Category: F - (Fabric Shops - Furniture): Financial Planners

1. Narrow your objectives.
You probably won't be able to achieve every financial goal you've ever dreamed of. So identify your goals clearly and why they matter to you, and decide which are most important. By concentrating your efforts, you have a better chance of achieving what matters most.

2. Focus first on the goals that matter.
To accomplish primary goals, you will often need to put desirable but less important ones on the back burner.

3. Be prepared for conflicts.
Even worthy goals often conflict with one another. When faced with such a conflict, you should ask yourself questions like: Will one of the conflicting goals benefit more people than the other? Which goal will cause the greater harm if it is deferred?

4. Put time on your side.
The most important ally you have in reaching your goals is time. Money stashed in interest-earning savings accounts or invested in stocks and bonds grows and compounds. The more time you have, the more chance you have of success. Your age is a big factor - younger people (who have more time to build their nest egg) can invest differently than older ones. Generally, younger people can take greater risks than older people, given their longer investment horizon.

5. Choose carefully.
In drawing up your list of goals, you should look for things that will help you feel financially secure, happy or fulfilled. Some of the items that wind up on such lists include building an emergency fund, getting out of debt and paying kids' tuitions. Once you have your list together, you need to rank the items in order of importance (if you have trouble doing so, use the CNNMoney.com Prioritizer for help).

6. Include family members.
If you have a spouse or significant other, make sure that person is part of the goal-setting process. Children, too, should have some say in goals that affect them.

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7. Start now.
The longer you wait to identify and begin working toward your goals, the more difficulty you'll have reaching them. And the longer you wait, the longer you postpone the advantage of compounding your money.

8. Sweat the big stuff.
Once you have prioritized your list of goals, keep your spending on course. Whenever you make a large payment for anything, ask yourself: "Is this taking me nearer to my primary goals - or leading me further away from them?" If a big expense doesn't get you closer to your goals, try to defer or reduce it. If taking a grand cruise steals money from your kids' college fund, maybe you should settle for a weekend getaway.

9. Don't sweat the small stuff.
Although this lesson encourages you to focus on big-ticket, long-range plans, most of life is lived in the here-and-now and most of what you spend will continue to be for daily expenses - including many that are simply for fun. That's OK - so long as your long-range needs are taken into consideration.

10. Be prepared for change.
Your needs and desires will change as you age, so you should probably reexamine your priorities at least every five years.

MAKING A BUDGET:

1. Budgets are a necessary evil.
They're the only practical way to get a grip on your spending - and to make sure your money is being used the way you want it to be used.

2. Creating a budget generally requires three steps.

- Identify how you're spending money now.

- Evaluate your current spending and set goals that take into account your long-term financial objectives.

- Track your spending to make sure it stays within those guidelines.

3. Use software to save grief.
If you use a personal-finance program such as Quicken or Microsoft Money, the built-in budget-making tools can create your budget for you.

4. Don't drive yourself nuts.
One drawback of monitoring your spending by computer is that it encourages overzealous attention to detail. Once you determine which categories of spending can and should be cut (or expanded), concentrate on those categories and worry less about other aspects of your spending.

5. Watch out for cash leakage.
If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, it's time to keep better records. In general, if you find yourself returning to the ATM more than once a week or so, you need to examine where that cash is going.

6. Spending beyond your limits is dangerous.
But if you do, you've got plenty of company. Government figures show that many households with total income of $50,000 or less are spending more than they bring in. This doesn't make you an automatic candidate for bankruptcy - but it's definitely a sign you need to make some serious spending cuts.

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7. Beware of luxuries dressed up as necessities.
If your income doesn't cover your costs, then some of your spending is probably for luxuries - even if you've been considering them to be filling a real need.

8. Tithe yourself.
Aim to spend no more than 90% of your income. That way, you'll have the other 10% left to save for your big-picture items.

9. Don't count on windfalls.
When projecting the amount of money you can live on, don't include dollars that you can't be sure you'll receive, such as year-end bonuses, tax refunds or investment gains.

10. Beware of spending creep.
As your annual income climbs from raises, promotions and smart investing, don't start spending for luxuries until you're sure that you're staying ahead of inflation. It's better to use those income increases as an excuse to save more.

