MONEY financial advice

The 2 Biggest Money Mistakes

70% of Americans are prone to one or the other. Here's how to correct them.

Imagine coming to America as a young adult with a few hundred dollars in your pocket and, by the time you’re 34, selling your company to a Fortune 500 company for over $100 million.

How do you think you would feel? Ecstatic, jubilant, ready to reward yourself?

The answer for me was none of the above. My wife and I discussed celebrating by taking a multi-month vacation in Greece with our young daughters. Sadly, I was too afraid about the future to spoil myself and our family. The next few years I tracked our net worth regularly and watched our spending like a hawk. I was not behaving the way I would tell any of my friends to act in a similar situation.

I’ve spent my entire career helping people understand their financial lives, and helping them to make smarter choices. I have learned over time that people’s relationship with money is deeply personal. In our internal financial lives we each have a “protector” and a “pleasure seeker” battling it out and one usually wins out. Because of this, we find ourselves repeatedly making the same financial mistakes. Rather than simply learning a lesson and moving on, we keep repeating the same mistakes until we learn to regulate both perspectives.

According to our own research, 70% of people in the U.S. approach money from a place of abundance (pleasure seeker) or one of scarcity (protector). That has some big implications when it comes to making financial choices, and ultimately how we end up living our entire lives. So let’s discuss the two biggest mistakes, their consequences, and what you can do about it:

1. Spending money too casually: The pleasure seeker

It’s easy to spend money and it’s hard to save it, because spending provides instant gratification and saving is a deferred reward. Many people would rather have the certainty of feeling good now than the possibility of feeling good later. The early warning signs of this pattern are high credit balances on your credit cards, low savings for retirement, and inadequate saving for your kid’s education or your rainy-day fund. More subtle but important markers are whether you avoid looking at your credit card bills, or if you don’t have a net worth summary that you update at least twice a year. We all have pleasure seekers inside us, but perhaps you are allowing this trait to overwhelm your need to save and protect.

2. Spending money too carefully: The protector

This might seem like a very strange bad habit. But despite what you might pick up from the media, a large portion of society uses money for security and doesn’t enjoy success enough. These protectors feel so good seeing their net worth increase that they would rather defer any spending for as long as possible. This might maximize their net worth but lead to an under-optimized life. The following are early warning signs: updating and reviewing your net worth summary all the time, feeling guilty after shopping, and seldom feeling like you can spoil yourself. While we all need money to keep us safe from bad outcomes, some folks let their protector take too dominant a role.

As in all things, balance is the key to a stable and healthy relationship with money. That often comes with time and experience, but first you need to be aware that the choices you make are harming you. Here’s a three-step plan to taking control of your bad money habits, whichever camp you fall into:

  • Step 1: Identify if you have a bad habit that has to change. How often do you regret your financial choices? If you feel trapped by money rather than in control of it, it might be time to acknowledge you have to change something.
  • Step 2: Identify whether you are primarily a pleasure seeker or a protector. No doubt you have largely justified why you act the way you do. But if you have not learned how to control your inner pleasure seeker or protector then you will keep repeating a pattern that is hurting you financially.
  • Step 3: Take action. The easiest way to get rid of a bad habit is to replace it with a good one.

After determining if you are a pleasure seeker or a protector, here’s what to do next.

If you spend too casually:

  • Review your net worth. Take all your assets and then subtract all your debt. Create a simple way to update this regularly. Set realistic goals of how much you would like to have in savings five, 10 and 15 years from now. Create a specific list of what those savings would provide you. Take pictures, link articles or write down specifics in order to make what you’re saving for tangible and rewarding.
  • Establish a realistic monthly budget that takes into account your habits but establishes a monthly amount to deferred responsibilities like building an emergency fund or amassing a down payment on a house. Match the savings to your targets for those longer-term goals.
  • Do something that forces you to think about what you are giving up every time you are about to spend money. Some folks wrap a rubber band or a piece of bright tape around their credit cards. Some wear a reminder wristband. Do something that will remind you every time you are about to spend that you are taking away from your long-term savings and what your savings will get you. This habit of thinking about the consequence of what you are spending will train your protector to become more dominant.

