This I have heard many times when I ask about consolidating plastic in someone’s wallet. I said it myself in the not-too-distant past. A few years ago, I attempted to quantify what I was actually getting, and what I was giving up, by stubbornly desiring to earn “free” trips with my frequent flier miles.

After all, who doesn’t want a freebie? Miles and points feel like freebies for spending on “stuff I was going to buy anyway” (Uh-huh. Really?) In my consultations, I frequently come across the all-too-familiar psychological pull of freebies, and a steadfast reluctance to give them up.

My conclusion from my analysis? We are better off with cards that earn cold, hard cash. And some of us are better off with no cards at all. Here are four reasons:

Reason 1) Miles are something we crave that is not in our best interest. Recently my sister, the mother of a 7-year-old, told me about the latest kids’ fad, Silly Bands. Evidently kids are so crazy about these colored rubber bands that they collect, trade, barter, and, of course fight over them. To me, frequent flier miles and “points” are adults’ version of Silly Bands. They are like foreign currencies you can only spend abroad, or Monopoly money that is only good on the game board. With frequent flyer miles, airlines run the printing press for their currency. They also run the cash register.

Conversely, cash, specifically the U.S. dollar, is boring, but is spendable almost anywhere. If I have a fee-less card that pays cash back (and I do), I get a discount on what I have already spent, rather than on something I might spend in the future.

(Of course I am assuming the card gets paid off every month. For anyone who does not do this, a discussion about miles is irrelevant. Comparing the cost of interest relative to the benefit of miles is like comparing the Empire State building to my house.)

Reason 2) Miles “Inflation.” Some say when they look at how many miles or how many points they get, compared with, say, 1% cash back, the miles and the points are worth more.

What if you can get a $500 ticket for 25,000 miles? That’s twice the cash back rate. However, my observation lately is that airlines are reducing available seats for frequent fliers, increasing fees, and increasing miles required per flight. Here is a personal example. I earn miles the old-fashioned way – by flying. In December 2009, I was looking at a January 2010 trip to Canada. Although the airline appeared to advertise my “miles” price would be 25,000, those seats did not happen to be available for the flights I wanted. But, voila, the seats magically appeared if I was willing to spend 50,000 miles. On top of the miles price, the airline charged a “booking fee” of somewhere between $20 and $50, each way. I would have paid between $40 and $100 for the sake of getting a “free” trip, and inflated away my miles value from a penny per mile to half a penny per mile. Overall, the airlines’ inflationary printing press is making sure that miles are worth less and less. (Additionally, for this reason, I use my miles as soon as possible. Tomorrow they could be worthless, and there would be no “airline FDIC” to save my miles. Is the miles program too-big-to-fail?)

Reason 3) Time Value of Money. Continuing the currency analogy, with my cash-back card, I get to use my cash right away, because my card applies it against my purchases. Miss Miles-Card has to wait until she spends $25,000 to get to use her Silly-Band-Monopoly-money miles, assuming she can get a ticket for 25,000 miles. How long does it take to spend $25,000? Is reaching the $25,000 mark something that should be rushed for the sake of accumulating miles?

Reason 4) If I meet someone with a spending or saving “problem,” (meaning anyone who has not saved enough to meet their goals but has had time and circumstances to do so), I look to the credit cards. Even if they have sufficient income or assets to pay off the cards every month, the problem with using credit cards, psychologically, is that they provide no limit or check on our spending. They encourage spending behavior, not saving behavior. Studies show that, on average, if we use credit, we spend 130% of our income.  Our society is filled with enough stimuli telling us what we “need,” or “should have,” or “have to have,” and not enough messages about how to get them responsibly. Credit card companies team up with airlines to bombard us with ads for earning miles and points. Miles and points! More miles and points! Even more miles and points! I am suspecting that miles-and-points must be wildly profitable to the ad-sponsoring enterprises, and not-so-wildly-profitable for me.

Miles addiction can be a tough habit to break. What if, instead of “banking” miles, we just “banked” 1% of our spending? Would we be as satisfied with watching that savings account balance grow as we are watching our miles account grow? I admit, like my 7–year-old niece and her Silly Bands, I get a thrill watching my collection grow. But even a .25% savings account pays better than miles.

Following Dave’s outline, here are some questions to ask when considering a person, or an institution, as a successor trustee:

Talent

Is the person detail-oriented and organized?  Trustees are required to provide annual accountings to beneficiaries.

