By Troy Von Haefen, CFP®
Nashville, TN
www.vhfinancialmanagement.com
Have you ever experienced buyer’s remorse? You bought something and later regretted making the purchase. I think we all have made this mistake. Hopefully, most of our regrets are for purchases with only a zero or two involved and not involving thousands of dollars.
Unfortunately, the financial world is an area that leaves many folks confused and misguided when it comes to fees and costs. As with any wise consumer, financial product/advice consumers should perform their due diligence to understand the cost of the product or advice to be purchased. Some financial products on the surface may come across as costing the consumer little or nothing, but, after closer inspection, the costs or fees may be exorbitant. For example, there are commissioned advisors who sell loaded funds (funds with a purchase fee attached), but some of these advisors may not disclose to the client that the fee may be withdrawn from their investment account balance. The client may only notice after opening their investment statement and learning their balance is immediately 3-5% lower or worse!
Why is it important to know the costs and fees?
Most often hidden charges are withdrawn from the underlying investment. The largest culprits are insurance and commissioned-based investment products. Let’s look at a hypothetical example: A client purchases a couple of mutual funds with $100,000 that dear Aunt Ida passed on in her will. The front load fee is 5%. This means the after-fee investment goes from $100,000 to $95,000 right off the bat! In essence, the cost to purchase those two funds is $5000! If invested at 8% a year for 20 years, $5000 would grow to almost $25,000!
The same scenario can be played out for insurance based products such as annuities, as well as investment-based life insurance products. For this reason, I rarely recommend insurance based products that are tied to investment returns. Why, because it is difficult to understand the true cost of ownership. Sometimes it is even difficult to understand the product itself, and, if you don’t understand what you are buying, maybe you shouldn’t own it.
As a consumer, knowledge is key! If you are confused as to the cost of doing business with a financial advisor or insurance agent, simply ask. What you don’t know could hurt you! Don’t let buyer’s remorse impact your ability to reach your financial goals. Understand the true cost of ownership, and make sure hidden fees won’t leave you in regret.
December 30, 2009
December 26, 2009
The State of the Economy
By John Scherer, CFP®
Middleton, WI
http://www.trinfin.com/
As you may have surmised from my slightly sarcastic posts last week, I find little of real educational value regarding financial topics in most consumer publications. But Time had an article 'The Long Haul: the U.S. Economy" which provides spectacular perspective on how to view our current economic situation. Here are some compelling excerpts:
If America's economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years.
The outward sign of the change is an economy that stubbornly refuses to recover from the ... recession. Unemployment is still high; real wages are declining. The current slump already ranks as the longest period of sustained weakness since the Great Depression.
That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults ... represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, ... the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said the chief economist at Pittsburgh's Mellon Bank. "There's going to be a lot of trauma before it's over."
The U.S. workplace is "in a profound, historic state of turmoil that for millions of individuals is approaching panic," according to labor consultant Dan Lacey, publisher of the newsletter Workplace Trends.
Bank regulators clamped down on lenders, while borrowers either swore off the credit habit or were deemed bad risks. The result was a credit crunch that has severely hurt businesses, especially small ones.
I hope that you will read this entire article and consider what it means for us going forward.
Middleton, WI
http://www.trinfin.com/
As you may have surmised from my slightly sarcastic posts last week, I find little of real educational value regarding financial topics in most consumer publications. But Time had an article 'The Long Haul: the U.S. Economy" which provides spectacular perspective on how to view our current economic situation. Here are some compelling excerpts:
If America's economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years.
The outward sign of the change is an economy that stubbornly refuses to recover from the ... recession. Unemployment is still high; real wages are declining. The current slump already ranks as the longest period of sustained weakness since the Great Depression.
That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults ... represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, ... the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said the chief economist at Pittsburgh's Mellon Bank. "There's going to be a lot of trauma before it's over."
