No, Don’t Give Your First-Grader A Credit Card

“Good, better, best. Never rest until good be better and better best.”

- Mother Goose

Google tells me that Mother Goose didn’t *actually* exist — but she sure was smart, eh?

In my Strategy Note this week, I’d like to address moms and dads. We’ve seen many parents in our offices these last few months, and we obviously go over estate plans, and how to handle transitions and proper guardianships, etc.

But sometimes, there’s a missing piece.

You see, I’ve asked a few of them how they handle finances with their young children. Well, many parents have no plan for training their younger children how to understand, and handle finances.

I’d like to help you fix that. We’ve put together some strategic advice to help you raise financially-literate children, in hopes that by the time they reach adulthood, they’ll be contributing to your family economy — rather than draining it!

Let me know what you think …

[And, by the way, if you HAVEN'T yet met with us to address your estate plans in this new, 2011 environment, you may be making a big mistake. Contact me, and we'll set up a time to discuss how to leverage this new environment!]

Rowel Manasan’s

“Straight Talk” Personal Strategy

Money Lessons For Young Children

Perhaps I’m biased, but I believe that it really is never too early to start teaching your children about good money habits. Obviously, by doing so, you are preparing them for the uncertain future. You’re also establishing a family culture, wherein money is handled with maturity and openness.

But the best news is that helping them to develop these habits can be fairly simple! I’ve put together some basic steps — many of these may not seem like rocket science, but my job is to be a coach and a goad for you to do the things which you already may “know” to do!

1) Give them an allowance–with strings. Don’t just give them an allowance for doing nothing — this actually defeats the purpose! You can buy your young children whatever they ask for, so they don’t need “spending money”. Instead, see an allowance as a training tool: your children should learn that money is earned by working. Believe it or not, this isn’t an obvious connection for a young child! Because a kindergartner truly is able to help with small chores around the house, you can put them to work and let them earn their allowance this way. Rather than seeing it as a “bribe”, or some sort of indentured servitude, this is a critical knowledge base for a young child.

2) The old lemonade stand. Encourage this! And do it with adult supervision. Your child will learn how to make a product, market it and sell it. While the idea is to teach good money habits, they are also learning valuable life lessons — nothing sells itself, after all. (Though with cute kids, that’s sometimes the case!)

3) Saving and investing. Rather than showering your young child with gift after gift, encourage them to go through the process of working towards a savings goal. You can always “supplement” this process, but having your child save up for an item will teach them that nothing comes for free. In return, children also learn that the items you buy them have real value and should be treated as such.

This might, even, cut down on those “negotiations” so familiar to parents who bring their children into stores!

4) Cold, hard cash. A lot of children nowadays are so used to seeing parents pay with debit and credit cards that they may not know what actual money looks like! This is a new-generational issue, and it’s important that your children learn that money is more than a mouse click, or a card swipe. Show your kids the different types of money – coins, bills, etc. and tell them the monetary amount for each.

When you go shopping, let your child have a try at paying for certain items. This will help them feel quite grown up, and again — they see that transactions don’t just “happen”, they cost.

What about you? How have you gone about introducing your children to money? I’d be interested to hear some other tactics, and may share them with the list next week.

But until then, I remain your kindly family lawyer– out to save the world from improper planning, unnecessary taxes … and from young adults still living on Mommy/Daddy credit!

With affection!

Not Just Automatic Saving…

He who loses wealth loses much; he who loses a friend loses more; but he that loses his courage loses all.
- Miguel De Cervantes

… but what do you think about setting up a simplified process of automatic investing?

Sadly, the best laid plans often go awry, even for families with significant income and means. Yes, you might have a financial planner who advises you on such things, but often this very simple step is skipped.

And yes, it’s slightly inconvenient at first, but I believe you’ll see that the payoff is worth it.

By the way, this has NOTHING to do with estate planning, or the law, etc. You may notice that I do that from time-to-time … just like last week, when I wrote about disaster prep.

