PERSONAL FINANCE PLANNING
Remarks by Dr. Ordean G. Olson
Made to the football players of the Miami Dolphins on October 13, 1998 under the
sponsorship of the National Football League
This is transcript of the remarks of Dr. Ordean Olson delivered to the rookie members of
the Miami Dolphins Football Team on October 13, 1999. He discussed the importance
of personal finance planning to help individuals and families to define their short- and
long-term financial goals and develop appropriate financial strategies for reaching them.
Many of Miami Dolphin football players have recently signed million dollar contracts,
and the National Football League thought it advantageous to present a personal financial
planning program for them at this stage of their careers. Most of them have never had the
opportunity of acquiring large amounts of money at one time. One of the objectives of
the program is to present a series of seminars on how to invest wisely, and probably most
important, be able to analyze and select the best alternative investment plan suited for
their needs. Dr. Olson later presented a four-session seminar.
Earlier this year, Jacksonville running back Chris Parker stumbled upon a startling
discovery while interning at a local law firm. “I like this world better,” he said, noting
the instability of professional sports. Parker and three of his teammates Keenan
McCardell, Jeff Kopp and Will Moore have discovered new fields of dreams while
interning at local companies. Parker is at Holland & Knight, McCardell and Kopp is at
Merrill, and Moore is at AccuStaff Inc. Internships by National Football League are
designed to assist players and their families with their lives off the field. “I want to be
ready when the time comes for me to leave the game and I want to leave doing something
that I like,” Parker said. He said his 12-week experience at the law firm showed him the
sense of stability and confidence possessed by the people he worked with. That’s the
opposite of life in professional sports. The average length of a career in the NFL is 2.7
years, according to league officials. About 150 NFL players are taking advantage of the
league’s internship program. Over the past six off-seasons, about 600 players have gone
through internships. Why aren’t more players taking advantage of the internship
program? “For most guys, unfortunately, it is not a teachable moment,” said Stacy
Robinson, director of player development for the National Football League Players
Association in Washington, D.C. Robinson, a former NFL player, said players are more
focused on the demands to compete. They also are overwhelmed by their income and not
by what they should be doing about their future. “But that teachable moment comes
when the career is over,” he said. Jaguar’s wide receiver McCardell has been working at
a Merrill Lynch office in Ponte Vedra Beach since April. He has learned about financial
investment strategies during his internship. He said his interest in financial investment
stems from his relationship with his personal investment adviser and seeing players spend
their money loosely.
These are good examples of life in the National Football league for rookies and
also for other players as well. The NFL has set up this personal finance seminar to assist
and guide each of you to better prepare you for the future. The program will be
conducted over four sessions for you and your families.
We live in a very complex, fast-paced world with rapidly changing social
economic, political and technological environments. Developing personal strategies to
improve our lifestyles becomes increasingly difficult, and we are faced with a
bewildering array of choices, all of which have a bearing on how we achieve our future
goals. Before we can evaluate our options and make informed decisions, we all need to
set the goals that will give us direction to our lives.
Setting goals is extremely important in personal money management. We want to
maintain and improve our current quality of life, and prepare for the future so that we can
send our children to college and have funds for retirement. The most effective way to
achieve these and other financial objectives is through personal financial planning. It
helps individuals and families to define their short- and long-term financial goals and
develop appropriate financial strategies for reaching them. Because needs and goals
change as personal circumstances change, personal financial planning is lifelong activity.
Creating flexible plans and revising them on a regular basis is the key to building a sound
financial future. Of course, planning alone does not guarantee success, but if used
effectively and consistently, it can help you control your life and use your resources
wisely. As a result, it will have a profound effect on you standard of living, consumption
patterns, and ultimately, the amount of your accumulated wealth.
