Amanda in the New York Times: A New Model for Financial Planning

My involvement in this article started when the writer, M.P. Dunleavey, shared with me something she had noticed over the years. In social situations, when she meets women and tells them she is a financial writer they often respond with almost dismissive disdain about taking responsibility for their financial lives. I reflected that that was interesting to hear, because I feel like I have the opposite experience. When I am in social situations, as soon as I describe what I do I am often deluged with women telling me the most intimate and compelling details about their struggles with money.

We wondered what the difference was. My hypothesis is that women have a lot of anxiety about how they handle money, and would see M.P. as an “expert” who might judge them and tell them that they should or shouldn’t be doing. I, on the other hand, would be seen as someone who would be willing to hear about all of the concerns, difficulties, and failed attempts that might be part of that woman’s money story.

In clinical work you’re trained never to attack a client’s defense mechanism until you understand what it’s defending. So if, for example, someone is in denial you don’t open with, “Hey! Looks like you’re in denial!” That wouldn’t change the defense and it would probably cost you the client.

In traditional financial planning there is an almost exclusive focus on problem solving. This makes sense – what you’re “buying” is the solution. But the problem solving approach is in some cases the equivalent of attacking the defense mechanism. For those whom financial responsibility is wrapped up in a complex cocoon of emotions, it is impossible to get to the solution until the issues have been unpacked and the resistance reduced.

So maybe it is time for a new model of financial planning.

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The Road from Financial Infidelity to Financial Intimacy

The Spitzer Scandal has ignited a firestorm of discussion regarding the broader spectrum of what can be considered “infidelity.” Along with the marital betrayal and the criminal act, many people are also taking note of the breach of financial trust.

As New York relationship therapist Bonnie Eaker Weil notes “Everyone in my practice who is committing adultery is committing financial infidelity.”

While it is not always possible to protect yourself from this kind of event (it’s important in a healthy relationship for there to be trust and autonomy, which means you can’t always be trying to guard yourself from potential betrayal by your partner), you can reduce the chances that you will be blindsided by such an egregious act of deception.

Have a budget.

Have an agreed upon allocation for all family funds. If you have a plan for where your dollars should be directed, you won’t be confused about where your money is (or isn’t).

Each partner should share in the money management responsibilities.

If both partners are involved in executing the financial plan, there is less opportunity for sums of money to go missing or be diverted to unauthorized activities (be they extramarital or simply extra clearance shopping).

Review your credit reports together at least once a year.

Neither partner should ever open a new credit account without the other’s knowledge. Never, ever, ever. Jointly reviewing your credit reports also ensures that you are both aware of how each is managing credit and debt payments.

Financial infidelity is getting a lot of press these days but we should take a moment to consider the positive side of the couples and money issue, too. Financial intimacy calls for open, constructive discussion about how both partners want to use their money. As part of this process each person should feel heard by the other and should see their goals represented in the joint plan.

At its heart, financial intimacy addresses each person’s dearest hopes and darkest fears. It’s a great foundation for emotional intimacy in all areas of the relationship.

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Amanda on MSN: Solutions for a Spender-Saver Marriage

Awhile back I wrote about how when two people plan a life together, "financial intimacy" is rarely a topic that is even on the radar. So what do you do when you find out that the person you're married to is your complete opposite in terms of spending and saving priorities? This MSN.com article explores how to tackle a difference in money dynamics.

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Amanda on MSN: Does Money Trouble Come in Threes?

When it rains it pours, so the expression goes. But is this true when it comes to your money, or does it just seem that way?

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Amanda on About.com: Artists and Money

It really is possible for artists to have a stable and healthy relationship with money! Truly it is!

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Amanda in The New York Times: The Conflict of Spending and Candor

I am quoted in an article on communicating with your partner about spending behavior. My comments may surprise you!

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Money Lessons for Kids (and Parents)

Kids today have a pretty challenging money legacy. From different kinds of student loans to exotic mortgages and default interest rates, the answer to the question “Can I afford this?” has taken a trip down the rabbit hole.

Parents are scrambling to prepare their children for this brave new reality. In an article for the WSJ (subscription required), Jonathan Clements lists four “financial tricks” to try with your children so that they’ll grow up to be money-smart adults:

Favoring Today

Offer your child his regular allowance, or a greater amount if he's willing to wait a week before getting it.

Slowing Spending

Give your child his money in the largest denomination rather than a combination of smaller denominations (a $5 bill instead of five $1 bills, for example).

Making a Wish List

When your child expresses desire for a particular toy or other expenditure, have her write it down on a list. Go back to the list later and ask which items she would like to use her own money to buy or would like to receive as a birthday or holiday gift.