Are they familiar with keeping track of which money is considered “principal,” and which is considered “income”?  This can make a difference when there are current beneficiaries and remainder (future) beneficiaries.

How familiar is the trustee with the spectrum of investments?  Does he, she, or it, understand the risk factors of all kinds of investments?  Would he, she, or it, know which investments are in the best interest of the beneficiaries?  Trustees are “fiduciaries,” which means they are liable if their investment choices are not considered to be prudent and in the beneficiaries’ best interests.

Would the trustee understand when it is wise to watch pennies, and when it is “pound-foolish”?

Temperament

Will naming this person cause family tension?

Will they have conflicts of interest?

Do they have problems dealing with other family members?

Can they be sensitive to family dynamics and unbiased in decision making?

Will this person put my interests ahead of his or her own?

Time

Will serving as trustee pose a burden on an individual?  Trustees must have time to review and pay bills, review investments and make decisions (jointly or with professional investment managers), and communicate with beneficiaries as necessary.

How is the health of the person being considered?  Will the beneficiaries likely outlive this person?

For shortfalls in any of these areas, the estate planning attorney should be consulted on whether any of the following may help:

1. Naming 2 or 3 successors as successor trustee.
2. Considering a co-trustee or –trustees.
3. Considering a “trust protector,” a third-party person who oversees the trustee and can replace them if they are doing an unsatisfactory job.
4. Having a family meeting to discuss the  provisions of the trust with the successor trustees, attorney, financial planner, and accountant.

Using a corporate trustee in the role of successor or co-trustee can have advantages. Corporate trustees have entire staffs of trust officers and lawyers.  They have accounting systems set up to provide accountings and pay bills.  Most have salaried staff investment managers with performance-based bonuses.  Stocks, bonds, and funds are purchased at institutional pricing with no markup to clients.  Trust companies are intended to operate as unbiased professionals, with experience handling reasonable and unreasonable family members.  They have loads of liability insurance.  Finally, beneficiaries can’t outlive (most) corporate trustees.  (If the corporate trustee goes bankrupt, client accounts are protected and can be transferred in-kind to another corporate trustee or custodian.)

Corporate trustees come with a price, of course, normally a percentage of the assets being managed. The decision: is their talent, temperament, and time worth it?

Thanks to a loyal reader for suggesting this article by Anna Prior of the Wall St. Journal.

My friend, colleague, and prolific writer, Ron Rhoades, J.D., published an extensive white paper on this topic.  If you’re a fine-print kind of person looking for the down-and-dirty academic analysis (55 pages worth), he’s the guy.  You can access it at:  http://www.josephcapital.com/Resources.html.  Scroll down to “White Papers” and download “Estimating the Total Costs of Stock Mutual Funds.”  Or, you can request it by emailing info@josephcapital.com.

“It would be irresponsible for me to answer that question.”

What kind of financial advice is that?  It’s  exactly what I told a recent client during an initial consultation.

The media is filled with quick-fix advice on this all-important question.  Peer-reviewed studies have repeatedly shown that the best long-term predictor of portfolio performance is the proportion of a portfolio’s holdings in stocks vs. bonds.  Way down the list in importance is the specific stocks and bonds (or mutual funds) selected.  But, specific stocks, bonds, and funds are what sell CNBC ads and money magazines.  So, it’s no wonder that this is most often the question people come to financial planning sessions to answer.

However, precisely because it is so important, it’s not a question that should be answered in an hour, or even two.  Here’s my philosophy on why.

There is a reason that many financial products are called “vehicles.”  They get you where you want to go.  However, if you get behind the wheel of a “real” vehicle, turn on the ignition, and put it in drive, but don’t have any idea where you want to go, or if your only goal is just to steer enough to avoid obstacles, who’s in charge?  You, or the vehicle?  Driving a vehicle without knowing where you want to go with it is just a hunk of metal wasting gas.  It’s also dangerous.

