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Emergency Fund – Is 3 Months of Expenses the Right Amount?

July 7, 2011POST CATEGORY: COMMENTS: 1 Comment

[This post is part of the Financial Rules of Thumb series.  Check out the rest here!]

I’m sure you’ve heard the term Emergency Fund in the financial media, but might not be certain what it means.  Here’s a quick definition, and then my take on the topic.

Definition: Emergency Fund – Money that you can get your hands on quickly in the event of an emergency.

The Upperline:  An Emergency Fund is one of the best things you can create, financially speaking.  It sets a solid financial foundation and protects you from using high-interest debt.  The question is, how much?

Your Emergency Fund can be in a savings account, money market, extra money in your checking account, whatever works for you. The important thing is that you have money available in case the transmission falls out of your car, the AC for your home goes out, or your home is temporarily damaged by a natural disaster. (But that probably won’t ever happen, right?)

If you don’t have money that you can access easily when bad things happen, you’ll have to

a) rely on friends/family/strangers

or

b) spend on credit cards or lines of credit.

If you’ve got these resources it’s not the end of the world if you rely on them in your time of need, but better for you if you can take care of the problem in advance by having sufficient cash. As I’ve said before, Cash is King not because it’s a great investment, but because it allows you to take advantage of opportunity or survive a small or large catastrophe.

“How much should I have in an emergency fund?”  That’s up to you. This has more to do with you and your comfort with risk than anything else. If you have a stable, steady income and prospects don’t seem to be changing, then 2 to 3 months of expenses might make sense. If you have an income that can fluctuate, own a business, or are generally more conservative, then having 6 months or more of expenses makes sense.

“It’s going to be hard to save that much money.”  Just because it’s hard doesn’t mean it isn’t the right thing to do.   Set aside what you can every month, and create a visual tracking aid (like the thermometer that United Way uses) to chart progress towards your goal.  Find a way to celebrate when you reach your goal.

If you don’t find a way to save small, regular amounts then you’ll never reach your goal without a big windfall of some kind.

But when that windfall comes, there’s another chance to do the right thing. Set aside some money for fun things, and use a big chunk to get closer to (or meet) your emergency fund goal.

With your emergency fund, you’ll have a resource that you can use, without high interest charges to pay for that new air conditioner.  Then, you can then repay yourself rather than your credit cards.

Buying vs Renting a Home? – Financial Rules of Thumb Series

July 5, 2011POST CATEGORY: COMMENTS: 4 Comments

[This post is part of the Financial Rules of Thumb series.  Check out the rest here!]

It’s not uncommon to hear statements like “Renting is throwing your money away” or “A home is your best investment” but are those statements true?  The decision of buying vs renting a home has many factors that should be explored.

The Upperline:  There are lots of reasons to rent rather than buy.  Buying can be a great deal, but only if you plan to stay in the home for quite a while.

Like most financial decisions, this one isn’t really about the money.  It’s more about personal preferences like:

  • How long do you plan to live in this home?  (If less than 5 years, it’s hard to overcome the initial costs of purchasing and early years of financing)
  • How do you feel about renting?  Do you feel like you’re wasting your money?  Do you feel like you need to be able to make permanent changes to the structure or yard?
  • How do you feel about borrowing a large sum of money?  How do you feel about debt in general?
  • Is stability, knowing that you’ll be in once place for a long stretch, important to you?

Now that you’ve checked in with your feelings, here’s a short list of factors you should weigh when considering buying vs renting a home:

  • Costs of buying and selling – There are several expenses that happen with most home sales and purchases.  There are Filing fees (with the banks and local governments), Real Estate Commissions, Title fees, Appraisal Fees, etc.  All of these costs take a bite out of the proceeds of the sale (or add on to the purchase price if you’re the buyer).
  • Financing costs – Most homes in the US are purchased with a traditional 30 year mortgage.  If we assume a $200,000 mortgage and a 5% interest rate, at the end of 5 years you would have paid just over $16,000 in principal and $48,000 in interest.
  • Taxes & Insurance – Typically, the cost of renting is lower than the cost of owning a similar home.  That’s partially due to insurance (renter’s insurance is less expensive than homeowner’s insurance) and property taxes.  Be sure you get a good estimate of the annual property tax bill you’ll need to pay in your new home, and account for that on a monthly basis.
  • Maintenance – This is the hidden cost of home ownership.  Cleaning the gutters, painting the house, and cutting the grass are just a few of the things you’re responsible for as a homeowner.  There’s a financial cost, as well as a time cost to taking care of these chores.
  • Lack of flexibility – This is another hidden cost of ownership.  Once you buy, you’re locked in, and your money is locked in.  Banks are requiring higher down payments than in recent years (which is probably a good thing) but that also means you’ll have to save a healthy sum, and then see that money get swapped for equity in your home limiting your access to it.