If you are too careful with spending:

  • Establish your priorities. You no doubt have a very good understanding of your net worth, but have you clearly articulated what you are saving the money for? If you had free rein to spend all your money over the coming 12 months, guilt free, what would you choose to do? Create a list of things you buy that bring you the most joy: vacations, dinners out, a nice car, new shoes—whatever makes you feel good.
  • Establish a reasonable budget for guilt-free spending that doesn’t compromise your longer-term goals. Have an annual number to spend for some of the things that bring you joy. Rewarding yourself in the here and now matters a lot and relieves some of the pressure you place on building your net worth.
  • Limit yourself to reviewing your net worth on a pre-set schedule. For most people, four times a year is more than enough. Also, create a simple reminder on your phone every week to see what you did with your “spoiling budget.” And once you’ve spent the money, take time to think about, and appreciate, what you got. Do not focus on what you spent!

Life is short. I have seen people struggle financially in their later years and have to be supported by their children. I have also seen parents sacrifice their entire lives to build a comfortable nest egg, only to watch their kids spend the money buying the things the parents never bought themselves. The good news is that learning from past experiences can start right now. Thanks to my mistake a decade ago, I take every opportunity to spend time with my family, max out my vacation time, and relish our time together. I’m not sure I would have gotten there without the lessons of the past.

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Joe Duran, CFA, is CEO and founder of United Capital. He believes that the only way to improve people’s lives is to design a disciplined process that offers investors a true understanding about how the choices they make affect their financial lives. Duran is a three-time author; his latest book is The Money Code: Improve Your Entire Financial Life Right Now.

MONEY financial advice

How to Manage Your Finances Without an Adviser

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A financial professional explains how to avoid needing his help.

As a financial planner, I’d like to let you in on a little secret: Everyone has the ability to manage their finances on their own. In theory.

The information and knowledge you need to make the right financial decisions is at your fingertips. You simply need to do three things: learn, apply and manage. Let me explain:

Learn the Fundamentals

There is a ton of technical financial information out there, and it takes time to learn what you need to know. The Internet, though, has made this process easier.

You need to focus your attention on these areas:

  • General principles of financial planning
  • Insurance
  • Investing
  • Taxes
  • Retirement
  • Estate planning

If you look at those areas and feel overwhelmed, I understand. It’s a lot.

On the other hand, if you look at that list and feel that you know it all, I’d suggest rethinking that. No one out there knows it all. There is always something else to learn.

Again, the Internet makes finding this information easier, but there’s a catch. You need to carefully validate the sources of the information you collect before accepting it as true and accurate. Many financial blogs and podcasts can be extremely valuable, but others are based more on personal experience than on years of education, training, and professional work. Personal stories can help you tune in to your own situation, but they might not reflect a comprehensive understanding of finance or relevant laws and regulations.

Read next: How Do I Figure Out My Financial Priorities?

Wise Bread and Daily Finance offer advice from both bloggers and professional advisers. Bankrate has calculators that help you visualize how various savings and debt repayment strategies will impact your finances. Play with the numbers and notice how a slight adjustment to a periodic savings amount or interest rate can completely alter your results.

Apply Your Knowledge

Knowing that you need to budget and understand your cash flow is one thing, but actually doing it is another.

Start with the basics. You need to track all your money coming in (your total income) and everything going out (your fixed expenses and your discretionary spending). Once you know what your money is doing, you can set up a budget to help keep you on track from month to month. From there, you can determine what you’ll contribute to savings and investments. Make those transfers automatic.

After you set up the basics, your financial planning needs get more complicated. For example, you might start out by calculating how much money you need in your emergency reserve account, but then realize that you also need to figure out how much to save for retirement. Additionally, anyone earning income is exposed to various risks, including becoming disabled, so you’ll want to find the best way to protect yourself.

It’s all about understanding your unique circumstances, applying appropriate strategies and setting up systems to help you stay on track. There’s no right answer—only the answer that works and makes sense for you.

Much of what applying your knowledge looks like in practice is simply taking action and holding yourself accountable. It can help to write out your financial goals and check in with those regularly to remind yourself why you’re working hard to manage your money.

And to make sure you stay on the right track over time, you should set up check-in points periodically throughout the year. For example, you might want to revisit your budget monthly, your investments quarterly, and your overall financial plan annually.

Manage Your Behavior

This is by far the most challenging piece, because emotions often cloud our thinking. It can feel simple to manage our own money when times are good. However, we often fall prey to recency bias—assuming that what happened in the recent past will continue into the future. Confidence (or fear) projected into the future can distract us from making prudent decisions.

