufacture, it is our most valuable commodity.
The point I am trying to make is that time is valuable and you need to invest it wisely, or many of the things you want to accomplish in life will be left for someone else. Today is the beginning of the rest of your life. Treat it that way and you can accomplish anything you set your mind to.
Please see Appendix B for a Time Budget Worksheet. Its goal is to help you understand which tasks you spend your time doing and then manage your time effectively so you can accomplish those things that are most important to you and your family.
Knowledge
You've probably heard the expression "knowledge is power," but what does that mean to you? For many, knowledge, when combined with personal experience, provides them with the basis to confidently make prudent decisions.
For example, if you know a stove is hot, you won't touch it with your bare hands. Alternatively, if you do not know whether the stove is hot or cold, will you assume it is cold and lay your hands upon it? Probably not, because you may have been burned by a hot object before, remember the pain, and approach the stove with caution (better safe than sorry).
Okay, now let us assume that you will receive an extra $500 per month of income from writing a jingle used on a television commercial as long as it is deemed beneficial in the company's advertising strategy. So what do you do with that extra money? Since the income is not guaranteed, you should not increase your fixed expenses by that amount; instead, you should treat it as a windfall and use it to your best advantage. "What could that be?" you ask. You might add it to your children's college fund, your retirement plan, or to the savings for that family vacation you have always dreamed of.
More complex items can be broken down into parts to determine how each part may affect the overall choice. In other words, one should consider the many inputs when analyzing a complex situation. One example is relocating your family to another state or country for work. Factors to consider are not just quantitative but also qualitative. Quantitative factors can be compiled with a calculator or spreadsheet, while the qualitative factors must be given a quantifiable number to add to the formula. Quantitative factors include such things as income, benefits, cost of living, etc. Qualitative factors include quality and availability of education, how much more or less you like your new job, climate, social events, proximity of friends and family, and cultural activities. You should also weight each factor based upon its importance to your situation. Yes, this is an analytical approach and may not appeal to everyone, but you can see how thinking through the process can help you make a more informed decision.
For many, the development of a detailed financial plan will turn information into knowledge, thus providing the roadmap to follow.
Ability to Trust
Many of you will recall that when Ronald Reagan uttered the phrase...