You see, my goal here is to be a support to you and your family in a variety of ways. Yes, we’d LOVE to be your "advisors for life", when it comes to your legal matters. But we’d also like to come alongside you where you live, each day. After all, I’m pretty sure you’re not waking up in the morning thinking about your will and trust!

Rowel Manasan’s
"Straight Talk" Personal Strategy
Automatic Investing As The Basis For Real Wealth
Yes, it may be a cliche, but the greatest engine to generate real wealth is saving and investing. And the best way to ensure that your default is saving & investing is to automate the process. Pay yourself first, and your savings will grow exponentially.
 
Effective money management is based on the idea that very small changes can yield enormous gains in your family’s finances. This process, both easy and simple, is worth millions. Unfortunately, only a tiny percentage of American families take advantage of the tools available to implement this automated technique.
 
So here’s how you pull this off:  Have all income flow into a joint taxable investment account. Make saving and investing your default. Putting all of your money in this account helps ensure that you move only the money intended for some other purpose into a different account.
 
For working families, this means an automatic deposit of paychecks into their joint account. Banks will try to entice you into setting up automatic payroll deposit into their checking account. They will offer you additional interest if you do so. Resist. The additional interest is not worth the failure to not only save but to save and invest. Your taxable investment account should be the default.
 
For retired families, this means an automatic deposit of Social Security checks. It also means their required minimum distributions (RMDs) from their individual retirement accounts (IRAs) should be deposited first into this account.
 
From this account you can then withdraw what you need for daily expenses. Do this by setting up a regular transfer of funds from your joint investment account to your checking account. Make sure the transfer matches the amount you have allocated in your budget, ideally 65% or less of what you need to support your lifestyle. The other 35% should remain in your joint taxable account, much of it to be invested.
 
Part of what remains is the 10% you have designated for "unknown unknowns". In the ideal world, this money will not be needed, but few families can anticipate every possible expense. Each stage of life presents new challenges. Having the financial margin to absorb some of life’s shocks is simple wisdom and offers financial peace of mind.
 
Because the time horizon for this emergency money is unknown, invest it in a balanced portfolio. If unused, your emergency money will double in 7 to 10 years and provide a greater safety net for your family. If you have to dip into this fund, keep track of the amount. If it approaches the full 10% every year, you are using your emergency money to extend your budget, not simply for unanticipated expenses.

The less you use this account, the more quickly you will reach financial independence. These funds are mixed with your other taxable investment savings and continue to grow your net worth. If you are meeting all of your expenses without any major surprises, these funds can be used to purchase a home, start a business or for additional charitable giving.
 
Another portion of what remains in your taxable investment account will be the 5% you are specifically designating as taxable savings. Because this 5% gets mixed in with charitable giving that is being invested and your unknown expenses, the entire portfolio should be balanced. If an emergency arises, any portion of the portfolio could be sold to furnish the needed funds. Similarly, when you want to gift appreciated stock, any portion of the portfolio could be gifted.
 
The last portion might be the 10% for funding your retirement accounts each year. Many people put this money directly into a retirement account as part of the payroll process through a pretax deduction. If that is the situation, you don’t need to flow anything through your taxable investment account. But you may want or need to fund your retirement outside of a payroll deduction. One example is funding your Roth IRA each year. In this case you may want to collect the money in your taxable investment account and then transfer it to a Roth account.
 
If you want to fund a Roth IRA account for the maximum $5,000 (in TY2011), you could transfer the entire amount once during the year or set up a monthly transfer of $416.66. The money from your paycheck would provide the cash, either letting it build up throughout the year or supply the funds for each month’s transfer.
 
Busy people forget to make the necessary transfers each year. That’s why a monthly transfer is preferable. Saving and investing should be automated so it occurs regularly without any additional effort. Whatever is in your checking account you are likely to spend. Whatever is in your investments you are less likely to spend.
 
Automating the process of saving and investing is like damming a river to form a reservoir. The alternative is the manual process of hauling buckets of water from your stream to a water tower. You will never grow rich by hauling buckets, and it’s much harder work.
 
No matter what income you have, you probably already have enough to grow rich! Saving and investing just $10 a day builds a million dollars over your working career at average market returns. You build wealth by what you save and invest, not by what you spend. Automating the process of saving and investing grows your wealth while you sleep.

