Your risk tolerance- Gauged generally with a questionnaire, risk tolerance measures how you would feel in the ups and downs of stock market movement. Generally we all want our money to go up, but are less inclined to have it go down.  Risk tolerance is not an exact science. There is no Vulcan Mind-meld that can ascertain your tolerance.

 So a questionnaire is often used to get as good an idea of what mix of investments may work best for you. The questionnaires use hypothetical situations and other things, perhaps age and the money’s use, to come up with your general risk category.

Once determined, along with your goals, tax status, etc., your risk tolerance helps you or an advisor compile what mix of investment types you might hold, i.e., what your ‘portfolio’ might comprise be it all stocks, all bonds or a mix of stock and bonds. And depending on whom you ask, there are just a few, or many categories of risk. As I said, this is not an exact science.

What is risk?- In life risk is the possibility that things will go wrong. In finance risk is the possibility things will go wrong and negatively affect your investments. As you may have realized, life has no guarantees. So the more you learn and the more of life and investing you experience, you may find our risk tolerance change. If you have no knowledge and little experience, it’s is not unexpected that you would be a more conservative investor. You may always be conservative in your investing because that is your nature, but you may also move into a slightly more aggressive category of risk because you feel more confident and knowledgable.

Even with fear or optimism, you sometimes have flexibility in your risk tolerance. You can take some more risk and be within your tolerance, when you feel more comfortable with the investment, the holdings, the companies in which you are investing. You may have more capacity for risk- meaning being able to accept more or less risk- when you are investing in things you understand more than just when you have a vague idea of something called the ‘stock market.’  

 For instance if you understood one mutual fund held companies that manufacture and distribute cat food, ice cream, or held companies that own chain coffee shops and other companies providing products or services that are explained to you and that you perhaps frequented, you may find that you have the risk capacity to invest in such a fund.  

 Educate yourself- One study by Fidelity investments found that younger investors were as conservative as their  Baby Boomer counterparts.  because they all considered themselves ‘beginner investors.’  A spokesperson for Fidelity states in the same survey that ‘time is one of the biggest factors when determining asset allocation.’ I don’t know that I agree that time is the biggest factor in asset allocation. I think it’s an obviously important factor. But I think your risk tolerance is more a part of who you are as an individual and that time, your goals and personal circumstances all add in to the mix of variables that help tweak your unique risk tolerance.

 Certain times in your life may have changing personal circumstances. In those days you feel more risk averse, or more open to risk. Just remember, risk tolerance is important but that this is not an exact science.

 Here are four tips that you probably didn’t hear at your commencement address.

It’s your life- Ready or not, it’s now time to fully grab hold of your financial life.  You need to know your credit score, understand savings and checking accounts and rates of interest available, and not spend more than you earn. You have got to get serious about your money NOW.

Be WISE- Manage your expectations in a reasonable way. You probably are only twenty-something years old and may not have a great handle on what first jobs pay, if you can get one in your field. If you are, as I was, a non-traditional student, you probably have more life experience. But that doesn’t mean any of us are all the way to WISE yet.

Be wise enough to perhaps ask others with more life experience what to expect for salary in a entry-level position. Take your expectations down a notch if you are expecting your first job to solve all your money problems. AND, whatever job you accept, believe me when I tell you that you will live in peace with yourself if you spend LESS than you earn. Brewing your OWN coffee instead of $5 coffee at the expensive coffee place, used furniture and cars, eating IN with friends instead of eating out, are ways to stretch your budget and those of us with life experience know that NONE of us have unlimited money. Some of us with life experience have learned this the hard way.

Be humble- Remember all the help you have gotten from family and the bills parents may have covered.  Be thankful. For those of you not already doing this, take responsibility for your cell phone, your car insurance, your bills and get whatever job may help cover your expenses. Be thankful for free room and board if it is available to you. For most graduates in their early twenties remember, no one owes you anything as you are no longer a grade-school child needing help. So be thankful and humble when help is offered, and take jobs no matter how lowly they may seem to your inexperienced eye. Some of us live a long life and never learn the lesson of humility.