When things get stressful, you get distracted. Other things take up your time, energy, and attention, diverting you from managing your finances.

As you continue to learn, you might also find yourself confused by a myriad of opinions and different ways of doing things. Decision fatigue can set in. It can become extremely challenging to make even the simplest of decisions as you start questioning yourself and your knowledge.

After all, there’s a lot on the line—your money and your life. You don’t want to make a mistake, and you want to do everything you can to maximize your financial resources. Your decision-making can become clouded by fear, and it can just as easily be affected by greed.

To successfully manage your own money, you need to manage your own behavior. That means taking small, consistent actions over time. You need to create your plan of action and stick with it through market ups and downs, through everything from personal struggles to professional triumphs.

Why Work With a Financial Planner Anyway

All that being said, it’s worth reiterating that managing your own behavior is the most difficult part of managing your personal finances. Most people cannot do it successfully.

Most mistakes happen when people depart from rational decisionmaking with their finances. Hopes, dreams, fears, and other emotions start creeping in. We all do this.

It’s easier to manage our behavior when we have an outside perspective. While we can’t necessarily see the bigger picture when we’re immersed in it, someone looking in from the outside, from an objective point of view, may be able to help steer us in the right direction. That’s where a professional financial planner can add a lot of value.

It’s possible to manage your own money, but it’s not probable that everyone can do it successfully. There is a reason why even some financial planners have financial planners. Everything is easier when you have someone who can help hold you accountable. A professional financial planner may be able to help you find more success than you would achieve on your own—even if you know all the right money moves to make.

Get started on your own by educating yourself, applying your knowledge, and practicing smart (rational!) behavior around money management. Then, for long-term success in avoiding behavioral traps and pitfalls, consider working with a financial adviser. Carl Richards put it bluntly but accurately: It’s well worth it to “put someone between you and stupid.”

Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

MONEY Opinion

Why Are People Obsessed With Financial Advisers’ Pay?

Financial Advisor
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We don't have these conversations about doctors, lawyers, and accountants, do we?

Let’s cut to the chase: There are good, honest, hardworking financial advisers of all business and compensation models.

Unfortunately there are people in the profession—and out—who demonize those who are not following one model over another. This is unfair to tens of thousands of advisers while hindering the profession from becoming what it can be.

Let’s be honest: Each compensation model—whether it be fee-only, commission and fee, or commission-only—comes with its advantages and disadvantages.

Focusing on compensation does the profession of financial planning a major disservice. No other respected profession focuses on compensation as a determining factor of whom you should and should not work with.

You don’t have this same compensation debate in medicine, law or accounting. So why does this focus exist in financial planning? While compensation is an important aspect of the client/adviser relationship, it is far from being the ultimate determining factor as to whether or not a consumer engages an adviser.

The debate over adviser compensation reminds me of the California Milk Processor Board’s long-running “Got Milk?” campaign. The ads didn’t differentiate between the different types of milk available to consumers, whether it was whole milk, low-fat milk, skim milk, or even chocolate milk. They just asked if you got milk. Consumers of financial planning advice should be able to seek out an adviser whose model is best for them, not because they are being told which model is right.

The Financial Planning Association, of which I serve as the volunteer president, is compensation-neutral, which means that we don’t adhere to the notion that a compensation model determines whether a professional is operating in the client’s best interest. FPA’s more than 24,000 members—and more than 17,000 Certified Financial Planner professional members—are diverse in their compensation and business models. FPA believes that how advisers charges for their services is not in itself an indicator of their competency or ethical standing. What consumers really need to seek are those advisers who have earned the right to call themselves CFP professionals.

CFP professionals are required by their certifying body, the Certified Financial Planner Board of Standards, to act in a fiduciary capacity at all times during the financial planning engagement. That means that no matter how a CFP professional is paid, he or she is required to act in the client’s best interest.

This is why FPA believes in building a recognized financial planning profession around a single designation that requires high professional standards and requirements. You don’t have ongoing debates as to whether compensation determines competency among doctors, lawyers, and accountants, do you? No. That’s because putting the best interest of those they serve first is embedded in their professions.

Let’s not focus on compensation models, but on the need for those in the profession to practice full and fair disclosure and operate in the client’s best interest all of the time. Any adviser should be willing to fully disclose all material facts that may, or may not, have an impact on the client/adviser relationship. That goes beyond compensation and should include services provided, investment philosophy, experience, education, past disciplinary actions, and more.

