Financial Planning

[judecorp]

Tonight was a very humbling experience, for sure. A couple of weeks ago Jen and I went to see a financial planner that was recommended by a friend of hers. She was a very nice woman and I felt like we could be very open and candid with her about our financial situation. She had a lot of things to bring up that we really couldn't wrap our heads around given our current finances, but I thought that we had been very clear about the number one reason we wanted to talk with someone. I mean, I think I really spelled it out for her.

"Look, we have some money in the bank right now. This could very well be the only time we get this kind of money. We don't make enough to save money regularly, not right now, not in the foreseeable future. What can we do with what we DO have to make it most beneficial to us?"

Well, we had our follow-up this evening and honestly if it hadn't ended abruptly when she realized I was getting really upset, I would have busted out crying at the fancy conference table. She handed us a very fancy looking booklet with lots of charts and colorful diagrams telling us all about what kind of money we would have to sock away yearly to pay for a kid's college and retire comfortably at age 60. (For the record, I don't think that we will be able to pay for a kid's college NOR retire anywhere near 60.) Now, this woman was told with brutal honesty both what we make right now /and/ what we pay out right now. And that we consider ourselves savers but at this time we are not regular savers (as in able to contribute monthly to anything).

So we are presented with fancy documents about how we should be putting away $400ish/month for our kid's college and $30K/year for retirement. Can you see where this is going? Because I can. So I started getting more and more visibly upset until she then gave us estimates for life insurance policies she wanted us to get - hefty life insurance policies - at reasonable prices. She smacked these papers down and all I could think about was, "Oh god, where would we get another $80/month for life insurance premiums?" and when I voiced this, was basically told that because we're having a baby this should be a given.

The heat was jacked (because it was so cold out) and I just started getting warmer and more uncomfortable and more upset until finally I kind of went off on her. I feel bad about it because I'm sure it was awkward as hell but I really felt like we laid ourselves out on the table the other week, as humbling as it might have been, and all of that was disregarded in the report. It was so full of privilege and assumption and I just lost it. I stuck with things that wouldn't make me cry, like dismantling the assumption that my income would increase yearly - social services don't work that way and you almost never get any kind of raise, let alone a cost of living increase or merit increase (I have never seen a raise) - correcting her assumption that her expected full-time social work salary for me was a good $10-15K /more/ than I can realistically make, and pointing out that I felt like the report was a slap in the face - that I felt, coming into the meeting, that we were doing pretty well considering we HAD some savings and wanted to do something productive with it and left feeling like we were total trash because I didn't feel like I could decide if I should put a $1mil life insurance policy on Jen at the deduction of our grocery budget, or feeling like I was putting our baby in jeopardy by not being able to realistically do so.

I was leery about doing this financial planning thing because of our unique situation and I left wishing we had never opened ourselves up to the experience. I don't even know what to do now because I'm upset and hormonal and mortified. Oh well, at least we had good intentions, right?

Comments

[estrange.livejournal.com]

Wow, we were thinking of meeting with one of those people but now I'm not so sure. SHe probably just wanted to get you to spend as much money as possible with her if that's how it works.

As for college funds, I don't think it's necessary you save for it. There is always financial aid. We set up a 529 account and just put $50 in in each month for each kid and that won't be near enough to pay for college but it will help a little. Both Ryan and I had a lot of debt from college and are doing ok.

I"m sorry things have been so hard for you lately.

[judecorp.livejournal.com]

I guess I should have expected it when we were told it was a commission-based position and she only makes money based on what kind of accounts we get and stuff. What I /really/ wanted was a financial ADVISOR who could say, "Oh, you want to invest $X? Look into this - it's a good investment." I guess I screwed up on that end.

I agree with you re: college. I was pretty much told by my dad when I was in high school that he didn't have any college money for me. I stopped looking at top schools and ended up applying to schools I know would give me full scholarships. Not that I wouldn't LOVE to be able to sock away enough money to finance something like that for a kid, it's just not realistic.

