Rick Kahler's Financial Awakenings

CLICK HERE TO LISTEN TO RICK’S COLUMN: Download lets_talk_about_money.mp3

Young love can be a wonderful time of discovery and sharing. New couples, regardless of their ages, need to get to know one another and explore the possibilities of building a life together. For this reason, they tend to be great talkers. They discuss their histories, their philosophies of life, their goals, and their dreams.

Unfortunately, not many of those conversations include discussions about money. This may be one reason why "money issues" is the number one cause of divorce in America.

We think of marriage primarily as a romantic partnership, which it certainly is. At the same time, it is equally a legal and business relationship. If you don’t believe that, ask the 50 percent of married people who have suffered a divorce.

Ideally, all engaged couples would discuss the following questions.

· What do we each believe about how money works? Perhaps she has been taught that it is essential to save as much as possible to build security against a rainy day. Perhaps he grew up with an attitude of, "money is to spend, and there’s always more where that came from." Such conflicting beliefs are likely to foster serious disagreements and resentments, especially if they are never discussed.

· What are our most painful memories around money? This question can be an effective way for couples to learn one another’s "hot-button" issues about money.

· How will we manage our money as a couple? It is common for each partner to assume that money will be managed in the same way it was done in his or her family. If a bride has grown up with parents who managed everything jointly, she may be offended, hurt, or angry if her new husband suggests having separate checking accounts. A man who saw his father take care of all the family finances may well expect to do the same, and if his new wife wants to be involved he may feel she doesn’t trust him.

· What is mine, yours, and ours? Having a clear understanding about what money or property is individual and what is part of the marriage can prevent a great deal of misunderstanding.

· What are our philosophies about college education, saving for retirement, and debt? If she sees debt as a normal way of life and he views it with horror, such decisions as whether to buy a new car or using credit cards can become relationship-damaging minefields.

· Will we have a prenuptial agreement? Even raising this question can douse a warm romance with a dash of cold water. A prenup isn’t often necessary, but in some situations it can be a valuable tool to head off potential conflict over money.

· How will we handle any financial inequalities in our relationship? This question isn’t necessarily only for couples where one is wealthy and the other isn’t. One of my clients, in a new marriage which created a stepfamily of five children, became a stay-at-home mom for the first time in her life. She told me how much it meant to her when she and her husband created a spending plan, and he included a budget item of equal personal allowances for him and for her. His action made clear to her that he valued her contribution of managing the household equally with his contribution as the breadwinner.

Because money issues are so crucial and can be so destructive, they should be an important topic of conversation for any couple looking to tie the knot. Talking about money may not be romantic. It is, however, an important way for any new couple to make a wise investment in their relationship.

The term "junk bond" evokes thoughts of scams, fraud, and losing money.  High-flying financiers who ended up in prision were referred to as "junk bond kings." But don’t let the term fool you. As a KFG client, you probably already have these worthless-sounding and high risk-sounding investments in your portfolio. In our July 13 teleclass, learn all you need to know about junk bonds and why they are included in almost every KFG portfolio.

Make your reservation today to attend this informative teleclass, open only to KFG clients.  Attendence is via phone, and if you have it, the Internet. If you can’t attend in person, the workshop will also be recorded and available 24/7 on the ‘KFG Client Only’ section of the KFG website.

The teleclass will happen on July 13 at 4 PM MDT. You can register online now by clicking here or calling 605-343-1400.

Westhills Village is one of the most popular retirement communities in the Upper Midwest. On July 25, you can find out why and learn whether becoming a resident of Westhills makes sense for you. Patsy True from Westhills will be our guest and cover all of the costs and coverages associated with becoming a resident. Find out if Westhills Village is an alternative to maintaining an expensive long term care policy, how you can deduct your intial membership fee, and more.

Make your reservation today to attend this informative workshop, open only to KFG clients. If you can’t attend in person, the workshop will be broadcast live via our webinar capabilities. It will also be recorded and available 24/7 on the KFG Client Only section of this website.

The workshop will be held on July 25 at 11 AM MDT.  You can register online now by clicking here or calling 605-343-1400.

Are you confused about long term health care?  You won’t be after July 25, if you attend this hard-hitting workshop. Mark Joneson, CFP, will answer questions like:

• When is LTC necessary and when is it not? 
• Will the policy really pay? 
• What are the chances of ending up in an assisted living center or nursing home? 
• What is the average length of stay?
• Do I buy a policy with an unlimited term or narrow the coverage to two years?

