8.30.2010

When To Pay A Financial Pro

Sometimes, you can save money by doing it yourself. Here's help deciding when you need professional tax, estate or financial planning help.

My father always told me, "You get what you pay for," and I remember distinctly that being true when my friend Nancy hired an interior decorator to help her with her living room. Nancy didn't know the first thing about decorating, except she knew the mauve couch had to go. After researching "how to" sites on the Internet, where she could try out different colors and room designs online, she realized that the more she did, the more confused she got. So she decided to hire a professional. When I went to her open house to see the unveiling of the new room, I was completely amazed at the transformation. The mustard-colored couch and deep sea blue rug matched the colors of the watercolor art work that hung on the faux finish walls, but it didn't feel forced. It fit like a favorite pair of gloves. The room felt welcoming and relaxing--sort of inviting you in. Needless to say, it was night and day from what my friend could do if she did it herself. In this case, hiring a professional was worth every penny.

In today's environment of having access to virtually unlimited financial and economic information, the challenge we face many times is truly when to do it ourselves, and when to bring in a professional. I have seen evidence of financial mistakes and oversights that people make from not having enough information, or up-to-date information, when they did it themselves. But over the years, we have seen there are also times where doing it yourself pays off--saving you money that you can use for other things. The question becomes knowing when to seek help, and when to go it alone.

Here are some tips on when to "do it yourself" and when to bring in the pros.

First, Ask Yourself These Questions
Do you have the aptitude? My friend could see right away that design and color schemes were not her cup of tea. Depending on the nature of your decision, ask yourself if this is an area in which you excel. Are you good with numbers? Are you a good researcher? Do you have a good grasp of financial concepts?

Do you have the interest? One of our planners loves taxes and said that she would love to work for a tax planning company during tax season on the weekends. I would rather crawl through broken glass. It's not that I couldn't do tax work, I just don't want to. If you don't have the interest in a certain area, you probably aren't going to be as thorough as you would if you enjoyed the subject. As a result you could miss something important.

Do you have the time? In today's economy, many people are putting even more focus on their jobs, striving to be more creative and to add value to the company they work for. Or maybe you want to focus your time on other things like your family or your hobbies. Would you get more value by hiring someone to manage your money or draft your will and estate-planning documents while you design your company's new product, write blog posts or read to your children? Consider where your time is best spent right now.

In addition to asking those questions, consider what type of advice it is that you need.

When To Pay For Tax Advice
Today's tax software programs, such as Intuit's TurboTax and H&R Block's At Home, are very comprehensive and easy to use. For basic tax returns, they are often sufficient. One of the drawbacks to using software is the absence of someone to consult with or to defend you in an audit, although some programs now offer audit relief plans.

There are two main reasons to hire a CPA or tax professional: complexity and planning. If you have enough deductions to file a Schedule A--in 2010, $5,700 for single filers; $11,400 for married filing joint--then a professional can help you maximize deductions for things such as non-reimbursed employee business expenses and charitable contributions. For many, when your return becomes more complex (e.g. declaring income in several states, owning a rental property, having a business or home office) the advice of a professional becomes crucial, and it often pays for itself.

A CPA can advise you on gray areas and red flags, helping you to decide if claiming a particular deduction is worth any potential audit that may arise. Advisors also keep up with current tax law changes and can make suggestions that save you money not only in the current year, but in future years as well. Their job is to pick up things that you might have missed. For example, a friend of mine cashed in her IRA a few years ago and she and her husband would have paid a 10% penalty for early withdrawal had they filed their taxes alone. Instead, their CPA asked if they had paid any college expenses for their son. As it turns out they did, and so my friend saved about $700 in penalty tax because the CPA was able to connect the dots.

When To Hire An Estate-Planning Attorney
For a simple will naming a trusted family member as guardian for your children, you may be safe doing it yourself. Don't forget to also put in place additional documents such as a medical power of attorney, a health care directive (living will), and a durable financial power of attorney.

