Money FAQ’s: Personal Finance 101


Unless personal finance is a subject on which you devote significant time reading and learning, you likely have questions. As a Certified Financial Planner, I’ve been answering questions for a long time—some questions come up more frequently than others. Following are some of the most frequently asked questions about personal finance. Perhaps these questions are the same ones you have. If you have different ones, send them in and I’ll do my best to answer them.

Q: How much money will I need to retire?

A: The answer is as individual as snowflakes. The amount of money you will need to retire depends on many factors, such as how long you expect to live, what it costs you to live, and what factors can impact your financial longevity. It’s a simple question with a very difficult and complex answer—the number of variables is huge. The best answer is: It depends. However, don’t interpret this answer as an excuse to put planning your future to the side. In fact, it actually makes planning and the ongoing monitoring of your progress that much more important—and the uncovering of previously unknown information that much more vital.

Q: I am risk averse. I only feel safe if my money is in the bank. What should I do if the stock markets make me nervous?

A: If you think the constant motion of the stock market makes you queasy, how does it feel if I guarantee that your plan fails by sticking your money in the bank? While I don’t want to minimize your fear of market fluctuation, I want you to understand that if inflation is 3% and you’re earning .5%, you are guaranteeing a loss of over 2.5% of your principal (including taxes) each year. Your purchasing power erodes year after year after year in which your assets do not exceed inflation and taxes. Step outside your comfort zone in order to move closer to your financial goals.

Q: Should I lease or buy a car?

A: The answer depends (like so many topics in personal finance), on your utilization. The answer entails more questions: How many miles do you drive per year? How often do you get a new car? If you hold onto a car for 7-10 years, buying is the way to go. If you rack up a lot of miles, leasing can be a financial disaster.

Q: How much and what type of life insurance is right for me?

A: Life insurance is a risk management tool intended to replace your income or cover a liability in case of death. If you need to replace your lifetime of income, you should do a calculation of how much you would need to sustain that income over the lifetime (or need time) of your heirs. As for type, if you have a lifetime need then a permanent policy is the safest bet, but keep in mind it is the most expensive. If you need to cover a 10-30 year need, then level term insurance makes more sense.

Q: What is an UTMA/UGMA account and should I set one up for my child/children?

A: An UTMA/UGMA is an account set up with you as the Custodian of an accumulation account for the benefit of a minor child. The child’s social security number is used to open the account and becomes the property of the child when majority is reached (in some states it is 18 and others 21). The Custodian’s responsibility is to safeguard the account or use the proceeds for the child’s benefit. The terms mean Uniform Gift to Minors Act or Uniform Transfers to Minors Act. The income produced by the account is taxed on the child’s return.

Q: Do I need a Will?

A: If you own property, are married, or have a dependent, then the answer is yes. A Will is a legal document that sets forth your wishes and desires in writing. The following Will-related issues are very important: Who will manage your affairs and dispose of your estate appropriately? Who will be guardian of minor children? Who will watch over their money? Most importantly, without a Will, the laws of intestacy in your state determine all the answers to these very important questions. Who feels comfortable with the state making the decision? Not me!