Home ownership can still be a great deal, but the math isn’t as clear these days as it has been in the past.  Be sure to have some good conversations about what your home means to you, run the numbers, and make the best decision you can.

I hope this is helpful!  Please let me know if you have any follow-up questions or tips for things I left out in the comments below.

Upperline Financial Planning – News for June 2011

July 2, 2011POST CATEGORY: COMMENTS: 0 Comments
June 2011 was  big month for Upperline!  I was featured in the Wall Street Journal, Journal of Financial Planning, and Financial Planning Magazine, among other places.  We had our strongest month in terms of new clients, and continued providing what I hope is useful content here, including the launch of our first series exploring Financial Rules of Thumb.
Upperline Financial Planning - Words Written June 2011

Upperline Financial Planning - Words in Blog Posts June 2011

Most Viewed Posts for June 2011

  1. Creating a Digital Trust Fund for your Child
  2. Joyful – A Father’s Day Reflection
  3. Financial Rules of Thumb – a Financial Planner’s Perspective – Series
  4. Upperline Financial Planning – Big News Week
  5. How Entrepreneurs can Actually Take a Vacation
  6. Why You Should Work with a Small Financial Planning Firm
  7. 6 Books for Recent College Graduates
  8. Five Years From Now, Five Years Ago. What Advice Would You Give Yourself?
  9. A Difference Between and Employee and an Entrepreneur
  10. 7 Financial Tips for Newlyweds

Financial Rules of Thumb – A Planner’s Perspective

June 28, 2011POST CATEGORY: COMMENTS: 13 Comments

Financial rules of thumb.  We all know several, and have based our decisions off of them for most of our financial lives.  But how much truth is behind the common wisdom?

This post will serve as a table of contents for this series as I write and publish the content for you.  View the list below, and please suggest other rules of thumb in the comments that you’d like to see addressed.  I’ll link each new post back to this one and write one post per week until the series is complete.  If you want to be sure you get all of them, please subscribe to my blog and you can get them as they’re published either by email or in your RSS reader.

One last note – I don’t agree with some most of these the way they’re written.  The problem with general advice is that as my friend Tim Maruer likes to say, “Personal finance is more personal than finance.”

Saving
Spending

Investing

Home Ownership

Retirement

Insurance

  • “Life insurance should equal 5 times your income (or 8 or 12 times)”

What other Financial Rules of Thumb should I address?  Please let me know in the comments!

Joyful – a Father’s Day reflection

June 19, 2011POST CATEGORY: COMMENTS: 1 Comment

Father’s Day for me has been much more reflection than celebration.  It’s my first Father’s Day, and it’s been a great weekend.

We were out yesterday with our daughter Lucy, who has been my happy girl since the day she was born.  She loves seeing other people walking around, and loves to smile and wave at them.  She was being her usual self yesterday, when a kind woman remarked that she was so Joyful, and such a blessing.

I’ve been thinking of that word ever since.  Joyful is what Lucy is, and she’s made me more joyful as well.  I think that most of you know that I’m primarialy a stay-at-home dad, and working from home launching a new company while caring for your infant isn’t the optimal situation.  But the more I think about it, the less I think I could have gotten as far as I have without her.

It’s tough to launch a new company and a new idea.  For every thing that goes right, there are a few that don’t.  Lucy is my constant reminder of what is (and what isn’t) truly important.  I’ve never laughed more during the day than I have since she’s been around.  And I’ve never been as thankful for her mother as I have since she nurtured and brought Lucy into our world.  Joyful is what she has made us.

For you fathers, I’ll leave you with a reflection that John Warnick posted on his wonderful blog earlier this week.

Did you grow up with the tradition of a visit from the tooth fairy every time you lost a tooth?  Remember the excitement you felt when you woke up and discovered the Tooth Fairy had brought you a shiny Silver Dollar or a treat.

What if you write notes from your heart to each of your children, and place them under their pillows after they have gone to sleep the night before Father’s Day.  When they proudly give you your Father’s Day present, you can surprise them by telling them there is something lying under their pillow.  Make sure you preserve a copy of your note.  Someday your child will be extremely happy you remembered them on Father’s Day and you preserved that special note for them to share with their family.

So my wish to all of you, is to have a Joyful Father’s Day, and to celebrate that bond you have with your children and your father.   I have to go and work on my Father’s Day note to Lucy.

Upperline Financial Planning – Big News Week!