The U.S. workplace is "in a profound, historic state of turmoil that for millions of individuals is approaching panic," according to labor consultant Dan Lacey, publisher of the newsletter Workplace Trends.
Bank regulators clamped down on lenders, while borrowers either swore off the credit habit or were deemed bad risks. The result was a credit crunch that has severely hurt businesses, especially small ones.
I hope that you will read this entire article and consider what it means for us going forward.
December 20, 2009
Financial Synergy
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
Synergy has become popular vernacular across boardrooms, conferences, and certainly touted by motivational speakers in the business community. So much so, that many books have been penned on the topic. There are books available on synergy relating to food, clothing, fitness, and physical and mental health to name a few, so the concept has certainly caught on!
I believe in the concept of synergy, and I am a firm believer in applying the theory of synergy to personal finance. As a holistic (one who sees the entire picture) financial advisor, I see the benefits in my clients’ progress because of synergic effects.
How to create personal financial synergy?
Financial synergy can only be achieved through connectivity. Think in terms of Sir Isaac Newton’s Third Law: every action has an equal and opposite reaction (My seventh grade teacher would be proud!). Personal finance is similar to the world of physics in this way. Every financial move or decision creates a reaction in another area of your financial life. The key is to create positive reactions and not negative.
For example, buying a home that is too expensive will create negative synergy to your cash flow. It will create a scenario that will produce a negative snowball of reactions that can lead to a deep financial hole and possibly irreparable financial damage…..maybe even bankruptcy.
While negative synergy can create a downward spiral, positive financial synergy can spur tremendous financial growth. A fine example we can all relate to is saving for retirement. Money contributed into a 401k is tax free; therefore, the contributions will reduce your tax bill. This is positive synergy. Let’s continue the example, the excess funds created by the tax reduction from the initial 401k contribution can now be contributed into the 401k. The more money contributed the greater the tax reduction. The greater the tax reduction the more cash is freed up. This is just one example of financial synergy between two areas of personal finance: taxes and retirement.
There are many areas involved in personal finance. Estate planning, retirement, taxes, insurance, cash flow, goal setting, investments, college planning, retirement planning are most of the topics involved with personal finance, but not all. Imagine the traction that can be generated by constructing a financial plan by integrating all of the pieces. Imagine the power and efficiency of a financial plan created using synergic strategies between the aforementioned topics. The positive momentum becomes exponential!
Often families may employ various professionals to handle their personal finances. A CPA takes on taxes, and a broker covers the investments, while an attorney handles estate planning. Unless these professionals communicate effectively the power of financial synergy is lost. The right hand must know what the left hand is doing! Whether a family uses various professionals or navigates the financial landscape solo, continuity, connectivity, and efficient synergic decisions are a must for financial success.
Effective financial planning increases efficiencies across all financial areas, which is synergy. If you feel you are leaving money on the table somewhere in your financial world or feel a lack of connectivity, you should contact a financial advisor. Some of the brightest minds in synergic financial planning can be found through The Alliance of Cambridge Advisors (an organization in which I am a member). Check out their website at http://www.acaplanners.org/.
Internal Revenue Service (IRS) rules of practice require me to inform you that any tax advice included in this communication is not intended to be used, and cannot be used, for the purpose of avoiding tax penalties by the IRS.
Nashville, TN
http://www.vhfinancialmanagement.com/
Synergy has become popular vernacular across boardrooms, conferences, and certainly touted by motivational speakers in the business community. So much so, that many books have been penned on the topic. There are books available on synergy relating to food, clothing, fitness, and physical and mental health to name a few, so the concept has certainly caught on!
I believe in the concept of synergy, and I am a firm believer in applying the theory of synergy to personal finance. As a holistic (one who sees the entire picture) financial advisor, I see the benefits in my clients’ progress because of synergic effects.
How to create personal financial synergy?