[thatpatti.livejournal.com]

dang. that's...really unfortunate. but really, in my experience - financial planners are (generally) primarily salespeople.

we just finally purchased life-insurance policies right before tate was born, if that makes you feel better. :)

we're in the opposite boat - a comfortable monthly income, but nothing in savings AT ALL. which i suppose is better than where we were in 2005, which was barely scraping by and no savings. scary!

and college? oy. is it bad if i'm kindof banking on an inheritance to help with that? ;)

[cfred.livejournal.com]

So we are presented with fancy documents about how we should be putting away $400ish/month for our kid's college and $30K/year for retirement.... [S]he then gave us estimates for life insurance policies she wanted us to get - hefty life insurance policies - at reasonable prices.

Not only do they tend to be salespeople, but apparently she's also getting better commissions/incentives/whatever for selling life insurance policies.

The sad thing is that I don't think she listened to your situation. She just pulled out the glossy flyers for how much somebody in your age bracket should be saving for her optimum retirement—and probably what would maximize her income.

I give my financial planner credit. He works with my employer with our 401(k) plan. When I talked to him, how much I contribute to my 401(k) never came up. The discussion focused on me, my age, my goals, and how much risk I'm willing to accept, and based on that, what sort of portfolio I should be investing in.

[judecorp.livejournal.com]

Yeah, I am usually really wary of financial planners (hey, everyone has to make money, right?) and have never spoken to one before, but this is a friend of a friend and Jen had asked about looking for someone to sort of advise us financially and help us make the most out of our savings, and this person came up, so I guess I thought she would be different. And maybe she is, but I missed it.

I thought I was kind of doing well because I actually have a small amount of personal life insurance that could totally cover my car loan and any funeral expenses (the car loan is pretty much my only debt save the house) - I mean, I'm a 31 year old kid and I'd already pulled that together, you know? So I went in there feeling all responsible and stuff and left feeling like a major loser.

I don't think it's bad to bank on inheritance for college. I've always maintained that since I could never ever in a million years put any money away for retirement, that when my grandparents pass away (please not soon, please not soon) I would just stuff all that money away for retirement. So I'm totally there with you.

[gabriellag.livejournal.com]

I have no doubt that your child (and future children) will be super smart just like you and get scholarships.

And, dear God, I hope by then, we will have done something about the education situation in this country. And if we haven't? Nobody will be going to college because nobody but the top 5% will have the money saved.

The fact that you are even thinking about this is way more than most people at your age.

Not that I'm trying to say, "Everything is peachy, don't worry," because I know that's not going to happen. Money sucks.

[judecorp.livejournal.com]

I really want my kid to be super smart and get scholarships! That would be GREAT!!

But like you, I am praying for an overhaul of the higher education system. It's projected that when our kid is old enough to go to college, it will cost $60+K/year. That's insanity!

[cappucinogrrl.livejournal.com]

I'm really sorry that didn't go as planned. The thing about college? That's what scholarships and student loans are for. That kid is going to be one smart cookie. And isn't a $1 mil life insurance policy... a lot?!

[judecorp.livejournal.com]

I always thought a $1 million life insurance policy was for people who wanted to be shady and kill their spouses. I am not being funny, that's what I thought.

I agree that students should be largely responsible for their own college. (I mean, I was.) But at the same time, you don't want to be the parents that don't do ANYTHING... you know?

[cfred.livejournal.com]

Here's an angle: If you want to talk to another one, pick a particular product, e.g. socially-responsible mutual funds, and tell them you're interested in investing in that. If they can stay on track and not drift into the products they like/want to sell, then that's a good sign.

(Yes, they do make funds where not only does the fund manager look for companies that perform well financially, but she also judges them in terms of their ecological performance, workplace equality, etc.)

(Also, I peddle myself on the streetcorner work generally in the financial services industry, so I better disclaimer that I'm not recommending a product and you should read the prospectus before investing.)

[judecorp.livejournal.com]

Yeah, I think that's a good idea if we decide to try to go through this again.

xo

[jeney.livejournal.com]

Good grief.

I was getting pretty pissed just reading about this. So many You Shoulds and You Have To Or Elses. Not to mention the You Would If You Were Smarts.

I went through this financial seminar once where it was like they didn't believe me when I told them how much we lived on. And no matter how emphatic I was about it, they were equally as emphatic that we had to have a years salary in savings at all times.