If your situation calls for more advanced estate planning, such as setting up a trust or providing care for someone with special needs, then you may want to work with an experienced attorney. A good attorney will also have questions to ask that you haven't thought of, such as "Do you want the guardian of your minor children to also manage the children's assets?" The guardian you select may be the best person to raise your children, but not necessarily a good choice for handling their money. For this reason, many people name a separate person to act as the financial custodian.

An attorney can also help you set up parameters that are irrevocable once one of the trustors passes away. My colleague's mother recently passed away with a living trust in place that was set up to split her estate into two separate trusts. The first trust, a spousal trust, allowed her husband full use and access to one half of the estate (she had gotten an inheritance and wanted him to enjoy half of it). The second trust would eventually go to her two children, but her husband could enjoy any income from it during his lifetime. Well, he met a younger woman--20 years younger--and has been using trust assets to take her on weekend trips and cruises ever since. His children are now working with an attorney to reinstate the trust (which was irrevocable) and secure their half of the inheritance. No one dreamed that Dad would ever do this, but having the trust in place at least gave the children some recourse. An attorney was needed to set it up correctly in the first place, and they are glad for it. If they had done it themselves using a simple will, they would have no recourse.

When to Hire A Financial Planner
Well, to state the obvious, you want to use a planner when you have more to plan. Working with a financial planner or advisor is a long-term relationship/partnership to help you grow assets and protect assets as well as meet financial goals--most commonly retirement and college savings. There is an amazing amount of information available now for the "do it yourselfer," but a planner can be helpful not only with overall comprehensive planning, but also in some ways you may not have thought of.

Financial planners may be able to offer investment strategies that you would not have considered for yourself. For example, many retirees now are rolling over a portion of their 401(k) into a lifetime income annuity to give themselves a guaranteed lifetime income stream to complement the variable income stream they take from their 401(k). This might not be something a "do it yourselfer" would think about.

A planner can also make a difference when couples have disparate knowledge about and interest in money. In other words, if one of you is money savvy and the other is not, having a financial planner can help bridge the knowledge gap between the two of you. We've seen many times how one spouse or partner makes all the money decisions because he or she has the interest and the aptitude. In one case I recall, the husband had an aggressive risk tolerance and the wife was conservative, but she didn't participate in the money decisions. Not surprisingly, when their portfolio lost value it caused a great deal of problems between the two of them. When they went to a financial planner, it made all the difference in the world because they started making joint decisions and she started participating in their finances--not just letting him handle everything (and then blaming him for bad decisions). There is also the comfort of knowing that your spouse has an advisor to work with if something happens to you.

Whether we decide to "do it ourselves" or whether we decide to work with professionals, gathering information and doing our own research along the way can only help us with our financial decisions. Being better informed, even when we decide to work with advisors, makes a difference. There may be times when it is clearly the right decision to use a professional, such as my friend deciding not to be her own interior decorator, and then there are times when it is not so clear. What I have found, however, is that Dad was right when he said, "You do get what you pay for."

Liz Davidson.

Liz Davidson is CEO of Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff Certified Financial Planner™ professionals.

8.23.2010

Manager's best friend

Dogs improve office productivity

Aug 12th 2010

OK. Here’s the plan

THERE are plenty of studies which show that dogs act as social catalysts, helping their owners forge intimate, long-term relationships with other people. But does that apply in the workplace? Christopher Honts and his colleagues at Central Michigan University in Mount Pleasant were surprised to find that there was not much research on this question, and decided to put that right. They wondered in particular if the mere presence of a canine in the office might make people collaborate more effectively. And, as they told a meeting of the International Society for Human Ethology in Madison, Wisconsin, on August 2nd, they found that it could.

To reach this conclusion, they carried out two experiments. In the first, they brought together 12 groups of four individuals and told each group to come up with a 15-second advertisement for a made-up product. Everyone was asked to contribute ideas for the ad, but ultimately the group had to decide on only one. Anyone familiar with the modern “collaborative” office environment will know that that is a challenge.