Keeping the Change

See how your child makes purchasing decisions when he is given an amount of money and allowed to keep the change compared to when you ask for the change back.

As a clinician, I appreciate how these four activities really do open up the cognitive and emotional processes we use to make decisions about money.

Favoring Today
The “favoring today” experiment demonstrates your child’s time preference for delayed gratification. All of us have a time preference for delayed gratification**, which is basically the point at which it becomes worth it for us to trade the opportunity of the present for some potential future gain.

Many things influence a person’s particular time preference, age first and foremost. For a very young child the future is still a murky concept, and it’s unreasonable to expect a four-year-old to choose $7 next week over $5 this week even though it’s 40% more. A perfect time to start playing with the favoring today exercise is around age nine or 10, when the child develops the ability to conceptualize the future and to compare present gratification against future gain.

Besides age, the level of perceived deprivation in the child’s environment plays a key role in shaping time preference. Five dollars means more to a person who feels he has very little than it does to a person who feels he has much.

A person’s early experiences with trust also factor in. Children who are exposed to instability in their caregivers or environment are basically taught to devalue the potential over the concrete present. If a child has learned that a promise for $7 next week might go unfulfilled, he will always opt for the $5 today.

Slowing Spending
The “slowing spending” trick employs a person’s “bias for the whole.” In children and adults, bias for the whole refers to the tendency to hold a larger bill in higher regard than the equal amount in smaller bills. It’s easier for us to comprehend the value of $100 when we see a $100 bill. When we see ten $10 bills, we perceive a number of potential values based on combinations of the bills -- $20 here, $50 there – and it’s easier to part with the smaller amounts.

Using a debit or credit card totally circumvents this bias by taking away the perception that we are breaking any “whole” at all. Maybe we adults should play with this exercise a little more often, too!

Making a Wish List
Learning to modify impulses is a cornerstone of maturity. Making a wish list helps children to review their choices outside of the impulse of the moment. When children practice identifying, examining, and re-evaluating their wants it plants the seeds for self-aware purchasing in later life.

What this also does is start to organize wants for comparison with other wants. When working with clients around budgeting, I have found that this can be a revolutionary concept. Consider the difference between these two questions: “Do you want to go out to dinner?” vs. “Do you want to go out to dinner more than you want cable television?” Wants cannot be considered in the abstract, they must always be evaluated in comparison with the other available choices.

Keeping the Change
Some people have an innate preference for saving vs. spending even as children. Giving your child the opportunity to spend or keep the money given to her will show you where your child’s preference is – for that particular moment in time.

It is totally appropriate for children to experiment with decision-making behavior and for their choices to range all over the place. One week your son may blow every last cent you give him and have to borrow a dollar from his friend besides, another week he may be more penny-pinching than Ebenezer Scrooge.

Keeping the change is a great mini-lesson on budgeting. For what is a budget after all but a system of allocating amounts for expenses? Five dollars for souvenirs on a field trip is basically a $5 single-item budget. When sonny decides that he prefers some alternative use for the money, be it savings or a future spending opportunity, you are giving him a safe experience in financial autonomy.

The author of this article expressed it best when he suggested that parents “try these tricks on your kids, talk to them about the lessons to be learned – and then quietly muse about whether you, too, fall prey to these financial traps.” These activities are not lessons in and of themselves. They are a jumping off point for parents to engage their children in developing how money works for them.

** See Shlomo Maital's Money, Minds, and Markets. Ch. 3: From Pleasure to Reality, Learning to Wait Begins in Childhood. Basic Books 1981.

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Financial CPR: C is for Cash Flow Plan

This post is the first installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

Remain in control.
Though the interruption to your income may be out of your hands, it does not mean that your entire financial life is out of control. Stay calm. You have the power to make choices, minimize the debt or damage to credit that you will incur, and plan for a successful financial recovery once you’re employed again.

Remember that you always have options.
Usually the best options are available when you act pro-actively instead of waiting until the problem becomes a crisis.

Follow the Four A’s to create a Cash Flow Plan:
1. Acquire information

• Tally up your cash on hand;
  
• Survey your expenses and income to get a complete financial picture;
• Read your contracts and user agreements to see what opportunities there are to cut or change service plans, memberships, etc.;
• Solicit price quotes for comparable services;
• Identify opportunities for “found money” – items you can return to stores for refund or credit, gift cards, etc.
  

2. Analyze

• What can be cut?
• What must be protected?
• Are there ways to increase income?
• Do not make random, haphazard, or emotional changes. Work purposefully.

