Get With The Plan: June 28, 2009

62809Last week marked the 300th family The Star-Ledger has helped with Get With The Plan.

Since 2003, families have received free money makeovers from certified financial planners in exchange for baring their financial souls, their money challenges, their goals and their dreams with our readers.

We’ve learned a lot through the analysis of these 300 families. While every family’s financial situation is unique, there are some themes that hold true for every participant, through both good and bad economic times.

“We have many of the same general needs,” said Ronald Garutti, a certified financial planner with Newroads Financial Group in Clinton. “We need ‘protection’ in the event of emergencies (savings set aside for the rainy day), we are often looking to fund a ‘future obligation’ (be it education funding, retirement, the next house) and we crave ‘growth’ (often at the wrong time) of our assets.”

We asked some of the financial advisers who have provided advice since this feature premiered to share their observations. Here’s what they had to say:

Accurate budgeting

That cursed “B” word: budgeting.

Many families have a very difficult time being realistic about what they spend and what they can afford to spend. Their spending plans leave out items such as cash for lunches, then they can’t figure out why they keep going over the budget, said Diahann Lassus, a certified financial planner and certified public accountant with Lassus, Wherley & Associates in New Providence.

“This is by far the most important starting point and for many, the biggest stumbling block,” Lassus said. “Sometimes, because people see it as something that once it is set, it’s permanent, rather than developing a spending plan and recognizing that there are still choices.”

To succeed with a budget or spending plan, track expenses for at least a month (two or three months will give you a more accurate picture). Save receipts for everything, including the little items, such as coffee or a pack of gum, or carry a spending diary to help record expenditures. See each cash outlay as a choice. If you spend more on “this,” you’ll have less money to spend on “that.”

After some time has passed, add up your costs and see if you’re on track, where you can cut back and how you can do better next month.

Tedious? Yes. Afraid of what you may find? Probably. But knowing what you spend is the only way to do better.

Emergency funds

In the not-too-distant past, emergency funds were not priorities. Consumers could always rely on credit if they had an unexpected expense, but now we have bulging credit card bills and swollen home-equity lines. Lenders aren’t quick to lend, and they’re cutting back previously approved credit lines.

Cash, once again, is king, and most people don’t have enough.

“Americans are seeing rainy days now, realizing either that they never saved for them or didn’t save nearly enough,” said Debra Morrison, a certified financial planner with Trovena in Lincoln Park. “Additionally, the potential for job loss has individuals searching the couch cushions for mac and cheese money.”

Think baby steps. You can’t build a cash reserve of three to six months’ worth of expenses overnight. Direct your bank to move $10 or $25 a month (your latte money?) to a savings account (more if you can afford it), and you’re on your way.

Retirement planning

Planning for retirement is a huge goal for Get With The Plan participants. Few people can rely on corporate pensions or Social Security to fund their golden years, so employer pretax retirement plans such as 401(k)s and 403(b)s are the instrument of choice.

But too many investors are overly aggressive or conservative with their retirement savings, and those without proper asset allocations are especially hard-hit when the stock market fell.

“The lesson learned of the past few months is that it can happen to you,” Garutti said.

Conventional wisdom has been to review your asset allocation and portfolios at least once a year, but while the market soared, few bothered. Now that the market has our full attention, investors need to be more proactive and make sure asset allocations match objectives.

“The major caution is to not try to get it all back with a really aggressive move, which we would call an attempt at a home run with a big risk of a strikeout,” Lassus said. “The one thing we can’t afford to do is hide our head in the sand and hope things get better.”

College savings

Many Get With The Plan parents have risked their financial independence in retirement in an attempt to pay for college educations for their children. Rather than save as much as possible and make college funding a secondary goal, too many families split their savings between the two goals.

“Student loans are relatively easily attainable and have low interest rates, whereas a ‘retirement’ loan is not really an option,” Garutti said.

If you have extra cash for college savings, our planners unanimously have recommended 529 plans for tax-free growth, and they warn that investors must monitor expenses, which eat into profits. To compare 529 plan options, visit SavingForCollege.com.

Debt management

Debt became a way of life in the past few decades, and now those high loan balances are causing trouble. Lenders are raising interest rates, reducing credit lines and changing credit card contract terms. Readers simply say, “Ouch.”

If you used plastic for your Starbucks lattes to earn credit card airline mileage rewards, or if you who frequently transferred higher rate balances to cards with low “teaser” rates, Morrison said you can change your mindset and do better going forward.

Evaluate where you are, no matter how much it hurts, by creating a list of credit card balances, interest rates, credit limits and monthly payments.

“The objective is to pay down the highest interest credit card first,” Morrison said. “Secondarily, aim to reduce the balance to below 40 percent of any single card’s limit, which increases your FICO score.”

Avoid late payments, which will cause fees and interest rates on that card to skyrocket. Once that single late payment ripples through any one of the credit agencies, it is now legal and permissible for rates on your other credit cards to also rise, Morrison said.

Going forward, make sure you don’t add to your balances. Use cash or a debit card instead.

Insurance

It’s not exciting, but insurance can be a lifeline to those left behind when a loved one dies.

Garutti said the average person is underinsured, and ignoring proper insurance planning will eventually catch up with you, often at the absolute wrong time.

“Implementing the correct type of personal insurance, life insurance, disability insurance and long-term care insurance is not sexy,” he said. “It’s not meant to be. It is meant to protect us in times of need.”

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