Financial synergy can only be achieved through connectivity. Think in terms of Sir Isaac Newton’s Third Law: every action has an equal and opposite reaction (My seventh grade teacher would be proud!). Personal finance is similar to the world of physics in this way. Every financial move or decision creates a reaction in another area of your financial life. The key is to create positive reactions and not negative.
For example, buying a home that is too expensive will create negative synergy to your cash flow. It will create a scenario that will produce a negative snowball of reactions that can lead to a deep financial hole and possibly irreparable financial damage…..maybe even bankruptcy.
While negative synergy can create a downward spiral, positive financial synergy can spur tremendous financial growth. A fine example we can all relate to is saving for retirement. Money contributed into a 401k is tax free; therefore, the contributions will reduce your tax bill. This is positive synergy. Let’s continue the example, the excess funds created by the tax reduction from the initial 401k contribution can now be contributed into the 401k. The more money contributed the greater the tax reduction. The greater the tax reduction the more cash is freed up. This is just one example of financial synergy between two areas of personal finance: taxes and retirement.
There are many areas involved in personal finance. Estate planning, retirement, taxes, insurance, cash flow, goal setting, investments, college planning, retirement planning are most of the topics involved with personal finance, but not all. Imagine the traction that can be generated by constructing a financial plan by integrating all of the pieces. Imagine the power and efficiency of a financial plan created using synergic strategies between the aforementioned topics. The positive momentum becomes exponential!
Often families may employ various professionals to handle their personal finances. A CPA takes on taxes, and a broker covers the investments, while an attorney handles estate planning. Unless these professionals communicate effectively the power of financial synergy is lost. The right hand must know what the left hand is doing! Whether a family uses various professionals or navigates the financial landscape solo, continuity, connectivity, and efficient synergic decisions are a must for financial success.
Effective financial planning increases efficiencies across all financial areas, which is synergy. If you feel you are leaving money on the table somewhere in your financial world or feel a lack of connectivity, you should contact a financial advisor. Some of the brightest minds in synergic financial planning can be found through The Alliance of Cambridge Advisors (an organization in which I am a member). Check out their website at http://www.acaplanners.org/.
Internal Revenue Service (IRS) rules of practice require me to inform you that any tax advice included in this communication is not intended to be used, and cannot be used, for the purpose of avoiding tax penalties by the IRS.
December 18, 2009
Holiday Spending During a Recession
By Linda Leitz, CFP®, EA
Colorado Springs, CO
http://lindaleitz.wordpress.com/
The holidays are upon us and many people are saying “Bah Humbug!” There is a way to enjoy the holidays without overspending. Here are a few tips:
- Plan your shopping. Don’t go out shopping without a list of what you’re looking for and the price range you have for each purchase. No impulse purchases!
- Make gifts. Take a little time to put together gifts with materials you already have or are inexpensive. It can be a knitted scarf, a photo collage, homemade bread, or a bird house. The personal touch is better than anything money can buy.
- Make personal gift certificates. We’ve done this with family for everything from an extended curfew for our teenagers to a home cooked dinner to doing a chore for someone. The gift is appreciated and you can make it more festive by printing the certificate on nice stationery.
While economic indicators say that we’re on the way out of the recession, many are still feeling the pinch. It’s not a time to burrow back into debt. The holidays are a great time to give yourself the gift of making financially responsible decisions.
Colorado Springs, CO
http://lindaleitz.wordpress.com/
The holidays are upon us and many people are saying “Bah Humbug!” There is a way to enjoy the holidays without overspending. Here are a few tips:
- Plan your shopping. Don’t go out shopping without a list of what you’re looking for and the price range you have for each purchase. No impulse purchases!
- Make gifts. Take a little time to put together gifts with materials you already have or are inexpensive. It can be a knitted scarf, a photo collage, homemade bread, or a bird house. The personal touch is better than anything money can buy.
- Make personal gift certificates. We’ve done this with family for everything from an extended curfew for our teenagers to a home cooked dinner to doing a chore for someone. The gift is appreciated and you can make it more festive by printing the certificate on nice stationery.