3. Adjust

• Take steps to make the identified changes.
• Schedule time to make a few calls a day; don’t try to tackle everything at once.

4. Ammunition

• This information = power!

Serenity now!
Even if you are still operating at a deficit, you can be confident that you have done everything you can to minimize the deficit and put yourself in the best position to get back on your feet quickly once you’re back to work.

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Financial CPR: P is for Protect Yourself

This post is the second installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

Anticipate problems.
Look at your Cash Flow Plan and determine which bills you’re going to be late on or unable to pay.

Educate yourself.

• Use your Cash Flow Plan as a guide to all your actions;
• Understand your position as a consumer (How valuable is my business? How long have I been a customer? What rates are fair for other people in my circumstances?);
• Have a copy of the Fair Debt Collection Act;
• Read your lending agreements;
• Learn about your repayment options;
• Know the terms of default and consequences of default.

Prioritize.
Put your bills in order of their importance in terms of consequences for non-payment. For example, not paying your mortgage could result in eventual foreclosure and losing your house. Not paying your credit card bill in full could damage your credit but will not otherwise threaten your security.

Know what you’re asking for.
Before you dial the phone, have a plan for what you want. Do you want to skip payments? Do you want to make interest-only payments for a period of time? (Remember to research what your repayment options are ahead of time.)

Contact your creditors.
Taking the initiative to contact your creditors will keep you in the driver’s seat. These companies are much more willing to work with you if you don’t make them chase you down after payments have already been missed.

Know what you can deliver.
Your credibility is absolutely priceless. Never promise something you know you can’t follow through on. It destroys your credit and may lead to harsh penalties and punitive action on the part of the lender or service provider. Even if you think what they’re offering you is a “good deal,” DO NOT accept it if you are not able to deliver. It is better to get off the phone without reaching an agreement than to agree to the impossible.

Negotiate.
Try to get the best deal for yourself. Remember, credit terms are not about your value as a person or how likeable you are. This is a business transaction, and you will only get as much as you’re willing to ask for. If you feel like the person you’re talking to is not willing to negotiate, ask to speak with someone else.

Go up the chain of command.
Oftentimes the people you get on the phone the first time are not authorized to make a deal. Ask to speak with a supervisor (several times if you need to) and keep going until you get to someone who has the authority to make a decision.

Don’t take it personally.
Creditors have been known to use every trick in the book to get you to make an emotional decision if it means they get their money. They will try to make you feel guilty for not being able to make your payment. They will try to manipulate you into prioritizing their payment over your other (more vital) obligations. Do not be fooled. Know your rights and know what you can realistically and reliably deliver.

Be accessible.
Even if you can’t make any payment at the present time, you still earn credibility points by staying in touch with your lenders and apprising them of your situation. This doesn’t mean you have to take the time to talk to every single collections agent who calls your house. Make appointments to return their calls, and then follow through.

Borrow judiciously.
During a financial crisis there is always a temptation to hold on to your cash and to live on credit. Sometimes this is inevitable, but you always want to think carefully about how you go about it. Get the facts. Credit cards offer flexibility but high interest rates make revolving debt very expensive. Tapping into home equity can be lower cost but puts your property at risk. Retirement accounts are protected from judgment even during bankruptcy – don’t touch them if you can possibly avoid it!

Think about the long-term.
Carrying debt should never be the long-term plan. There is too much inherent risk for debt to become unmanageable if anything interrupts your ability to pay. Try to minimize how much new debt you’re incurring during this time by keeping your expenses as low as possible.

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Financial CPR: R is for Recovery

This post is the third installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

This situation does have an end.
At some point, the unemployment crisis will be resolved and it will be time to think about how to get back on your feet. Ideally you will have:
o Kept your monthly deficit to a minimum;
o Protected yourself from penalties due to non-payment of accounts;
o Incurred as little new debt as possible.

Don’t zone out!
When you have been through a period of high stress it’s normal to want to decompress once the worst is past. You may feel an overwhelming “urge to splurge” and buy yourself those comforts you’d been denying. But before you throw out your budget, take a deep breath and pause.

Create your Recovery Cash Flow Plan.
Now that your income is back on track, you will need to move forward with paying your regular bills and addressing any debts you accumulated during the interruption. Your Recovery Cash Flow Plan should allow for the following:

Net Income
(minus) Fixed Expenses (reg. housing payment, reg. car payment, utilities, etc.)
(equals) Discretionary Fund

Take the Discretionary Fund and subtract your necessary out of pocket costs. Then try to budget for one non-necessary treat if you can, such as a monthly movie with the family.