Specifying your financial goals is very important. The fact is, without financial
goals it is difficult, if not impossible, to effectively manage your financial resources. We
need to know where we are going in a financial sense, in order to direct the major
financial events in our lives. Perhaps achieving financial independence as a relatively
early age is important to you. If so, then things like saving, investing, and retirement
planning will become an important part of your life. Whatever, your financial goals or
preferences, they must be stated in monetary terms, since money and the utility it buys, is
an integral part of financial planning.
Financial goals cover a wide range of financial desires- from controlling living
expenses to meeting retirement needs, from setting up a savings and investment program
to minimizing the amount of taxes you pay. Your financial goals should be defined as
specifically as possible land focus on the results you want to attain. Formulating a goal
such as “save 10 percent of my take home pay each month to start an investment
program” clearly states what you want to do and shy.
How you achieve the financial goals you set for yourself lies in the financial plans
that you establish. Financial plans provide the direction necessary for achieving your
financial objectives. Once in place, they can be put into action through various types of
The financial planning process involves a number of steps and a number of
different yet interrelated types of plans. All financial planning begins with identifying
your personal needs and wants and establishing your realistic goals.
Financial plans cover the most important financial dimensions of your life. Some
plans deal with the more immediate aspects of money management, such a preparing
budgets for use in managing spending. Others focus on acquiring major assets. Liability
plans control borrowing, insurance plans reduce financial risks, savings and investment
plans provide for emergency funds and future wealth accumulation, and tax plans
minimize tax payments. You also need retirement plans that provide financial security
when you stop working and estate plans to ensure the orderly and cost-effective transfer
of assets to your heirs.
As we move from childhood to retirementage, we go through different life stages.
A typical financial planning life cycle. As we pass from one stage to state of maturation
to the next, our patterns of income change simultaneously. From our early childhood
days, when we relied on our parents for support, to our early adulthood, wen we stared
our families and, very likely, showed a gradually increasing level of income. This level
income increases through our career development years to a more stable income level as
we approach our retirement years. Thus, as our emphasis in life changes, so do the kinds
of financial plans we pursue- that is, at various points in our lives, different types of
financial goals and plans become more important than others.
Obviously, not everyone follows this “typical” pattern, and each life situation
needs its own financial goals and plans. In times of economic difficulties, loss of a job or
being forced to take early retirement means learning to cope with reduced income.
Because life expectancies are increasing, many of us may need extra financial resources
to care for elderly parents at the same time we are raising children.
These and other changing life situations make sound financial planning more
important that ever for planning in today’s society. Careful planning makes it possible to
get through tough times and prosper in good times. While certain financial goals are
important regardless of age- having extra resources to fall back on in an economic
downturn should be a priority whether you are 25, 45, or 65- your goals and plans at each
stage of life will be based on your particular circumstances.
Tax planning is an integral part of the financial planning process. In spite of all
the talk about tax reform, and even after the sweeping tax revision of 1986 and
subsequent changes, the fact is that our tax code continues to be highly complex. Some
income is taxed as ordinary income, some is treated as portfolio (investment) income,
some is treated as passive income, some is tax free, and some is tax deferred. Then there
are tax shelters which use various aspects of the tax code (such as depreciation expenses)
to legitimately reduce an investor’s tax liability. Tax planning considers all these
dimensions and more. It involves looking at an individual’s current and projected
earnings and developing strategies that will defer and/or minimize taxes. Tax plans
should reflect the desired form in which returns are to be received- active income,
portfolio income, passive income, capital gains, or tax-sheltered income. These plans are
closely tied to investment plans and will often specify certain investment strategies.
Although the use of tax planning is most common among individuals with high incomes,
sizable savings can also result for people with lower levels of income.
