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October 13, 2008

Financial Book Report

KimLike so many people, I never really paid attention to my money.  If I had enough to pay the bills and there was some left over, fine by me.  I do not live an extravagant life.  There is enough.

Then in July I appeared on the CBS Evening News, discussing my lack of attention to my own retirement planning.  As part of the story, I was given the opportunity to discuss my finances with a media-savvy financial planner in New York.  A mother herself, she commiserated with my growing anxiety about possible future private school tuition, and the dilemma I will face about saving for my children's education versus saving for my retirement years.  I participated in the news program mostly out of curiosity and a desire to promote my writing, but the experience actually sparked a true interest in my financial planning.

Appropriately, I started with other media-savvy financial planners:  the Oprah-sanctioned Suze Orman, David Bach, and Jean Chatzky.  I checked their books out of the library (thrifty!) and discovered that their plans are all essentially the same.  No matter what nine steps you follow or what worksheet you fill out, they all recommend the following:

-Reviewing your expenses and cut them where possible.  Use the savings to:
-Pay down your debt
-Create an emergency fund
-Get life, long-term disability, and/or long-term healthcare insurance policies if your situation qualifies
-Create an irrevocable trust or at least a will
-Max out your 401(k), IRA or similar
-Save for the children's education
-THEN save for your short-range indulgences

Okay. That's a lot to bite off, let alone chew, if you have gone about your life just covering your bases.  I was overwhelmed at first, but a tiny glimmer of inspiration glowed inside me.  I resolved to review and attack my family's financial situation with gusto.  When I sat down to do just that, I was discouraged by the size of the task.  I stuck those first papers back in my in-box, which is the same as ignoring them, and decided to come back to them later.

Well.  I sure wish I hadn't put off the financial overhaul, because only months later, here we are in the worldwide financial meltdown.  The good news is that we didn't have a lot of money in investments that tanked in the last month.  The bad news is that we have a lot less money than we started with anyway. While the crisis was unfolding, I started chipping away at The Great Family Financial Inventory Project, as I have titled it.  One day I checked all the latest balances of every 401(k), savings account, 529 plan, etc, and summarized them in an Excel spreadsheet.  The next day I took some savings and put them in a 5% CD with a 7-month term.  The next day I opened a mutual fund account with no sales load.  And the next day I regretted that decision when, unimaginably, the stock market plunged even further.  But!  Now I know about dollar cost averaging! Someday the market will come back and if I'm not rich! rich! rich! at least I will be rich...er.

Another great, comforting step I took was to contact a financial advisor, and plan to have her review our investments and give us advice about how to move forward.  My husband and I had used the services of a financial planning company in the past.  They were imposing-looking tall men in crisp clean suits and shiny shoes, and they met with us across a gleaming table in a plush conference room.  They never charged us anything.  "Wow, they're so nice," we thought.  And we happily agreed to put our money in the investments they chose, filing away the quarterly statements and trusting that the money would grow.  Eventually I discovered that those investments were charging us a 5% sales fee up front while losing money almost every quarter in the last three years.  Now that I am at the point where I feel confident managing our money myself, I will work with this new financial advisor (who happens to be a mom of two young children), on a fee for services basis, to help me make informed decisions about investments. 

Like many Americans I feel helpless and infuriated when I read the financial news lately.  I get nauseated when a new 401(k) statement arrives in the mail.  At the same time, however, I am empowered by the very basic information that I recently learned.  I am confident that while the storm will be great, we will weather it and rebuild.

This is an original post for LA Moms Blog.  Kim complains about her money, and other things, at House of Prince.

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