‘SEEKING FINANCIAL SIMPLICITY,’ from fidelity.com. KEEP IT SIMPLE. READ THIS & GET ON THE PROGRAM. ANY PROGRAM THAT WORKS FOR YOU. JUST DO IT!!

With today’s economic challenges, it’s not surprising that a growing number of people say they are feeling stressed about their personal finances.

 

In fact, four out of five Americans say they feel anxiety due to money, according to a recent survey by the American Psychological Association.1

 

But there is good news: While you can’t control the direction of the economy, taking a few steps can help you simplify your financial life, and that can make it easier to reach your goals and give you peace of mind.

 

Put your savings on autopilot

If you already take part in your workplace savings plan, you know how easy it is to save when the money is taken directly out of your paycheck. Just set up your contribution level, and each time you get paid, some money goes directly into your retirement account.

 

You can use the same types of automatic solutions to move toward other goals. Fidelity believes retirement savings should be a top financial priority. So, to help you increase your retirement savings rate, some plans offer an annual increase program (AIP).

 

An AIP can automatically increase your contribution rate each year, helping you gradually approach the target you select.

 

You can also automate savings for other goals. For instance, set up your direct deposit to send some of your pay directly to a 529 college savings plan to fund your child’s education. Or, use automatic transfers from your bank account to move a set amount of money into a brokerage account to get ready to make a down payment on a new home.

 

Using direct deposit or an automatic transfer is a simple way to move toward your goals.

 

“Setting up automatic savings is very important,” says Kathy Longo, a financial advisor with Accredited Investors in Edina, Minn. “If you move money into savings only when you feel like you have extra money and remember to do so, you’ll probably forget at least some of the time.”

 

Reduce financial clutter: Consolidate accounts

If you’re like a lot of people, over the years you may have built up a whole collection of bank, retirement, brokerage, and credit card accounts. All the paperwork, fees, and statements can add up to unnecessary costs and headaches.

 

You may be able to simplify your financial life by streamlining your accounts.

 

“Having accounts all over the place can create a lot of confusion,” says James Carroll, an advisor with Financial Advisory Consultants, in Naples, Fla. “That’s not good for your finances or your state of mind.”

 

If you have old workplace savings accounts with previous employers, you may be able to bring them together in a rollover IRA. If you consolidate most of your financial accounts with a single institution, you may be able to save on fees and make it easier to know where you stand.

 

Lets the pros sweat the details

Making investment decisions can be one of the most stressful parts of personal finance. If you lack either the interest or the inclination to make the day-to-day decisions about your money, you can turn to professionals to handle the job.

 

Many workplace savings plans offer lifecycle investment options or some version of a managed account.

 

Although they work differently, both are designed to provide simple strategies to the challenges of saving for retirement.

 

A lifecycle option is designed to be a single-fund strategy for retirement saving. You choose a fund with the target date that most closely matches the year in which you want to retire, and the manager gradually changes the investment mix as you approach your retirement date.

 

When you choose a managed account, professional investment managers will select an investment mix for your workplace savings plan account using your plan’s eligible investment options. You may be able to complete an investor profile questionnaire. Then the investment managers will make active decisions about the individual workplace savings account based on financial trends, market conditions, and time horizon.

 

Let the bills pay themselves

You can also simplify your monthly bills. Virtually all companies, from mortgage lenders to utility companies to credit card issuers, offer an automatic bill payment option. When the bill comes due, the payment is automatically deducted from your bank account.

 

Once you set it up, all you have to do is review your statements at the end of the month to make sure everything is in order.

 

Automatic bill payment frees you from the hassle of writing checks each month, but even better, it also greatly reduces the chances of late fees and blemishes on your credit score. A bonus: You also reduce your risk of identity theft because, contrary to popular belief, your personal information is more likely to be lifted from your mailbox than stolen online.2

 

If you aren’t comfortable with the idea of automatic payment, you can keep more control over when you pay by taking advantage of electronic bill payment programs at your bank or at other financial institutions.

 

Electronic bill payments allow you to handle all your bill paying in a single place. You set up your accounts with your bank or another financial institution, and can receive an e-mail alert whenever a payment is due; all you have to do is point, click, and pay.

 

Make technology work for you

While streamlining your accounts may help, you probably can’t consolidate everything. Luckily, there are a number of tools that help you monitor all your accounts in a single view.

 

Fidelity’s Full View, Intuit’s Quicken software, and Yodlee MoneyCenter let you input your bank accounts, credit cards, mortgages, loans, investments, and even frequent-flier accounts to give you a snapshot of where you stand.

 

Having a full picture can make it easier to make decisions about money, or possibly to recognize the need to change.

 

You can also find a variety of Web calculators and worksheets that can help you make important financial and investment decisions. Fidelity’s online service offers a number of tools, including a budget calculator, savings tool, and other resources to help you get started.

 

For your retirement savings, a good place to start is Fidelity’s myPlan Retirement Quick Check tool, which will provide you with a snapshot of where you stand for retirement savings and action steps you can consider taking to help improve your odds of reaching your goals.

 

Make a plan for prosperity

One way to cut down on the stress of worrying about your money is to make a plan. Even the most basic planning can have a profound impact on the amount of money you ultimately save.

 

For example, a study by a professor at Dartmouth College and a professor at the University of Pennsylvania found that, of the oldest baby boomers, those who did a lot of retirement planning had a median net worth of $200,000; that’s more than double the amount saved by boomers who had done hardly any planning.3  While the study shows that planning can pay off, the process doesn’t have to be intimidating.