While you are still working, you should be managing your finances to attain those
goals you feel are important in old age. These might include extensive travel. Plans for
visiting children, dining out frequently at better restaurants. And perhaps a vacation home
or boat. It is important to see that retirement planning begins long before you actually
retire. As a rule, most people do not start thinking about retirement until well into their
40’s or 50’s. This is unfortunate, since it usually results in a substantially reduced level of
retirement income. The sooner you start, the better off you will be. Take, for instance,
the IRA (individual retirement account), in which certain wage earners are allowed to
invest up to $2,00 per year. If you can earn 12 percent and put $2,000 per year in an IRA
for 25 years (that is, start investing for retirement at age 40), your account will grow to
$267,000. However, if you start your retirement program ten years earlier) at age 30),
your IRS will grow to a whopping $865,000- even though you are investing a total of
only $20,000 more, your IRA will triple in size.
An important step in the financial planning process is learning about the investment
environment. Our investment goals differ. If you are a young person starting a career,
you may want to achieve a goal different from that of people preparing for retirement.
You are concerned with building an estate; they are concerned with preserving what they
have. You may be willing to sacrifice current income; they might depend upon it to meet
living expenses. Obviously, an investment that’s good for you may be totally
inappropriate for them. Before starting an investment program, define your goals as
clearly as you can, then indicate specifically how an individual investment is related to
those goals. Goal definition is made easier when you understand yourself better; that is,
when you are aware of your investment needs. Then you can look at your various
Surprising as it may seem, earning a return on an investment is not the only need
many people try to satisfy from investing. The pleasure associated with many
investments derives from your using them (your home) or simply owning them (your
antiques). Also, if you are looking for a dollar return, this goal has to be further defined
to state whether you want more, now or more later: that is, a current versus a future
return. Also, people are quite different is their tax situations and attitudes toward risks.
Your attitude toward risk will also shape your investment horizons. Some of us
are by nature risk averters. We feel extremely uncomfortable in risky situations and
prefer to avoid them or at least expect adequate compensation for undertaking them. Just
as there are risk-averters, there are also risk-seekers- but these aren’t foolish people. Risk
seekers also expect additional return for undertaking risky investments, although they
don’t demand as much as risk-averters. To them, a marginally better return of 1 percent
might be enough to buy a municipal bond for example. Both risk-seeking and risk-
averting approaches can be satisfied in investment markets. In fact, investor differences
help make these markets function as smoothly as they do.
Most financial planners will advise you to begin planning for retirement as soon
as you enter the workforce. If you put off retirement planning until your forties and
fifties, altering projected retirement benefits during your remaining working years will be
much more difficult. In addition, you will have missed most of the tax advantages that
come from funding tax-deferred retirement plans.
You probably realize this is good advice, but if you are in your early twenties and
retirement is far off into the twenty-first century, you may find it very difficult to follow.
Unless you have a crystal ball, forecasting more than five years ahead is usually fruitless.
Changes in tax rates, interest rates, inflation rates, and Social Security benefits may all
upset well-made retirement plans. For this reason, a retirement plan should not be
viewed as something set in concrete. It should change as circumstances change. The
important thing to remember is that the sooner you get started the easier it will be to
accommodate that plan to your changing personal and financial environment.
Earnings for the average worker begin to decline in the early sixties as work time
decreases and leisure time increases. Financially, retirement may be said to occur when
expenses begin to exceed earnings. Retirement years are ones of dissaving, when the
wealth accumulated over the pre-retirement years is slowly depleted. The standard of
living in retirement will depend largely upon the family’s accumulated savings, and
therefore on plans begun and actions taken many years before.
When and how to save are personal decisions. There is not one “right” retirement
plan for everyone. In saving for retirement, you are trading off present consumption for
future consumption. How much you plan to save will depend on how much weight you
place on each of these needs. Your retirement plan may be to consume everything today
and leave nothing for tomorrow. As long as you realize that this decision means you will
someday have to survive on minimal benefits provided under an uncertain system of
Social Security, then this is your decision to make.
These and other topics will be discussed over the next four sessions of the
upcoming seminar. The objective of the seminar is to present the basic principles of
personal financial planning and encourage each of you to give serious thought to starting
your financial planning program as soon as possible, if you have not already done so.