BASICS OF INVESTING:

1. Over the long term, stocks have historically outperformed all other investments.
From 1926 to 2008, the S&P 500 returned an average annual 9.6 percent gain. The next best performing asset class is bonds. Long-term U.S. Treasury notes returned, on average, 5.9 percent over the same period.

2. Over the short term, stocks can be hazardous to your financial health.
On Oct. 19, 1987, stocks experienced the worst one-day drop in stock market history - 22.6 percent. More recently, the shocks have been prolonged and painful: If you had invested in a Nasdaq index fund around the time of the market's peak in March 2000 you would have lost three-fourths of your money over the next three years. And in 2008, stocks overall lost a whopping 37 percent.

3. Risky investments generally pay more than safe ones (except when they fail).
Investors demand a higher rate of return for taking greater risks. That's one reason that stocks, which are perceived as riskier than bonds, tend to return more. It also explains why long-term bonds pay more than short-term bonds. The longer investors have to wait for their final payoff on the bond, the greater the chance that something will intervene to erode the investment's value.

4. The biggest single determiner of stock prices is earnings.
Over the short term, stock prices fluctuate based on everything from interest rates to investor sentiment to the weather. But over the long term, what matters are earnings.

5. A bad year for bonds looks like a day at the beach for stocks.
In 1994, the worst year for bonds in recent history, intermediate-term Treasury securities fell just 1.8 percent, and the following year they bounced back 14.4 percent. By comparison, in the 1973-74 crash, the Dow Jones industrial average fell 44 percent. It didn't return to its old highs for more than three years or push significantly above the old highs for more than 10 years.

6. Rising interest rates are bad for bonds.
When interest rates go up, bond prices fall. Why? Because bond buyers won't pay as much for an existing bond with a fixed interest rate of, say, 5 percent because they know that the fixed interest on a new bond will pay more because rates in general have gone up.

Conversely, when interest rates fall, bond prices go up in lockstep fashion. And the effect is strongest on bonds with the longest term, or time, to maturity. That is, long-term bonds get hit harder than short-term bonds when rates climb, and gain the most when rates fall.

7. Inflation may be the biggest threat to your long-term investments.
While a stock market crash can knock the stuffing out of your stock investments, so far - knock wood - the market has always bounced back and eventually gone on to new heights. However, inflation, which has historically stripped 3.2 percent a year off the value of your money, rarely gives back what it takes away. That's why it's important to put your retirement investments where they'll earn the highest long-term returns.

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8. U.S. Treasury bonds are as close to a sure thing as an investor can get.
The conventional wisdom is that the U.S. government is unlikely ever to default on its bonds - partly because the American economy has historically been fairly strong and partly because the government can always print more money to pay them off if need be. As a result, the interest rate of Treasurys is considered a risk-free rate, and the yield of every other kind of fixed-income investment is higher in proportion to how much riskier that investment is perceived to be. Of course, your return on Treasurys will suffer if interest rates rise, just like all other kinds of bonds.

9. A diversified portfolio is less risky than a portfolio that is concentrated in one or a few investments.
Diversifying - that is, spreading your money among a number of different types of investments - lessens your risk because even if some of your holdings go down, others may go up (or at least not go down as much). On the flip side, a diversified portfolio is unlikely to outperform the market by a big margin for exactly the same reason.

10. Index mutual funds often outperform actively managed funds.
In an index fund, the manager sets up his portfolio to mirror a market index - such as Standard & Poor's 500-stock index - rather than actively picking which stocks to purchase. It is surprising, but true, that index funds often beat the majority of competitors among actively managed funds. One reason: Few actively managed funds can consistently outperform the market by enough to cover the cost of their generally higher expenses.

PLANNING FOR RETIREMENT:

1. Save as much as you can as early as you can.
Though it's never too late to start, the sooner you begin saving, the more time your money has to grow. Gains each year build on the prior year's - that's the power of compounding, and the best way to accumulate wealth.

2. Set realistic goals.
Project your retirement expenses based on your needs, not rules of thumb. Be honest about how you want to live in retirement and how much it will cost. Then calculate how much you must save to supplement Social Security and other sources of retirement income.

3. A 401(k) is one of the easiest and best ways to save for retirement.
Contributing money to a 401(k) gives you an immediate tax deduction, tax-deferred growth on your savings, and - usually - a matching contribution from your company.