Screw all of it. Sometimes, people just can't deal with unknowns. And they make choices based on fear and just want to remain in their safety nets because they can't wrap their heads around things working out in any other way than what they can plan and orchestrate.

I understand being wise with your money, but since when is it wisdom to live to your detriment NOW to increase your chances of (not guarantee!) living better 30 years from now?

At some point, common sense has to bust in and demand attention.

I think it's awesome that you have some savings, and even better that you want to be wise with it. I just don't think that because someone is a financial planner, that they know what is best for every family in the universe.

[judecorp.livejournal.com]

You know, I knew I liked you for a reason. Because I seriously thought we were doing okay for the most part. I mean, no, we're not the wealthiest people ever, and it wasn't the smartest idea on the planet for me to take a part-time job right before going on maternity leave, but at the time it was the best decision for our family. And we're fortunate enough to HAVE some savings to cover some of our bills, and to have some savings to cover maternity leave. And maybe it's risky to lose so much savings but umm, isn't that what it's there for?

Someday I would hope that we would have some money left over to do things like get IRAs or 401Ks or college savings accounts or whatever. And if we do, awesome! And if not, well we'll keep doing what we always do, which is work something out with what we have.

[artjax.livejournal.com]

If this was my friend, and it was bad bad, I'm sorry. Though if it makes it slightly better, we'll be doing the same damn thing next week.

My only advice is this: Really look at the materials, and think about what she said, and then strip away what is truly meaningful to you and Jen. Because I'm sure there is some good stuff in there if you dig. And what works for you works. I mean, shit. We're trying to do the same kind of things that you guys are, and well, I'm not even thinking of my kids college education, I'm just hoping to not be living off cat food when I'm a senior citizen. Ya know?

Money does suck.

[judecorp.livejournal.com]

I had actually said that I couldn't (right now - things could change - there are lotteries) think about a college savings account that was happening monthly. Jen and I talked about putting a piece of our savings into a special account for the kid so there is SOMEthing but when we're pumping out more than we're putting in monthly it's not looking likely that we're going to be making any kind of monthly contributions. (Unless the contribution is like $10/month - can't go to college on that!)

I just left feeling like I was a really bad parent and irresponsible adult, when before this whole process I always thought I was /more/ responsible than a lot of my same-age peers because I actually /have/ savings and a small amount of life insurance. So now I don't know what to think.

I don't think it's your friend's fault, per se - She is a very nice person and I'm sure that out of the office would be a very different situation. I actually liked her quite a bit as a person when we met. I just don't think I'm the kind of person (given my current and projected financial situation as a social worker) who can realistically make one of those upper-middle-class financial plans when I make blue collar money.

[wendywoowho.livejournal.com]

Every person/family is different, but I'd rather have a life insurance policy than a college fund, were I in shoes resembling yours. And a retirement account before a college fund. Why? Well, you can take out student loans, but you can't take out retirement loans.

Of course, my shoes aren't resembling yours. My sister's shoes sort of resemble yours right about now. She might be of more help (though she's the one who pointed out the no-retirement-loans thing to me).

And, talking about money, esp. when you don't have any, is SCARY ASS SHIT.

*HUG*

[judecorp.livejournal.com]

I agree about life insurance. It's not our plan NOT to have life insurance (I have some right now as it is), but I don't know that we necessarily need enough life insurance to allow each other to retire comfortably. Not right now. Ideally we'd have enough life insurance to pay for a funeral cost and the house and the car, you know?

[(Anonymous)]

Jude,

That FP gave you a bunch of BS.

A. and I are lucky in that my dad is a FP so he helps us decide what to do with the little money we do have. Here's where he's got us:

1. If your employer offers any type of retirement always put in ONLY as much as you need to in order to get the employer match/contribution.

2. He insisted we open our own Roth IRAs (makes sense since they are 'individual retirement accounts'). This takes a minimum of $1,000 to open one, so it took us a while to get the $2,000 for both (and you don't need a FP to do this, you buy them through a company like Vanguard). We finally did it and now have an automatic contribution each month to each account. A year after opening them, he wants us to up it, but we can't right now.