Discretionary Fund
(minus) Out of Pocket (groceries, gas, parking, etc.)
(minus) ONE treat (if you can afford it)
(equals) Repayment Fund

Resume payment on your regular bills.
Once you have income again, begin making on-time payments on all of your regular bills. This does not necessarily mean that you return to all of your pre-unemployment expenditures. If you reduced your cable package for example, you may need to continue with the lower-priced plan for awhile until you’ve paid off some debts.

Determine your proposed repayment plan.
Divide the amount in your monthly Repayment Fund by the number of creditors for an equitable repayment strategy, or direct more of your resources toward certain accounts to give them priority.

Re-connect with your creditors.
Using your Recovery Cash Flow Plan as ammunition, contact your creditors and propose the terms of repayment. You may need to negotiate like crazy to get your creditors to accept the plan, and you may not be able to budget for the “treat” at this time. But try to resist at all costs having to miss payments on any of your regular bills in order to repay debts.

Be secure for the future.
Once you’ve paid up all of the debts, convert your Repayment Fund payments into a Contingency Fund payment. Try to have three to six months of financial reserves for any future disruption in income.

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Giving til It Hurts

Pop quiz: It’s December 15th, have you finished your holiday shopping yet? If you’re anything like me the answer is no. I tend to keep shopping right up until the clock ticks down to Christmas. I’m in good company here. Only 16% of respondents to a National Retail Federation poll had completed their gift-buying by mid-December – this despite the fact that people are starting their shopping earlier and earlier in the year.

I know for a fact why I am still in the throes of the retail maelstrom. It’s not that I procrastinate, or that I enjoy shopping during the busiest time of the year. It’s just that gift-giving is so complicated that I second guess myself right up until the calendar hits December 25th and I am forced to stop the crazy. In almost all areas of my financial life I am the measure of discipline. However gift-giving taps into a deep pool of anxiety – and anxiety makes a terrible shopping partner.

I am not alone in feeling the stress of this practice. According to the American Psychological Association, 42% of respondents polled felt pressured by gift-giving. It’s no wonder, when we have so much emotional investment in the act of gift exchange.

In the 1970’s, social scientist Dr. Theodore Caplow completed a seminal study about the rituals of holiday gift exchange. According to Dr. Caplow, a proper gift must surprise the recipient, demonstrate familiarity with his or her tastes, and its cost should reflect the perceived emotional value of the relationship between the parties.

That’s a daunting combo of conditions and meaning to pack into a simple bottle of cologne or a snowflake sweater.

I would add that its also important for gifts to be proportionate. Giving “too big” or “too small” of a gift can demonstrate inequalities that are definitely not in keeping with the holiday spirit. How awkward is it to give an inexpensive or generic gift to someone who obviously invested more in their gift to you? Or the other way around? When giving is disproportionate both the giver and givee may feel emotionally exposed. It hearkens back to the “I have her my heart and she gave me a pen” moment in the movie Say Anything. Ouch. Not very Christmas-y.

Economic differences between parties exacerbate the difficulty of proportionate giving. In the same APA poll cited earlier, Americans listed “lack of money” (61%) and “credit card debt” (23%) as sources of holiday stress. It’s hard not to dread receiving a nice gift from someone when you feel obligated to incur debt in order to give something proportionate in return.

Sometimes it seems as if all of the stressful aspects of holiday giving threaten to overwhelm the joy and meaning of the season. There is a lot of great advice out there about how to put limits on runaway gifting. Definitely have a budget. In large families or groups, agree to hold a drawing or only give gifts to children.

One strategy I’ve employed in recent years to honor the true meaning of Hanukkah and Christmas – and to simplify things – is to give some charitable donations as gifts. Each year I pick a charity or two and make several modest donations in the names of my friends and co-workers. I put information about the donation in a card, and that’s my gift. This kind of gift actually feels really great to give, plus I feel like it’s creative (I like to try to pick organizations and causes the person I’m giving to would support). It saves time and energy that would otherwise be spent shopping, and let’s be frank, most of us don’t really need to receive more candles or bath salts.

Gift exchange is a complex and nebulous social activity, and I’m certainly not the first person to feel anxious about it. I think as adults we want to idealize how wonderful the holiday season should feel, but the truth is that it’s normal for some parts to feel downright unpleasant. But if we let go of the ideal and accept that the holidays can be wonderful and difficult, I think it at least takes away the pressure of trying to achieve perfection.

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Amanda on MSN: Why Your Money Plans Sink or Swim

I haven't been able to post in awhile because I've had a lot on my plate lately, but that doesn't mean I haven't still been fighting the good fight for financial wellness! Check out my quotes in the MSN Women in Red article Why Your Money Plans Sink or Swim.

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