Some of the groups had a dog underfoot throughout, while the others had none. After the task, all the volunteers had to answer a questionnaire on how they felt about working with the other—human—members of the team. Mr Honts found that those who had had a dog to slobber and pounce on them ranked their team-mates more highly on measures of trust, team cohesion and intimacy than those who had not.

In the other experiment, which used 13 groups, the researchers explored how the presence of an animal altered players’ behaviour in a game known as the prisoner’s dilemma. In the version of this game played by the volunteers, all four members of each group had been “charged” with a crime. Individually, they could choose (without being able to talk to the others) either to snitch on their team-mates or to stand by them. Each individual’s decision affected the outcomes for the other three as well as for himself in a way that was explained in advance. The lightest putative sentence would be given to someone who chose to snitch while the other three did not; the heaviest penalty would be borne by a lone non-snitch. The second-best outcome came when all four decided not to snitch. And so on.

Having a dog around made volunteers 30% less likely to snitch than those who played without one. The moral, then: more dogs in offices and fewer in police stations.

Aug 12th 2010

The Economist.

Great Leaders are Strong and Courageous in Tough Times

In the process towards our goals and dreams, their will be tough times. These tough times come from situations and problems in family, business, and in our own personal lives. The secret to your leadership success in these difficult situations is for you to be strong and courageous during this process.

I am not talking about physical strength, I'm talking about mental and emotional fortitude. When a leader experiences failure, he must be strong. When a leader gets emotionally drained from hard work, he must be strong. When a leader gets disappointed, he must be strong. When a leader plans a goal, and his goal is interrupted by unexpected circumstances, he must be strong.

A great leader understands that he will experience tough times. With this awareness, he will be mentally prepared in advance to handle adversity effectively. As we develop our leadership talents, we will be able to anticipate more problems that need our attention, and will also be able to anticipate opportunities for success.

Leadership development allows the great leader to develop a quiet and peaceful strength. In other words, "great leaders are calm and confident in the most difficult situations". I understand that it is easier said then done to be calm and confident in some of these situations, but it's a "requirement" if you want to be a great leader in life and business.

While working on your goals, some of your plans may not work the way you expect. Just ask many leaders who received their pink slips this week. However, be willing to make adjustments to the plan, but keep your site on the dream and the vision that you desire for your life.

One last tip: As you make adjustments to your plan, envision the end result. This mental picture of your success is your daily inspiration.

Alexander Mobley, MBA

8.20.2010

Mens sana in corpore sano

Parasites and pathogens may explain why people in some parts of the world are cleverer than those in others

HUMAN intelligence is puzzling. It is higher, on average, in some places than in others. And it seems to have been rising in recent decades. Why these two things should be true is controversial. This week, though, a group of researchers at the University of New Mexico propose the same explanation for both: the effect of infectious disease. If they are right, it suggests that the control of such diseases is crucial to a country’s development in a way that had not been appreciated before. Places that harbour a lot of parasites and pathogens not only suffer the debilitating effects of disease on their workforces, but also have their human capital eroded, child by child, from birth.

Christopher Eppig and his colleagues make their suggestion in the Proceedings of the Royal Society. They note that the brains of newly born children require 87% of those children’s metabolic energy. In five-year-olds the figure is still 44% and even in adults the brain—a mere 2% of the body’s weight—consumes about a quarter of the body’s energy. Any competition for this energy is likely to damage the brain’s development, and parasites and pathogens compete for it in several ways. Some feed on the host’s tissue directly, or hijack its molecular machinery to reproduce. Some, particularly those that live in the gut, stop their host absorbing food. And all provoke the host’s immune system into activity, which diverts resources from other things.

The inverse correlation that the group calculated between a country’s disease burden and the average intelligence of its people is impressive. They estimated the disease burden from World Health Organisation data on DALYs (disability-adjusted life years) lost caused by 28 infectious diseases. These data exist for 192 countries. The intelligence scores came from work carried out earlier this decade by Richard Lynn, a British psychologist, and Tatu Vanhanen, a Finnish political scientist, who analysed IQ studies from 113 countries, and from subsequent work by Jelte Wicherts, a Dutch psychologist.