3.I know he wants us to set up power of attorney, but I have been lax because of our whole marriage thing...

4. If we ever have a kid, he recommends a 529 college savings plan. He set one up for our nephew and we all contribute to it. Some more regular than others (A. and I just on special occasions). But we all have the deposit slips so we can and I think my brother has some amount direct deposited each month, but I know it's not a ton of money (<$100). I think the point is anything is better than nothing. So we do what we can, given our means.

If you ever recover from your experience and want to chat with my Dad, I know he'd be happy to meet you and Jen. I know he works with what people have and will work with folks no matter what their financial situation. A. and I inspired him to educate himself in the unique financial needs of queer couples. Distance would not be an issue, as his furthest away client lives in Germany (formerly of MA and still has MA residency).

This has become a long ad for my Dad, sorry. I just think financial planning is VERY important and I hate that you had such a bad experience! Let me know if you ever want more info.

e.
http://twomomsarebetterthanone.blogspot.com/

[oddharmonic.livejournal.com]

All great advice, e!

I opened a 529 plan for my daughter when she was 2. It's been slow, but I have a Upromise account connected to it and several of my friends who use their credit cards a lot registered with their cards to contribute to Laurel until they have children/nieces and nephews/whatnot of their own, so she's got a good start.

[lunamoonwmn01.livejournal.com]

I'm so, so sorry you had to deal with all of that. :o( I'm very lucky in that my dad was stockbroker, so he has been great about advising me/teaching me about all of this crap. It's very confusing/scary/etc. and I think the fact that you guys are really trying to be proactive and make good decisions says A LOT!

I second the person who recommended looking into mutual funds. It can be a good way to invest money but at a risk level you feel comfortable with. Not all financial advisers are salespeople and I'm sorry you had this shitty experience.

[lunamoonwmn01.livejournal.com]

Ditto on everything the above poster (e) said. That is pretty much exactly the same kind of advise my father has given me. Just remember you are only what, 31? Most people aren't even thinking about shit like this at 31! You're doing a *great* job!!

[skatured.livejournal.com]

You are doing well by saving ...well any money. America is heavily in debt right now with the average saving's rate of -1%. Shame on that woman for not helping you get started -- which you made pretty obvious that is what you guys were there for. I woudn't give up though...just don't go back to her or give good word of mouth.

[judecorp.livejournal.com]

Yeah, I think I'm more responsible than most Americans. Of course, we also bring in a lot less money than a lot of people we know.

[hoo.livejournal.com]

So we are presented with fancy documents about how we should be putting away $400ish/month for our kid's college and $30K/year for retirement... $80/month for life insurance

AUGH! Those are fantasy numbers.

[judecorp.livejournal.com]

Gosh, it is SO good to hear you say so! I always think of you as much more responsible and financially stable than I am.

[vorpalbla.livejournal.com]

I wish you could have had the experience that I had with my Edward Jones guy--although mine was much simpler, because no wife and no baby and no house. He asked for my income and what my goals were. Then he had me total up my net worth, laid out the options for saving for retirement and asked how much I was willing/able to save each month. Then he gave me some reading materials and sent me away to read and think it over.

[judecorp.livejournal.com]

See, I feel like we were /incredibly/ honest about our income. And right now our income is not great. Working part-time? Not the smartest thing ever. So when someone comes into your office and says "we bring in $3200/month and spend $3200/month on bills," do you then present them with a plan of saving $400/month for college and $30K/year for retirement? I don't even MAKE $30K/year!

Grrrrrrrrr.

[charlwoo.livejournal.com]