At the end of the day, each consumer of financial services needs to be comfortable in his or her relationship with an adviser. For some people, paying their adviser a fee will make them comfortable, while for others commissions will make more sense. It is really up to the individual and the circumstances, and the more we denigrate one form of compensation over another the more harm we do to the profession and the public.

An educated consumer is going to be a better consumer of financial services. That is what we should be focused on.

Read next: HBO’s Ballers Puts Financial Advisers in the Limelight

Edward W. Gjertsen II, CFP, is vice president of Mack Investment Securities in Glenview, Ill., and is the 2015 president of the Financial Planning Association. The opinions expressed in this commentary are solely his.

MONEY charitable giving

4 Steps to Giving Money Away…Like Bill and Melinda Gates

How do you donate money wisely? A financial adviser breaks it down.

“How should a client think about giving money to charity?” was the question my colleague posted on an adviser forum.

I should know this, I thought.

But since I couldn’t coherently answer my colleague’s question, it seemed like a good time to review the latest thinking on the subject and update what I tell clients.

Turns out, there are four steps to giving money away. Even better, they’re pretty easy.

1. Develop a donation strategy.

That’s right, a donation strategy. That might sound like off-putting jargon, but we all have a donation strategy, whether or not it’s fully baked and conscious.

For instance, a lot of people I’ve worked with seem to give money to anyone who asks. A lot of people give money to their college. For some people, the more desperate an emotional appeal, the more likely they’ll give. For most people it’s more hodgepodge than a strategy.

A lot of charities are de-emphasizing outreach that seeks donations by evoking pity. The poverty-stricken face of a child who seems to be saying, “Just donate to this charity and my suffering will be alleviated,” may be on the way out. After seeing enough of these ads, empathy overload kicks and you start to wonder, are these kids being exploited?

Celebrity causes are changing too. This parody is a plea for Africans to send radiators to freezing Norwegians. Hey, frostbite kills, too!

Instead of pity and celebrity identification, charities are trying to appeal to people based on effectiveness.

Develop your donation strategy by asking these two questions:

  • What problem am I trying to solve?
  • What do I value?

To make it easier, you probably don’t even have to answer both questions. If one seems easy, just start there.

Next, consider the balance between what’s near to you (your church, your alma mater) vs. what’s far (ending extreme poverty, disaster relief). You might have different ideas for each.

Here’s what Bill and Melinda Gates did. First they thought, and I’m paraphrasing here, “What problems is capitalism crappy at solving?” The thing that bothered them the most was inequity. Globally, they asked, “What’s the biggest inequity?” And for them that it was children dying and/or not getting enough nutrition to develop.

Locally they took a different approach and said, “Okay, our educations really helped us. We want to help alleviate the inequities in the US education system.”

If you want help pinpointing global issues, Philanthropedia has thirty-six different causes. You can weigh the causes against each other and figure out which is most important to you.

Close to home, if you’re looking for ideas beyond what initially comes to mind, it makes sense to check out your local community foundation. These are organizations that help budding philanthropists figure out their donation strategy. You can find them quickly through the Council on Foundations.

2. Figure out which charities will fulfill your strategy.

Next, explore charities that prove they are effective at having an impact in the areas you value.

Figuring out your local charities might be easier than the global charities. When you give money close to home, you can pretty easily get a handle on how effective the organization is.

When you give away globally, it helps to have third parties evaluate which charities are the best. They take out their measuring sticks and examine the numbers. They research: What charities fulfill their missions in the most efficient way?

Three websites that summarize data and report on the effectiveness of specific charities are:

It’s a good idea at this stage to use your intuition as well. Melinda Gates said, “We come at things from different angles, and I actually think that’s really good. So Bill can look at the big data and say, ‘I want to act based on these global statistics.’ For me, I come at it from intuition. I meet with lots of people on the ground, and Bill’s taught me to take that and read up to the global data and see if they match.

“And I think what I’ve taught him is to take that data and meet with people on the ground to understand, Can you actually deliver that vaccine? Can you get a woman to accept those polio drops in her child’s mouth? Because the delivery piece is every bit as important as the science. So I think it’s been more, a coming to, over time, towards each other’s point of view. And quite frankly, the work is better because of it.”

3. Donate and feel good.

Giving money away makes us feel better than spending money on ourselves.

Elizabeth Dunn and Michael Norton report in their book Happy Money: The Science of Smarter Spending, “The amount of money individuals devoted to themselves was unrelated to their overall happiness. What did predict happiness? The amount of money they gave away. The relationship between prosocial spending and happiness held up even after taking into account individuals’ income. Amazingly, the effect of this single spending category was as large as the effect of income in predicting happiness.”

4. Pay attention to results.

This doesn’t have to include spreadsheets or anything fancy.

Notice the communication you get from the charities. Is it always a pitch for more money? Do they communicate their results?

Do you see where your money is going? Are they fulfilling the mission that you were contributing to when you donated?

Keep in mind that not every donation is going to succeed. For instance, Bill Gates says that his involvement in the attempt to develop a better condom didn’t get the results he was hoping for. He doesn’t detail exactly what was so ineffective about the project, except mentioning with a vague smile, “We got a lot of ideas.”

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Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

MONEY Estate Planning

Why My Grandparents’ Home Got Torn Down

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Estate planning can prevent a lot of heartache.

My family loves get-togethers—we find any reason to gather and eat. We credit this wonderful trait to my grandparents. They were gracious hosts with amazing culinary skills. Their home, built with my grandfather’s hands, was a sanctuary for family, friends, and welcome strangers.

My grandparents didn’t just leave legacy of memorable gatherings; they also left their home to their children, expecting regular family reunions after they were gone. My grandparents would not have it any other way!

My grandmother died in 1994, eight years after my grandfather’s death.

Their children tried their best to embrace my grandparents’ vision of maintaining the family home. But time, distance, and money wreaked havoc on implementing the plan. Our hearts sank as the house slowly fell into disrepair. It took almost 14 years before the children agreed that one sibling would buy out the other childrens’ shares of the home.

By then, however, the damage to the home was done. Now, only the land and memories remain.

I believe that if my grandparents had addressed certain questions about the house, they might have been able to protect it after their death with some thoughtful estate planning. Here are those questions:

  • Who wants to keep the home?
  • Who would prefer their inheritance to be cash instead?
  • Who can afford to buy the home?
  • How will the children handle multiple owners now? How would they handle ownership upon their own divorce or death?
  • Who will pay the property taxes?
  • Who will ensure upkeep?

One option might have been an estate-planning provision requiring the home be sold, with the first rights to buy given to the children. Or maybe the home could have been left to one or more children, and other assets left to other children to equalize inheritances. Maybe they could have established a trust in order to fund perpetual care of the home, and to manage generational ownership.

These considerations and others in the estate planning process might have allowed the children to preserve both their wealth and their legacy.

A significant amount of wealth is transferred through real estate. According to a 2014 study by Credit Suisse and Brandeis University’s Institute on Asset and Social Policy, the primary residence represents 31% of total assets for the top 5% of wealthy black families in the U.S. and 22% for the wealthiest white Americans. The percentage of wealth embodied in a primary residence is even greater for less well-off households.

Now it’s up to my aunts and uncles to get it right for the next generation. Will wealth be lost again or will it transfer for the benefit of their descendants? It’s a great question for the next family gathering…at a place to be determined.

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Lazetta Rainey Braxton is a certified financial planner and CEO of Financial Fountains. She assists individuals, families, and institutions with achieving financial well-being and contributing to the common good through financial planning and investment management services. She serves as president of the Association of African American Financial Advisors. Braxton holds an MBA in finance and entrepreneurship from the Wake Forest University Babcock Graduate School of Management and a BS in finance and international business from the University of Virginia.

MONEY financial advisers

Why Financial Advisers Need a Good Bedside Manner

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It's not just what you say, it's how you say it.

We financial planners are a bit like doctors: In both professions, how successful you are early on in managing people’s health, whether financial or physical, can have a big impact on how well those people live later on.

Like doctors, we financial planners also benefit from having a good bedside manner when communicating with the people we’re helping. That’s particularly true when the news we have to deliver is not so good—especially if the bad news stems from a self-inflicted wound.

Not too long ago I read a financial advice column in which the person seeking advice shared how his financial decisions, his health challenges, and macroeconomic events resulted in him and his family being in a very tough financial situation.

As I read the writer’s request for guidance, I could feel his stress. He was obviously seeking help and didn’t know where to turn.

The columnist’s response was unsympathetic. There was harsh judgment of the person asking for help and the financial decisions he had made. To say the response lacked empathy, would be an understatement. As for the advice itself, you might call it “tough love,” but I thought it was minus the love.

I’m sure we’ve all experienced some degree of poor service, but chances are it was a transaction that started and ended in that moment. Many of us have encountered a health professional who has been cold and aloof, and I’m sure it didn’t feel good.

I have had the pleasure of seeing doctors who were very empathetic, but I’ve also talked with doctors who shared undesirable news in a matter-of-fact manner then simply walked away. I wasn’t sure what hurt more—the news itself or the manner in which it was delivered.

Financial planners are not doctors, but we are entrusted professionals who look after our clients’ financial well-being. When financial stress hits the people we serve and they seek our assistance, we have to ask ourselves whether the advice we’re giving is judgmental or empathetic. Are we focused on the person’s financial need, or are we being more critical of the person in need?

While I don’t view any of my clients as children, I’ve learned in raising my sons that tough love isn’t always effective. Encouragement can be just as effective as wagging a finger.

Suffice it to say, I believe having a good bedside manner can make a huge difference in helping our clients achieve better financial health.

Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY

4 Qualities a Financial Adviser Ought to Have

Yoda in Star Wars Episode V: The Empire Strikes Back
Lucasfilm/20th Century Fox—The Kobal Collection Yoda in Star Wars Episode V: The Empire Strikes Back

Clients want a leader... but not the stereotypical kind.

It’s not surprising that, according to a 2014 study, almost 90% of clients want their financial planner to be a strong leader.

What is surprising, however, is the way those clients described leadership.

In the study, conducted by the Financial Planning Association’s Research and Practice Institute—and which Julie Littlechild of Advisor Impact discussed in a recent speech—clients said a strong leader should have these four qualities: expertise, skill as a guide, deep understanding, and vulnerability.

Let’s examine those qualities.

1. Expertise: Leaders typically have a strong base of professional expertise that goes beyond general knowledge of their field. This is why continuing education is paramount to good financial planning.

Even more important, leaders have wisdom: the combination of knowledge and experience. A new college graduate has knowledge. A 30-year planner has a high probability of having wisdom.

Clients want planners to be experts, to have knowledge about all things financial, and to know how to apply that knowledge to clients’ unique sets of circumstances.

2. Skill as a guide: Guiding is the ability to use expertise and wisdom to help clients go where they want to go, not where the planner thinks they should go. An effective guide first finds out where clients want to go, devises the safest, most effective route to get them there, and leads the way.

I don’t know of any academic courses that teach financial planners how to guide. It’s learned experientially. Planners learn it by walking the walk, treading the same path for themselves that they will lead their client on.

3. Deep understanding: What’s surprising about this quality is the word “deep.” Certainly, leaders need to understand their followers. But to understand someone deeply is much more intimate and encompassing than a superficial understanding of a person’s general needs, intentions, or desires.

Deep understanding comes through hours of genuine listening, asking probing and thoughtful questions, and having a genuine concern for the client’s well-being. It establishes a deep sense of belonging and acceptance.

For most financial advisers, the capacity and skills to understand someone deeply are not intuitive. They need to be acquired by learning and especially by experientially applying the principles of Motivational Interviewing, Appreciative Inquiry, and Positive Psychology. This training is rarely part of financial planning or finance programs.

4. Vulnerability: This was the most surprising quality. My image of a leader is that of a General Patton or President Lincoln: strong, resolved, visionary, courageous. Not vulnerable. Yet, in truth, vulnerability requires incredible strength of character, vision, and courage.

Financial advisers who are comfortable with their vulnerability are able to expose their humanity and failings. All of us can relate to someone who has screwed up. None of us can relate to someone who hasn’t. Planners willing to admit their errors beget trust and confidence in those around them. The strength to be vulnerable comes from spending a lot of time in self-reflection and personal growth.

Of the four qualities people look for in a strong leader, only one, expertise, can be learned academically. The other three—skill as a guide, deep understanding, and vulnerability—are learned experientially. Anyone who completes the course of study to obtain a financial planning degree has gained only 25% of the necessary skills to become what their clients are looking for in a planner. Someone who adds a degree in counseling conceivably has 50% of the skills.

Becoming a trusted leader and adviser goes further. It requires us to develop and apply in our own lives the relationship skills and leadership we want to offer to clients.

==========

Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the former president of the Financial Therapy Association.

MONEY stock market

A Financial Planner’s Investment Advice for His Son — and Everyone Else

family on roller coaster
Joe McBride—Getty Images

Father's Day has a financial adviser thinking about important lessons to be passing along.

A friend recently asked me to recommend a book for his son on buying and selling stocks.

As I pondered his request, I started thinking about the various books I’ve read or skimmed over my 24-plus years of working in financial services. Initially, I was overwhelmed with titles. Then I started thinking about my own teenaged son and the difficulty I was having getting him to think differently about his money—that he won’t always be able to depend on his parents to help him out. Anyway, I thought if I couldn’t compel a 14-year-old to change his ways, what could I say to my friend’s son, who’s in his 20s?

Finally, I asked myself what would I say—not bark, I promise—to my own son if he were in his 20s and came to me for investing advice? This is what I came up with:

You can go to just about any investment site (e.g. Vanguard, Schwab, or Fidelity) to learn the fundamentals of investing. You need to know, however, that the process of buying and selling is not hard. The real challenge is knowing what to buy, when to buy, and when to sell. If you plan to make investing a career, there is a lot more you need to know than you can learn from a website or book. That would require another conversation.

For now, I would advise you to think long and hard about why you want to invest. In other words, take time to map out your life goals for the next three to five years and the financial resources you will need to achieve them.

Simply saying you want to invest “to make money” will not work when you are invested in a fluctuating market. Short-term volatility can be a bear (pun intended). You have to be willing to ask how much money you can withstand losing when the market goes down, as well as how much profit is enough. As the old Wall Street saying goes, bulls make money in up markets, bears in down markets, and pigs get slaughtered. You also have to be willing to ask yourself how long you plan to stay invested, no matter how much the market fluctuates or falls.

Why am I focusing on declining markets and roller-coaster, up-and-down markets? It’s because people tend to fixate on rising stocks and profits, but pay very little attention to the markets’ inevitable declines. Everyone loves bull markets, which are great for the average investor. But when the market heads south quickly or takes a long, slow journey to the cellar, someone who was looking to make a quick profit can suffer a lot of stress.

Finally, I hope this short note does not come across as too preachy. I congratulate you on your interest in investing, and I will end by saying you are way ahead of the game because you’re thinking about investing now instead of later. Good luck.

Read next: The 3 Most Important Money Lessons My Dad Taught Me

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Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY Kids and Money

The 3 Most Important Money Lessons My Dad Taught Me

father letting son swipe credit card at cash register
Monashee Frantz—Getty Images

Many of our financial dos and don'ts are instilled by parents at an early age. Here's what my father passed along to me.

One of the responses I often hear from clients toward the end of a financial planning meeting is, “This sounds good. I’m going to talk to my dad about it.”

For many of us, our mothers and fathers have played a profound role in shaping our financial habits—so much so that we still discuss our plans with our parents well into our adult lives. Whether it’s deciding where to invest retirement savings, how much to pay for a first home, or how much of each paycheck to invest in a 401(k), we sometimes go to our parents to help make decisions and to doublecheck we’re on the right path.

These conversations with many of my clients have me thinking about the values and habits my father instilled in me at a young age. Three very powerful lessons come to mind:

Live Within Your Means

On my eighth birthday, my father began to teach me how to live within my means. As I write those words, it sounds funny, even to me. He sat me down and taught me about an allowance. He was going to provide me with a weekly stipend that I would later come to realize was my means. I was going to have a set amount of money that I could spend on anything I’d like. The only catch was that once I spent it all, I couldn’t buy anything else until the following Friday when I received my next allowance. At the age of 8, I began to learn how to budget, how to save, and how to spend wisely.

Plan For the Future

At 14, my father took me to his bank’s local branch to open my first savings account. We sat down at the desk with the bank manager and I shared that I had saved $370 and I needed a place to keep it so it would grow. Entering high school, I knew I wanted two things on the day I turned 16: a driver’s license and a car. If I was going to make them both happen, I was going to need a plan. Dad and I worked out a savings plan to help me save the money I earned from a part-time tutoring job. It took me a bit longer to save up for my first car than I anticipated, but planning and saving to reach a future goal is a valuable life lesson—one I share with my clients every day..