June 14, 2011POST CATEGORY: COMMENTS: 2 Comments

As a small business owner, you work to generate good press for your firm.  Sometimes it feels like those efforts are going nowhere.  Other times, you have a week of incredible results.  It’s been one of those incredible weeks.

I was featured on the Wall Street Journal’s Financial Adviser blog.  I still can’t believe it myself.  I’m also really proud of the points that I made in the interview, specifically about working with clients outside of the typical asset management arrangement.  It’s a really critical issue for young professional clients, and one that I’m proud to be on the leading edge of.

Yesterday, my latest issue of the Journal of Financial Planning arrived with my first article.  I was invited last year to start contributing as a regular columnist for the Money and Soul column and I’m really honored to be asked.  My article is about Succession Planning for Financial Planning Firms, which I believe is a critical issue as the industry matures.

On the same day, my interview in Financial Planning Magazine was published.  It covers many of the same topics mentioned in the Wall Street Journal article, but also a little more in depth about the reasons behind starting my own firm.  It’s really exciting to build a business based on your values, focused on expanding the access to Fee-Only Financial Planning beyond its traditional boundaries.

It’s a great honor to be in these publications at all, and just an amazing coincidence that it all happened at the same time.  Thanks to all of you who are out there reading and cheering us on as we try to show that a new model in financial planning can work!

Jude

A Difference Between an Employee and an Entrepreneur

June 11, 2011POST CATEGORY: COMMENTS: 0 Comments

I like to write at coffee shops.  Something about being out of my office allows me to focus on writing and not the many other things that are on my to-do list.

One of my favorites is connected to a hotel, and it has a large seating area that faces a row of floor to ceiling windows.  You can see the tourists walking around, and the cab stand where drivers wait to pick up fares. It’s a large hotel so there is a fairly steady flow of taxis and clients.

Many of the taxis are “company owned” meaning the driver is an employee.  These drivers pull up, come inside and order a coffee, and then stand outside with the other cab drivers waiting.

The other cabs are “driver owned”, where the driver is a contractor for the larger company.  They own their cab and are responsible for it entirely.  Their name is generally stenciled onto the passenger side of the cab, just above the front wheel.

Even if their name wasn’t on the side, you could probably tell the difference.  They park their cab, remove any trash left by previous passengers, wipe off the windows, the headlights, the grill, and the taillights.  Then, they will get a cup of coffee and talk to the other drivers.

This pattern continues over and over, no matter what day I am here.

There are lots of places you can work with a “company owned” advisor, but I hope you’ll chose to work with a “driver owned” advisor.  I think you’ll find that you’ll get where you want to go just as well with a “driver owned” company, but the experience of getting there will be more enjoyable.

Support an entrepreneur.  Buy Local.

 

How Entrepreneurs Can Actually Take A Vacation

June 9, 2011POST CATEGORY: COMMENTS: 1 Comment

I was quoted in the American Express Open Forum Idea Hub today in an article about Entrepreneurs taking extended time away from their companies.

I think this is more possible than Entrepreneurs realize.  Not only possible, it is essential.  I often ask Entrepreneurs what would happen if they couldn’t work in their company for the next 30 or 60 days.  The thought usually causes all of the blood to drain from their faces as they contemplate their business running without them.

If that’s the case, it’s a great opportunity for you to make some changes that will allow your company to run more smoothly while you’re around, and to allow you (and your employees) to take some time off.

1.  Document your systems! This is improvement opportunity #1 for business owners.  We know how things are supposed to happen, and so do our long-time employees.  Problem is, if you get hit by a streetcar, nobody else knows!  If you have to do it more than once, ever, it deserves a system.  Write down the steps that it takes to complete the task, and put it in a binder so somebody else could do it.  If you don’t have the time to do this, hire an intern.  They’re energetic, have great computer skills, and they have a fresh set of eyes so they can ask questions that might be overlooked by somebody who has worked within your company for longer stretches of time.

2.  Take a short trip, and see how it goes. If you want to take a 3 week vacation, but you haven’t taken a 3 day vacation in the last 5 years, start small.  You’re going to suffer some withdrawal symptoms so don’t rush into it .  See if you can really unplug for 3-5 days.  Don’t check email if you’re feeling brave, or set specific times in the day to check email.  Leave your phone in your hotel room safe.  The world won’t end, and your team can handle more than you think.

3.  When you’re ready for the big trip, set some ground rules. How often will you be checking in?  What are the situations or guidelines for your staff calling you?  If you’ve got a head operations person, make them the conduit.  Don’t just have everybody calling you.  If they need you, go to Person X and if they decide you need to be contacted, they’ll make contact.