Make your reservation today to attend this informative workshop, open only to KFG clients. If you can’t attend in person, the workshop will be broadcast live via our webinar capabilities. It will also be recorded and available 24/7 on the KFG Client Only section of this website. 

The workshop will be held on July 25 at 1 PM MDT. You can register online now by clicking here or calling 605-343-1400.

CLICK HERE TO LISTEN TO RICK’S COLUMN: Download a_pipe_dream.mp3

When it comes to retirement, average Americans are suffering a major case of denial. Here’s the difference between the dream and the reality:

• Dream: Two-thirds are relatively confident they will have enough money saved to provide for a comfortable retirement.
• Reality: The average American approaching retirement has saved a paltry $50,000. Fewer than 25% of those turning 65 have more than $250,000 in retirement plans.
• Dream: Most believe they can retire comfortably on half their current income.
• Reality: Two-thirds of retirees say that they need 70 percent or more of pre-retirement income to make ends meet.
• Dream: Two-thirds say they will have enough income in retirement to equal or exceed their pre-retirement years.
• Reality: The same two-thirds have not calculated how much money they need to have saved to generate enough income to equal their current standard of living.
• Dream: The majority of Americans believe they will live for 30 years in retirement.
• Reality: For most, retirement savings will run out in seven years.

This information came from the 16th Annual Retirement Confidence Survey of 1,200 individuals, done last January by the Employee Benefit Research Institute and Mathew Greenwald & Associates.

Financial planners know that providing adequately for retirement means having an amount equal to at least 15 times your projected annual retirement income. They also know it’s foolish to think you will live on much less than your current pre-retirement income. A couple with a joint income of $50,000 a year, then, will need to have saved $750,000 by retirement age in order to replace that income for another 30 years.

There’s more bad news. Additional research done by EBRI indicates that a person who is currently 55 years old will need to save an additional $210,000, just to pay for out-of-pocket medical costs and supplemental Medicare insurance premiums. That’s a very scary number when you consider that 90% of Americans haven’t even saved over $200,000 for all retirement expenses.

Adding the $210,000 needed for medical costs to the $750,000 needed for retirement income, we get a retirement need of almost $1,000,000. And that’s in today’s dollars.

What can average Americans—those who have only saved about $50,000—do to avoid a retirement disaster? Probably not much. Many boomers are quickly approaching retirement and have almost run out of time to turn their plight around.

The first step will be to come out of denial and take action. That is far easier said than done. Most people are just not ready to hear the truth and take the painful steps necessary to cut back their lifestyle today so they can have enough tomorrow.

The second step is to run, not walk, to a financial advisor to get a calculation of how much money you need to save to replace your income.

The third step is to scale back your current standard of living until you can fully fund what you need to save for retirement. For most people, this isn’t going to be a walk in the park. It may mean taking drastic measures like downsizing your home, your car, and your lifestyle in general.

Because it will be painful, only a small percentage of Americans will be willing to do what is needed. Here is where the advice of a financial planner can be invaluable, especially if you can find one who uses the integrated approach described in my co-authored book, Conscious Finance. This can help you understand why you’ve been unable to save in the first place.

Above all, if you are among the majority who are ill-prepared for retirement, it’s time to begin doing something different. This is one area where you definitely want to be above average.

As a result of the new tax bill signed into law last week, the 15% tax rate on capital gains and dividends will now run until 2010. It had been set to expire in 2008.

Another provision of the act will allow single and joint tax filers earning more than $100,000 to convert their traditional IRAs to Roth IRAs, starting in 2010.  Of course, the taxpayer will need to pay the taxes due on the IRA at the time of the conversion, but this may significantly benefit younger taxpayers, who will then be able to make tax-free withdrawal from their Roths.

CLICK HERE TO LISTEN TO RICK’S COLUMN: Download financial_inequality.mp3

"Could I have your phone number?" That isn’t the most creative line to use when you’re interested in getting to know a member of the opposite sex, but it’s certainly straightforward. You will either get the number, or you won’t.

But here is a line that may assure you of never getting the number. "Could I have a copy of your most recent net worth statement?" How unromantic is that?

Yet, hard as the question may be to ask, the answer to it is important. A marriage between two people who are unequal financially can be asking for trouble.

One way to address the problem is through a prenuptial agreement. This is especially important in a second marriage, where there may be "my" kids, "your" kids, and sometimes "our" kids. Sorting out assets and doing some clear legacy planning are important.