With affection!

Preparing For A Disaster (Like Japan’s)

He who loses wealth loses much; he who loses a friend loses more; but he that loses his courage loses all.
- Miguel De Cervantes

It’s deja vu all over again, with another massive earthquake coming in the winter/early spring this year. Last year, it was Haiti … this year, of course, it’s Japan.

The fallout (if you’ll forgive that term, not intended as an insensitive pun) has been radically different for each event — but, as was the case with the Haitian earthquake, the real problems and ramifications for everyone are yet to be seen … but what *is* clear is that many lives have been lost, and many more have been radically altered.

So, how have you been processing this one?

Last year, I was struck by how different my daily existence was, from the devastation wrought in Haiti. The same is true here … but I must confess to feeling (at least at first) some "disaster fatigue" setting in.

It seems that the world has spawned disaster after disaster over the last year.

But that doesn’t mean we turn away. No, this is the time where we actually need to "press in" a little, and care.

(So, as an aside, I’d also be interested to find out if you have located an effective place to send donations–the big organizations spend so much money on "overhead", that (as I mentioned about this time last year, for Haiti) I find it difficult to believe I’d get the most "bang for my buck" in donating to them (as we unfortunately saw with Hurricane Katrina). Any thoughts?)

So, rather than my normal fare this week, I have something different. I’ve stopped apologizing for being such an obsessive planner … it sort of pays to be that way, in my profession, after all! This week, I wanted to remind you of what we almost never think about during "good" times: How to prepare your family for "grid-failure" emergencies.

This isn’t an area of extensive expertise for me, but it’s so important, I did some research, and have a good framework for you to consider… (after the jump here).

Rowel Manasan’s
"Straight Talk" Personal Strategy
How To Prepare Now For a "Japan-Type" Disaster
With the images of devastation we’ve been seeing, in addition to being moved for those who are currently experiencing all this, I’ve been reminded how important having a plan really is.

This is true for finances (ahem, as with an estate plan! — let us know if you need to set one of those up! (909) 843-6427), and it’s equally true for a big disaster.

We can be so complacent about the security of our daily existence, that an event like this seems unrealistic. But, we’re getting continued reminders, every year, at how fragile our modern world truly can be.

But that doesn’t mean you have to panic.

No, with a few basic points of preparation, you and your family could be vastly more prepared than your neighbors, even giving you the opportunity to be ones who can support and assist your neighbors, rather than have to *ask* for support.

There are three primary areas where you need to be prepared:
1)    Energy/Power/Heat
2)    Water & Food
3)    Family

1) Energy: However unlikely a massive grid failure might seem now, it’s important that you at least think through what you and your family would do about heating your home during the winter (wood stove? indoor propane heater? burning your furniture?), and/or cooling your home during the summer (which may not be quite as critical).

Additionally, consider what parts of your existence are dependent on power, and what it would be like to live without it. Write down your plan.

2) Food & Water: For water and food, it’s a very good idea to have food and water for at least 3 days on hand, and in permanent storage. Typically, you need about a gallon of water, per person, per day … and non-perishable food is now so readily-available, that you have your pick for how to stock up. You can save water in a BPA-free plastic jug and just switch it out every 5 years.

3) Family Plan:
* Identify meeting places where you and your family would come together, in the event of some sort of catastrophic grid failure or event, in which you aren’t able to stay at home.
* Put together a "Go Bag" for your family, which carries critical supplies and information for whatever circumstance you may run across. Here is what your bag should include …
•    A disaster plan including location of emergency centers, rallying points, possible evacuation routes, etc.
•    Positive Identification, such as drivers license, state I.D. card, or social security card
•    Enough medicine to last an extended evacuation period
•    Cash and change, as electronic banking transactions may not be available during the initial period following an emergency or evacuation
•    A first aid kit
•    Fire starting tool (e.g., matches, ferrocerium rod, lighter, etc.)
•    Professional emergency literature explaining what to do in various types of disaster, studied and understood before the actual disaster but kept for reference
•    Maps and travel information
•    Standard camping equipment, including sanitation supplies
•    Weather-appropriate clothing (e.g., poncho, headwear, gloves, etc.)
•    Bedding items such as sleeping bags and blankets
•    Medical records
•    Pet, child, and elderly care needs
•    Battery- or crank-operated Radio
•    Lighting (battery- or crank-operated flashlight, glow sticks)
•    Firearms and appropriate ammunition
•    Fixed-blade and folding knife
•    Duct Tape and rope/para-cord
•    Plastic tarps for shelter and water collection
•    Slingshot, pellet gun, blowgun or other small game hunting equipment
•    Wire for binding and animal traps