While economic indicators say that we’re on the way out of the recession, many are still feeling the pinch. It’s not a time to burrow back into debt. The holidays are a great time to give yourself the gift of making financially responsible decisions.
December 16, 2009
Preparing for Job Loss
By Erin Baehr, CFP®, EA
Shawnee-on-Delaware, PA
http://www.baehrfinancial.com/
“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”
- Harry S. Truman
I don’t know if you are facing a recession or depression by Truman’s definition today, but chances are you are facing one or the other. Truth is, the only economic certainty we have is that there will always be economic uncertainty, so we need to be prepared for whatever comes our way. Specifically, what are some ways we can prepare for a possible job loss, and what should we do if it unfortunately does happen?
First, some general preparations we all should take, no matter how secure our job seems: Ideally, we should have 10% of our annual income in a safe emergency account we can access immediately, and another 20% of our annual income in additional reserve, again in a safe account, but perhaps in certificates of deposit or money market accounts. That amount may seem insurmountable, but don’t let that discourage you. Start small and be faithful. In a world where things seem so out of our control, working on a goal like this can go a long way toward the peace of mind that comes from doing something to improve the situation.
Work hard to reduce consumer debt, and pay it down so your monthly obligations are more manageable. Track your spending so you know where you stand; take a good look to see if you can easily cut some things out of the budget now and stash the cash you save. Note where you could cut deeper if need be. Open a home equity or other line of credit now, while you are employed, to have that available if you do lose your job.
Shawnee-on-Delaware, PA
http://www.baehrfinancial.com/
“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”
- Harry S. Truman
I don’t know if you are facing a recession or depression by Truman’s definition today, but chances are you are facing one or the other. Truth is, the only economic certainty we have is that there will always be economic uncertainty, so we need to be prepared for whatever comes our way. Specifically, what are some ways we can prepare for a possible job loss, and what should we do if it unfortunately does happen?
First, some general preparations we all should take, no matter how secure our job seems: Ideally, we should have 10% of our annual income in a safe emergency account we can access immediately, and another 20% of our annual income in additional reserve, again in a safe account, but perhaps in certificates of deposit or money market accounts. That amount may seem insurmountable, but don’t let that discourage you. Start small and be faithful. In a world where things seem so out of our control, working on a goal like this can go a long way toward the peace of mind that comes from doing something to improve the situation.
Work hard to reduce consumer debt, and pay it down so your monthly obligations are more manageable. Track your spending so you know where you stand; take a good look to see if you can easily cut some things out of the budget now and stash the cash you save. Note where you could cut deeper if need be. Open a home equity or other line of credit now, while you are employed, to have that available if you do lose your job.
December 12, 2009
Why Hire a Professional Who Doesn’t Put Your Interests First?
By Jane Young, CFP, EA
Colorado Springs, CO
http://www.pinnaclefinancialconcepts.com/
When selecting a financial advisor you want someone who will act in your best interest. To ensure this is the case hire an advisor who works to a fiduciary standard. A fiduciary standard requires your advisor to put your interests first even if those interests are not in their best interest. According to the National Association of Personal Financial Advisors over 90% of all investment advisors are paid (fully or partially) on commission therefore they are compensated for selling products. Additionally, many of these advisors are employed by a broker/dealer or an insurance company, where they are held to a lower standard of diligence. They are required, as part of that employment, to act in the best interest of their employers.
How do you find an advisor who will put your interests first?
Here are two ways to be sure you are hiring someone who adheres to a fiduciary standard. All financial advisors who are members of the National Association of Personal Financial Advisors (NAPFA) are required to adhere to a “Fiduciary Oath” as a requirement of membership. Additionally, both Federal and State law require that anyone who is a Registered Investment Advisor be held to a fiduciary standard. You wouldn’t accept less from your doctor or lawyer why accept less from your financial advisor?