Save - When you are offered the opportunity to save through a retirement plan at the new job, start saving. The benefit of compound interest is that small amounts of money OVER TIME transform into serious savings when you begin saving early. And non-traditional graduates, don’t lose hope as it is NEVER too late to save.

 Though you want the flat screen, an I-this and I-that, if you save now you will have a pile of money. Don’t ‘eat all your seed.’ Meaning don’t spend all you have for today’s desires. If you need help figuring out HOW to balance your money, look for a budget online, talk to a smart friend or relative or call a financial advisor for some quick tips.

 You did it! You completed your plan for education. Now, take great control of your finances, please.

 Budget- As in Not HAVING a Budget- According to this report, over HALF of Americans report not having a budget and 20% have no idea how much they spend on housing food and entertainment. No one has so much cash that you can just make spending a hobby – without keeping track- and think that life will be cozy, cause it just doesn’t work that way. You don’t get in your car and make a trip without thinking about your destination or gas. Budgets are cozy. It’s your money’s plan for fun and savings, bill paying and your future. A budget is a good thing. Please have one.

 Saving- Forgetting to save or not knowing HOW to save is mistake number 2. According to the report 40% of respondents are saving less this year than last and another 40% have NO money saved for retirement. Many surveyed reported that they didn’t know HOW to save. If you don’t know how to do something, please ASK. Folks, like me, want to HELP you. And we don’t read minds, so we have no idea how we might help if you don’t say. And besides, you’re a grownup and grownups make proper plans. And when they don’t know how to do something, grownups ask for help.

 Overspending – 25% of those polled said they are spending more than they did last year. And if spending is part of your plan, part of your budget, that is terrific, but if it’s happening from emotion, lack of discipline, honey, that’s not good. Shopping isn’t really a hobby or an Olympic event. And overspending can hurt you and your family in the short and long run.

 Credit- Mishandling your credit cards and not handling your credit score is mistake number 4. It’s advised that we all check our credit reports at least once a year. Though that won’t give you a credit SCORE, your credit report will state loans, liens and payments activity. Free credit reports are available at AnnualCreditReport.com. This is the only site recommended by the Federal Trade Commission for no cost reports.

 Credit Karma (at CreditKarma.com) can give you a credit score when you create a free account with them. Credit scores are used by lending agencies to evaluate your use of credit and repayment history. There are many web sites that will help you evaluate what your score means for your interest rate.

 So, four common, avoidable, mistakes, my friend. All of them that with a bit a simple effort or some advice can be addressed. There are MANY kinds of budgets and I’m confident there is a type that will work for you and your life.  You can  start saving by making savings automatic, for your Christmas Club, your vacation, for your retirement. It’s NOT okay to know you are confused and not do something to change your condition. Ask for help! Borrow a book from the library. Get online and do some research. Ask a friendly advisor, like moi. We like this stuff and want to help you!

 The Facts- I’m not addressing the sociological reasons for any of these issues because that’s not the point here. The point as I see it is that I meet women every day who face these facts every day. . The Earnings Gap-Women in the workforce earn on average 77 cents for every dollar men earn, which adds up to a LOSS of about $300,000 over a woman’s lifetime.  Work Patterns- Nearly 24% of women work part time, are likely to spend 12 years out of the workforce and forego jobs with benefits for family responsibilities. As a consequence of the previous facts there are both retirement savings and a Social Security earnings gap that is concerning.

 The Challenges-  In addition to the financial data noted above, there are life events that are thrown in the mix: starting a business or new career, being part of The Sandwich Generation – meaning you have grown kids and aging parents to care for, as well as possible changes in martial status through divorce or widowhood. Another challenge is a gap in women’s financial literacy. When surveyed 90% of women feel that financially insecure. Many women have no idea where to start to figure out what they need for retirement savings. We also have been blessed with generally longer lives than men. So far, the facts add up generally to less money, longer lives and we a feeling of inadequacy to the financial task before us

 What Women Want- Women want to know how, and where, to start. We want to learn in a pleasant and personal way. And we want to know how to invest for our age and our unique goals. We want an advisor, if we use one, who engages us as a coach, someone who will help when we have conflicts with our partner or roadblocks in communication. And we want to understand many aspects of our money including philanthropy, savings for our kids or grandkids, as well as investing for our future.

