THE stock market is up and your home, if you own one, is probably worth more than it was at the bottom of the housing market. So there is a good chance that you are feeling a little better about your financial situation these days.
Not so fast, says John J. Vento, accountant and financial planner.
He argues that you may be giving yourself too much credit when calculating your net worth. Why? You might be including your home as an investment asset, which it says it isn’t, and you’re probably not considering the impact taxes have on your life.
And beyond all that, he says, you don’t set your financial goals high enough. In fact, he argues, your goal should be nothing less than the title of his book: “Financial Independence (To Reach Point X)” (Wiley, $ 40). This is the point “where our savings and investments alone generate enough income to support the lifestyle we have chosen,” he says, “and allow us to continue living that lifestyle without having to. work for a salary ”.
It is an ambitious goal. And unless you stumble upon a windfall, there are only two ways to do it: maximize cash flow and minimize outflow. Mr. Vento suggests that you pursue both strategies aggressively.
To help you limit your expenses, the book offers a list of suggestions in the appendix. And this list may offer the strangest juxtaposition of ideas ever published in a personal finance book. “Clean your refrigerator coils every six months to keep it running efficiently” appears just before “Buy an affordable home to avoid going into debt”. “Learn how to cut your hair” is listed next to “Solve Your Credit Card Debt”.
But the author’s extensive discussion of taxes is extremely valuable. While most personal finance books overlook this topic, Mr. Vento shines in this area. He notes that “for just about everyone, taxes are by far our biggest personal expense.”
It goes into great detail on how to get the most out of tax-efficient retirement accounts: start early, fund them to the maximum allowed, and choose the boldest investment options you’re comfortable with. But he also invites you to meet with a tax specialist several times a year.
And he offers a very useful main rule: put money aside first for long-term goals – like your retirement and your children’s college education – and determine your standard of living based on what you have left. .
In light of how good some of us have been feeling about our finances lately, this is a sobering prescription. This is the subject of another new book, by Lori R. Sackler, senior vice president at Morgan Stanley Wealth Management (and written with financial journalist Toddi Gutner).
Ms. Sackler tries to answer one of the most complicated personal finance questions of all: How do you talk to your family about money? And of money, she hears issues as “simple” as getting your spouse to spend less, or as complex as explaining why you want to split your estate the way you do.
Entitled “The M Word: The Money Talk Every Family Needs to Have about Wealth and Their Financial Future” (McGraw-Hill $ 30), the book presents a five-step approach:
?? Recognize that “every transition point” in life – marriage, having children, changing jobs, etc. – has financial consequences.
?? Realize that talking about money with your family is usually heartburning, as it involves significant psychological and emotional elements.
?? Prepare at length for the speech. Have an agenda. Know your goals and who is most likely to be upset.
?? Call in professional experts as needed.
?? Be prepared to repeat the previous steps. Chances are, you can’t address everyone’s concerns in one conversation.
The writing is simple and makes a compelling argument for ‘the money to speak’.
But the book isn’t particularly helpful on what you should be talking about. Yes, everyone’s situation is different, but when the author gives examples – and she provides many – the path is not always as clear as it could be.
Consider this: To help a husband and wife who fear they won’t leave enough money for their heirs, she recommends creating “an insurance trust usually funded by a guaranteed universal life insurance policy.”
While the book provides a note explaining what the policy is – it’s term insurance with a savings component – it doesn’t explain how the insurance trust works. (This is usually an irrevocable trust funded exclusively – or largely – by a life insurance policy.)
Presumably, Ms. Sackler expects you to contact experts to help put such solutions into practice. But given the book’s cover price of $ 30 and the fact that you have to wait until page 143 (of 238) to explain how to start speaking, I was hoping for more.
Still, pointing out the importance of serious financial discussions with your family is a most valuable idea and, when combined with Mr. Vento’s advice, will help you not get complacent about your money.