Recently I read an article in the Wall Street Journal titled: “Homeowners Are Again Pocketing Cash as They Refinance Properties” (subscription required). My first thought: Here we go again.
Unfortunately, the article was mostly positive on the development, as the writer’s take was that this reflects confidence in the economy and relative job security. I have no idea if this bodes well for the economy or not (although my intuition says it’s a negative), but on an individual level I think this is a really bad idea. There are no absolutes in personal finance, and everyone’s situation is different. With that caveat out of the way, lets look at why taking cash out of your home when you refinance can be a poor financial decision.
Life gets complicated quickly. That doesn’t mean that our response needs to be complicated. I recently read the book Simple Rules by Donald Sull and Kathleen M. Eisenhart. They discuss the use of simple rules and why they are so successful in the face complex situations. These types of situations range from surgical triage to dieting. It turns out that simple rules can help us make much better functional decisions because they allow us to focus on variables that really make a difference while allowing for flexibility to pursue new opportunities as they arise.
If your family is like many, estate planning is among the most overdue items on your financial planning to-do list. After all, no one wants to contemplate the circumstances that would call for the use of these documents. But if you’ve recently had a baby and you don’t have an estate plan, it’s time to make one.
Recently my wife, Colleen, and I modified our mortgage. I’d like to share some of our thinking because it illustrates some of the trade-offs made in personal finance.
The secret at the heart of financial planning is one they don’t teach you in the classroom. The secret is that the financial planner’s main job is to help clients develop reasonable expectations about their money, their lifestyle and their future standard of living. This can be tough emotional work.
I originally titled this post, "Our Industry needs a Gut Check." But Nerdwallet thought this one tested better. I'll let you decide.
The Department of Labor recently issued a new rule regarding financial professionals who advise clients on retirement accounts such as 401(k)s and IRAs. Although the rule is complex and comes with some caveats, it can be boiled down to this: Effective April 2017, retirement advisors must put their clients’ best interests first. This is called the fiduciary standard.
The new rule won’t necessarily eradicate bad investment advice, but it’s a step in the right direction, and it’s a good thing for investors.
Many people pay a lot of attention to the little things in their financial lives and lose sight of the bigger, more important ones. For example, I hear people talking about cutting out their favorite coffee drink to save money. This is not a bad idea, and savings, wherever you find them, are helpful. But often these same people are making large financial mistakes that they don’t realize are costing them hundreds of dollars a month.
I recommend focusing on the big financial issues: income, housing expenses, car expenses and other major costs in your life. Get the big things right, and the other puzzle pieces are much easier to fit together.
Recently I was talking with a friend about how much I like running. It’s simple, you can just lace up and go. It’s meditative, allowing for introspection and mind-wandering. And it’s great cardiovascular exercise. I looked at my friend expectantly.
“I hate running,” he said.
“But why?” I was at a loss that he couldn’t comprehend my passion.
“Because it’s boring … and hard.”
The idea of talking with a financial advisor makes many people feel the same way they feel about a trip to the dentist: not thrilled. After all, financial planning requires that we think through and talk about how to deal with scary or unpleasant circumstances.
But good financial planning isn’t just about downside protection. It’s also about planning so people can do the exciting and meaningful things that make life wonderful.
In keeping with my "steal shamelessly" theme, I'm providing a guest post from fellow advisor David Waldrop, CFP®. David is the President of Bridgeview Capital Advisors, Inc. in El Dorado Hills, California. David focusses on helping his clients organize and map their financial resources to their financial goals so that they can achieve long-term success on their terms. He's also a great inspiration. Enjoy!
Note: The contents of this site are general in nature and not intended as specific investment advice. All investments are subject to risk; including loss of investment value. If you have any question regarding investments or concepts in these pages, please consult with an investment professional.