Wednesday, July 11, 2012

5 Reasons Why You Don’t Have a Financial Plan

1.) You are too complacent! Complacency is defined as “Contented to a fault; self-satisfied and unconcerned”. Get off your butt! And get your financial life in order.

2.) You believe that “Financial Planning” is just for people with lots of money or it’s too expensive. This couldn’t be further from the truth. My clients have all levels of net worth. If someone came to me who really needed my help, I would do my best to work the cost of my services into their budget.

3.) You think “Financial Planning” is just about investing or retirement. Nope, not even close. Financial planning involves everything your money touches. Including your budget, investments, taxes, and your estate plan.

4.) You think you “got a guy”. Most so-called Financial Advisors are really just investment sales people with no formal training in financial planning. If your guy works on commission, and isn’t a Certified Financial Planner… You ain’t “got a guy”!

5.) You listen to Dave Ramsey! Oops, did I really just say that? YES!!! While I concede that Mr. Dave is a marketing genius, much of what he teaches about personal finance is crap! Yes, crap! Why is it crap? I could list at least a dozen reasons, but I’ll just stick to a few that really irk me the most. 
  • #1 He teaches his followers to only invest in 4 types of mutual funds. If it were really that simple, why don’t all the top money managers in the world follow this strategy? Because it’s a stupid strategy! It’s better than no strategy at all, but it is nowhere near a real investment plan. Follow his strategy, and you'll likely be disappointed by sub-par returns with higher levels of risk when compared to working with a professional.
  • #2 He says to ONLY buy mutual funds that charge a commission. How ridiculous is that!? Mutual funds that charge a load or commission are usually actively managed. 60-70% of actively managed mutual funds don’t even beat the S & P 500 Index! And actively managed mutual funds can be 4 or 5 times more expensive than index funds. He says this because all of his “ELP’s” work on commission! And if he told you to only buy “no-load” funds, his “ELP’s” would go out of business.
  • #3 He says that bread-winning spouses should only buy 10 times their income in term life insurance. I can’t even bring myself to waste time on this one again! Just find my other posts about life insurance. If you still need convincing that much of what Dave says is crap, I have a little homework assignment for you. Multiply your income by 10. Then go to Google and find the last 5 or 10 years of actual stock market returns because he says to only invest the money in the stock market. Then assume you died 5 or 10 years ago, and your wife was trying to survive by taking 10% of the starting principal balance each year. Next deduct or add back the positive or negative returns of market to/from the remaining balance each year. You will see that your wife will likely run out of money in 7-10 years. But Dave doesn’t tell you that, does he? His advice tramples on widows in my opinion.
Last point on Dave… I think he is AWESOME at the get out of debt stuff. But most of everything else he teaches is just crap. Most CFP’s would not disagree with me. If you still don’t believe me, I would be more than happy to sit down and mathematically prove it to you. How does he get away with giving inaccurate advice? That’s simple… He is not liable for any of the advice he gives because he is in the book selling business, not the financial advisory business.

As I mentioned earlier, Dave is a marketing genius! He figured out a way to package up over-simplified financial planning so he could sell it to the masses. He has tons of followers. But that doesn’t make everything that comes out of his mouth true! Ron Hubbard and Scientology have a ton of followers too! And both have sold millions of books. Do you believe in Scientology?

 Now, go get started on a real Financial Plan!