March Money Madness

By Kathryn Beach

March is a month college basketball fans like myself wait for all year long. I love filling out my bracket with predictions for the NCAA Men’s Basketball Tournament, especially if it looks like the Tarheels have a chance to win it all!

The fun continues throughout the month as the inevitable upsets come and I can celebrate the games I predicted correctly and lament the ones I didn’t. No one is likely to ever complete a perfect bracket – the odds of doing so are about 2.4 trillion to one.

But paying attention to the relative strengths of different teams makes correct picks much more likely. That’s true in my day-to-day life of financial planning as well. Consider these factors that are equally important for basketball as well as personal finance.

Players have to get and stay in shape.

Freshman basketball players build up to their first season on a college team with months of workouts. Throughout the season, they continue strength and endurance training so they can run up and down the court for forty minutes without collapsing.

Getting in shape financially takes time and commitment as well. Look at any outstanding debts you have and consider paying off high interest loans or credit cards quickly so you can save money on interest. Also, take a look at your spending to see where you might be able to cut back.

You may find that you can reduce spending in areas that are less important to you so you can increase savings or spending in areas that line up better with your values. Put processes in place that keep you reliably focused on these goals.

Teamwork

Even Michael Jordan wouldn’t have won NCAA and NBA championships without the rest of his team. A team works together best when they have respect for each other and good communication. This isn’t all that different from how families work.

Take the time to have regular conversations about money with your family. You and your spouse can get on the same page about spending and financial goals in retirement. Conversations with your children about your finances will help prepare them so there are no surprises down the road.

Don’t forget about defense!

A team scoring eighty points per game still may not win if their defense isn’t up to par. The other team could score ninety without a strong defense to stop them. How can you protect the paint financially? Step one is to have an emergency fund.

This is money that could tide you over if you lose your job or become temporarily disabled, or in retirement if the stock market were to take a dip. A general recommendation is to have three to six months’ worth of non-discretionary living expenses in this savings account.

Another way to protect yourself financially is to have legal documents regarding your wishes in place. These would include an advance directive and healthcare power of attorney so you have a plan for your health care in the event of an accident or illness, and durable power of attorney appointing someone you trust to make financial decisions on your behalf in the event you aren’t able.

Recruit stand-out players.

Whether a team’s star players are one-and-done or stick around for all four years, they’re not only fun to watch but make a large difference in a team’s winning record. I know I cringe when a player averaging twenty points fouls out near the end of a close game.

I worry about whether the other players can make the shots needed to cement a win. Some of the star players in your financial plan might be accounts that will pay higher returns or those that provide tax advantages. The emergency fund I mentioned, for example, might get a better return if saved in an account with a credit union or online bank rather than the bank you’ve traditionally used.

When saving for college expenses for your children or grandchildren, consider a 529 plan - a tax-advantaged plan designed for education savings. Both of these accounts are examples of how to “recruit” the right tools as you work towards your financial goals.

A good coach makes all the difference.

Coaches often make or break a basketball team. They set goals for the players and push them to improve and achieve those goals.

Expertise and experience guides their coaching. This has so many parallels to the financial professionals we turn to when we need guidance. We look to our accountants, attorneys, and financial planners to guide us in working towards our financial goals and keeping us on track from year-to-year.

Accountability is the key to success when working towards a goal. Take the time to express your goals out loud to someone, either your financial planner or a trusted friend or family member, to make them more real. Then, ask that person to support you and ask about your progress. Having someone in your corner, wanting you to succeed and checking in with you regularly, can be like having a Hall of Fame coach dispensing strategy from the sidelines.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Kathryn Beach and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss. Investments and strategies mentioned may not be suitable for all investors.