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New parents: Know the true costs before choosing to stay at home

New parents: Know the true costs before choosing to stay at home

Gail Hicks is a senior financial advisor at Klein Financial Advisors. She is this week’s guest blogger while Lauren is away on vacation.


It’s a question almost every soon-to-be parent ponders: should I stay at home after the baby is born? And if so, for how long? Even for the most career-driven parent, it can be a very emotional decision. To come up with the right answer for you, step beyond a basic pros-and-cons list. Be certain you’re considering every piece of the puzzle before making a choice—and do all you can to be sure that choice balances your emotions with what’s best for the long-term financial stability of your family.

If you think that puzzle is a simple one, think again. It’s easy to look at the high cost of childcare and assume that those costs, combined with the savings on everything from dry cleaning to taxes to eating out after a long day at the office, make staying at home the most cost-effective option. That’s rarely the case.The truth is in the data. According to a recent study by the think tank Center for American Progress (CAP), the average 26-year-old woman who takes a 5-year break from her career will lose much more than five years of her salary. In fact, when considering lost income, wage growth, and retirement assets and benefits during just five years, she’ll lose a whopping $467,000 over her lifetime. A man of the same age will lose even more: just under $600,000. To make those numbers more personal (especially knowing that Orange County is one of the most expensive places to live in the US) assume that staying at home will cost up to five times your annual salary for every year you’re out of the workforce. According to the latest U.S. Department of Agriculture’s Expenditures on Children by Families report, households with income over $105,000 should be prepared to spend at least $400,000 to raise a child to age 18. With that price tag in mind, it’s a challenge to make staying at home an affordable option!

Of course for some parents, the math isn’t enough to sway the emotional desire to stay home with children. For others, there are family and cultural biases that strongly influence the decision. But it’s vital to look closely at the reality of your choice before opting to leave the workforce. As someone who has been there myself, I know the real-world challenges all too well.

When my husband and I were contemplating expanding our family from one child to two, we remembered the toll my job took on my health during my first pregnancy, including a very frightening pre-term labor that resulted in being put on bed rest at seven months. The high cost of childcare and the fact that we had no family in the area to help out were also factors to consider as we considered our options. We did the math (it’s what I do, after all!), and determined that with our savings and the extra income from my husband’s side business, we could make it work. We knew there would be sacrifices, but it was an important—and yes, emotional—decision for us both. So I walked away from a high-paying corporate job and walked into stay-at-home parenthood.

Unfortunately, the decision didn’t play out in real life as well as it had on paper. First, our second son was born with a mild disability. That alone tipped the financial and emotional scales. Jumping through hoops to get a diagnosis and then therapy two or three times a week was hard. Soon afterward, the recession hit, and with it came the end of the consulting income we had counted on to help replace my salary. Even worse, my husband didn’t want to add any more stress to an already high-stress situation, so he postponed admitting that his side business had completely dried up. Our plan of just breaking even quickly turned into the reality of taking on debt. Now the numbers didn’t make sense. How could I go back to work when my younger son needed me at home and my older son had grown accustomed to having me at home with him too?

At the same time, I was in a world of the unknown. I’d been a businesswoman my entire life. I was home with a special-needs child, I knew only a handful of my neighbors, and the few stay-at-home moms I was able to meet had never worked, so our experiences were completely different. I felt isolated and alone. And while it was a difficult choice to go back to work, money was just one piece of the equation. I was confident my choice would be best for our whole family, and it truly was. Within months of going back to work, I felt we had found balance again. Yes, I missed the time with my sons, but I knew I was a better mother when we were together as I watched the financial and emotional stresses wash away.

Everyone’s situation is different. The key to making the best choice for you is to understand the true financial impact of staying at home, and then to decide what makes sense for you and your family—both today and over the long term. How can you be sure your emotions aren’t overriding your common sense? Work with a professional advisor to help you crunch the numbers and be sure you’re really considering every piece of the puzzle.


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Ready to retire? Consider taking the road less traveled

Ready to retire? Consider taking the road less traveled

It’s inevitable. You tell your friends you’re retiring and the first question out of their mouths is, “What are your plans?” Question number two: “Where are you going?” It seems the connection between travel and retirement has become an obsession in our society. And while it may conjure up images of tropical destinations and “once in a lifetime” adventures, the dream doesn’t always reflect the reality.

My friend Joyce is a perfect example. After working in corporate healthcare for decades, ten years ago she was finally ready to call an end to her career. Of course, the questions and suggestions began immediately: “Where are you off to? Have you thought about a cruise?” “You should go on a safari! It’s the trip of a lifetime!” “We loved Capri! You just have to go!” “You’ve never been to Paris?” Joyce had already traveled a fair amount in her life, for work and pleasure, so the idea of planning a big retirement trip wasn’t even on her radar. Suddenly the pressure was on. She started to feel like she had to travel—it was, after all, what retirees are expected to do.