At the bottom of the average-intelligence list is Equatorial Guinea, followed by St Lucia. Cameroon, Mozambique and Gabon tie at third from bottom. These countries also have among the highest burden of infectious diseases. At the top of the list of countries with the highest average intelligence is Singapore, followed by South Korea. China and Japan tie in third place. These countries all have relatively low levels of disease. America, Britain and a number of European countries, follow behind the leaders. A list of the countries included in the study can be found here.

The consequence of illness

The correlation is about 67%, and the chance that it might have come about at random is less than one in 10,000. But correlation is not causation, so Mr Eppig and his colleagues tried to eliminate other possible explanations. Previous work has offered income, education, low levels of agricultural labour (which is replaced by more mentally stimulating jobs), climate (the challenge of surviving cold weather might provoke the evolution of intelligence) and even distance from humanity’s African homeland (novel environments could encourage greater intelligence) as explanations for national differences in IQ. However, all of these, except perhaps the last, are also likely to be linked to disease and, by careful statistical analysis, Mr Eppig and his colleagues show that all of them either disappear or are reduced to a small effect when the consequences of disease are taken into account.

There is, moreover, direct evidence that infections and parasites affect cognition. Intestinal worms have been shown to do so on many occasions. Malaria, too, is bad for the brain. A study of children in Kenya who survived the cerebral version of the disease suggests that an eighth of them suffer long-term cognitive damage. In the view of Mr Eppig and his colleagues, however, it is the various bugs that cause diarrhoea which are the biggest threat. Diarrhoea strikes children hard. It accounts for a sixth of infant deaths, and even in those it does not kill it prevents the absorption of food at a time when the brain is growing and developing rapidly.

The researchers predict that one type of health problem will increase with rising intelligence. Asthma and other allergies are thought by many experts to be rising in frequency because infantile immune systems, unchallenged by infection, are turning against the cells of the body they are supposed to protect. Some studies already suggest a correlation between a country’s allergy levels and its average IQ. Mr Eppig and his colleagues predict that future work will confirm this relationship.

The other prediction, of course, is that as countries conquer disease, the intelligence of their citizens will rise. A rise in intelligence over the decades has already been noticed in rich countries. It is called the Flynn effect after James Flynn, who discovered it. Its cause, however, has been mysterious—until now. If Mr Eppig is right, the near-abolition of serious infections in these countries, by vaccination, clean water and proper sewerage, may explain much if not all of the Flynn effect.

When Dr Lynn and Dr Vanhanen originally published their IQ data, they used them to advance the theory that national differences in intelligence were the main reason for different levels of economic development. This study turns that reasoning on its head. It is lack of development, and the many health problems this brings, which explains the difference in levels of intelligence. No doubt, in a vicious circle, those differences help keep poor countries poor. But the new theory offers a way to break the circle. If further work by researchers supports the ideas of Mr Eppig and his colleagues, they will have done the world a good turn by providing policymakers with yet another reason why the elimination of disease should be one of the main aims of development, rather than a desirable afterthought.

The Confidence Trap

Description

There is a trap where belief that you can do something leads to you not doing it.

One of the places where this paradox can happen is in visualization and other deliberate motivational activity. You are asked to imagine an exciting new future, with the idea that you will then be terribly motivated to work hard to get there. But what can occur is that the belief that it will happen is so strong that you just sit back and wait for it to appear.

Another common confidence trap happens in schools, where students believe themselves intelligent and able to learn quickly, and so procrastinate or otherwise put off work now with the assumption that a quick flick through the books later will suffice to get that A grade. In this way, intelligence can breed laziness. This pattern can also reach out into the rest of a person's under-achieving life.

Research

Oettingen and Wadden (1991) tracked women on a weight-loss program. Those who believed they would easily lose weight actually lost less weight.

Phan and Taylor (1999) asked students to visualize themselves getting high grades and then record the hours they spent studying. Students who visualized spent less time studying than those who did not and got lower marks in important mid-term exams.

