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Finance scares many people
Even if you don't like finance, there are a few key moves you should make.
Finance scares many people. Some feel it is too complicated or requires great mathematical skills. Others find that watching the numerous experts on TV discuss market moves makes their head spin and reinforces the sense of complexity. The result is that they either fail to build a financial plan, decide to turn everything over to a paid adviser or perhaps have their spouse handle all the financial matters while they take on other responsibilities in the partnership. None of these actions is correct, and even someone with no interest in finance should be able to take a few key steps.
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Verify beneficiaries on your retirement accounts, insurance contracts, and wills.
Take time to verify that money will go to the proper individual(s) upon your death or the death of a spouse. Too many people have found out after the fact that former spouses' or parents-in-law would receive the inheritance because the beneficiaries on different accounts were not changed following a marriage or divorce. Check life insurance provided through work, insurance contacts purchased privately, retirement accounts held at former employers and investments managed by your advisor. Many, if not most, financial institutions require account holders to provide this information on a proprietary form and will not easily or quickly accept wills or trust documents instead. Ask each firm to provide you with a list of beneficiaries on each and every account held by you and your partner.
Make sure you understand how bank accounts are titled and what rights you would have to withdraw money from an account upon the death or incapacitation of the joint account-holder. Otherwise just when you need to access the account you may discover that you're locked out. Also make sure that you have independent access to the safe deposit box. As you review beneficiaries it is worth reading over will and trust documents again to make sure nothing has changed since you executed the documents. At a minimum this exercise will remind you where to find these documents, since you probably do not reference them frequently.
Review changes in your financial situation annually.
Once each year it is important to review a summary of your overall financial position. If you have a partner this is a terrific time to review investment objectives for the next year and beyond. In a recent online discussion on financial understanding, a contributor named TRC said that each year he goes over a portfolio summary with his spouse, who has no interest in finance, to show her "where the money is, rebalance (if necessary), and review ... financial objectives for the next year." Pulling together a list of all financial accounts, property and other assets and comparing it to a list of all debt--including student loans, mortgages, car loans, and credit card balances--is a very simple way to assess your financial strength. Keep these reports and compare them year-to-year to see the progress you are making toward reaching your goals.
Understand how your financial "adviser" is paid and what his duties are.
If you have a broker handling your investments and you think he is looking out for your financial best interests, think again. A contributor clarified the role of financial advisors in a recent online discussion:
The term "financial adviser" can be used in several very different ways. It is important to remember the distinctions. Folks who use the professional title financial adviser are typically stock brokers (legally, registered representatives or broker/dealer agents). Please think of them as salesmen. Their training is focused on how to sell the financial products their employer is pushing. They do have to pass a few exams (Series 7, 63 or 66), but these mostly emphasize federal and state laws they must obey in the process of making their sales. Their training is typically insufficient to enable them to intelligently manage portfolios or give sound retirement planning advice.
Here's how to think of it: If you are determined to call a stock broker a "financial adviser" and you buy or sell according to his recommendations, then you should call a car salesman a "transportation adviser" and buy the car off his lot that he recommends.
Brokers do not have a fiduciary responsibility to you, meaning they are not required to invest in a way that is in your best interest. Don't be confused and awed by titles like "vice-president"; they don't equate with someone who is legally required to work in your best interest. Is your financial future in the hands of a broker? If you discover the answer is yes, take steps to locate a different source of financial expertise to manage your investments.
Get your partner involved.
What if you pay attention to finances, but your partner doesn't? Several excellent and easy-to-read books are available. If your partner has no interest at all in reading a financial book, try an audio book for trips or commutes. A forum member wrote that he handled this problem with his wife by using audio versions of basic investment books. They like to listen to audio books to pass the time while driving, which leads to great travel discussions.
None of these steps should be too complicated or confusing. Investing effectively, if done properly, should be as exciting as watching paint dry or grass grow.