4.  When you’re on the big trip, don’t be surprised if you have some big ideas.  Most of our creativity gets clogged up by day to day firefighting.  When you’re miles away from your business, it’s not uncommon for a stream of new ideas to come rushing in.  Carry a notebook to document these.  Write them in the notebook, then close the notebook.  It’ll be there when you get back into the office, or when you get on the plane to head back.

Those four tips can help you take a successful break from your successful company.  Any others you’d like to add?

What Advice Would You Give Yourself?

June 7, 2011POST CATEGORY: COMMENTS: 0 Comments

As readers of this blog already know, I’m a big fan of Seth Godin.  One of his more recent projects is Thirty Days of Ralph Waldo Emerson’s Self Reliance.   He’s had 30 authors take a quote from Emerson’s great work Self-Reliance, and they’ve created a writing challenge based on that quote.

Today’s challenge is from Corbett Barr, and is as follows:

There will be an agreement in whatever variety of actions, so they be each honest and natural in their hour. – Ralph Waldo Emerson

What would you say to the person you were five years ago? What will you say to the person you’ll be in five years?

I encourage you to think of your answers.  Mine are below.

Five Years ago Jude – I know it’s only been 9 months since Katrina and 8 months since your wedding, but know that you’re doing the right thing by sticking with New Orleans.  It’s undergoing some foundational change that is for the better.  There’s also the beginnings of an incredible entrepreneurial community that you’ll have a chance to be a part of.  Save more money now that you’re both earning well.  It will come in handy when you have a child down the road.  Enjoy this time and find a way to squeeze all of the travel and experiences that you can before you have your child.

Five Years from now Jude – Enjoy how great things are, because it was through some difficulty and sacrifice right now that we got there.  Money is tight.  We’re pretty sure it will be worth it in the long run, but it’s hard to see the future sometimes through the struggle.  We’re investing in our family, with me staying at home to take care of our daughter.  We believe in you and think that you’ve got something special to bring to the world.  Keep working hard to make sure this time of struggle wasn’t for nothing.

What would you say to your past and future self?

 

Creating a Digital Trust Fund for your Child

June 4, 2011POST CATEGORY: COMMENTS: 0 Comments

I was quoted recently by Reuters on the topic of investing in your child’s digital footprint.  In less than an hour, you can reserve their identity in a few different tools.  Below are the steps you need to take, and ideas for what to do with them once you’ve got them established.

As a parent, I understand that we all want to do everything we can for our kids and their future.  One small and easy thing to do is to set up what I call a “digital trust fund” for your child.  We’ve all seen the rise in importance of the internet, and I can’t see that changing in the future.  Here are 3 things you can do now to secure your child’s digital future.

1.  Register their name as a domain name.  Not only is having an online presence growing in importance, but being able to control that presence.  It’s easy to go to a service like Register.com, type in your child’s name (for example, I’ve registered mine as judeboudreaux.com) and then proceed to “buy” it.  With Domains you have to pay an annual fee for registration that is about $12 per year.  It’s a small price to pay to have your name as a domain name.  Once you have that domain name, you can host a personal blog there, use it to share family photos, or just hold onto it for future use.

2.  Register a Gmail account.  I received an early invite to Gmail, and I’m quite glad I did.  While I have my name, we’ve never been able to register my wife’s real name since somebody else has claimed it.  Go to gmail.google.com, and click on the “Create an Account” button on the bottom right of the screen.  The next page will ask you for some basic information, and for a desired login name.  I’d suggest firstnamelastname, but you may have to use a middle initial or full middle name if the others are taken.  Fill out the rest of the information on the page, and you’re all set.  Use a password that you’re likely to remember, and be sure to use your email address as the “recovery email” address in case you lose access to the account down the road.

Having the Gmail account has been a lot of fun for us.  We knew what our daughter’s name was going to be once we found out our baby’s gender, so I set up the account then.  We could then email her thoughts as we were going through the final months of pregnancy, and I still email her from time to time to share special thoughts and memories with her, that hopefully she will appreciate when she’s older.

3.  Sign up for Twitter.  Twitter may or may not be around in a few years, but I’m taking a shot that they will be.  The service is growing at a rapid pace, and having your own name as an identity is an advantage here as well.  Simply go to www.twitter.com.  On the right hand side of the home page, is a place to enter your name, your email address (you can use your child’s newly created Gmail address from the previous step) and a password.  Click on sign up, and it will bring you to another form where you choose the username.  I’d recommend you choose something as close to your child’s real name as possible.

That’s how I started our daughter’s digital trust fund!  Can you suggest anything I’ve missed?

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