Your investments: Financial inspiration

“If you’re going through hell, keep going.” – Winston Churchill

By AARON KATSMAN
money (photo credit: REUTERS)
money
(photo credit: REUTERS)
I have been on a mission recently to try and get my kids inspired. Something that will get them to put down their handheld electronic devices and do something of substance. I started by showing them the Rocky theme song on YouTube. I showed them the video of “Gonna fly now” and how he runs through the streets, and more and more children run with him until he sprints ahead while running up the 72 steps at the Philadelphia Museum of Art. I also told them that when I was young, I would wake up at 5 a.m. on Sunday mornings, crack a raw egg and go jogging, just like Rocky.
The difference was that I never was able to swallow the raw egg. I went through dozens over those years but ended up wasting them all. After explaining to them how inspirational Rocky was, they just looked to me as if I was from a different planet. One child asked, “Why is he punching meat?” While another questioned why on earth all the kids are wasting their energy running with him! To which I responded, “I guess they didn’t have iPods!”
I write a lot about financial mistakes individuals make. Just ask my staff how frustrated I get when I meet with couples deep in debt and the bad decisions they continue to make. Or a meeting where after losing 75% of his net worth investing in individual stocks, a client insists that he still wants to trade individual stocks because it’s “pretty easy to find cheap, great companies” to buy.
It’s not often that I come out of a meeting inspired, but it happened earlier this week. I met with a widow who had her financial life in total order. After losing her husband just two months ago, she told me she was motivated to be completely independent financially and made a point to get completely organized and read up on personal finance. At the end of our meeting, I complimented her for being in total control of her financial situation and told her, in all seriousness, to write a book about how she managed to do it.
I am not trying to be condescending about widows and their inability to handle money. In fact, from my experience, women tend to deal with spousal loss better than men. It’s just that I have had numerous meetings with both widows and widowers who have a large financial mess on their hands. Here are a few tips to help get in control of your finances.
Don’t give away an insurance payout
As I have written many times, upon receipt of a large sum of money from an insurance policy, do nothing with the money for three to four months, just stick it in the bank. Don’t make any rash or impulsive purchases or investments until you feel like you are in control and making rational decisions. I have seen many instances where a surviving spouse receives a large death benefit and squanders it immediately by buying all those things that “needed” to be bought or by giving overly large gifts to children to help them out. Nothing against helping children, but make sure you have enough for yourself first.
Before making any investment or gifting decisions, it’s important to figure out how much money is needed on a monthly basis. Wait a few months to try and determine how much money is required. The reason to wait a while is that you may have all kinds of immediate expenses that will skew your budget and give you an inflated figure of what you need.
After things calm down, start to track expenses. Break your expenses down to those that are monthly and those that are annual, one-time expenses. Once you have that organized, write down all of your various sources of income, salary, social security, pensions, rental income, etc. This means that once you know how much money enters your bank account each month, create a budget that limits your spending to the amount of income you have.
After defining cash-flow needs, investment-allocation decisions can be made. If income is less than expenses, the money can be invested to generate income to supplement the monthly shortfall. Conversely, if expenses are lower than current income, more growth can be allocated to the portfolio.
Don’t invest in a nephew’s business
Not long after the mourning period, and before the insurance check arrives, the surviving spouse becomes very popular among relatives with business ideas. It’s amazing how entrepreneurial family members can be after a relative with an insurance policy dies. Stay away from investing or “loaning” money to these family members, unless you want to lose your money.
The death of a spouse is emotionally devastating, but you need to continue living your life. By implementing these tips, you can start taking control of your financial situation, which to some degree will help enable the healing to begin.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.
aaron@lighthousecapital.co.il
Aaron Katsman is a licensed financial professional in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.