It would seem that knowing where you want the vehicle to take us is of supreme importance before we get behind the wheel and start it up.  And, I have a list of “satisfactory” and “unsatisfactory” destinations.  On the list of “unsatisfactory” destinations:

• Rich-Land (hint: most of us already are there.  Spend three weeks in a developing country, then come back and tell me you’re not.)
• Maximum Growth and No Risk-Land
• 100% Guaranteed Income-Land
• Cake-and-Eat-It-Too-Land
• Whatever-the-Most-My-Portfolio-Can-Make-Me-Land
• Best-of-Everything-Land

Not only do many of these only exist in Fantasy-Land, they are too vague for any kind of meaningful roadmap.   After a while of heading for one of these destinations, the driver will find himself or herself exhausted, at the mercy of the vehicle, and not getting where they really wanted to go anyway.

What are some examples of a list of satisfactory destinations?

• Have $X per year to support my basic living needs beginning in 2013
• Replace my car with one like it every 5 years until I can’t drive anymore
• Spend 3 weeks every year in Scotland beginning in 2015
• Put my kids through private school
• Provide sufficient support for the kids to attend a liberal arts college at age 18 if they want to
• Buy a mountain house by 2020
• Host my children and grandchildren on a cruise every summer beginning in 2011
• Build my own boat by 2012
• Establish a permanent endowment at the university music school by 2010
• Hold a 50^th anniversary party for my parents
• Open my beachside bistro by 2015
• Go to graduate school full-time in 2014
• Spend 20 hours per week volunteering at the homeless shelter beginning in 2012

Fortunately, I didn’t have to make these up.  My clients provided them to me,  Some of the destinations they knew off the top of their heads.  Others took some time to realize.  But the point is, first, we did the hard work of figuring out where we wanted the vehicle to take us.  Once we knew the destinations, establishing what kind of vehicle, and whether it should have snow tires, four-wheel drive, a sunroof, a hatchback, manual transmission, tinted windows, and halogen headlights – the answers to all such questions, well, they just fell into place.  Isn’t that much better than walking up to a car and asking where it can take us?  Answer:  400 miles on a full tank of gas if it’s in good working order. So…what?

Live a little.  Answer the really hard question:  Where do I WANT to go?  Forget what kind of car I think I have and what I think it can do.  What do I need, what do I want, and what do I wish for?  Do some wishing.  And don’t worry, if the answer sounds something akin to driving to Tahiti from Tampa, a good adviser will put the brakes on.  It would be irresponsible not to.

1.    Could you tell me where you keep your important papers at home, in case I need to find them?
2.    Have you made an inventory of your property, including furniture, jewelry, art and other collectibles?
3.    Is there anything I can do to help get your important documents in order?
4.    Have you named someone to make financial decisions for you if you are no longer able to make those decisions yourself?
5.    Do you have a living will or a health care power of attorney?
6.    How do you feel about long-term care, if you need help later on?
7.    Who are your key advisors: attorneys, financial consultants, accountants and insurance specialists?
8.    What charitable causes are important to you?  Are there any charitable pledges you have made or would like to make?
9.    Would you like to talk with me about your final wishes or funeral arrangements so I can make sure I know what to do?
10.  Is there anything else you’d like us to know?

One or two of these 10 questions may be the spark that ignites a meaningful conversation.  If you would like more information on to address one of these 10 specific planning topics, contact Holly.

On June’s second weekend, I decided it was time to harvest.  The heat index was at a record in the high 90s.  To defend myself from thorns, sun and mosquitoes, I donned my long-sleeved cotton t-shirt, blue jeans, knee-high socks, Steel-Toe boots, gardening gloves, sunglasses, and wide-brimmed hat.  I drank a pint of water, put sunscreen on my face and neck, grabbed my colander for collection, and thought about how good that shower was going to feel in an hour.

My recipe called for two cups of blackberries.  From my previous broad surveys of the property,  two cups should have been no problem.   Tossing the two-cup requirement aside, I had instant visions of filling the colander – 4 to 6 cups – with leftovers for ice cream toppings, afternoon snacks, and oatmeal.  Judging from what I knew I had seen, I was excited about having fresh blackberries every day for the next week.

I started at the scraggly patch close to the house, a 10-foot diameter group surrounding a skinny tree in the middle of the hayfield.  More red ones were there than I remembered, and the black ones weren’t as large as I thought, either.  Not wanting to waste my trip to the patch, I picked a few clusters for the sake of having something to show.   A bit frustrated, I marched 200 yards across the field to the big oak grove, intent on finding better quality there.

