admin January 26, 2016 No Comments

Financial Planning Girl Scout Style

People don’t normally think about Girl Scouts and financial planning together. Common thoughts are more along the lines of cute little girls in green, camping, and of course cookies. But a lot goes on to make those camping trips happen. And cookie sales are really an owner-run small business. Like any family or business, a troop has chores to do, conflicts to overcome, projects to plan (that might require buying insurance in case anything goes wrong,) and a budget to balance.

As a Girl Scout leader for twelve years, I most enjoyed watching the girls learn financial planning, Girl Scout Style. I knew they’d apply these financial skills in their personal lives in the future. Here are the key lessons learned by Girl Scouts.

  1. The girls learned that it’s ok to dream about fun adventures. We started each year determining what the troop wanted to do.
    1. Financial planning starts with a desire to buy or experience something.
    2. Write down your goals and dreams, short term and long term.
  • What are your daily/weekly/monthly expenses? Girl Scouts pay for snacks, meeting supplies, field trips, badges. Families have food, shelter, clothes, medical expenses, and transportation. These are actually just short term goals.
  • What are your required long term expenses? In Girl Scouts, there are handbooks & badge books to buy at each level, replacing/repairing tents for camping, and ceremonies. In a family you have cars and appliances to replace, a roof to replace/repair, college education, retirement. These areas need to fit in the budget too.
  • Most people, whether Girl Scouts or not, want to help their community or a charity by donating money, time, or talent.
  • After making sure the basics are covered, it’s nice to have a reward to look forward to. Both Girl Scouts and families dream about going trips, making big purchases, and having money for extras/luxuries. It easier to get through the day to day expenses if there’s a fun dream to look forward to.
  1. Look at what your income sources are. Are you able to make more money? Do you want to?
    1. Girl Scouts income sources include dues, fall product sales (nuts, magazines, and/or calendars), cookies sales, money earning projects (babysitting nights, carwashes, etc). Family income sources include jobs, investments, pensions, and inheritance.
    2. The girls and their chaperones can work harder at the Girl Scout fundraisers or do more money earning projects to increase their income. Families can choose to work longer hours to get more income, invest in more education to get a better job, or save money to buy investmentsthat provide more money in the future.
  2. The fun part of money is obviously spending it. Really, the main reason we work, Girl Scouts or family members, is to make money to spend.
    1. When choosing how to spend money, have a plan based on your goals. All stakeholders need to be involved, including Girl Scouts, Leaders, and parents in a . Involve all members in the family, including kids, in family financial decisions.
    2. It’s easier to make choices and sacrifices if everyone is involved. You may have to cut back on eating out to buy the clothes you want. You may want to cut back on the short term goals to get to your long term goals faster.
    3. Set realistic goals based on realistic income – you can’t spend more than you make in the long run.
    4. Don’t waste money because you don’t have goals. It’s easy to mindlessly buy things. With a goal, you can ask “do I want this or do I want more money in the Dream fund?”
    5. Understand the value of money when you make purchases. With your goals in mind, you can determine if a purchase is appropriate. Is the item you want to buy worth more than progress towards your Dream?
  3. Monitor, Celebrate, Reflect, and Plan your next Dream
    1. Monitor your progress and adjust income and/or expenses to stay on track.
    2. Periodically revisit the dream goal to ensure it’s still what you really want. Is it worth the sacrifices you may have to make?
    3. After you realize your dream goal, celebrate successfully reaching your goal.
    4. Reflect on what went right, wrong, how you could do better next time.
    5. Once a goal has been completed (short or long term goal), it’s time tolook forward to what’s next.

Remember: to safely navigate your life without emergencies, plan instead of react. As Benjamin Franklin said, “If you fail to plan, you plan to fail.” Guarantee success with a plan in place and track your progress.

Whether you’re a Girl Scout troop, a family, or an individual, setting goals, making a plan, and monitoring progress will help you get what you want out of life. Goals sometimes change and plans shift, but you’re still further ahead than wandering around in the dark. The more focused you are on your goals, the easier it will be to reach them.

admin January 17, 2016 No Comments

The Crazy Stock Market

What’s the story with the stock market these days? Many people are concerned about the Chinese stock market. Note that the Chinese stock market is much like going to Las Vegas in the US. It has little to do with the Chinese or world economy overall. I typically ignore what’s happening in Vegas as I do with the Chinese stock market.