Here is a link with more information on the fiduciary standard of care:
http://www.focusonfiduciary.com/
Colorado Springs, CO
http://www.pinnaclefinancialconcepts.com/
When selecting a financial advisor you want someone who will act in your best interest. To ensure this is the case hire an advisor who works to a fiduciary standard. A fiduciary standard requires your advisor to put your interests first even if those interests are not in their best interest. According to the National Association of Personal Financial Advisors over 90% of all investment advisors are paid (fully or partially) on commission therefore they are compensated for selling products. Additionally, many of these advisors are employed by a broker/dealer or an insurance company, where they are held to a lower standard of diligence. They are required, as part of that employment, to act in the best interest of their employers.
How do you find an advisor who will put your interests first?
Here are two ways to be sure you are hiring someone who adheres to a fiduciary standard. All financial advisors who are members of the National Association of Personal Financial Advisors (NAPFA) are required to adhere to a “Fiduciary Oath” as a requirement of membership. Additionally, both Federal and State law require that anyone who is a Registered Investment Advisor be held to a fiduciary standard. You wouldn’t accept less from your doctor or lawyer why accept less from your financial advisor?
Here is a link with more information on the fiduciary standard of care:
http://www.focusonfiduciary.com/
December 8, 2009
Purposeful Spending
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
I was intrigued this morning as I met some friends at a local bagel shop for breakfast. After paying over $6.50 for a bagel with cream cheese and bottle of juice, I realized how expensive this establishment was for some of the regular patrons. I watched a father buy his sons breakfast before school, moms in workout clothes dropping in for quick jolt of caffeine before hitting the gym, and a few high school kids walk out with coffee mugs the size of milk jugs.
As I sat in astonishment at the number of people that patronized this local shop at 6:30am, I wondered how many of these folks came here everyday. From the familiarity of exchanges between the clerk and the customers, I supposed this was routine for many. I started to calculate the monthly outlay of the “average” bagel shop customer when it hit me that maybe I was missing the point.
I regularly speak to my clients regarding cash flow, and one of the most important elements we discuss is purposeful spending…..spending your hard earned money on things that really matter or bring joy into your life. By developing a budget that establishes joyful spending, we can create a healthy relationship with our money and not an angry, oppositional, or frustrating encounter every time we open our wallets.
Purposeful spending applies to all economic classes from the wealthy to those with little. The wealthy may enjoy purposefully spending through charitable giving, while those with less may simply enjoy the time together with the family at a local restaurant.
How it Works
Creating a purposeful spending philosophy has to work hand and glove with fiscal responsibility. Obviously, the necessities of life must be paid first followed by saving for the necessities and joys of tomorrow. What’s left over is often called discretionary funds. These are the funds in which purposeful spending evolve from. I feel it is important to understand that many of our purchases are choices, especially discretionary purchases. Focus on the areas of your spending that bring you joy and work on reducing spending in areas that do not. I often encounter families that over-spend in areas that are in opposition to their life goals or just can not be justified.
This brings me back to the bagel shop. Maybe I had the picture distorted, for I suppose the father may work long days and enjoy the focused time with his sons every morning. It could be their tradition rather than a financial drag to their monthly budget. Maybe the moms that walked in wanted someone else to make the coffee once in awhile and enjoy the time away from the hustle and bustle of their morning routine. These thoughts would certainly qualify for purposeful spending.
What about the teenagers? Well, I don’t pretend to imagine what their thoughts are…who knows? That’s above my pay grade and certainly fodder of a different professional.
The key to purposeful spending is to align discretionary outlays with sustainable joy and happiness (experiences with friends and family)…not purchases that generate short term bliss (keeping up with the Jones). Developing a spending mentality that enables you to feel good about what and where you spend your money can lead to a new level of financial freedom.
