The Development of Superior Investing Performance: 6 Strategies for Increasing Financial Fitness

The Development of Superior
Investing Performance:
6 Strategies for Increasing
Financial Fitness
Financial Planning
for Women
Presented by Jean Lown
Erica Abbott & Brittani Bushman
Nov. 7, 2012
Take the Financial Fitness Test
• 14 Questions
• Score yourself (need to adjust score if
single)
< 25: Poor
25-30: Baseline
31-36: Good
> 36: Very good
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Acknowledgements
• Research by David Eccles, Elizabeth
Goldsmith, & Paul Ward of Florida State
Univ.
• The material was produced as part of a
project funded by the Financial Industry
Regulatory Authority (FINRA) Investor
Education Foundation
– www.finrafoundation.org
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What is Financial Fitness?
• Financial fitness is like physical fitness
– Affects your well being & security
• Physical fitness involves building muscle &
aerobic capacity
• Financial Fitness involves
– building financial reserves
– making your money work more efficiently
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Financial Fitness is
More Important than Ever
• We are living longer than ever!
• Average life expectancy is increasing
– In U.S. Utahns live longest
– Women live longer than men
– This means we need more $ for retirement
– Reduction in employer provided pensions
– YOYO!
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Financial Fitness
• Helps cope with life’s financial challenges
& increases ability to retire comfortably
• Physical & financial fitness require work
• Being prepared for the future
• Safeguarding your family
• Providing better opportunities for
healthcare
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Financial Fitness
• Yes, it takes time!
– Benefits far outweigh
the costs though.
• No more excuses! Help
shape your future!
• You deserve to give
yourself the gift of
living well through
Financial Fitness
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How Can I Increase My Financial
Fitness?
• We know what people should do but what
do real people actually do that works?
• 3 year study at Florida State University
– Studied personal financial strategies that helped
real people become Financially Fit &
accumulate wealth
• What works for you?
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Research
• Contrasted the PF strategies of
householders who had similar opportunities
to accumulate wealth over their lifetimes but
ended up with very different amounts of
wealth near retirement
• Focused on the PF strategies used in “top
performing” households:
– Pre-retirees who were most Financially Fit
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Study revealed six strategies:
The SIMPLE 6 (Podcast)
1: Talk about it
2: Ask your employer
3: Work out what you’ll need
4: Forecast what you’ll have
5: Maximize saving & earning interest
6: Minimize debt and paying interest
http://www.lsi.fsu.edu/centers/hprc/projects/finra/
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1. Talk about it
• Communicate with your partner (if you
have one) about household finances
• Work out strategies together to deal with $
• Share with your partner any understanding
you gain about managing finances
• Two heads are better than one
• If single: talk with a trusted friend
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15 Minute Workout: Talk about
$ with partner or close friend
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•
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•
•
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Communicate, communicate, communicate!
Set up regular $ talk time
Share responsibilities (or alternate years)
Each needs “pocket $” (allowance)
Don’t hide $ activity from your partner
Get help: USU FLC (435-797-1569)
– Marriage & family therapy
– Housing & Financial Counseling
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What works for you?
• Share your story, your advice, your
experience
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2. Ask your employer
• Financial/retirement advice & plans
• Take advantage of employer resources
• USU: TIAA-CREF, Fidelity & URS
advisors provide free consultations
• If self-employed/small business: IRA
– Simplified Employee Pension (SEP)
– Saving Incentive Match Plan for Employees
(SIMPLE)
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3. Work out what you’ll need
• Estimate how much money you will need to
live on in retirement (www.usu.edu/fpw)
• Ballpark Estimate
http://www.choosetosave.org/ballpark
• Consult fee-only financial professional
– Beware of financial salespeople!