I have a friend who is in the business of buying commercial real estate. We often discuss current economic and investment events. He once said, “The way to make money is in real estate.” I said, “The way to make money is to buy low and sell high in anything.” He admitted he couldn’t argue with that.

My point was that whatever investment vehicle you use the basics are the same. But knowing where the bottom and the top are can be difficult to determine, especially if you don’t understand what you are investing in. My friend understands commercial real estate and I understand stocks and bonds. There’s a lot of derivatives that no one understands, even financial advisors who are recommending them. People often get caught in the herd mentally and follow the crowd even if they don’t understand what they are following.

What is more interesting to me than the Chinese stock market is the US market. I don’t mind when the stock market plunges because it’s far easier to find investments that are closer to their bottom range. The last few years finding undervalued securities has been like looking for needles in the hay stack. The needles are there, you just have to work to find them. Now, the hay stack is much smaller and the needles are easier to find.

We came into 2016 with many expecting a volatile year (including me) because of world events, an economy that isn’t following the normal rules (low unemployment and low inflation doesn’t happen often), and the political elections. This can be great news for market timers, but it’s also good news for people like me who look for prices at bargain rates. I won’t be churning stocks this year, but I will look to invest as opportunities become available and selling to take profits on the upswings of the market.

As I indicated in my last post, interest rates will continue to struggle in 2016 even though everyone would love bonds to “get back to normal”. Unfortunately the price gains on bonds that have gone with low rates during the past six years won’t happen again. So bonds are likely to have real capital appreciation near 0% for most of 2016. They will continue to be reliable income producers and will continue to reduce the ups and downs of your overall portfolio though.

The stock market will have erratic fluctuations as every little global turmoil will make the day traders twitch, giving opportunities to buy stocks at good prices, if selected carefully, or sell when prices pop up again.

The economy will probably continue its slow growth until everyone (businesses, investors, and individuals) decides it’s safe to stop squirreling money in cash. How and when we get out of this mess will probably be when the big corporations feel it’s safe to invest in their future again. While the “big boys” think it’s safest to invest in cash during uncertain times, uncertain times will continue until the “big boys” put on “big boy pants” and take the brave step outside into the drizzle.

Until then, look for opportunities during a crazy 2016.

All information provided is general in nature and not meant to be advice for you in particular. I can’t predict the future, the discussion above is my best guess given the current data that’s available to me. If you’d like to know more about how this topic relates to your situation or are looking for a financial planner, contact me at tara@southbayfinancialpartners.com.

admin January 11, 2016 No Comments

Have you been paying attention?

Interest rates have gotten REALLY Interesting

Interest rates continue to be a mystery. The Federal Reserve Board (The Fed) is trying hard to raise interest rates on government securities. They are meeting headwinds for two reasons.

First, the economic mandates that The Fed is tasked to use as guidance, inflation and unemployment, aren’t helping them raise rates. The Fed is struggling to get to the targeted 2% inflation rate. A large part of the problem is that oil prices are at historic lows. But there are other areas where prices are also not hitting the 2% mark (consumer goods, food). Unfortunately, there’s a good chance inflation will be like a clog in a pipe, water will resist getting through until suddenly the clog works it way out with a gush.

Unemployment, while in its target range doesn’t feel like it. This is partly due to many people who would like to be in the market have given up and aren’t counted. And people who would like full time work are struggling with part time jobs. There has been improvements but the progress is very slow.

The other reason for headwinds against interest rates increases is the world continues to pour money into US bonds. The US seems to be one of the few stable countries in the world and the world’s perennial favorite “safe haven” is the 10 year US Treasury Bond. Even if the Fed raises rates, with demand for US bonds going up, the price goes up pushing the rate down since bond rates go down when prices go up.

While The Fed raised rates in December and have said they plan to continue raising rates, they will struggle to actually make that a reality.

I explored interest rates and the effect on the bond market in two previous posts:Interesting Thoughts about Interest Rates and The Bond Case .

 

All information provided is general in nature and not meant to be advice for you in particular. If you’d like to know more about how this topic relates to your situation, contact me at tara@southbayfinancialpartners.com.