Financial planning trivia

How much do you know about financial planning? Here's a quiz.

How much do you know about financial planning? Here's a quiz.

1.) True or False: The easiest way to save is to adjust your withholding to receive a large tax refund at the end of the year.

2.) Approximately how many months of fixed living expenses should you keep in a liquid emergency fund?

3.) True or False: People who develop a financial plan for retirement enjoy greater retirement satisfaction.

4.) Who said the greatest miracle known to man is "compound interest?" Was it Albert Einstein, George Washington, or Tony Randall?

5.) True or False: Mutual fund investors most frequently seek information from a professional adviser before making a purchase.

The answers are at the end of this column

People avoid their finances for a number of reasons — some are afraid of facing debt, losing money, or inciting family conflict. Others are simply uncomfortable tackling math. But rather than ignoring your financial picture, take charge. After all, successful financial planning begins with simply asking yourself the hard questions. Are you systematically reducing your debt? Are you saving enough for your future and your retirement?

Developing healthy financial habits may have a positive impact on the way you save and invest. Here are some common tips that, if implemented, may improve your financial life:

• Set specific — and realistic — financial goals. When thinking of your financial challenges as insurmountable financial goals, you may be discouraged from starting a financial plan at all. But rather than focusing on your concerns, establish clear and attainable goals and stick to them. Only then can you develop a plan to achieve your financial objectives.

For example, if your goal is to save for retirement, identify how much retirement income you'll need to live comfortably through your golden years. You'll have an easier time working toward a specific financial goal that is clearly outlined.

• Develop an investment plan. You may be tempted to select investments the same way you collect shells on the beach — picking up ones that strike your eye. However, a better approach involves establishing your financial goals and risk temperament first, and then selecting appropriate investments to meet those objectives.

• Begin early. Don't let the lack of specific goals or the fear of making a wrong decision prevent you from establishing a financial plan. When you save early, your money will have more time to accumulate and compound.

On the other hand, if you've missed your chance to start in your 20s, don't worry that you're starting too late. Remember, it's better to achieve at least part of your savings goal than to reach none at all.

• Avoid procrastination. You can put your investment plan on "autopilot" with automatic monthly investments. By having a set amount of money deducted every month from your savings or checking account and invested in the vehicle of your choice, you can bypass the temptation to procrastinate.

Don't let fears inhibit your potential for financial success! Through sound financial habits, you can develop a thoughtful and consistent investment and financial strategy to better attain all of your goals.

Financial advisers can assist you in determining your specific financial needs and objectives. In addition they can:

• Keep your financial plan current as your financial situation changes
• Evaluate and describe for you various investment opportunities
• Review the asset mix of your portfolio
• Monitor the performance of your investments
• Suggest revisions when necessary
• Research investments designed to help you reach your objectives

How do you choose a financial adviser? A recommendation from a friend or relative is a good way to find a financial adviser. You also can contact professional organizations or licensing organizations to identify candidates you might like to interview. Look for a company with longevity, a good track record, and a good reputation. Ask your adviser lots of questions. Find out if the adviser has experience helping clients with concerns and resources similar to your own. Ask what information you need to bring to the meeting.

While meeting with your adviser, ask the following four questions:

• What are your qualifications and experience? Many financial advisers will provide their potential clients with a copy of their resumes and a packet of information about the services they offer. Clients should know whether an adviser has professional designations or affiliations. Consider if they are individual practitioners or are part of larger organizations.

• What services do you offer? Find out what areas your adviser specializes in, such as tax planning, estate planning, retirement planning, or insurance products.

• Will you be the only person working with me? Financial advisers sometimes employ assistants or work with partners — determine if you are comfortable dealing with other members of the planning team.

• How much do you typically charge? Money is coming out of your pocket. Therefore, it is a good idea to find out how your financial adviser is compensated. Advisers may be compensated by fees you pay directly to them, fees paid for asset management or by commission for products sold. The method of compensation is less important than the disclosure of conflicts of interest and the quality of advice given.

The answers to the quiz above are:

1. False. Over-withholding your taxes may be the worst way to save — it's like giving an interest-free loan to Uncle Sam. Instead, consider adjusting your withholding to direct more money toward your savings and investments.

2. Six months.

3. True! Based on data from a Health and Retirement Study (HRS), conducted in 1999 by Elsevier Science Inc. there is a clear link between retirement planning and satisfaction. Of those who planned for retirement, 69 percent were very satisfied, compared with 25 percent of those who hardly planned at all.

4. Albert Einstein

5. True. In a research document "Understanding Shareholders' Use of Information and Advisor" (Spring 1997), the Investment Company Institute found that nearly 59 percent of shareholders consulted a financial adviser before making a purchase. The typical shareholder consults two sources of information, including professional advice, articles in investment newsletters or magazines, and mutual fund prospectuses or annual reports.


Kathleen Adams, RDH, BS, is a financial adviser with Waddell and Reed (www.waddell.com). She is currently trying to initiate money-management workshops for hygiene students and specializes in working with dental professionals. She can be reached at (800) 210-1357.

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