Even in a first marriage, a prenuptial agreement is often wise if one spouse has significantly more assets than the other. It can put clarity and intention to the saying, "But dear, you know I am not marrying you for your money." It can also turn a warm and delightful romance into a seemingly cold business transaction.

There is another question, however, that should be considered well before the relationship is at a point where a prenuptial agreement is even an issue. That is, "Why am I in a financially unequal relationship in the first place?"

Okay, I realize I am about to suffer the wrath of every romantic in the world. Ironically, that includes myself. In the past I would have been the first person to say that when it comes to love, money doesn’t matter. Today, I am not so sure.

I’ve had several clients express resentment and fear when they’ve found themselves in a relationship with someone who is a financial unequal. Take the case of Jill, who inherited a sizeable amount from her parents when they were killed in a car accident. Educated and responsible, she found herself managing an estate of ten million dollars. Enter Brandon. He was a happy-go-lucky free spirit who had neither a dime to his name nor a job. Still, he was charming, and he won Jill’s heart.

They dated. They traveled the world—on her money. Eventually, Brandon proposed marriage. Something kept Jill from agreeing. Brandon continued to bring up the topic, but she continued to hold back. Finally she sought advice. Who did she talk to? Her pastor? A therapist? No, her financial planner.

What she told me was that she wanted to marry Brandon, but she felt uncomfortable about their financial inequality. Was he just "gold digging?" As we talked, she admitted feeling angry and used, less because of his relative poverty than because he didn’t have a job. She also discovered a pattern in her life of attracting men who needed to be mothered or in some way taken care of. As a result of our conversation, she engaged a counselor who helped her further explore her issues with relationships and also with money.

Eventually, Jill broke off the relationship with Brandon. Her stated goal in the future is to date men who are her peers. Will that mean she asks for their net worth statements on the first date? I doubt it. She isn’t necessarily looking for a man who has financial assets equal to her own. She does want someone who is responsible and capable of taking care of himself, someone who clearly doesn’t need her for her money. Her intention is to become involved with a man who is more of an equal in every way: emotionally, physically, spiritually, and yes, financially.

CLICK HERE TO LISTEN TO RICK’S COLUMN: Download the_dirty_dozen.mp3

Part of my job as a financial planner is to help clients change behaviors that aren’t serving them well. I’ve tried to do that in many ways. Some work, and some don’t.

The late Thomas Gordon, author of Parent Effectiveness Training and Leader Effectiveness Training, created a list of common methods we use to try to influence one another. Most of these are so ineffective that Ted Klontz, Ph.D. renamed them Gordon’s "dirty dozen." They are:

1. Ordering, directing, commanding. Nike ads notwithstanding, "Just do it!" isn’t a very good motivator. Neither (as most parents have learned) is "Don’t do that!"

2. Warning or threatening. "You’re asking for trouble if you keep doing that." All this usually does is dare listeners to prove you wrong by continuing exactly what they are doing.

3. Giving advice, making suggestions, providing solutions. "If I were you, I would . . ." "Why don’t you do this?" It can be helpful to offer new information about options someone may not have considered. Going beyond that and telling them what they "should" do is usurping their power to make their own choices.

4. Persuading with logic, arguing, lecturing. This is the one I have the most trouble with and that I still find myself doing unconsciously. I’ve learned that when someone can’t seem to make a decision, quite often the problem is more emotional than logical. The person simply can’t take in a logical argument until he or she has dealt with the emotion that is blocking the decision.

5. Moralizing, preaching, telling them their duty. To understand why this doesn’t work, just think about how you react when someone tells you what you "should" do. Motivation by guilt is manipulation, not leadership.

6. Judging, criticizing, disagreeing, blaming. Telling people they are wrong, selfish, or caused their own problem doesn’t help them change; it merely makes them feel stupid or defensive.

7. Agreeing, approving, praising. It might seem odd that this is considered a negative motivator. Yet it can be. One reason this doesn’t work is that it tends to take away the person’s power to decide whether his actions or decisions are the right ones for him. It also can be received as condescending.

8. Shaming, ridiculing, name-calling. This method is not much different from number six, except that it is bad manners as well as poor communication.

9. Interpreting, analyzing. From the outside, you aren’t in a position to know what someone really means or what the real problem might be. You might offer possibilities for the person to consider, but phrasing them as conclusions or judgments is not helpful.