Financial planning is immensely complicated. It's designed that way to create an artificial barrier to entry. This entire economy is based on encouraging people to part with their money, not save or invest it. The finance industry serves itself by maximizing its own profits, not its customer's. Yes, customers will profit, but the company holding your money will profit even more from it.
At any rate, there is risk with any investment. In my experience the answer to the question 'what should I do with my money' is pretty difficult. It depends on how much risk you want to assume -- the more risk, the more potential for maximizing your gains, as well as losing your initial investment. It sounds to me like you are in a situation where you don't want to risk losing anything, and also want to park these savings somewhere and let them work for you instead of managing them more directly... I could be wrong, though. This means that entire classes of volatile investments are probably inappropriate for these savings. Mutual funds, for example, have no guaranteed returns and also have carrying fees that reduce the returns that are earned. The stock market is notoriously volatile and impossible to predict.
In my opinion, tax-deferred or tax-sheltered retirement funds are an excellent idea. Employer-matched 401k's are excellent (where else can you get an instant 100%, 50% or 25% return on your investment), keeping in mind that there is still some risk (the buying power of the dollar will have declined, perhaps significantly, by the time you can withdraw from these accounts without penalties). I haven't looked into the 529 plan.
Other than that, as a low-risk investment, I am personally comfortable with parking my hard-earned income in a plain old FDIC insured high-yield money market savings account. The returns on these accounts are currently higher than most CDs (ufbdirect.com has a 5.31% return versus CD rates under 5% according to bankrate.com).
All this being said, the return from eliminating high interest debt is higher than almost all of these investments. By carrying debt at an annual interest rate of 8%, for example, you're not just owing 8% more on your debt annually, but you're also missing out on at least a 5% guaranteed return on any savings. So, that's a 13% annual financial opportunity lost.
It's all complex, boring math. Maybe a good initial investment would be in a finance course or two at a local university? At least the school's way of making money from your investment isn't disguised by mounds of glossy paperwork and being inundated with poorly explained information. They just charge money for the course up front, and the textbook publishers make a killing, too. I seem to recall that you had a knack for academics...

[judecorp.livejournal.com]

I totally agree with what you say. I am a low-risk saver myself, especially because my savings has never been the "put money away every month" type but more the "somehow I ended up with extra money" type (gifts, tax returns, etc.). So because I have always had a limited savings "income," I am less inclined to risk it away. After all, what if the stock market crashed and I lost what savings I /do/ have?

Thankfully we don't have any kind of high-interest debt or anything like that - just the standard car, mortgage, Jen's student loan. I mean, when you get down to it I feel like I have a pretty good idea of the best ways for us to maximize what we have but thought it would be helpful to hear a "professional." My mistake was not realizing it was professional sales.

[wolffe]

I'm from altbaby and I wander over here every now and again to check on you and frankenbaby. :) Just wanted to let you know I'm not a random stalker.

I am *really* sorry you had that experience. I've never worked with a financial planner. My Dad was in the financial industry and I've always felt like I had a pretty good head for money, so I've always researched and done things on my own.

My husband and I are following a modified version of Dave Ramsey's plan to get out of debt, save for retirement and college for future baby and make sure our insurance needs are met. Now, his fans can be a bit ... scary. Cult-like. But he's fun to read and his ideas make sense and his forms and materials make things easy.

If you want his book send me your address and I'll get you one. It makes you feel better about money and it's a start at the whole investing thing. Not to push all his stuff, because like I said I modified his plan (fairly heavily) to fit us.

Not to blather on about that.

If you have a good lump of cash in savings, then I recommend putting it into an online savings account (like ING Orange, where I have ours). Ordinarily people recommend Money Market Funds with check writing privileges, but nowadays the online savings accounts have an equal rate of return (when you factor in fees for the MMF) and much less risk.

If you have a great lump of cash ($3,000 or more) I would put the maximum allowed amount into a Roth IRA. They are easy to add to, and unlike a traditional IRA you pay the taxes up front and get the payments tax-free, giving you a better rate of return in the end.

And, like bodhimindspirit said, eliminating high interest debt is always a good investment. Make sure you leave $1,000 in a cash savings account to cover emergencies though. That way you won't add to your credit card debt if, say, the car breaks down.

Er... that's my totally unsolicited $.02.

[judecorp.livejournal.com]

I have never heard of Dave Ramsay. So I guess I'm not in the cult. Who is he?

We have started looking into online savings accounts instead of our bank savings accounts. We are also talking about starting some basic IRAs and more life insurance for when the kid comes. (We also need to invest some cash on wills.)

We don't have any high interest debt, so you don't have to worry about that! We use credit cards for things like online purchases and then promptly pay the entire balance.

p.s. I know you're not a stalker. I recognize the bird. :)