Fiscal Fitness for the Rest of Us

Well I admit it. I’m feeling gloomy about all the uncertainty in the financial markets and in our chosen leaders’ ability to navigate our way out of it.  As a financial advisor, I’m supposed to be the one reassuring everyone during this worldwide crisis of confidence but, darnit, I’m human too and I can’t quite control the pit in my stomach that grows larger as my retirement account shrinks. So being of this species human, I’ve set out to reassert control over the main aspect of my financial life under my power: my budget.

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There has been a lot of buzz lately about online banks. Interest rates are at an all time low and people are understandably searching for the best rates possible for their savings. Online banks can be a good alternative as they don’t have the high overhead of traditional “bricks and mortar” institutions. Personal finance bloggers have written quite a bit about online institutions comparing rates and services.  One in particular, the ING Savings Account, has been getting a lot of attention due to their $25 incentive for new accounts. Here is a sampling of blog posts on the topic:

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We recently decided to open a discount brokerage account to start wading back into the financial markets via ETFs. Our money is invested with Vanguard and we are true fans of the no load mutual fund giant but their brokerage commissions are through the roof. I had been considering both Scottrade and Zecco and started the application process with Zecco (the less expensive choice for basic trades) but found their application process overly exhaustive. Do they really need to know our income range, employment status and exact investment experience? Isn’t it enough that we have money (legally) and want to invest it?

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Let’s assume you are reading this blog because you are happily partnered or perhaps even a married non-traditional couple. You’re thinking “gosh I’d like to do something nice for my beloved but I don’t have a lot of spare cash at the moment.” Here’s an idea. Update or confirm your beneficiary designations on your employer 401(k)/403(b) plan and any IRAs or other investment accounts that you have. If you want your partner to receive some or all of your assets when you pass, this is the single best way to assure it happens exactly the way you want.

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Just as the popular dance show of similar name pits dancers’ view of themselves against the reality of their “talent” a couple of recent Bankrate articles present a stark contrast between retirement savers’ rosy view of the future and the reality of their preparation. According to one study, 70% of workers feel very or somewhat confident they’ll have enough money to afford a comfortable retirement. Sounds pretty good except when you read on to learn that 49% of this group haven’t saved a dime for retirement! I can’t help feeling a twinge of envy toward these optimistic folks who can engage in such wishful thinking.

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Last week I joined the Barack Obama campaign community. This was, of course, an open invitation for nearly constant donation requests. At least the requested donation was only $5. I can afford $5 despite feeling the effects of current economic conditions. Still I delayed making a contribution. The requests kept coming, almost daily, until finally I relented and clicked the link to take me to the donation page. Imagine my surprise to find a list of recommended donation amounts beginning with $25 and moving up from there. At the end of the list there was an “other” option where you could fill in the originally requested $5 donation amount. Mighty is the power of suggestion though and I convinced myself that I could donate $25 feeling all the while that I had been (tricked is too strong a word here) somewhat manipulated. I wonder how others responded.

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I don’t need to tell you about the need for automobile, home owner’s and renter’s insurance. Chances are your state, mortgage company or landlord require you to have them even if common sense does not. There are couple of special issues for non-traditional couples that I would like to share.

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I know you are probably thinking “enough about insurance already” so I’ll try to make this one brief or at least combine two topics into one post. Most people know that health insurance is an absolute must in this country. But do you know why? Doctors and hospitals will treat anyone, insured or not. It is the cost of the health care that will wipe you out financially if you do not have at least some coverage. Most employers offer health insurance and if yours does you are probably fine. Many enlightened employers provide coverage to your domestic partner. If yours doesn’t, ask for it. If you are covered under your employer’s group plan, you need only be careful when you are changing jobs. There could well be a waiting period for coverage under the new employer’s plan and you don’t want to be uninsured for even a short amount of time.

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Let’s talk about life. Insurance that is. The primary historical function of life insurance has been the support of dependents in the event the main breadwinner of a family passes away. Grieving and financial peril are not conditions one wants to endure simultaneously. If you are the principal wage earner in your family and your partner (and/or children) are dependent on your income then life insurance is both a smart and compassionate investment. But what if you and your partner both have good jobs on a steady career path? Do you need life insurance?

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The previous couple of posts described the use of a pyramid as a metaphor for fiscal fitness (see The Pyramid as Metaphor – parts 1 and 2). Insurance is a central component at the base of the foundation. Without it, everything else you build into your financial life is at risk. When people think about insurance, they often think of health and life insurance. One of the most overlooked forms of insurance is also one of the most important so we’ll cover it first. The odds of a disability during your working life are much higher than premature death. The National Association of Insurance Commissioners found that a 35 year old male employee in the U.S. has a 1 in 5 chance of experiencing a disability keeping him out of work for longer than 90 days. A woman of the same age has an even greater risk. She has a 1 in 3 chance of missing work for more than 90 days due to disability.(1)

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