On the south side of the elliptical two-acre grove, the sun was intense.  The berries there were slightly better than the first patch, but some had little beetles on them that reminded me of stinkbugs.  I squinted carefully before I picked, sweat beads dripping into my eyes, to make sure no bugs were getting into my colander.  Even if it was a big juicy cluster, I left it alone if there was a bug on it.

About an hour into my venture, sweaty and thirsty, I walked to the east side of the grove.  Not only was it shadier for me, but the shade must have been good for the berries.  Instead of 12 inches tall, some of the bushes were 3 feet tall.  I didn’t have to bend over as much, but the banana spiders found the environment perfect for their webs. Like the stinkbugs, I preferred to avoid spiders rather than kill them or disturb their web.

But, whoa!  Some of the clusters were the size of my big toe (which was now a little uncomfortable in the cotton socks inside the Steel-toe boot).  Yet, how sweet!  And not many stinkbugs.   When I found a patch with no spiders or stinkbugs, it felt like the jackpot, but I had to be more careful. I went to pluck the big clusters, but they were so ripe that my gloved fingers squished them, or they tumbled into the tangled mass of thorns, ticks, or who-knew-what below the branches.  I checked my colander.  My excitement faded.  For ninety minutes of effort, I didn’t even have my minimum.

With my head down, I noticed how soaked my jeans were, covered with thorns, which wet jeans seemed to attract. Yikes!  I felt the familiar sting of a mosquito on my shoulder, through my shirt, which was sticking to my skin.  Ignoring the thorns would be easy, because the mosquito bites were worse.  I wondered if the tradeoff of bigger berries for mosquito bites was going to be worth it.

But I didn’t have my two cups.   I had to press on.   I hurriedly looked up for webs, down for berries, swung my free arm to clear webs and then slap mosquitoes, while trying not to spill the colander.  I looked like a sweaty, disheveled marionette being operated by a 5-year-old.

I stopped again.  “How did someone with an MBA end up with such pathetic productivity?”  I thought.  I was clearly not cut out for the ag business.  My efficiency had to improve or else, no cobbler.  This was an unacceptable result.

I took ten steps back.  From that distance, I could scan the next patch for webs and big clusters.  If no big clusters or too many webs, I moved on.  If big clusters or few webs, I gently plucked easy-to-reach, bug-free big berries. I thought of my speed reading class – keep your eyes moving down the page.  So while I was picking the current patch, I scanned the next one.  Working faster lessened the number of mosquitoes on my shirt. Although I was itching from the previous bites, the rate of new bites was declining.  (That’s what an MBA would tell herself in order to keep going.)  But, I was getting only the best berries.  In ten minutes I covered the rest of the oak grove and transitioned to the trails in the woods.  Productivity problem solved.

Within the next hour I had picked through five shady acres in the adjoining woods and filled my colander.  I wearily strode back to the porch, peeled off my boots and socks, and walked inside.  I put the colander in the sink and took my long-anticipated shower.  Afterwards, rinsing the berries, I thought,  “I could have paid $6.99 at the store.”  Worse, I took the risk of getting Lyme disease from a tick, or encephalitis from a mosquito.

I then thought about other lessons I already knew, but didn’t apply, that morning:

1)  In Florida in the summer, applying mosquito repellant underneath your clothes is not a crazy idea.
2) Sometimes there’s no substitute for experience. Although I thought I was well-prepared,  if I had consulted someone who had already learned these lessons, I would have saved three hours of heat-borne agony.
3) Among all of the “wish I had known thats,” the most disheartening was that the ripest, juiciest, biggest berries aren’t in the sun.  They don’t have to be plucked at the bottom where the thorns are. They grow in the shade.  With the right technique, they fall off the end of the branch into your hand.   (“It’s all in the wrist,” my father, a tennis player, would say.)  Knowing the right techniques makes a big difference in time and quality results.  Even berry-picking has techniques.
4) If quantity is the only goal, then pick every berry on every bush and be done.  If quality is important, then don’t burrow in the single bushes.  Step back and scan the whole patch first.

Considering the physical risks I took, this could have been a very expensive outing.  Was it worth it?

Well, for the short while that I was enjoying fresh hot cobbler with Cool Whip, in clean, air-conditioned comfort on a suffocating June day, yes, it was.

