Tip #10: Once You Get It,Try To Keep It. Financial Planning Basics

Once You Get It, You Need To Keep It

The breakup of a marriage is like the breakup of a business partnership. The assets...and the liabilities...are going to be divided. The method by which the property is divided varies from state to state and may be called community property, equitable distribution, or equitable division. But regardless of what it is called, whenever you get your share, you must be prepared to "reinvest it wisely" because in many cases, this is all you are going to get. 90% of those who get a lump sum today will not have it within five years.

Since you will be changing your life status and either handling money for the first time or modifying your life style, you need to know about what is best for you. But you will find that there are complex and confusing options out there...And many, many salesmen, each of whom has all of the "right answers". REMEMBER: Never be suckered into a high return deal because high return means high risk....and you can't afford it.

REMEMBER: Consumers lost more than $500 million last year to unscrupulous planners and salesmen. So make sure the person in whom you are about to put your trust and your money can deliver to suit your needs. Before you write the check to put your financial future in the hands of a financial planner or anyone else, check out the situation THOROUGHLY.

If your life style is based on not only alimony and support but also interest derived from investments, you must look for the best way to attempt to assure that this interest income continues to be paid while, at the same time, protecting your principal.

Your plan must be arranged for a particular need without the risks of high fees, commissions, and high risk financial products. Always ask about commissions and keep track of what is being done with your money.

REMEMBER: Look carefully because there are all types of investments...and some don't look like investments. For example, you may be approached with insurance products that are really investments. Understand what you're getting before you write that check.

Get everything in writing before you decide where to put your money. These tips are also true when it comes to dealing with insurance salesmen, brokers, or financial planners. In fact, more insurance salesmen have securities licenses today than do brokers...And they sell both insurance and investments.

Mutual funds are securities that are sold by insurance salesmen, financial planners, and brokers alike...But all of mutual funds are not safe investments. Before you invest, make sure you find out about the amount of sales commissions and how much you will be penalized if you decide to remove your money in the first four years.

You must avoid high risk investments and "churning" of accounts ("churning" is a practice whereby trades are made in an account not for the benefit of the holder of the assets but to earn commissions).

Salesmen may try to sell you annuities, telling you that you need a steady flow of revenue. Check them out and understand them before you invest because if you need the money you invest, you will be penalized substantially if you take it out. And always check out the financial stability of the company behind the annuity. Some insurance companies today are thinly capitalized, which means that you may lose your investment if the company goes under.

You may have more education than your adviser. According to some studies, the average client has more education than the planner: 6% of planners do not have high school diplomas compared to only 1% of clients.

Many "planners" have less than 10 years' experience, so find out how long and where they have been in business. Be sure to get bank references, client references, and references from professionals such as lawyers and accountants who have used the planner. And check them out.

Find out if the planner has ever been sued and if he or she has errors and omissions insurance just in case there is a problem. Ask where his or her money is invested....And find out how his investments are doing. If he won't answer you or hedges, look elsewhere.

Stay away from those who hedge on how they are compensated. Some may derive most of his or her income from commissions on products that are suggested to you. Although 85% of planners sell financial products, only 47% of this number tell the client this is the source of the planner's income.

Fee only planners may be more objective than those charging commissions, but their up front charges may be more. Be sure to find out how many times per year the fee will be charged and make sure they are "fee only".

Others may charge a combination of fees and commissions. In any case, make sure you get the entire cost up front in writing and compare the cost.

Steer clear of high risk products, promises of "guaranteed returns", and "risk free investments". Watch out for those who want a power of attorney and discretion over your assets....Never do this. Stay away from limited partnerships and other assets that are hard to value and cannot be readily sold if you need the cash. There are thousands of financial products out there, so BE CAREFUL.

If you don't understand, don't do it. Don't be forced into anything. Don't be intimidated. Get it in writing. Know with whom you are dealing and the strategy that suits you before you deal.