Meridian Magazine : : Print

Small Decisions to Help Survive the Economic Crisis
By Thom K. Hall
Certified Financial Planner

Editors' Note: Today we introduce a new column to Meridian, Thom Hall, who will give us insight into how to plan our financial lives to survive these economic hard times.

I love my job. For the past 15 years, I have had the privilege of helping people plan their financial future. We work so they will have sufficient funds for their daily living needs and future goals and expenses. My clients look forward to missions and spending time with their children and grandchildren.

Over the years, I have seen the results of decades of financial behavior of hundreds of families. I have witnessed the long-term effects of the small decisions people made in their lives, and the impact those decisions have had on their future. When people plan well, they don't spend their time worrying about their bills, they spend their time serving their families, community, and church. Quite literally, they enjoy the fruits of their labors.

Financially Secure—Not Because of Luck

Being financially secure is not a matter of luck. It rarely occurs because of an inheritance, the lottery, or having a windfall from stock options. While these things do happen, statistics and history has documented that sudden wealth is generally squandered and lost in a few short years.

I have known school teachers who have managed to save over a million dollars over 30 years for their retirement, and highly paid professionals who in the same time period have not saved enough to maintain the lifestyle they established, and incurred enormous debt along the way. The difference seems to be in the attitudes and values that were instilled in these individuals from their youth.

Those that consistently live below their means always seem to have sufficient for their needs. Others spend consistently over what they make, and they are always a slave to the winds of misfortune. When you live paycheck to paycheck, one financial misstep can be devastating.

In this time of economic unrest and uncertainty, it becomes very important to ensure we have our financial houses in order. We have been forewarned and warned for years to prepare for difficult times in the future. The recent and ongoing storms in the southeast U.S. remind us of how quickly our lives can change.

In future articles, we will talk about some dramatic shifts in our economy and taxes that are poised to take place in the next several years. These changes have the potential to make sweeping changes to the world economy and to your personal economy. You and I need to be prepared.

Need Reminders

I want to share with you the key principles and tools that I have learned over the years that can assist you in bringing a sense of security and well-being; whether you are raising your family, preparing for retirement, or are already there in retirement. Many of the concepts I want to share with you are not new, but like many principles of the gospel, we sometimes just need reminders of things we already know, or hear new ideas of how to accomplish them.

Why do some people who come into my office find themselves financially secure and completely prepared for retirement? I met just such a couple yesterday. They are successful because of the many small decisions they made along the way. They chose to start paying themselves in their 20's or early 30's when they weren't making much by starting a savings or a 401(k) plan.

They chose to save for items they needed or wanted until they could afford them, instead of running up a credit card to get what they wanted now. They chose to ‘use it up, wear it out, make it do or do without' as my grandmother used to counsel me. In many cases, they took the effort to keep informed of their options so they could be confident in their decisions.

I often think of another couple who are my clients He worked for a Fortune 500 company, she was a school teacher. They raised 3 children in a very nice double-wide in a trailer park. When they retired, they paid cash for a home in a retirement community and had investments exceeding 1 million dollars. They made a decision to live frugally their entire married life, and the result was a very comfortable retirement.

I think sometimes of another couple I know. Years ago, the husband died suddenly of a heart attack. He had children still living at home, and no life insurance. This was a man who was devoted to his wife and family and had worked tirelessly in their behalf. I am certain that insurance had been thought of over the years, but for whatever reason, at the time of his death, he was uninsured. The challenges that followed could have been avoided.

Key Principles

In the months ahead, I hope to explain the financial world, which can seem so complicated at times, in a way that is understandable and helpful. There is a seemingly bewildering array of financial tools and jargon that can intimidate almost anyone. I will approach this by giving you bite-sized topics explained in every day terms.

