Financial Management Mistakes – Part III

Here’s the final installment of commentary on The Dumb Things Smart People Do With Their Money, by CBS News Business Analyst Jill Schlesinger.

#9: Saddling your kids with your own money issues. We all have baggage when it comes to money management. And parents tend to pass along some variation of their baggage onto their children. As the daughter of parents who lived though the Great Depression, I’m conservative with money management and I know how to stretch a dollar. It’s baggage that has served me well, although I’ll accept the nudge to live a little!

make a plan#10: Lacking a plan for your aging parents. I’ve written a post on becoming my parents’ financial manager. I was lucky. My parents were open to a frank discussion about their means and needs, and they’d already done the hard work of making provisions for themselves. I simply had to take over the administration of those plans. I see my friends struggling with aging parent issues and all the anxiety that comes with a substantive change in the parent-child dynamic. It’s hard! But I think it’s really important to work out a plan well in advance of the imperative to execute it. That way, everyone gets on the same page about what will happen, and the mechanisms can be put in place to step in and manage things when and if it becomes necessary.

#11: Buying the wrong insurance. I wasn’t as attentive to this chapter given that we’ve had multiple reviews of our insurance coverage and feel very well protected. (I’ll still likely schedule another review shortly for good measure!) But I’d tie the message about insurance back to the first two financial mistakes covered in Jill Schlesinger’s book: Buying investments you don’t understand and working with the wrong advisors. Insurance has its own share of complexity and fine print. Find a trustworthy person with whom to navigate the terrain. Do your homework. Ask questions.

#12: Lacking an estate plan. We have a living trust, wills, powers of attorney, and healthcare directives. They’ve been in place for quite some time but probably merit review. A surprising number of my friends and colleagues have no such provisions. To me, it’s a fundamental denial of our impermanence on this planet and the lack of predictability over when our time is up. It’s pretty easy to put these legal documents in place, and it saves mountains of grief for our loved ones to attend to these details before the unthinkable happens. (And having worked as a hospital chaplain, I know that the unthinkable does happen!) So as Nike’s ads would tell us: Just do it!

#13: Trying to “time” the market. The author argues that today’s markets are too sophisticated and too unpredictable for any one person to accurately time the peaks (to sell) and valleys (to buy back in). We have no illusion about possessing special powers to do what others haven’t been able to do reliably. We have an asset allocation plan, and we only make adjustments to adhere to the guidelines that we’ve set.

This brief foray into Ms. Schlesinger’s treatise should give a taste for a much bigger discussion. If you are serious about handling your own finances well, check it out!