First, though, what do we have in common?   We both have massive government spending programs put in place to stimulate the economy and revive battered banking systems.   While our stimulus is relatively new, Japan’s is over a decade old.  Japanese government debt now exceeds 180% of GDP, according to a recent article in The Economist.  That’s the highest of any developed nation.  The U.S. is “only” at 56%  but rising fast.  Yet despite all that spending, Japan hasn’t seen inflation in over 20 years.  What gives?    Inflation comes from overspending, and overspending can only come from 3 places:  government, private sector (consumer spending and business investment), and foreigners (who buy exports).    Japan is a big export machine, enjoying global demand for consistently high quality products.    Government has also done its part.  However, both together were not enough to outweigh the drag created by Japanese consumers’ underspending.

Why do Japanese, on average, underspend?  First, they tend to have a higher work ethic.  Working longer hours, they simply have less time for shoppiong.  Second, after centuries of fires and earthquakes, Japanese families have a long history of saving to rebuild their house every 15 years.  So, they don’t spend on lavish home improvements like those that drove our last boom cycle in the U.S.  Third, their population is shrinking and aging.   Finally, Japanese culture doesn’t encourage borrowing.  For the average Japanese consumer, repayment is a lot more enjoyable than borrowing.

The end result of pumping a lot of dough into an economy with little spending and little borrowing is…nothing.    The money (in Japan’s case, the government’s stimulus money and our export money) just sits as reserves in the banking system, as cash on business balance sheets, or as savings for consumers.  It’s not in circulation helping the economy to grow. One possible answer for their problem lies in the overregulated small business and service sectors, where more economic freedoms could spark both business and consumer spending.

The Japanese are famous savers, and this has kept their economy from recovering for over 10 years.  Now Americans have entered an era of “New Frugality” – could we end up in the same boat?  I don’t see it. In contrast to the  average Japanese, average Americans are practically born and raised at the mall. Spending Saturdays “just browsing” is a national pastime.  While fewer of us may be doing so now, the cultural urge to splurge is as ingrained as Japan’s urge to save.  Further, the “American dream” of owning a home  isn’t a trend that will disappear in a decade.  Americans love owning their homes, love spending on them, and will continue to borrow profligately to buy and improve as much house as the bank tells us we can afford.   Repayment?  I’m not sure many Americans know what that is.  No, I don’t see American consumers  standing in the way of an eventual recovery like the Japanese have.

Does that mean inflation is on the horizon?  Not as long as we have a hobbled banking system and a trade deficit.  For at least 20 years, the Japanese have made products the world adores and demands.  They have collected foreigners’ (our) money and given up little of their own.  That’s called a trade surplus.  The last time the U.S. ran a trade surplus was 199?  One  possible way out of our troubles is to start making  more goods and services the world adores and demands than buying others’ goods and services that we adore and demand.  Not an easy task in a consumption-and-borrowing based culture.

By breaking down the decision into the who, what, where, why, and how (almost literally), Nelson (the primary author) uses Bolles’ time-tested Parachute process to distill your dreams, wishes, likes, skills, and resources into a one-page picture. With their help, you are the artist.

In between the worksheets, Nelson gives some life advice in several areas. I particularly liked the section on “Uses for a Home.” In it, he divides our dwelling place into functions such as “Job,” “Project,” “Retreat,” “Base of Operations,” and “Gathering Place.”

To order the book through south Tampa’s independent bookstore, Inkwood Books, for $16.95, click here: http://www.inkwoodbooks.com/NASApp/store/Search;jsessionid=bac2GmbhX28Ufhrfl60qs.

Note: all of those cute ads you see on the television are for an unnecessary service (for most people at least). The link below is where the truly free credit reports can be obtained. Here are the steps necessary:

1. go to www.annualcreditreport.com
2. select your state and click “request report”
3. fill in your personal information, security characters from picture, and click “continue”
4. select Experian and click “next”
5. click “next” again
6. enter last four digits of your social security number and click “submit”
7. choose extras if you want to pay, I never do, click “annual credit report” at the bottom in gray.
8. check “I have read and agree to Experian’s Terms & Conditions, etc” if you accept them, click “Submit”
9. answer the “identity verification” questions and click continue.
10. click “print report” in upper right section of page.
11. print report

If you find there is something amiss, contact that agency immediately. You can contact Experian at 866-397-3742.  

If you are married, make sure your spouse obtains his/her report. Feel free to pass this reminder onto others.