10. Reassuring, sympathizing, consoling. Again, it may seem odd that this approach is not helpful. Yet telling people, "Things aren’t really that bad," or "You’ll be fine," can minimize what they are going through. It also can encourage them to feel like victims and thus discourage them from actively seeking solutions to their difficulties.

11. Questioning, probing. The word "Why?" seldom helps people change. If they knew why they were doing what they were doing, they could probably take steps to do something different.

12. Withdrawing, humoring, distracting, changing the subject. This approach merely helps someone avoid or postpone a problem.

After reading this, your response may be similar to my first reaction to Dr. Gordon’s work. “So what’s left?” The answer truly is, “not much.” His approach was based on a simple but powerful concept—effective listening. When people feel heard, they are often quite capable of talking their way through to their own solutions.

I have found Dr. Gordon’s work extremely valuable. For more information about his approach, you might check out www.gordontraining.com.

CLICK HERE TO LISTEN TO RICK’S COLUMN:  Download facilitating_change_in_others.mp3

How does a person decide to change? How do you get someone to change? The answer to that age-old question would be a major breakthrough—as I’m sure my wife would agree. So, no doubt, would every married person on the planet.

We may be closer to understanding the answer to that question, thanks to the recent work of a number of psychologists. Among them is Dr. Ted Klontz, one of my co-authors of The Financial Wisdom of Ebenezer Scrooge.

In working with Dr. Klontz, one of the most exciting topics I’ve encountered is his research on how people change. What piqued my interest was not only understanding that process, but learning how I could become a better facilitator of change with my clients.

People often come to a financial planner because something in their relationship with money needs to change in some manner. Very few people show up in my office because they simply wake up that day and decide they need a financial planner. Typically, there is some current financial circumstance, painful or joyful, that drives them to my door. Sometimes it is a pending retirement, a birth of a child, or the death of a spouse. For some, it is a need to feel more secure that their money won’t run out but will be there when they need it. Others come to realize that they need more knowledge about how to manage, invest, and save their money. Some folks just need reassurance that they are on the right path to see their dreams unfold. Whatever the situation, the common denominator is that "something needs to change."

This is especially true with clients who are in need of major financial surgery to correct a problem and set them on the right path. But it is also true in cases where clients may be financially secure, but still consumed with thoughts and beliefs that are causing them stress in their daily life.

For example, perhaps a client continues to lie awake at nights worrying whether he will have enough money, even after I have spent hours presenting charts and graphs to prove there is no reason his money will run out. He still needs to learn to change how he thinks and feels about his money, or there will be no relief. Simply knowing you have "enough" money doesn’t automatically put an end to worrying about it.

For me, then, the question becomes, "How can I help clients change the way they behave around money?" If a couple with children and significant assets have not made wills because they have been unable to agree on important issues, I need to be able to help them come to agreement. I need to know how to guide a client who will have to rely only on social security and government assistance during her final years unless in the near future she is able to change her behavior of chronic overspending. Part of my task is to facilitate necessary changes that will produce actions that are in my clients’ best interests, financially and otherwise.

While my profession does a good job developing our "number-crunching" skills, it does almost nothing to train financial planners in how to facilitate change. We are great at finding problems and identifying solutions. We just have no idea how to successfully get clients from problem to solution.

Most financial planners rely on what we’ve learned from our parents and society as a whole to help people change. Those techniques typically don’t work very well. Dr. Thomas Gordon, the late author of Parent Effectiveness Training, even refers to them as the "dirty dozen." We’ll explore the dirty dozen in next week’s column.

Brains?  Of course. 

But what does their $26 billion endowment trust have in common with KFG client portfolios?

If your answer was "our asset allocation policy," you are right.

An article in the May 12 edition of Fortune Magazine gave some details of the asset allocation of Harvard’s endowment trust. The trust is often referred to as one of the more successful, cutting-edge investment portfolios among public plans.

Here is their current allocation:

• 28% Domestic Equities
• 13% Commodities
• 12% Market Neutral
• 11% Domestic Bonds
• 10% Foreign Equities
• 10% Real Estate
• 16% Other

Here is the allocation of the KFG 70-30 portfolio:

• 27% Domestic Equities
• 24% Foreign Equities
• 10% Commodities
• 10% Real Estate
• 10% Market Neutral
• 9% Domestic Bonds
• 10% Other

Obviously, we have less "Other" and more foreign equities.  But what struck me was the similarity in allocations to three asset classes that are not normally found in most plans–commodities, real estate, and the market neutral classes.

So, is KFG in the same class as Harvard?  Well, we certainly are when it comes to asset allocation.