 

Pat Doland, a financial advisor with Reason Financial, in Chicago, says even basic planning can work. “Most people don’t need an elaborate plan,” he says, “just a structure to help them save toward their goals.”

 

Planning pays off partly because it gives you the facts you need to work with, and partly because it can kick-start your savings. Putting a plan in writing — or even just thinking about it — makes it much more likely that you’ll take action. So take a moment to use online tools to put together a sound retirement savings plan.

 

The payoff goes beyond the immediate goal of helping you save more — it can actually make you happier. That’s because the very act of planning helps you feel more in control, which in turn helps mitigate anxiety. And these days, gaining more control of your money — and being less stressed by it — is a welcome feeling indeed.

 

© 2009 Fidelity Investor’s Publications

‘DO SMART HARD-WORKING PEOPLE DESERVE TO MAKE MORE MONEY? ,’ by James Kwak at baselinescenario .com.

Do Smart, Hard-Working People Deserve to Make More Money?

Posted: 02 Nov 2009 04:00 AM PST

 

Last weekend Yves Smith posted a story of a family that was down on their luck and struggling with high credit card bills, including plenty of fees. Yesterday she posted a follow-up. Apparently the story triggered a wave of vindictive snobbery from commenters. Here’s one example:

 

“Sounds like someone doesn’t know how to manage their money. I would bet they are making car payments and eat fast food at least 3 times a week. Probably have cable T.V. and deluxe cell phone plans. They probably get a new car like every two years. What happened to her reenlistment bonuses?”

 

Here is Yves’s response:

 

“I think quite a few readers owe her an apology. But I am also sure those readers are so locked into their Calvinist mindset that they will find some basis for criticizing this family. Some people seem constitutionally unable to admit that success and prosperity are not the result of hard work alone.”

 

First, I want to agree completely. There is the obvious fact that a person’s income as an adult is highly correlated with his or her parents’ income. (There was a recent debate about why in the blogosphere, but as far as I know no one contesting that this was the case.) But beyond that, we all owe a tremendous amount of whatever fortune we have to luck, pure and simple. Where would Bill Gates be if IBM hadn’t decided to outsource development of the operating system for the first IBM PC? Rich, no doubt, but $50 billion rich? I have worked hard at enough things, and failed at enough things, and succeeded at few enough things, to know how much luck is involved.

 

Second, I want to go beyond that to another point that seems obvious to me, but that some will probably find controversial. Even if differences in outcomes were entirely due to differences in abilities and effort (which they’re not) — would that make it OK? I think most people would say that it’s fine for smart people to make more money than other people. But why? Why are smart people any more deserving than anyone else? It’s true that in many jobs being smart can make you more productive and valuable, and as a result for many high-paying jobs being at least somewhat smart is a prerequisite. But the fact that a capitalist economy functions this way doesn’t make it morally right that the “winners of the genetic lottery” (a phrase I picked up from some basketball announcer talking about Tony Parker) have better outcomes than the losers.

 

Surely at least people who work hard deserve to do well. In the hierarchy of American moral virtues, hard work must be right at the top. But I’m not convinced of that, either. The ability to work hard is something that you either inherit from your parents or that you develop in your early childhood as a function of the environment around you. Either way, whether or not you have it is as much a matter of luck as is your IQ. Again, it’s obvious that working hard increases your productivity and therefore the wages you will be paid, all other things being equal. A small part of that differential seems “deserved,” since you are forgoing leisure for work. But the differential goes far beyond that. For example, doctors don’t just make more money than other people to compensate them for studying hard in school and working 36-hour shifts in residency; studying hard and 36-hour shifts are hurdles to clear in order to become a doctor and make a lot of money (if you’re a specialist, that is — some people do go through all the work and then make comparatively little).

 

Take me, for example. I’m smart and hard-working. I don’t know if it’s because of my genes, or because my parents brought me up right. But whatever the cause, I didn’t do anything to become smart or hard-working. And that’s the reason why I was able to go to good schools, get a good first job, and make more money than the average person, at least for a few years there (before quitting to go to law school). When I was young and frankly immature, being smart gave me a sense of entitlement. Now I just feel sort of lucky (“sort of” because I’ve learned that there are many more important traits than intelligence).

 

I’m willing to acknowledge that morality simply isn’t a factor when it comes to compensation. Seen from a utilitarian perspective, whether hard-working people deserve more than other people is a distraction. The key issue is that to maximize output in a more or less free market system, it has to be that way, since labor is supposed to be paid its marginal product. But there are still two implications of realizing that everything — even your initial endowments — is a matter of chance, not something you deserve.

 

The first is that you shouldn’t look down on other people (1) because their parents weren’t as rich as yours, or (2) because they aren’t as smart as you, or even (3) because they don’t work as hard as you. I think most people agree with (1); I think you should agree with (2) and (3), too.

 

The second is that the moral argument should be on the side of redistribution. I am willing to listen to utilitarian arguments against redistribution (e.g., high marginal tax rates reduce the incentive to work, blah blah blah blah blah); I may not agree with them, but they are a plausible position. However, I have little patience for the idea that rich people deserve what they have because they worked for it. It’s just a question of how far back you are willing to acknowledge that chance enters the equation. If you are willing to acknowledge that chance determines who you are to begin with, then it becomes obvious (to me at least) that public policy cannot simply seek to level the playing field, because that will just endorse a system that produces good outcomes for the lucky (the smart and hard-working) and bad outcomes for the unlucky. Instead, fairness dictates that policy should attempt to improve outcomes for the unlucky, even if that requires hurting outcomes for the lucky. But given that society is controlled by the lucky, I’m not holding my breath.

 

By James Kwak