This all might seem a bit excessive now … but so does every disaster plan — until disaster actually strikes.

So, perhaps make it a fun family activity to work through setting up these plans, and you’ll sleep much better knowing you’re prepared!

With affection!

This Used To Happen All The Time

“Do not wait; the time will never be ‘just right.’ Start where you stand, and work with whatever tools you may have at your command, and better tools will be found as you go along.”

- George Herbert

If you take a broad view of our culture over the last 50 years (and you do it objectively), you can see some major changes, not all of them bad.

Time was, families used to be dealing with elderly parents, young children … and everything in between, all in one house! This is less common now, and as a result, many families are actually unprepared for how to handle it — simply because models are much less plentiful.

So, I have put together some guidance on this for you. The reason I highlight it now, is that we can help. You might know somebody in this situation — or you could be dealing with it yourself. Go ahead and send this email to them … and let them know that we can be part of their *solution*, and help to give them peace of mind.

They’ll thank you. Even if it’s simply by having some authoritative “help” on their side, we all need to come together in these kinds of situations.

After all, I’m pretty sure our grandparents’ generation didn’t worry about their twitter feed. Things do change.

Rowel Manasan’s

“Straight Talk” Personal Strategy

Caring For The Elderly–While Taking Care of Kids

Depending on your perspective, this can feel like a double-whammy.

Certainly, as with children, it’s always a better idea to focus on the benefits of more time with your parents, etc … but yes, I’ve seen many times how this can put a major drain on a family.

From what I’ve observed of adults thrust into the role of caring for their parents, the biggest struggle often comes from trying to keep their dual responsibilities segregated. They try to ensure that the needs of the aging parent don’t impact what’s going on in their children’s lives.

As an example, the adult children feel like they have to choose between making sure that Mom takes a walk for exercise and attending a child’s piano recital.  No matter what the adult parent chooses, he or she often feels like a failure at everything.

What you need to realize is that this process is not something that you can keep separated in your life.  You’ll do your family a great service by viewing it as an experience to be shared with everyone in the family, and maybe even with some members of the outside community.

If you find yourself in this situation here are 3 practical tips I can offer:

1) Get the Actual Facts. You may have avoided talking with your parents about finances in the past.  Whether you were taught that those things are private or “it just never came up,” now is not the time for surprises.  You need to know how your parents are doing financially and whether they’ve made any provisions in case they become ill or suffer a long-term disability.

2) Ensure the Estate is Set Up Right. At this stage of your parent’s life it’s important to make sure that your parent’s legal house is in order.  My client’s parents enjoy a healthy discount on their estate planning.  But, no matter where you get it done, your parents absolutely need to have a financial power of attorney, advance health care directive (a health care power of attorney plus a living will), and a simple will.  It may not be the best estate plan for your parents.  It might not be proper Medicaid planning.  However, it is the bare minimum you will need to help care for your parents.

3) Insure Against the Future. Now is the time to examine long-term-care insurance or assess whether savings will cover an extended nursing home stay, assisted-living facility costs or extended home-care services.  You may be tempted to begin to liquidate your holdings or stop saving for your own benefit to help pay for the cost of your parent’s care.  Big mistake.

Remember that there aren’t nearly the same kind of government programs or lending scenarios that will help you pay for your kids, or their college or fund your retirement — as there are to help support aging parents.  It’s vital that you continue to save for your retirement.

With gratitude for your trust!