 Be STRONG- We are women. Like men, we face hurdles. Everybody’s got something, pookie. Yeah, we want a great future but we are often passive and don’t advocate for our learning needs. We sometimes put up with poor information, over-our-head talk or crappy help.

Girl, you need to care enough about your own future to demand great help, advocate for clear understanding and make sure you do what needs to be done, and find tools or people to help you know what’s going on with all of your money. GI Joe was right. Knowing is half the battle. And as you know more you’ll develop the confidence you need for managing your financial future and to help you teach your daughters and sons about money.

  Emotions- Everyone has ‘em, even professional traders. Research has been conducted that shows how stock markets around the world trade higher, meaning traders buy more stocks than they sell, when the sun is shining in their city. That’s big news for people who believe they  conduct their business from a purely mathematical perspective.

 For you and I this research on the hidden role emotions play demonstrates that we all may respond emotionally, even though it will likely be unconscious, with our money.  Your job is to mitigate emotions so they do not control you and your spending. If you could see your investing patterns or your shopping decisions in the lives of someone else, would you say, wow, that’s crazy? Or, might you say, look how steady and self-controlled they act.  How are you behaving with your investments?

 Your plan- Your financial plan, your investment plan, is the main mitigating map for you and your family regarding you money and investments. Where are you planning to go with your money? Do you want to retire early? Are you planning on someday starting a business? What specific steps for saving and investing are taking to get to that end-of-the-rainbow destination? Your financial plan is where very practical steps are mapped out to help you achieve you goals, your way. Make sure you consult your plan when you feel scared about the economy or the stock market.

 Adjustments The only way to become wise is to have life happen. You learn what risks you really can tolerate and what risks you really can’t tolerate. Maybe one sunny day when you were feeling particularly optimistic, you thought you thought a high percentage of your investments should be in developing markets. Now you may feel differently. Adjust your plan. It’s okay to modify how you will achieve you goals.

Of course I think an investment plan is easier when you have an advisor. But however you go about this, an investment plan provides protection from emotional investing and has an anchoring effect in changing economic conditions.

 Kids are a particularly great audience because they are game for anything. A kid’s first business is often opening a lemonade stand. That concept is being used to more formally – but still in a fun way – to teach kids about business by a group called Lemonade Day.

 Lemonade Day is both an event and an organization promoting entrepreneurship. Sunday, June 3^rd is Lemonade Day in Maine.

 When a child registers they’ll get a workbook with fourteen lessons that include all the information you’d need to run a lemonade stand well and with forethought. They’ll learn subjects such as debt, credit and net income, customer service, marketing

How will they get the word out about their stand? Where should they set up a stand for best visibility and great sales? Can they partner with a friend or family member whose house is located in a busier section of town for better results?

 What do customers want? Is being cute enough in this competitive market for lemonade? How can your lemonade stand draw more people than another stand?

 For a child who needs lemonade to sell, but no money, they will need to get into debt from someone or they will borrow money from their own savings to buy the material needed. Once the day is over they will calculate what they spent, what money they made, and determine if there is any net income.

You can see that though a lemonade stand can be a simple operation the concept can also be used for teaching practical lessons about entrepreneurship.

You can learn more at the web site.

 www.Maine.LemonadeDay.org

  I wouldn’t be saving without a work plan – 55% of those surveyed said they wouldn’t be saving any money fort their retirement at all if it were not for the plan they have at work. A retirement plan for any business can be a low-cost benefit. For those of you with no plan at work, encouraging your employer to begin a retirement plan could really benefit you.

 Company match- helpful- Retirement plans often allow employers to contribute money into your retirement savings account. This contribution is called a match and the rules vary, so I won’t hurt your brain with all the details. But Fidelity found that having a match prompted a 53% increased in an individual’s account contribution either because of a raise or from a desire to take better advantage of the company’s match.

 Borrowing- not helpful – Some retirement plans allow one to borrow from their retirement money. The survey found that of those who borrowed, 29% said it was a mistake that they wish they hadn’t made. They would not do borrow again.