Discussion

So why does this happen? One reason is that the parts of our brain that are used to think about the future are also the same parts that remember the past, so imagining a future can, if we are not careful, feel in some way as it has already happened. This can happen subconsciously, with the comfort of a 'remembered future' surfacing as confidence.

There is an assumption in visualization methods that a desirable future is motivating, making a person want to do something to achieve it. Yet people whose sense of control is achieved by ceding control to others will, when believing in the desirable future, will also likely believe that it will be provided for them. And where the sense of control is gained through action, over-confidence in one's own ability to manage the future may also have a non-motivating effect.

This will happen more with some people than others, probably those who are more easily deluded and for whom hard work is not considered a pleasure. Perhaps also people who do not naturally focus on the future more easily drop a forced imagining into a confident past.

So what?

If you are seeking to motivate somebody, be careful about using visualization methods. Make sure they understand the future as the future and that they actually experience the pull of a desirable future rather than sit back and wait to be taken there.

Oettingen, G., & Wadden, T. A. (1991). Expectation, fantasy, and weight loss: Is the impact of positive thinking always positive? Cognitive Therapy and Research, 15, 167-175

Pham, L. B., & Taylor, S. E. (1999). From thought to action: Effects of process- versus outcome-based mental simulations on performance, Personality and Social Psychology Bulletin, 25, 2, 250-26

Praise

Praise is the act of making positive statements about a person. Is it a powerful motivator? Certainly, but you do have to get it right.

The power of praise

Praise is often and rightly seen as a motivator, for example Blanchard and Johnson (1981) in their million-seller 'The One Minute Manager' recommend the 'one minute praising' as a critical motivation.

Affirmation

Praise affirms the person and their sense of identity. It develops meaning for their lives and tells them they are worthy.

Surprise

In its raw state, praise comes from a person who is pleasantly surprised as you achieve more than they had expected. Natural praise is not expected by the recipient and so also is a surprise.

Conditioning

Praise as a reward acts as a form of conditioning, and is often intended this way. In conditioning, you get more of what you reward, so praising a person for things you want the to do is a way of getting them to behave more like this.

Criticism

The opposite of praise is criticism and can easily act to demotivate, particularly if it is destructive or targeted at the person rather than what they have done. Even well-intentioned constructive criticism of a person's work can have the wrong effect if the person is not able to accept the comment.

The danger of praise

It is very easy to get praise wrong. Here are a few ways that praise can unexpectedly demotivate people.

Ability vs. effort

Mueller and Dweck (1998) gave 400 children a test and then told each that they had got 80% right. They then told half that this must be because they were intelligent and the other half it must be because they worked hard. They then offered them all a choice of an easy task or a hard task. 65% of those told they were clever chose the easy task, which was chosen by only 45% of those who were praised for effort.

In other words, those who had been praised for being clever subsequently avoided difficult tasks that might make them appear less intelligent. Interestingly also, more of those who had been praised for effort chose the harder task as they now saw hard work as gaining desirable praise.

Further tests found that those praised for effort worked harder whilst those praised for intelligence worked less. If you tell a person they already have the ability do so something, you are also telling them that they do not need to work.

Suspicion

We are a naturally suspicious species and when we are praised by someone, we do not automatically assume that the person means what they are saying. Tell a person they have done well and the first response might well be 'So what do you want?' The person can easily believe you are invoking the exchange principle, whereby you are giving praise in order to get something in return.

According to some research, by the age of 12 many children believe that praise from a teacher is a sign of encouragement rather than the teacher really is impressed.

Self-esteem

Praise is often used in an attempt to build self-esteem, based on the premise that a person with higher self-esteem will work harder. There can be a problem in this when the praise used in a general, non-specific way that says 'you are wonderful' but how. Self-esteem is a general feeling that is hard to pin down to specifics and so praise can be a mis-matched method that backfires through the cynicism it creates when not used in a genuine way.

