Seasonal Weight Gain

4/52 weeks project 2012The holidays are upon us yet again, a time of year filled with friends, family, celebrations and an abundance of food. The end result? The average American will gain approximately eight pounds between now and New Year’s Day.

Unfortunately, there is another type of weight gain that also happens this time of year, one as difficult to shed as those extra holiday pounds. I’m talking about the additional weight added to our credit card balances as we party our way through the holidays.

We all know that preventing weight gain isn’t exactly rocket science. To keep off the extra pounds, we know we should exercise more and watch what we eat. Financial weight gain is no different – we need to save a little more and spend just a little less.

So how do we prevent added financial “weight” on our credit cards? Like exercise, it’s all about discipline. Some of you may remember the old “Christmas Club” accounts that local banks once offered. The truth is there was nothing magical about these ventures, they were simply forced savings accounts. By saving a little each month, come December you had a lump-sum of money to buy holiday gifts with. A similar approach will help you avoid credit card shock next year. Here it is, in seven and a half* steps.

1. In January, after all the dust has settled, your credit card statements have arrived, and you’ve regained consciousness after the shock of your increased card balances, add up what you spent on gifts, decorations and entertaining.
2. Adjust the number from Step 1 up (or down) based on what you would like to spend next Christmas. This is your target for next year.
3. Divide next year’s target number by 12 to calculate how much you need to set aside each month to reach your target.
4. Establish a separate savings account specifically designated for holiday expenses.
5. If you are an employee, have your human resources department set up a direct deposit for the amount you came up with in Step 3. If you are self employed, simply direct-deposit from your checking account yourself. We find that most people, after a few weeks, don’t notice the money that’s being diverted into the savings account.
6. Now, the tricky part: Stick to your budget you established in Step 2.
7. Pay your credit card bills IN FULL when they arrive in January.
*7½. The added benefit of this approach is: With your seasonal financial weight under control, you can spend more time at the gym.
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To Catch a Middle Aged Insurance Agent

Apparently, Chris Hansen of Dateline NBC after, numerous versions of his ‘To Catch a Predator’ series, has run out of child molesters to catch on hidden camera. In his current sting operation entitled ‘Tricks of the Trade’ Mr. Hansen isn’t going after drug pushers, or pimps or even sweat shops. No, instead he’s focused his energy on the most nefarious operators out there, the unsuspecting, middle aged insurance salesmen pushing annuities on the elderly.

Thank God investigative journalism isn’t dead quite yet.

Now, I’m being a little facetious when I bag on Mr. Hansen for going after insurance agents. I will be the first to admit that there are unscrupulous agents out there selling annuities with long surrender periods to elderly clients that almost certainly won’t survive long enough to get out of, simply to earn a commission.

At issue in this particular piece was the sale of Equity Indexed Annuities. The selling point of these annuities is that you get some exposure to the returns of the stock market but you are protected from loss by a guaranteed minimum interest rate.  Sounds simple enough.  The problem is that there are many options in how your interest rate is calculated, the types of guarantees, length of surrender period and any number of other variables to be considered.   In fact, despite the way they’re sold, these types of annuities, by their nature are complex with many moving parts.

If you have an elderly client, friend or relative and they indicate there’s a salesman coming to talk to them, do them a favor and make time in your schedule to be there for the presentation, or be sure your trusted financial professional looks over any presentation before they sign.  You’ll save everybody a tremendous amount of grief.

Equity indexed annuities are not bad in and of themselves.  As I’ve said many times, most financial products aren’t bad, they’re just sold that way.

Financial Products Aren’t Bad, They’re Just Sold That Way

Oftentimes when meeting with clients and prospects, we caution them about putting too much credence into the rantings of the popular financial press. We remind them that these writers and pundits are in the business of selling magazines, newspapers, books or investment courses (or some combination thereof). Due to limited space, and in order to stand out from the crowd, they must take very strong stances, pronouncing some financial products “good” and others “bad”.

It has been our experience that, save for outright illegal products, it is ridiculous to attach a “good” or “bad” moniker to a particular financial product. Any tool, financial or otherwise, is “good” for some situations and “bad” for others. Very rarely is a particular tool flat out good or bad in all circumstances. Would you say that a screwdriver is a “bad” tool because it doesn’t cut wood? No, of course not. What you might say, however is that the screwdriver is a bad choice for cutting wood but a good one for it’s designated purpose of turning screws.

All financial products are, like that screwdriver, merely tools to help you achieve your financial goals. Most financial products available are good for some situations and bad for others. Problems arise not from the design of the tool, but when it is sold for an inappropriate purpose by either an unscrupulous or poorly trained financial advisor.

Let’s use a product that we see getting bad press all the time – annuities. Various columnists we’ve seen (who shall remain nameless), when asked about annuities will say simply that they are “bad”. They’ll argue that annuities are illiquid, expensive, pay huge brokerage commissions and that you absolutely don’t need one. What these columnists fail to tell you is that annuities are a great tool when used for their primary purpose – providing a stream of income that you cannot outlive. When annuitized, they work much like traditional pension plans, providing a steady stream of income that will last a lifetime. For a segment of the population this guarantee provides the priceless benefit of peace of mind. Is your money illiquid? Generally speaking yes, for a finite period of time. Does the guarantee of not outliving your money come with a cost? You bet. We all know there’s no such thing as a free lunch. Did your broker get a commission? More than likely, yes. The fact that the broker receives a commission doesn’t make it a bad product; it just makes it imperative that you understand the potential conflicts of interest the broker may have had in selling it to you. Do you not need an annuity? We don’t have a clue. Until we’ve met with you for a full review of your entire financial picture, we can’t tell where an annuity fits in the mix. Nobody can. In fact, we recommend you run far and run fast from any advisor that makes a recommendation without asking a LOT of questions first.

Hopefully we’ve learned two important lessons here: 1) Remember that newspapers, magazines, radio and TV shows are in the business of selling more of their product, so take what they say with a grain of salt, and 2) Be very wary of anybody that tells you that a product is “good” or “bad” without understanding your unique financial situation. To paraphrase a line from the movie “Who Framed Roger Rabbit?”, “Good products aren’t bad, they’re just sold that way.”