 Got a business? There are many retirement plans one of which may be a great fit for your firm. Do you have a plan at your workplace? Take advantage of it! And learn from the mistakes of others, my friends.

Payment history – 35% of your score is made up of your credit history. Do you pay your bills on time? A lender wants their money BACK, so your repayment history is, naturally, very important to lenders. Pay, at least your minimum, and make the payment on time.

Amount owed- 30% of your FICO score is based on the total amount of debt owed. Owing less than the maximum is good. Not owing debt is good for our coziness factor but since lenders think debt is good, your score may be higher WITH debt than without debt. Debt owed that Is lower than your credit limit provides a better score.

Length of credit history- 15% of your score comes from the length of time you have had credit or a particular account. As far as FICO is concerned, the longer the history, the better for your credit score.

New credit- 10% of your score is based on opening new accounts. And by the way, if you are shopping for a big-ticket item and having many inquiries made into your credit report, quieries within a 14 to 45-day window count as one.

Types of credit- 10% of your score is based on the type of credit. Non-secured, revolving credit (i.e., from department stores) or credit card debt is not as advantageous to your score as installment loans.

Just remember, you are not living your financial life to maximize your credit score. Live you’re the whole of your life with financial prudence.

 What? You have no financial plan? No problem. Let me tell you the elements of a financial plan.

 1.)    Goal- The first thing to a good plan is to determine the goal. In our case we are making financial goals. The goal, or goals, can include both long-term and short-term goals, such as retirement planning and even summer vacation or savings goals. Discuss this with your honey and make the goals concrete.

 2.)    Organize- Where will the money come from to meet the goals? Make a budget, if you don’t already have one, and tweak it heard to squeeze the cash out of various sources. Can you cut back on eating out or expensive coffee treats? Your goal will not get funded without effort on your part and that is step two. You will also need to determine where newly-saved money will go as it grows. Set up accounts and arrange deposits to fund your goals.

 3.)    DO it- Now that you have goals, have tweaked the budget and set up your accounts, you must fund the accounts. HOW will the money go into the savings accounts? From where will it come and how often will cash be deposited? The more automatic you make the deposits, the more certain will be your eventual outcome. So if possible, have a system that will work without your additional effort to process your money into the accounts that are funding your goals, such as direct deposit. Your advisor can help or you can set up directly with mutual funds, brokerage accounts and financial institutions. Even if it’s less than you’d hoped to deposit, regurlar contributions add up; you are making progress! And how awesome is that?

 4.)    Monitor, monitor, monitor – Don’t let years go by before you check on your progress. Know what’s happening wih some regularity; if needed be every week or month. Depening on the goal and the length of time needed to reach it, make an appointment with yourself or your advisor to monitor your progress. Be prepared for the temptation to get off course.There will be bumps in the road and these may make your evaluations occur before you planned. But life is predictably unpredictable. Expect bumps.

 See? You don’t need any luck! You’ve got a beautiful financial plan that will get you where you want to go. You’re doing an awesome job.

Where am I? – Look around. Where are you on your money path? Do you argue about money with the person you love? Are you on track for a good future? Do you make a good living but have little to show for it? Are you generally on the path but slipping into the ditch? There is NO JUDGEMENT in evaluation. Be as factual and unemotional about this as you can be so you can get a truer sense of what’s really happening. Speak to yourself as you would to someone you LIKE.

Evaluate your past/present – In the same kind and non-judgemental way, evaluate past  and present actions that may have helped, or hindered, your progress on the good path you have mapped out. Do you spend to feel better? Do you gamble or take a lot of risks? Can you financially sustain this direction? Are you contend with your actions and feeling confident, or at least at peace, with your behavior?

 X marks the future- Like a pirate seeking the treasure, aim with purpose towards your destination! Reality may compel you to adjust what future you had previously mapped. That’s how life works, kids. The future isn’t something ANYONE knows with certainty. It is always speculation. So realistically adjust as needed.

 Do the work- Now get a move on. If you were physically walking on a path you would get blisters, need new sneakers, get tired, hungry and thirsty. Proceeding on your money path will take work, too.

 Please remember, you will make the best progress if you are kindly realistic with yourself in your evaluation and planning. But make a financial map and get to getting’, chickadee.