– Certified financial planner (www.cfp.net)
– www.NAPFA.org
– http://garrettplanningnetwork.com/
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4. Forecast what you’ll have
• Estimate how much money you think you
will have by the time you plan to retire
• $Fit HHs work out how much they would
have as they near retirement & compare to
what they need
• online retirement calculators & FPW PPTs
– www.bankrate.com/calculators
• http://www.usu.edu/fpw/schedule/powerpoints.htm
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5. Maximize saving & earning
interest
• Save from every paycheck (Automate)
• Build emergency fund
– Online savings/CDs
– I-bonds
• Invest in Roth IRA every month
– See FPW past presentations for specific advice on
low-cost mutual funds for IRAs
• Save up for big ticket purchases (vehicles)
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15 Minute Workout: Set up an
Individual Retirement Account (IRA)
• Lots of great info on FPW website
– http://www.usu.edu/fpw/schedule/powerpoints.htm
– What’s an IRA?
• Traditional vs. Roth
• Best mutual funds for an IRA
• Especially valuable for non-earning spouse
• Fund your IRA w/ automatic monthly transfer
• Use a commitment contract! Have someone hold
you responsible to follow through.
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ROTH IRA does double duty
• Roth IRA doubles as true (catastrophic)
emergency fund http://www.rothira.com
• you can withdraw your Roth IRA
contributions at any time without paying
any taxes (you’ve already paid taxes on
this money) or penalties
• Early withdrawal of earnings are subject to
tax & 10% penalty
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6. Minimize debt & paying
interest
• Pay household bills on time (automate!)
• Pay full credit card balance each month
– If not, you’re living beyond your means!
– Don’t be a debt slave for life
www.PowerPay.org
• Build an emergency fund
– Autosave in online savings
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15 Minute Workout: Create an
Emergency Fund
• How much? something is better than
nothing
– Save w/ automatic transfer from checking
– Online savings accounts
• FDIC insured
• Higher rates than traditional accounts
• No minimum
– Once you build up emergency account
• I-bonds (keep up with inflation; no state income tax
on earnings; out of sight, out of mind
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What Works for You?
• How do you find $ to save?
• Other ideas on places to stash your
emergency savings?
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Gender and Credit Card
Behavior
• Females: more costly credit card behavior
than males
• Compared to men, women were
– 9% more likely to carry a balance
– 11% more likely to pay only minimum
– 26% more likely to incur a late fee
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15 Minute Workout: Pay credit
card in full each month
• When you carry a balance, everything you
charge costs LOTS more than list price!
• Check out repay info on your statement
– Pay only min.: pay twice the price!
– Required $ to pay to pay off in 3 years
• Use https://powerpay.org/ or get help at
USU Family Life Center: 435-797-7224
• Once you pay off: set max. $ charge/mo.
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6. Minimize debt continued
• Pay extra on mortgage principal each
month (what FF HHs did in this study)
– Maybe… better to invest for retirement,
save for child’s college or buy
earthquake insurance or…
– Refinance to today’s ultra low rates
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Resources
• Are you Financially Fit? Workbook:
http://www.finrafoundation.org/web/groups/foundation/@f
oundation/documents/foundation/p122359.pdf
• Summary brochure:
http://www.finrafoundation.org/web/groups/foundation/@f
oundation/documents/foundation/p122356.pdf
• Financial Fitness Project website:
http://www.lsi.fsu.edu/centers/hprc/projects/finra/
• Podcast
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Questions? Experiences?
• What is your Personal Finance Action
Plan?
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Upcoming FPW
• The Quest for 850 (credit scores)
– January 30, 2013
– Al Bingham
– USU TSC Ballroom
– 11:30-1 pm
• Alternative Gift Market
– Saturday, Dec. 1, 9 am – 2 pm
– Presbyterian Church, 178 W. Center
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FPW Website & BLOG
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http://ww.usu.edu/fpw
http://fpwusu.blogspot.com/
Kiplinger Personal Finance Magazine
Money magazine
WSJ Sunday (online):
http://online.wsj.com/public/page/sundayjournal.html
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Money Girl's Quick and Dirty
Tips for a Richer Life
• http://lauradadams.com/
• 288 MG How to Make Decisions About
Personal Finances
• http://stitcher.com/s/player.php?AAKAAIH5N
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