When we met for coffee a week after her retirement party, she was restless. “I don’t even know where I want to go, but I feel like I should figure it out soon. I’m already bored with my routine!”

It’s a dilemma I see all the time. As retirement looms, people are so focused on closing the door on their careers that they don’t take the time to think about what’s next. They know they’re not ready to settle into a rocking chair, but they have no idea how they want to spend their days.

To help guide Joyce, I posed a question that was much different than, “What’s your travel destination?” Instead, I asked, “What do you want to do in your second half of life?” Joyce looked like a deer in the headlights. I took a sip of my coffee and continued. “Is there anything you’ve dreamed of doing, but have simply never had the time—not including traveling?” We sat quietly for a few minutes, and I could see the wheels turning in her mind. When she did speak, she seemed almost embarrassed, as though she was confessing a dark secret. “Paint,” she said. “I’d love to paint.”

Joyce’s vision was no standard image of an elderly gentlewoman quietly painting landscapes on a sunny hillside. Her dream was to paint large, bold canvasses that would take people’s breath away. I could already picture her in paint-covered overalls tossing paint onto the canvas like a modern-day Helen Frankenthaler. She didn’t know her next step, but she now had a vision in her mind, and it had nothing to do with jumping on a retiree-filled cruise ship.

Don’t go me wrong. I’ve recently discovered my love for travel, and I get that, at least for some people, travel is a retirement dream come true. Even then, I’ve seen peer pressure turn what should be a time of financial freedom into a whole new level of stress and anxiety. Travel anxiety can be especially challenging for anyone who lives in an affluent area, and even more so for affluent couples who set out on their travels together. Suddenly, what could have been a modest, budget-conscious Alaskan cruise morphs into a five-star, luxury journey on the Crystal line—for five times the original cost. The pressure to overspend can come from relatives as well. Knowing that memories are important, it’s all the rage right now for grandma and grandpa to treat the entire family to an all-expenses-paid family vacation, yet few retirees can afford this level of extravagance. I’m all for spending money on experiences instead of “things,” but it’s important to be realistic. If a trip is beyond your budget, that’s the moment you need to stop and ask yourself: whose dream am I living? Mine—or my neighbor’s? Peer pressure can be tremendous, but swallow your ego and make choices that align with your dreams and your budget.

Joyce’s story has a wonderful outcome. After our talk that morning, she decided to make her dream come true. She signed up for classes at Otis College of Art and Design, studied with master teachers, and earned a certificate in Fine Arts. She’s been painting ever since, and though I have yet to see her in overalls (I guess that’s my version of her dream, not hers!), she’s happier than I’ve ever seen her. She does travel a bit, but mostly to New York City on artist trips. By focusing on what she truly wanted, she took the road less traveled (pun intended!) and painted a beautiful “retirement” that even she never saw coming.

If you’re on the cusp of retirement—or even already there—take some time today to brainstorm how you want to spend the next decade of your life. Build a vision board. Journal. And don’t let anyone else’s expectations stand in your way. Once you have some ideas, I recommend sitting down with your financial advisor to figure out a realistic budget, and then take it from there. By charting a path based on your dreams and your finances, you can paint your own picture of a wonderfully fulfilling retirement that’s free of financial anxiety. That’s what I call the “golden years”!

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Rethinking retirement in the “gig economy”

Rethinking retirement in the “gig economy”

There’s a movement going on in America, and it’s something retirees, and those even close to retirement, should start studying—hard. It’s called the “gig economy,” and it’s changing how people think about almost everything. Work. Play. And even the fine line in between the two. It’s changing how we pay and get paid for both, and it’s transforming how people look for work and how the work itself is getting done. Whether you’re looking for extra income to help fund your retirement, or you simply want to work to keep your mind and body active in your later years, understanding the gig economy and how it functions is vital to rethinking your retirement.

Anyone who has been forced to look for work recently can tell you firsthand how the gig economy has flipped the traditional work landscape on its head. Old-fashioned resumes have been replaced by LinkedIn profiles, and even the idea of finding a conventional “job” is fast becoming a thing of the past. Companies like Uber, Lyft, and Airbnb have provided a way for almost anyone to earn an income, as well as a whole new way for consumers to find and pay for services.

These companies aren’t alone. Today, there’s a website or an app that offers on-demand services of almost any kind imaginable. DoorDash delivers breakfast, lunch, or dinner from your favorite restaurant to your door at the click of a button. TaskRabbit lets you order up a “trusted and local handyman” within an hour. Dogvacay gives pet owners online access to 5-star pet sitters and dog walkers. And there are just as many services for professional freelancers. Upwork helps companies hire web developers, writers, accountants, and virtual assistants. Guru is the place to find professionals in management and finance, engineering and architecture, and sales and marketing. And UpCounsel is the go-to site for legal services.

