Ten signs you're as financial-savvy as they come—and the steps to take to get there.
1. YOU'RE A WILLING STUDENT.
Financial knowledge is not innate; it’s learned. You are upfront with your financial advisor about what you understand and ask questions about what you don’t. You’re also willing to open up about past mistakes you’ve made with money so that you can avoid them in the future.
2. YOU CAN TALK MONEY WITH YOUR FAMILY.
Others may freeze up when the conversation turns to finances, but you can let it flow.
“A lot of people think it’s almost taboo to talk about money, especially with their family,” says Bruce Helmer, cofounder and financial advisor at Wealth Enhancement Group and host of the Your Money radio show on WCCO. “Having open and honest dialogues about money, particularly with your spouse if you are married, can help provide clarity and limit financial disagreements.”
Julie Krieger, partner and wealth advisor at Evercore Wealth Management, makes a point to encourage her client couples to share their goals with each other during meetings. “Spouses often have different goals for their finances, but they avoid actually addressing the differences,” she says.
David Gutzke, senior vice president and wealth management advisor at The Private Client Reserve of U.S. Bank, Minneapolis, recommends getting kids in on the financial picture, too. “Kids may not need details, but a general understanding of family wealth keeps them involved and starts to build up an understanding of shared values and financial priorities,” Gutzke explains.
Not a fan of family fiscal conversations? Schedule a monthly meeting. You’ll stay on track without having to talk money at the dinner table.
3. YOU DON'T KEEP UP WITH THE JONESES.
Holy Maserati, the neighbors are driving one good-looking vehicle. But after the initial twinge of envy, you’re okay with it. You have a budget and you stick to it.
“Remember your specific situation when making a purchase rather than comparing yourself to someone else,” Helmer says.
Before you flash the plastic, Dosen recommends asking yourself if you really need it. If so, calculate the cost of the item according to how long you would need to work to pay for it.
4. YOU KNOW WHERE YOUR DOUGH GOES EACH MONTH.
Most of your monthly bill payments are automated so you never have to deal with late fees, and you use a banking program or app like mint.com to keep yourself in the know.
You’ve got a handle not only on the amount you spend, but also on your habits. Most of your monthly bill payments are automated so you never have to deal with late fees, and you use a banking program or app like mint.com to keep yourself in the know. You also monitor your credit accounts, a crucial practice with the rise in identity theft.
Finally, you’re a pro at understanding and paying down debt. “A person should have a good idea of efficient and inefficient debt,” Helmer says. “For example, credit card debt should be avoided, while the debt from a mortgage can offer you a beneficial tax deduction.”
5. YOU HAVE AN EMERGENCY FUND AND PLAN.
You know it’s crucial to expect and plan for the unexpected.
“If an event occurs that creates change in your life, the ripple effect can be devastating if there is no financial contingency plan,” explains Suzann Brown, senior vice president and wealth management advisor at The Private Client Reserve of U.S. Bank, Minneapolis.
Martha Pomerantz, partner and portfolio manager at Evercore Wealth Management, recommends saving up so you can keep the equivalent of three to five years of expenses on hand in cash or fixed income to confidently meet your expenses during periods of market volatility. Just starting out? Having six months’ worth of expenses available is a good initial saving goal.
Emergency plans should also include insurance options. “People who do a really good job of saving, investing, and growing their nest egg often are underprepared when it comes to risk management,” Helmer says. “Without proper disability coverage, you can go through your savings quickly if you suffer a serious injury or a premature death in the family.”
6. YOU TAKE THE LONG VIEW ON INVESTING.
Day trader? No way. You’re willing to keep investments in stock for five years or longer because you realize that long-term gains are more dependable and, in the end, more profitable.
“There is a 90 percent probability the market will be up over the five-year time period,” Pomerantz explains. But, she adds, patience is key. “The average investor only makes 2 percent annually, well less than the S&P 500, because it is easier to look in the rearview mirror and react to information already well known than to anticipate what changes might be ahead.”
This is where the advice of your financial advisor comes in handy. To help your advisor determine how much of your portfolio should be in fixed income and how much could be invested for growth, be specific about your goals and about how much of your investment portfolio you need to live on over the next three to five years.
7. YOU PAY YOUR FUTURE SELF FIRST.
You’re saving to make retirement a reality—inflation be damned.
“Yogi Berra was right when he said, ‘A nickel ain’t worth a dime anymore,’” says Dave Paradise, senior premier banker at BMO Harris Bank. “Today’s dollars need to be placed where they will grow to keep up with or exceed inflation.”
With this in mind, you have a solid investment portfolio, and you’re harnessing the power of compound interest through an employer 401(k) or an IRA. “These dollars accumulate tax-free and you won’t be tempted to withdraw due to penalties prior to retirement age,” Krieger says.
Another tip for the working set: Save half the amount of each pay raise in your retirement fund. “You still feel like you are getting a raise, but over time your savings and retirement plan balances will grow tremendously,” says Michelle Young, financial advisor and president of Young & Associates, a private wealth advisory practice of Ameriprise Financial.
8. YOU HAVE GOALS THAT REFLECT YOUR VALUES.
You know what you’re saving for and why it’s important to you.
Money, by definition, is a “medium of exchange”—a means to an end. You’ve done some soul searching and have written down your financial goals. You know what you’re saving for and why it’s important to you.
“When you use core values to make financial decisions, it brings your life and your wealth together,” Helmer explains. “People’s financial journeys should be based on personal values. When this is the case, they often find themselves making better decisions about their money.”
9. YOU MAKE TIME FOR YOUR MONEY.
An annual advisor meeting works for most people, but you should meet more frequently during major life events.
You may be busy, but finances remain high on your priority list. You meet with your financial advisor regularly to review your accounts and goals, adjusting your saving and spending habits accordingly.
“Lack of time to focus on finances may be the number one reason people don’t manage their finances well,” Krieger says.
An annual advisor meeting works for most people, but you should meet more frequently during major life events because they can dictate changes in your financial plan, estate plan, or investment portfolio.
10. YOU TEACH THE NEXT GENERATION.
“Engaging the next generation in your plans for their education, your spending, and savings for the year helps them understand and involves them in the planning process,” says Goff Investment Group managing director Janel Goff. As adults, they’ll be better prepared to manage their own finances—and make a smaller dent in yours.
David Gutzke, senior vice president and wealth management advisor at The Private Client Reserve of U.S. Bank, Minneapolis, recommends teaching children good financial stewardship, too. To try it: Suggest they spend one-third of a monetary gift, save one-third, and donate one-third to charity.
The Right Advisor For You
Six smart questions to ask a potential advisor
- “Are you a Certified Financial Planner (CFP)?”
—Ginger Ewing, financial advisor and president, Ewing & Associates, a private wealth advisory practice of Ameriprise Financial
- “How would you describe your client base?”
—Kelli A. Hill, vice president and senior wealth planning strategist, Wells Fargo—Great Lakes Region
- “How did you handle your client accounts during the downturn of 2008 and 2009?”
—Julie Krieger, partner and wealth advisor, Evercore Wealth Management
- “What are the fees, and how are you compensated?”
—Bruce Helmer, cofounder and financial advisor, Wealth Enhancement Group, and host of the Your Money radio show
- “Do you manage money as a fiduciary? A fiduciary is required to act in a client’s best interest and infers a legal obligation supported by a high level of internal and regulatory oversight.”
—Kyle Fagerland, senior vice president, Minnesota Bank & Trust
- “Ask yourself, ‘Did I connect with this person and did they listen to me?’”
—Anna Dosen, market executive, Twin Cities—Associated Bank