4. An IRA also can give your savings a tax-advantaged boost.
Like a 401(k), IRAs offer huge tax breaks. There are two types: a traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals, and, if you qualify, your contributions may be deductible; a Roth IRA, by contrast, doesn't allow for deductible contributions but offers tax-free growth, meaning you owe no tax when you make withdrawals.

5. Focus on your asset allocation more than on individual picks.
How you divide your portfolio between stocks and bonds will have a big impact on your long-term returns.

6. Stocks are best for long-term growth.
Stocks have the best chance of achieving high returns over long periods. A healthy dose will help ensure that your savings grows faster than inflation, increasing the purchasing power of your nest egg.

7. Don't move too heavily into bonds, even in retirement.
Many retirees stash most of their portfolio in bonds for the income. Unfortunately, over 10 to 15 years, inflation easily can erode the purchasing power of bonds' interest payments.

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8. Making tax-efficient withdrawals can stretch the life of your nest egg.
Once you're retired, your assets can last several more years if you draw on money from taxable accounts first and let tax-advantaged accounts compound for as long as possible.

9. Working part-time in retirement can help in more ways than one.
Working keeps you socially engaged and reduces the amount of your nest egg you must withdraw annually once you retire.

10. There are other creative ways to get more mileage out of retirement assets.
For instance, you might consider relocating to an area with lower living expenses, or transforming the equity in your home into income by taking out a reverse mortgage.

HIRING FINANCIAL HELP:

FIND A FINANCIAL PLANNER

1. Anyone can call himself a planner.
To avoid amateurs, hire a planner who's earned special credentials (such as a Certified Financial Planner or Personal Financial Specialist designation) by meeting training standards or having a certain level of experience.

2. Planning is more than investing.
Not all planners offer comprehensive services. Some just give investment advice or focus on one aspect of planning, such as insurance or taxes.

3. Expand your choices.
When hiring a planner, interview at least three pros to find the one who can deliver the services you need and who's compatible with your style.

4. Personal references are a good place to start - but not the last stop.
A reference from a friend or family member is a great way to search for a financial planner. But make sure you've got similar needs as the person who's giving the referral. Go to groups like the Certified Financial Planner Board of Standards and the Financial Planning Association for additional references.

5. Understand how your planner is getting paid.
The three most common set-ups are: Fee-only, fee-based, and commission-based. Fee-only planners don't get commissions for the products they sell - fees are for the advice they give. Fee-based planners may receive commission on some products they sell, but most of their money comes from a fee you pay them. Commission-based planners are paid by the companies whose products they sell.

6. Check credentials.
Check to see if a planner's record is tarnished by disciplinary problems or complaints. Groups that award credentials or state agencies keep tabs on planners and can provide help.

7. Get references.
Ask a planner for two or more of his clients - then follow up and call to find out how a planner performs in specific circumstances, such as during a financial crisis.

8. Express yourself.
The quality of a planner's advice is correlated to how well he or she knows you. Make sure a planner asks questions about your finances, goals, risk tolerance and philosophy. If they don't ask, they probably aren't paying adequate attention.

9. Know what they're selling.
Find out what financial products a planner sells and how much he or his firm earns for making a sale. Be wary of planners who push one product - say, one family of mutual funds or one kind of insurance - as they may not give you the unbiased or comprehensive advice you need.

10. Know yourself.
The best planner will take his cues from you. Before you hire someone, identify the financial goals you want to meet, your assets and liabilities, your risk tolerance, and investment style. Are you self-directed or do you want specialized help?

LIFE INSURANCE:

1. All policies fall into one of two camps.
There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.
Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.
Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.

4. Whole-life policies are built on assumptions.
The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.
There are better places to invest - and without the high commissions of whole-life policies.

6. Buy enough term coverage to fill your needs.
Life insurance is no place to skimp, especially with rates at historic lows.

7. Match the term of the policy to your needs.
You want the policy to last as long as it takes for your dependents to leave the nest - or for your retirement income to kick in.

8. Buy when you're healthy.
Older people and those not in the best of health pay steeply higher rates for life insurance - so buy as early as you can, but don't buy until you have dependents.

9. Tell the truth.
There's no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

10. Use the Web to shop.
Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes - and avoid the pushy salespeople.

ESTATE PLANNING:

1. No matter your net worth, it's important to have a basic estate plan in place.
Such a plan ensures that your family and financial goals are met after you die.