Of course, every one of these services requires individuals to provide skills. Whether they are driving for Uber or DoorDash, putting together IKEA furniture, or helping a business crunch the numbers, these workers make up a growing workforce that is already in place. That means that if you thought serving up lattes at your local Starbucks was the only job in town for anyone “post-career,” you’re happily mistaken. The gig economy is taking over, and that’s good news—at least for those who get it and can adapt to this new reality.

The business school at UCI certainly gets it. My friend Howard Mirowitz is on the advisory board at the school’s new Beall Center for Innovation and Entrepreneurship. The center is devoted entirely to inspiring innovation and entrepreneurship in the 21st century. Here students learn both why it’s important to become an entrepreneur, as well as the processes and tools to help turn that dream into a reality. The center fills a need that’s positively exploding. While being an entrepreneur may have sounded like a lofty dream a decade ago, it’s fast becoming mandatory for anyone hoping to succeed in an environment where it’s predicted that 43-50% of workers in the US will be freelancers by 2020. Let me repeat that: 43% to 50% of workers will be freelancers. Whatever your age, if you’re looking for work today, you are part of that statistic. Which means that now is the time to figure out what you have to offer the world and how that fits into what the world needs from you, and then begin to create your opportunities as part of this new, dynamic workforce.

For those of us who grew up in a business world where “climbing the corporate ladder” was the norm and playing by the rules led to a coveted lifetime pension, this new era can be pretty daunting. It requires flexibility and agility, not to mention a good dose of personal marketing savvy and technology know-how as well. So where do you start? It may be a moving target, but these five steps can help you take those first important steps:

  • Start to think differently.Rather than thinking about getting a “job,” make a list of all of your skills—both skills you learned in the traditional workplace and those you learned in life. Next, examine your list and circle the things you would like to continue doing and what someone else wants enough to pay you for. One of these skills may very well be your next “gig.”
     
  • Get a mentor.There’s no doubt about it: millennials have the gig economy down pat. To them, it’s just the way the world works now. If you need help figuring out how you can offer your skills, or even what skills people might be looking for, ask someone younger to serve as your mentor. You’ll be amazed at the knowledge they can offer.
     
  • Market yourself. Create a great LinkedIn profile that uses keywords that match your skill set to be sure people can find you online (learn all about LinkedIn keywords here). No, you don’t need to include dates that might “age” you or list every job you’ve ever had. Focus on what’s relevant to what you’re marketing today. If there’s already an on-demand service that matches your skills (think Upwork and Guru), explore how to get listed. There are even services which provide that service, helping to market everything from your Airbnb rental to your skills in human resources or healthcare.
     
  • Save madly.While there are many upsides to the gig economy, the downside is that it isn’t always consistent. Even if you do find the perfect niche, there may be off times when your services aren’t needed, or the need may change entirely, causing you to have to rethink your focus once again. Having a sizeable emergency fund can help offset potential gaps in income.
     
  • Be flexible.When I left my own corporate career, I realized there was a whole set of skills I needed to learn to succeed at my new goal. If you have some but not all of the skills you need for your new “job,” don’t let that scare you away. And if your interests change, know you have the freedom to change your work focus as well.

The gig economy may be replacing the traditional workplace, but what powers it are three things that will never be replaced: people, knowledge, and skills. By taking a look at the knowledge and skills you bring to the table, you may find that working in the gig economy can help your golden years shine that much brighter. How fun is that?!

 

 

 

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In Your Best Interest: Our Summer 2017 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.


MARKET HIGHLIGHTS: Q2 2017

 

“Global Stocks Post Strongest First Half in Years, Worry Investors.” That Wall Street Journal headline from the last day of Q2 caused more than a few investors (perhaps you included) to ponder “what’s next?” 

As we closed out the first half of the year, most indices were continuing to rise at a pace we haven’t seen since 2009. Despite certain political and global events that would have dampened investor exuberance in “the old days,” investors have been nothing but enthusiastic, and the economic data has certainly supported that fervor. Tumbling oil prices have driven down energy prices and inflation. The housing market seems to be gaining steam. And while growth in the GDP, inflation, and consumer spending has slowed, they are still showing modest increases. All of that, plus expected tax cuts, strong corporate balance sheets, and central bank support, seems to have outweighed any negative news and buoyed both the US and Global indices. The result: the Dow, NASDAQ, and S&P 500 are up 8.03%, 14.07%, and 8.24% respectively; and the Global Dow is up 9.54%. That strong economy spurred The Federal Reserve Bank to raise the Federal Funds rate another 1/4 point. 

