Tips for Securing Your Financial Future
“Investing is a three-step process. No. 1, … make the money. No. 2, do not spend all the money. No. 3, invest the money,” Dr. Doroghazi said.
▸ Don't buy into the myth of what a millionaire should look like. This tip, based on the popular book “The Millionaire Next Door: The Surprising Secrets of America's Wealthy” (Athens, Ga.: Longstreet Press, 1996), by Thomas J. Stanley and William D. Danko, supports the notion that “if you want to look like you have a million dollars, you don't have a million dollars because you've spent a million dollars trying to look like you have a million dollars,” Dr. Doroghazi explained. “I prefer to impress people with my character and my charitable donations rather than [with] my wristwatch or the kind of car I drive.”
▸ Contribute to your employer-sponsored retirement plan. If it's a deferred compensation program like a 401(k) or 403(b), contribute as much as you can to take advantage of the tax savings. Make sure to find out what, if any, portion is matched by your employer and when you become vested in the plan. Dr. Hollen advised saving 10%–20% of your income.
▸ Consider other financial goals. Most people need to budget for mortgage and car payments. If you need to start saving for your kids' college education, look into 529 plans, which are tax-advantaged investments for education. For more information, visit www.collegesavings.org
▸ Spend some time in due diligence before making investment decisions. “What I commonly see in my practice are haphazard, uncoordinated planning and investments, a patchwork,” Dr. Hollen said. “They'll be OK in some areas and maybe even very good in certain areas. But if you look at the whole picture, there are always a few big glaring holes where they've fallen down. It's different for everybody. An example I would have is an older physician who's worth a lot of money, and he had a very small umbrella liability policy on his autos, and he has teenage drivers. So he has his assets at risk from being underinsured.”
▸ Get financial help if you need it. Remember that some financial planners are compensated on a fee-only basis while others sell products. “Fee-based” advisers charge fees and sell products.
For a list of advisers who are fee only, visit the National Association of Personal Financial Advisors at www.feeonly.orgwww.garrettplanning.com
Dr. Hollen noted that if the adviser you choose receives a commission for selling products, “they have a conflict of interest. I think that's impossible to ignore.”
He recommends seeking an adviser who provides comprehensive financial advice, including goal setting, cash management, estate and tax planning, insurance reviews, education funding, retirement planning, “a lot of things besides 'what rate of return can you get me on my investments?'”
▸ Be wary of the wealth destroyers. First on this list is greed, Dr. Doroghazi said. “One doesn't need to commit a crime to face the financial problems of greed.”
Debt is another common destroyer of wealth. “It is so easy to borrow money,” he said. “I think if people had to pull gold coins out of their pocket to pay for something like they had to 1,000 years ago, there would be less investment mistakes and fewer problems. Society has to have more of a respect for debt. In the end, it's real money that sometime has to be paid back.”
Dr. Joseph R. Hollen, head of Hollen Financial Planning Ltd., advises getting into the savings habit early. Courtesy Anna M. Hollen
What Makes a Good Money Adviser?
Want some assurance that you've selected the right financial adviser for your needs? Here's how Dr. Hollen responded to the following statement:
“You know you can probably trust a financial adviser when …”
▸ You're working with a member of the National Association of Personal Financial Advisors (
▸ The adviser uses low-cost, passive types of investments. Examples would be index funds from Vanguard, asset class portfolios from Dimensional Fund Advisors, or exchange-traded funds. These are core investments and avoid the inherent problems associated with actively managed funds.
▸ The adviser keeps insurance and investments separate.
▸ The adviser is independent from large banks, brokers, and mutual fund and insurance companies.
▸ The adviser is a registered investment adviser with either the state or with the U.S. Securities and Exchange Commission.
▸ The adviser is a Certified Financial Planner.
Fiscally Smart Reading Material
“Facing Financial Dysfunction: Why Smart People Do Stupid Things With Money,” 2nd ed., by Bert Whitehead (West Conshohocken, Pa.: Infinity Publishing, 2003).