For starters, let's look at the basics of your own financial plan:

Determine what your values are, or what the most important things are to you. Answers might include security, your family, peace of mind, giving back to your community, or a sense of accomplishment for a job well done. Financial planning is not about your money, it's about your values. How you spend your money is simply a reflection of your values. This is not what you do, it's the reason you do it.
Set some goals of where you want to be in the future . Start with short term. If you are looking back at yourself one year from now, what would you like to have accomplished? Pay some debt down? Have savings in place? Have that will or trust in place that you have been thinking about (but not doing) for the last 10 years? Then work on longer term, 5 years, 10 years, retirement. There's almost something magical about setting a goal and attaching a date to it. You'll subconsciously start to work towards getting it done.
Have a plan to keep debt to a minimum , and get it paid off as soon as possible (including your home).
Get your foundation in place :
1. Risk management (this is a code word for insurance). You should determine what events could devastate your financial security and protect yourself from them:
  1. Life Insurance : My own wife passed away unexpectedly over 10 years ago. I had 2 children under 3, and my world changed overnight. Having life insurance in place gave me options, flexibility, and peace of mind during a terrible time. Many couples think of having life insurance only for the husband. I learned that having enough to care for my children allowed me to relocate my business and start over. The key here is to determine what you would need if your spouse were not present, and then subtract what resources you currently have. The difference is the amount of life insurance you need. Rules of thumb can be dangerous. Use an online calculator or a financial advisor to help determine an appropriate amount. The least expensive time to get your life insurance is today. It only gets more expensive as you get older, and the likelihood increases you'll get an illness that makes you uninsurable.
  2. Disability Insurance – the US Census estimates that nearly 12 million working-age adults suffer from a disability that makes it difficult for them to work.
  3. Home and Auto – You should routinely review the levels and types of coverage to make sure they are suitable
  4. Long-term Care insurance – The U.S. Department of Health and Human Services states that at least 70% of people over age 65 will need long-term care. Neither your health insurance or Medicare are designed to cover this need.
2. Estate planning – more than 55% die intestate in the U.S. While that may sound like a painful disease, it just means the courts have to figure out what you wanted because you didn't write it down. Every family should have a will, and many would benefit from a trust. Despite popular thought, the reason many should have a trust is not tax savings, but guardianship of their minor children after they have passed on. Not having this in writing can cause a holy war in a family after you're gone.
Choose your investment strategy carefully – in volatile economic times, it becomes much more important to select investments that reduce risk and look for opportunity.
Choose your tax strategy even more carefully – 401(k), TSP, 403(b), IRA, Roth, Annuity – there are so many tax structures to look at when you choose a retirement plan. Choose the wrong one and you may pay a lot more tax when you need your money.
Pay attention to changing economic trends – Baby Boomers are aging, and as they get older and their kids leave the house, they spend less and save more. This is great on a personal level, but presents some tremendous challenges for the economy. Wayne Gretsky, the famous hockey player was once quoted saying, “I skate to where the puck is going to be, not where it has been.” We should do likewise when planning for the future.
Have a plan for income in retirement – the rules are different when you withdraw your money than when you are accumulating it.

This is a time to reflect on the things that are necessary. President Monson recently counseled,

“Avoid the philosophy and excuse that yesterday's luxuries have become today's necessities. They aren't necessities unless we ourselves make them such. Many of our young couples today want to begin with multiple cars and the type of home Mother and Dad worked a lifetime to obtain. Consequently, they enter into long-term debt on the basis of two salaries. Perhaps too late they find that changes do come, women have children, sickness stalks some families, jobs are lost, natural disasters and other situations occur, and no longer can the mortgage payment, based on the income from two salaries, be made.

It is essential for us to live within our means .” (April 2005 General Conference “Constant Truths for Changing Times”)

We are unable to help others when we are constantly consumed with the consequences of poor financial decisions. When we do the best with what the Lord gives us and are good stewards, we will be able to do more than we anticipate. Let's not be doomed to the maintenance and worship of the ‘stuff' that we accumulate that we think is important. The Lord blesses us with possessions so that we may better serve Him.

I invite your feedback or questions on financial issues that you are dealing with to be considered in future articles. Write your questions to editorial@meridianmagazine.com.

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