Start Today

When I was 16, I sat down again with Dad to learn about a Roth IRA, retirement planning and perhaps, most importantly, compound interest. I learned that by starting early and investing, my money could grow. By opening an investment account and saving into my Roth IRA with the possibility to earn compound returns, I could potentially become a millionaire when I was older—a crazy thought for a 16-year-old. We charted out a simple savings plan to invest a portion of each paycheck I earned—a savings and investing program I follow to this day.

On the occasion of Father’s Day, I thank you, Dad, for instilling many of my financial values and habits at a young age—habits that will continue to shape the decisions I make for years to come.

Read next: 3 Financial Lessons For Dads on Father’s Day

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Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

MONEY College

6 Financial Musts for New College Grads

New college grads on procession
Spencer Grant—Getty Images

Nail these moves and you're on your way to financial success.

You did it! You passed your finals, you graduated from college, and you even landed the coveted job you have been working so hard to get. So now what?

Many grads are carrying student loans that will be weighing them down for years to come. Since you’re facing plenty of new expenses—moving, rent, furniture, a suitable office wardrobe—now is a great time to make a financial plan. Here are six things every new graduate should do:

1. Make a budget

A good starting place for your monthly budget can be easily remembered as “50-30-20.” When you receive your first paycheck, sit down and figure out what your monthly take home pay will be. Out of that, put 50% toward needs such as rent, utilities, and groceries. Thirty percent goes toward “wants” such as shopping, entertainment, restaurants, and fun. The final 20% goes to your savings and debt repayment. If your student loans are substantial, you may have to flip the percentages so that 30% goes towards debt repayment and 20% toward wants. By following this plan, you can quickly put a dent in those loans.

2. Manage your debt

Student loans often have multiple tranches with varying interest rates that can be fixed or variable. Your best option is to pay off the loans with the highest interest rates first, though that practice is far less common than you might think. When the time comes to start repaying, access your student debt details online to figure out the interest rates for each tranche. Pay the minimum towards the balances with the lowest interest rates and make your largest debt payments on the balance with the highest interest rate. The biggest mistake you can make is paying the minimum into each loan and waiting until you “make more money when you’re older” to deal with them.

3. Prepare for emergencies

An emergency savings account is the best way to plan for the unexpected. What would you do if your car breaks down and you need $800 to get it fixed? If your laptop stops working and you need one for work, how will you buy a new laptop? What would you do if you lost your phone? People often go into debt to cover unexpected expenses, but it’s a problem that can be solved with a little planning. By contributing a small amount of each paycheck into a conservative investment saving account, you can be better prepared to pay for life’s inevitable emergencies.

4. Take advantage of a 401(k) match

Most employers offer 401(k) retirement plans and many offer some form of a match. A traditional 401(k) is an employer-sponsored retirement plan that allows you to save and invest a portion of your paycheck before taxes are taken out, thus decreasing your tax liability. When an employer offers a match, they are matching your contributions, often up to a certain percentage of your income. By choosing not to fully participate in these programs, you are effectively turning down free money from your employer.

Some employers also offer a Roth 401(k), where your contribution is made with after-tax dollars (meaning that you pay the taxes now) and the funds grow tax-free for retirement. The Roth 401(k) is often seen as the better option for younger investors who are typically in a lower tax bracket and who would not get as much benefit from a tax deduction today as they would in retirement.

5. Open a Roth IRA

Similar to a Roth 401(k), a Roth IRA is an individual retirement account allowing you to invest up to $5,500 for the 2015 tax year. These accounts are often considered ideal for younger investors, who may benefit from decades of tax-free compounded growth. Investing $5,500/year from age 22 to age 30 may create an account of more than $1 million when you’re using those funds in your retired years. If you invested the same amount annually but waited until your 30s to start, your account might be worth half as much. For Roth IRA contributions in the 2015 tax year, your modified adjusted gross income must be less than $116,000 if you’re single (or a combined $183,000 if married.)

6. Automate your savings

By setting up automatic transfers from your checking account to your Roth IRA and emergency savings, you’re effectively drawing money straight from your paycheck. This allows your plan to be put into action with minimal maintenance and oversight on your end.

Congratulations, graduate! With these six tips you could be on your way to a successful financial future.

Voya Retirement Coach Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

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