2. An estate plan has several elements.
They include: a will; assignment of power of attorney; and a living will or health-care proxy (medical power of attorney). For some people, a trust may also make sense. When putting together a plan, you must be mindful of both federal and state laws governing estates.

3. Taking inventory of your assets is a good place to start.
Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. Ask yourself three questions: Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you're ever incapacitated? Whom do you want making medical decisions for you if you become unable to make them for yourself?

4. Everybody needs a will.
A will tells the world exactly where you want your assets distributed when you die. It's also the best place to name guardians for your children. Dying without a will - also known as dying "intestate" - can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.

5. Trusts aren't just for the wealthy.
Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits.

6. Discussing your estate plans with your heirs may prevent disputes or confusion.
Inheritance can be a loaded issue. By being clear about your intentions, you help dispel potential conflicts after you're gone.

7. The federal estate tax exemption - the amount you may leave to heirs free of federal tax - has been rising gradually and will hit $3.5 million in 2009.
Meanwhile, the top estate tax rate is coming down. The estate tax is scheduled to phase out completely by 2010, but only for a year. Unless Congress passes new laws between now and then, the tax will be reinstated in 2011 and you will only be allowed to leave your heirs $1 million tax-free at that time.

8. You may leave an unlimited amount of money to your spouse tax-free, but this isn't always the best tactic.
By leaving all your assets to your spouse, you don't use your estate tax exemption and instead increase your surviving spouse's taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse's death.

9. There are two easy ways to give gifts tax-free and reduce your estate.
You may give up to $13,000 a year to an individual (or $26,000 if you're married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.

10. There are ways to give charitable gifts that keep on giving.
If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.

401(K):

1. A 401(k) offers three compelling benefits.
A 401(k) represents a way to reduce your taxable income since contributions come out of your pay before taxes are withheld; many plans include a matching contribution from your employer; and the money you save benefits from tax-deferred growth, which lets your money compound more quickly than it would if it were taxed yearly.

2. The federal limit on annual pre-tax 401(k) contributions is on the rise.
In 2009, the maximum contribution is $16,500, or $22,000 if you're 50 and older.

3. Matching contributions are "free money."
If you can't afford to max out your 401(k), contribute at least enough to get the matching contribution, a.k.a.. free money. The typical match is 50 cents on the dollar up to 6 percent of your salary.

4. Taking money out of a 401(k) before retirement is expensive.
Loans must be repaid with after-tax money plus interest. And, with few exceptions, if you withdraw money before age 59-1/2 you must pay income taxes plus a 10 percent penalty. What's more, lost time for compounding will substantially shrink your nest egg.

5. When setting up your 401(k) investments, figure out what your mix of stocks and bonds should be.
Two factors influence this decision: your time horizon until retirement and your risk tolerance.

6. You're limited to the investments your employer chooses for your 401(k) plan.
If you don't like many of the selections, keep your choices simple by investing, for example, in a broad-based index fund. Don't boycott the plan altogether. If you do, you lose out on tax-advantaged compounding and a matching contribution.

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7. When you change jobs, you'll often have three choices: leave your 401(k) money where it is, roll it into an IRA or another 401(k), or cash out.
If your account balance is less than $5,000, your employer may insist you take it out of the plan, but cashing out is like shooting yourself in the foot financially. Even small amounts can grow large with time and tax-deferred compounding. You'd be better off rolling the money into another retirement account.

8. When you do roll money into an IRA or 401(k), make it a "trustee-to-trustee" transfer.
That is, have the check made out to the custodian of your new account, not you. Otherwise, you risk possible penalties if you fail to execute the rollover properly.

9. IRS rule 72(t) provides one way to take early 401(k) withdrawals without penalty.
You must take a fixed amount of money out for five years or until you reach 59-1/2, whichever is longer. The annual withdrawal amount is based on your life expectancy.

10. Some employers let you leave money in your 401(k) account when you retire.
Find out what rules, if any, the employer imposes on when and how you must start taking distributions. If there are none, you may leave the money untouched until you're 70-1/2. That's the age when Uncle Sam insists all retirees begin withdrawing money from traditional IRAs and 401(k)s. In light of the recent stock market downturn, however, the government will suspend forced distributions in 2009. Investors who have already begun distributions may freeze them this year, says Mike Volo, senior vice president at Fidelity.


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