So what can investors do to assuage their worries about the future? Jason Zweig’s interview with Peter L. Bernstein offers some answers. In the interview (which took place years before the Great Recession) Zweig asks: How can investors avoid being shocked, or at least reduce the risk of overreacting to a surprise? Bernstein responded with this wisdom: 

“Understanding that we do not know the future is such a simple statement, but it’s so important,” he said. “Survival is the only road to riches… I view diversification not only as a survival strategy but as an aggressive strategy because the next windfall might come from a surprising place. I want to make sure I’m exposed to it. Somebody once said that if you’re comfortable with everything you own, you’re not diversified.” 

Berstein then posed this question to investors: “Can you manage yourself in a bubble, and can you manage yourself on the other side?” 

I’m happy to say that our approach is consistent with Bernstein’s Yoda-like guidance. We continue to actively diversify our client portfolios, reallocating fixed income with international and global bonds, inflation-protected securities, and real estate. “Survival is the only road to riches.” And while no one knows what the future holds, we promise not to overreact—no matter what surprises come our way. ~

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Declare your (financial) freedom!

Declare your (financial) freedom!

As we head into the Fourth of July weekend, almost everyone I know is making plans for a celebration. Barbecues. Fireworks. Family and friends. It’s a time-honored tradition of celebrating the declaration of our independence from England way back in 1776. And while we should never take those liberties for granted, one thing that can give you a great reason to celebrate every day is your personal financial freedom.

Sound like an impossible dream? No matter what the state of your finances today, here are five steps to help pave your way toward true financial freedom:

  1. Freedom from illiteracy. According to this 2015 S&P Global Financial Literacy Study, nearly half of the U.S. population rates as financially illiterate. Financial illiteracy’s close companion, innumeracy, or mathematical illiteracy, is also a challenge. Even many highly educated people don’t understand the impact of compounding, the difference between “good debt” and “bad debt,” or why working with a financial fiduciary is vital to financial success. No matter where you are on the spectrum, make it your mission to be a lifetime learner when it comes to money, investing, and your finances. The more you know, the better your decisions will be. A great place to start: read How to Think About Money by Jonathan Clements. This easy read will have you on your way to worrying less about money, making smarter financial choices, and squeezing more happiness out of every dollar.
     
  2. Freedom from chaos. If your financial files are in a constant state of chaos, you can bet your financial life is in pretty bad shape as well. No matter what the reason, know this: you’re not alone. Finances are complicated, but the longer you procrastinate, the more complex the challenge will be. If you can’t get yourself to dive into that growing stack of papers, or if you simply don’t know where or how to begin, set your pride aside and reach out to your financial advisor to get help now. Need more inspiration? Read my blog For your finances, getting organized can be the greatest challenge.
     
  3. Freedom from debt. Debt is a huge problem in the US. In 2017, the average US household held more than $8,000 in credit card debt, up 6% from last year. And that doesn’t even include auto loans and other “bad debt” which, in contrast to “good debt” such as a home mortgage, student loans, and business loans, doesn’t have the potential to generate benefits over time. Because “bad debt” reduces your income, adds no value to your wealth, and forces you to pay more every month for an item that is losing value, it’s one of biggest threats to your financial freedom. Use a debt snowball to reduce and eliminate the debt you have today, and avoid taking on more debt in the future. For more on how debt can impact your future, read my blog There’s no such thing as an unexpected expense.
     
  4. Freedom from mindless spending. Financial independence requires understanding that every dollar matters, and being mindful about how you spend each and every dollar you have. Does that mean every dollar has to be relegated to paying down debt or saving for the future? No. But it does mean creating a budget to plan how much you need to save and how much you can spend every month. By creating a cash budget, you’ll already feel liberated because you’ll be in charge of your finances, instead of letting your finances be in charge of you. To dive deeper into budgeting and learn how making mindful choices with your money can help you relax about your finances, read my blog Cold, hard cash! (Are you paying attention?).
     
  5. Freedom from the unexpected. A recent survey from Bankrate revealed that 57% of Americans don’t have enough cash to cover a $500 unexpected expense. If you too are living paycheck to paycheck, it’s time to create a “freedom fund” to cover 6-12 months of living expenses. While that may sound like a lot of cash, think of it like paying off a debt to your future self now, build it into your budget, and pay yourself first every month. Once your “freedom fund” is at the ready, you’ll be amazed by the sense of relief you’ll experience when you’re no longer living paycheck to paycheck. Want to learn more about this approach? See my blog Celebrate retirement planning week: Create a “freedom fund.”

Financial independence isn’t only for the wealthy. By being mindful about your finances now, you can intentionally work toward a level of freedom that ensures you can always stand on your own two feet. Best of all you’ll have financial peace of mind so you can relax about your money. That’s the kind of freedom you’ll want to celebrate every day of your life! If you need help getting there, I’m always here to help!

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09 November 2016

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >