Wells Fargo - Beyond Today Blog

A GPS has to know two things: where you are and where you are going. I'm learning that my financial life is one giant roadmap. In order to reduce the number of times we hear "recalculating route," it's imperative we get clear about where we stand today and where we want to be in the future.

Wells Fargo released a new survey about Millennials and money. The results are clear that our generation is confident we're going to be financially secure, but do we really know where our money stands right now? I would argue that a majority of us are terrified to face the music of low bank accounts, mounting credit card debt and no-end-in-sight student loans.

I know that after I graduated college I found myself saying--I am smarter than this, I should know the basics of understanding my cash flow! Instead of staying in the comfy, but paralyzing, unknown I decided to stop running from my financial uncertainty, put on my glasses and find my cash clarity.

Not being clear about your money is like being stuck in traffic, inevitably delaying you from where you want to go. Of course clearing up the congestion can be intimidating, but if you take the time now (before its gets messier) you will soon be cruising in the financial fast lane.

Here are 3 steps to take today to change your tomorrow:

• Add up your assets. Add up the current amount in your financial accounts (checking, savings, investment, retirement, etc.). I suggest talking to your parents to ask about accounts you may have that you're not aware of. Now before you move forward, take a moment to be really proud of the number you see. You worked hard for it and it deserves recognition!
• Know who you owe and thank them for supporting you. If you're in debt (credit card, student-loan or you owe parents or friends), write down all the money you owe. Then silently or verbally tell them thanks. Why? We're quick to forget that there was someone (or institution) that financially supported our dreams to go to school, buy a car or move out of our parents house when we weren't able to. Now is the time to make a plan for how and when you will pay the favor back.
• Calculate your cash cushion. To enjoy fun events with friends, products you love and lattes you can't seem to give up, you need to know what your monthly cash cushion is. First, tally up your monthly fixed expenses (think rent, cable, car payments, 401k contribution) and estimate your fluid expenses (groceries, transportation, personal care, etc.). When you subtract your monthly expenses from your monthly income, you can then choose how to spend (or save!) your cash cushion.

If you hit a detour or dead-end, don't be ashamed to pull over and ask for help. Honesty and vulnerability are the catalysts for positive growth. So, be brave, your money is worth it! And I'm here to help guide you on your way.

I've written in this blog in the past about my millennial children and their attitudes around saving, which I had always presumed were relatively typical. I have been waiting to find out how this generation felt about investing and saving, so I am excited that today we released a new survey on Millennials around money and saving. The survey found that more than half of millennials (54%) say that debt is their biggest financial concern today, surpassing day-to-day expenses. Forty-two percent of millennials feel their debt is overwhelming. So it's not surprising that if you have debt and feel overwhemed by it, that you are most likely not saving for retirement. But I don't think saving should be an 'either or' option. If you've taken out a student loan, for example, you've invested in yourself through an education. Once you get a job you need to pay that back and continue to invest in your future - which must include your retirement.

The good news is that about half of the millennials (49%) surveyed have already started to save for retirement - and at the early (median) age of 24. This is very encouraging as saving early means that you will have time on your side - time to compound returns and ride out the bear markets and low interest rate cycles. The millennials reported that the biggest triggers for them to save were "realizing that starting early can result in a bigger nest egg down the road" (34%) and "my company offers a workplace retirement plan" (29%). If your company provides any kind of matching contribution, finding a way to balance debt repayment with any level of 401k contribution will pay off long term.

From experience, I know I had to give my millennial son a little nudge when he got his first job that offered a 401(k). Okay, maybe a big nudge - but when he finally reported that he was contributing to his retirement plan, I was very proud (and relieved).

For the other half of millennials (51%), who haven't started saving, they either feel they don't have enough money to start saving or they want to pay down debt first. And they think they will start saving at the (median) age of 30.

Saving doesn't have to be an 'either or' choice. Making a conscious effort on being mindful of expenses now can make a huge difference in your future. Are you investing now and for the future? How do you balance that?

Is there a silver lining to divorce? Maybe. According to a study from financial consulting firm Spectrem Group, 62% of high-income divorced women say they've financially benefited from the split - not from a large settlement (though I'm sure that's often the case) but because they've had to educate themselves about their finances, and take more control.

Unfortunately, that sort of education doesn't happen automatically - or overnight. Jenny says her divorce left her financially insecure because she had an expectation that she would be married forever - and that, during that time, her successful husband would take care of her financially. That didn't pan out, and she was left to rebuild. If you're in the same boat - or want to simply get a better grip on your finances so that you can participate more fully in your own financial life - what steps can you take?

• Start educating yourself. Do it slowly, if it scares you. Pick one thing to target each month: This month, you'll call your utility bills and ask them to cut you a better deal. Next, you'll go over your credit card statements. By the end of the year, you'll be reading up on your investments and rebalancing. Think that's not likely? Women are actually fantastic investors - (a study from Ledbury Research has shown) better than men - because our inclination to buy and hold means we don't lose as much to commissions and fees. Our tendency to research the heck out of anything we want to purchase also helps when it comes to stocks and mutual funds.
• Find someone to hold your hand. At least in the beginning, it pays to have an advisor. That could be a knowledgeable friend or family member, but even better, it can be a professional -- a financial advisor who can look over your situation and give you specific steps you need to take to get and stay on track. This support system will give you more confidence as you move forward, particularly as you go through the process of submerging yourself in your finances.
• Accept mistakes. You will make them and that is okay - this is a marathon, not a sprint. The ultimate goal is a comfortable retirement - and, sure, maybe a vacation here and there - and a long time horizon bakes in the ability to recover from missteps. So if you realize that you've been paying $50 too much for your cell phone bill, or you overdraw an account, pick yourself up and move on. But first, recognize it as a learning experience. You'll never forget to read your bills or check your account balance again.
• Look ahead. Everyone, not just women, should have some financial autonomy in his or her relationship. This is something that Jenny did right - she had her own, separate account, with money she was bringing in. Sure, it was just "play" money (her words) but she had access to money that was hers should she need it. And, as it turns out, she did.

Our first quarter 2013 Wells Fargo/ Gallup investor/ Retirement optimism index made a BIG jump from November 2012. Optimism is rising, the index is at +31 compared to -8 in 4th quarter 2012. The optimism was much higher for non-retirees who marked a +38 on the index compared to only +7 for retirees. During first quarter the stock market was also up, with the S&P posting a 10% increase. With all this optimism, did investors dramatically change their investment strategy? No, in fact 85% of them held the course and made no changes. Only 10% increased their allocation to stocks according to their index.

I am encouraged to see 85% did not make a knee jerk reaction to the stock market's rise in first quarter. History would tell us that chasing returns doesn't always bring great results. Personally, I have never had the crystal ball to know when to buy in and out of the market so I find it better to have professional do that for me. That may be simply by buying a target date fund that has a preset asset allocation, or it could be through some type of managed account. Clearly having put some thought into the right allocation for you is critical - the approach of staying the course depends on having a good starting point.

Either way, I find myself in that 85% group - who stayed the course. How about you, are you in the optimistic camp? Did you change your allocation this last quarter?

Women are more financially independent than ever before: The majority - whether single, married or partnered - are their household's primary breadwinner, according to a Prudential survey. They make up close to half of the work force, and more than half of college graduates.

But there is an older generation that may just be discovering their financial independence for the first time. Mary's mother falls into that category: Married for many years, Mary says she was part of a generation that took care of her husband and the home first. It was only later, after Mary's dad passed away, that she was able to experience financial independence, even buying her very first car at age 76.

Many people reach this point and freeze - they don't know how to manage the money and household decisions on their own after so many years spent relying on someone else. Here's how to make the transition:

Start early. A solid 90% of women will have to manage their finances solo at some point in their lives. It's a function of many factors - namely, divorce, waiting longer to marry, and the fact that women tend to outlive men. Start planning for this change in advance by putting a foot in the family finances now. That means learning all of the log-in information for online accounts, what is owed and when those bills are due, how much you save and where you save it, how much you have available for retirement, and what your insurance coverage is. Sit down and shadow your partner if he (or she!) tends to manage this side of your lives alone.

Embrace it. Mary's mother found that taking charge of her own financial life - picking out and paying for that car all on her own - was empowering. Mary says she's become a "new, dynamic woman," one who has freedom and independence. Though her father is greatly missed, it's a good feeling. You may find yourself experiencing the same thing. Take the time to enjoy your newfound freedom, and pat yourself on the back for your accomplishments.

Take advantage. Mary's mom was finally able to purchase the car she wanted after all those years. What do you want? You'll quickly find that saving for a goal and making it happen is an immense feeling of accomplishment. Pick something small and work toward it - that momentum will give you the confidence to meet larger goals in the future, like retirement.

Get help. A major life change or milestone is a good opportunity to seek advice from a financial advisor. Even just a quick check up can give you the confidence you need to move forward on your own; a more long-term relationship can help ensure that you get and stay on track with periodic check-ins.

Don't be too independent. You need a team of people on your side as you go into the later stages of life. One might be the aforementioned financial advisor, but you'll also want someone or multiple people to serve as your financial and healthcare powers of attorney. These people are designated to make decisions for you if you are unable to make them for yourself, and you'll select them as part of a comprehensive estate-planning package, which also includes your will.

On a recent road trip, I was enjoying the cruise control option on the car. Set the speed and enjoy the scenery. Personally , that's what I like to do with my savings plan. If I can put my savings on autopilot, I am more likely to consistently contribute and not miss a beat. Yet one of the problems with cruise control is that the speed stays the same regardless of road conditions or speed limit changes. Similarly, we know that if someone is auto enrolled into their retirement plan at 3%- that's where they are likely to stay. In fact, for 401(k) plans with auto enrollment, the average contribution rate for new hires is just over 4% . This is lower than the average deferral rate of 7.3% for plans without automatic enrollment- but the catch is that in those cases less than 40% of new hires actually participate compared to over 85% when auto enrolled.

So - first get in the plan! Then if you start out at a low savings rate, make sure you don't sit there too long. You don't want to be that car going 30 mph in a 55 mph zone!

If your 401(k) plan offers an auto increase feature, sign up. Even better than cruise control, someone else can do the driving!

We've all daydreamed about a different life. A next step, or, as some call it, a reinvention. If you were to leave the job, business or career you're currently in, what would you do? Mary says she's always known she didn't want to retire running her business - she wanted an opportunity to try something else before retirement. But when you're comfortable - when business is going well or you don't mind going to work each day - it's difficult to pull the trigger.

Her car accident, which forced her out of work for four months at the start of the recession, pulled the trigger for her. It was a wake-up call and the motivation she needed to take a leap of faith and make a change. For her, that meant selling her company. For you, it might starting a company or simply changing jobs or even careers. How do you make the transition?

Take steps, not leaps. If you're thinking about making a huge change, particularly a risky one, like going back to school or starting your own business, you may want to start off slowly. Enrolling in a degree program might not seem too hazardous, but if you think about the toll it takes on your wallet, it's definitely not a decision you want to take lightly. Make sure that the change you're making fits into your life. That might mean taking one course to dip a toe in the water. For a business, it should mean saving up a large emergency cushion, doing all your due diligence, and keeping your day job while it gets off the ground.

Do your research. Talk to colleagues and friends about your plans, check out the classifieds to see what is out there, visit online discussion boards in your new career path. Reaching out to organizations that represent the field you're joining, and even universities that have relevant degree programs can be a huge boost - even if you're not interested in taking classes, the program's web site and collateral material can be a gold mine of information. Finally, consider finding a mentor who can guide you through the change. It's okay - smart even - to ask for help.

Talk to friends and family members. Your family should be on board with your transition, because it is going to have an impact on them. Your hours may change, your family contribution may change, your salary may change. Talking to friends helps because they may be going through similar movements - or they may know others who are.

Embrace your fear. This kind of leap is scary. That apprehension is completely normal, and in fact, it can be a great motivator. Financially speaking, though, it can help to have a financial advisor who can hold your hand and run the numbers to assure you that you're financially prepared and making the right decision. As Mary says, this reassurance can mean the world.

Remember your confidence. There will be times that you might waiver - the aforementioned fear sets in. So take yourself back to when you made the decision to start this process. Go over the reasons why. You know you're making the right choice for you and your family, but it doesn't hurt to refresh your memory every once in a while.

At a recent conference, one speaker quipped that there are three personal topics in conversation that folks don't dare cover: money and death. Who wants to admit they don't save enough or are deep in debt or that we all are speeding toward death?

How many of us want to admit that if we have money in our accounts that is not earmarked for something specific, that it takes no time to find a good way to spend it? And, why is it that when I go into Costco or BJ's with a list of 10 things and leave with 30 things and a bill over $300? And believe it or not, it is not my daughter begging for that book or new fashion statement hat, it is all me.

If we think back to the 1950's the average American saved 10% of their income . Is it because those bulk-purchase stores did not exist or it was just harder to write all those checks than to swipe cards? Since the 1950's, the US savings rate has dropped each decade to a place where we now hover around 3%. The downturn a few years back helped folks focus on reducing personal debt but the savings rate is still woefully low.

I know I save more than my parents, and I am seeking to instill savings in the next generation, but thinking about our country as a whole - what will we do when folks without pension plans retire and don't have enough money to live their remaining years? What if their kids can't care for them? I feel the American savings rate is a much larger issue than a personal one - this continued lack of savings could impact our next generations in ways we may not realize from an inability for older people to pay for healthcare to increase homelessness. How do you see the impact?

Money is a tricky subject for a lot of people. Many of us, like Mary, were told from an early age that it's not something you talk about among friends, even relatives. This has a domino impact down the line - recent research from the UK found that one in seven couples don't talk about money. Mary and her ex-husband were one of them. After learning from her mother that money discussions were off the table, she buried her head in the sand during marriage and assumed her husband had the situation under control, only to find out later - too late - that they were thousands of dollars in debt.

This is just one reason why it's so important to talk about money; why both parties should be involved and knowledgeable about the finances in a relationship. There are many others. This week, we discuss them:

So you can set goals together. There is nothing more satisfying than reaching a goal, except perhaps reaching it with someone you love. If money is taboo in your relationship, you won't have this pleasure. You can't talk about where you want to be in retirement, and how you'll get there, or what you need to do to save for next year's vacation. You can't work together to pay down credit card debt, or save for an emergency. Successful partnerships discuss all of these things, and more. To get the ball rolling, pour a glass of wine, make a nice dinner, and then gently ease into the conversation by sharing your own hopes and dreams about your financial future. Repeat on a regular basis - at least once a month - to check in on where you stand.

Because one partner shouldn't shoulder the entire burden. Whenever money is involved, there will be bumps in the road. The handling of the finances is stressful, no matter how much money you have. If you don't share the chore, one person will be strained (Mary's ex-husband, who was trying to care for an aging aunt, racking up debt to make it happen and then hiding his tracks) and the other will be oblivious (Mary).

Because the unexpected might happen. Even if all goes smoothly, if one partner is happy being blissfully unaware and the other satisfied shouldering the burden, you never know what the future holds. According to OppenheimerFunds, nine in ten women will be solely responsible for their finances at some point in their lives, either because they never get married, marry late, get divorced or their spouse passes away before them. Both partners should have a firm grasp on how the family's finances work - when and how bills are paid, when and how savings contributions are made, how much debt you are carrying (if any).

Finally, talking about money is important outside of your relationship. When you need to see a financial advisor, and open up your bank accounts and budget. When you have children, and want to teach them good money habits. When you want to negotiate your salary at work, or a new vehicle on the car lot, or a credit card interest rate. Practice broaching the subject at home first.

Meir Statman, a Behavioral finance professor at Santa Clara University was recently interviewed by Money Magazine about how well Americans are doing with retirement savings. Specifically, he proposed that many of us need more than a nudge, we need a shove. We've used the nudge approach in recent years by automatically enrolling employees in 401(k) plans- often at a starting level of 3% of salary. A good start but not enough to build an adequate nest egg. The shove he proposes would be to mandate savings at a specific level such as 8%. In a culture where choice is a given- and typically not just one option but many, a mandatory requirement might sound harsh. Yet we can look to other countries such as Australia where mandatory savings rate of 9% that will be increasing to 12% over the next decade.

So are you self sufficient with no need for a nudge or a shove? If so, are you on track to replace 80% of your pre-retirement income. Or are you someone who needs a nudge or a shove? Since we don't have this type of mandate in the U.S. , you will need to make sure that you give yourself a shove to get to a savings rate above 10%. If your employer sponsored retirement plan offers a way to automatically increase your savings rate on a regular basis, you can be on the right track by simply signing up for that.