Praise can make a person dependent, becoming a 'praise junkie' where their self-esteem lasts only as long as the latest praise. They seek constant reassurance and may become more narcissistic. The self in self-esteem so decreases as they become dependent on the overt esteem of others. Image becomes everything as truth fades and they may even lie or cheat to sustain this facade.

Social pressure

There is often pressure on people to praise, from managers to teachers to parents. Books and training tell you that praise is essential and powerful, and that to not praise is to punish. So people praise simply because they think they should and because they see others praising and think they should do the same for want of being though a bad manager, teacher or parent.

In this way praise can easily become empty and meaningless, where the person praising does so because they think it is what is expected and the receiver does not believe the praise is genuine. Praise hence turns into a social ritual or a game that is played for ulterior motives.

Embarrassment

Some people do not like being praised in front of others. This is typically because they feel that others may become jealous and that the relationship they have with them will suffer as a result. This damage is far worse than the accolade of praise and we typically try to moderate it with shows of modesty.

Public praise also puts you on a pedestal whereby you are hence expected to do no wrong from then on, making for a perception of a fragile future where you may anticipate failure and ridicule.

Non-praise

Another danger around praise is that if a person expects to be praised and they are not, then this can feel like punishment and act as a de-motivator. This can be seen when children show their work to their teachers (or adults to their bosses). If the work is ignored, then motivation goes down.

Rationale

Whatever happens around us we are always trying to work out why it happened. If someone praises us, we want to know why they are doing so. Only if we do something well then we feel that praise is deserved and are motivated by it.

Effective praising

The bottom line is that praise is not a magic pill. If you praise anyone for anything, then the praise is meaningless. If you make them look good they may want to stay looking good and so become risk-averse.

For praise to be motivating it has to be sincere, specific and deserved.

Sincere

To be sincere, you have to believe the praise that you are giving. For this, you need to make some kind of judgement that determines the person as good in some way, in comparison with some standard or mark. One way of doing this is noting that the person has improved in some way against their past self, doing things better or achieving some goal. Another way is comparing them with others, showing they are the best at something or better than another person. The former method is often the better approach as social comparison can also bring social anxieties with it.

You have significantly improved your understanding of mathematics over the year.

You are top of the class! Well done!!

A good way of showing sincerity is to make it personal, telling them how you feel about them.

I like the way you have used a balance of shades across the picture. It makes me feel intrigued.

People are generally good at detecting deceit and an insincere praising can do significant damage to a relationship as well as making the target feel that the praiser can find nothing about which to praise them. Trust is an important component of believing in apparent sincerity.

Specific

Specific praise talks about the act or achievement of the person being praised. The word 'you' may well feature in the praise.

You have passed all your finance exams now, making you fully qualified. Well done!

Praising can be about achieving a particular goal or can be about a specific act or activity.

Thanks for cutting the grass for me. It looks really nice now.

I like the way you are taking time to help your sister.

As praise seeks to encourage, then avoid praising for innate ability as this can result in the person doing less, so always praise for effort or achievement. Note that it is better to praise at the end of a piece of work rather than in the middle as this may create premature closure.

If you are not specific about what you are praising the person for, two things can happen. First, they may generalize and assume that they are being praised almost just for existing. Secondly, they may be confused and not feel praised for anything. The critical thing about either of these is that no particular way of behaving has been reinforced and so you will not get more of what you want and may get things that what you do not want.

Deserved

When a person is praised for something, they may well feel that they deserve the praise, in which case they feel affirmed and justified and that they have received the due reward for their actions.

If the person does not feel that the praise is deserved, then they will check for sincerity of the speaker. If they do not feel the other person is sincere, then they will not accept that they deserve the praise.

If they do feel the person is sincere and they are not expecting praise then they will feel pleasantly surprised. This is a particularly important reason for sincerity of praise.

Blanchard, K. and Johnson, S. (1981) The One Minute Manager, London: HarperCollins.

Mueller, C.M. and Dweck, C.S. (1998). Intelligence praise can undermine motivation and performance. Journal of Personality and Social Psychology, 75 , 33-52.

.VB.G

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