Nashville, TN
http://www.vhfinancialmanagement.com/
I was intrigued this morning as I met some friends at a local bagel shop for breakfast. After paying over $6.50 for a bagel with cream cheese and bottle of juice, I realized how expensive this establishment was for some of the regular patrons. I watched a father buy his sons breakfast before school, moms in workout clothes dropping in for quick jolt of caffeine before hitting the gym, and a few high school kids walk out with coffee mugs the size of milk jugs.
As I sat in astonishment at the number of people that patronized this local shop at 6:30am, I wondered how many of these folks came here everyday. From the familiarity of exchanges between the clerk and the customers, I supposed this was routine for many. I started to calculate the monthly outlay of the “average” bagel shop customer when it hit me that maybe I was missing the point.
I regularly speak to my clients regarding cash flow, and one of the most important elements we discuss is purposeful spending…..spending your hard earned money on things that really matter or bring joy into your life. By developing a budget that establishes joyful spending, we can create a healthy relationship with our money and not an angry, oppositional, or frustrating encounter every time we open our wallets.
Purposeful spending applies to all economic classes from the wealthy to those with little. The wealthy may enjoy purposefully spending through charitable giving, while those with less may simply enjoy the time together with the family at a local restaurant.
How it Works
Creating a purposeful spending philosophy has to work hand and glove with fiscal responsibility. Obviously, the necessities of life must be paid first followed by saving for the necessities and joys of tomorrow. What’s left over is often called discretionary funds. These are the funds in which purposeful spending evolve from. I feel it is important to understand that many of our purchases are choices, especially discretionary purchases. Focus on the areas of your spending that bring you joy and work on reducing spending in areas that do not. I often encounter families that over-spend in areas that are in opposition to their life goals or just can not be justified.
This brings me back to the bagel shop. Maybe I had the picture distorted, for I suppose the father may work long days and enjoy the focused time with his sons every morning. It could be their tradition rather than a financial drag to their monthly budget. Maybe the moms that walked in wanted someone else to make the coffee once in awhile and enjoy the time away from the hustle and bustle of their morning routine. These thoughts would certainly qualify for purposeful spending.
What about the teenagers? Well, I don’t pretend to imagine what their thoughts are…who knows? That’s above my pay grade and certainly fodder of a different professional.
The key to purposeful spending is to align discretionary outlays with sustainable joy and happiness (experiences with friends and family)…not purchases that generate short term bliss (keeping up with the Jones). Developing a spending mentality that enables you to feel good about what and where you spend your money can lead to a new level of financial freedom.
December 4, 2009
Military Tax Tips
By Robert Schmansky, CFP®
Franklin, MI
http://www.nfa1040.com/
From irs.gov:
IRS Drops and Gives You Ten…Military Tax Tips
IRS Summertime Tax Tip 2009-07
Summer is a busy time for everyone, but particularly for military members and their families. Whether it’s moving to a new base or traveling to a duty station, members of the military have many obligations that could impact their tax situation. Here are 10 IRS tax tips military members can keep in mind this summer to help with filing a tax return next year.
1. Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.
2. Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.
3. Extension of Deadlines The time for taking care of certain tax matters can be postponed. The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.
4. Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.
5. Joint Returns Generally, joint returns must be signed by both spouses. However, when one spouse may not be available due to military duty, a power of attorney may be used to file a joint return.
6. Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.
7. ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
8. Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.
9. Tax Help Most military installations offer free tax filing and preparation assistance during the filing season.
10. Tax Information IRS Publication 3, Armed Forces’ Tax Guide, summarizes many important military-related tax topics. Publication 3 is available for download at IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).
Link:
IRS Publication 3, Armed Forces’ Tax Guide
Franklin, MI
http://www.nfa1040.com/
From irs.gov:
IRS Drops and Gives You Ten…Military Tax Tips
IRS Summertime Tax Tip 2009-07
Summer is a busy time for everyone, but particularly for military members and their families. Whether it’s moving to a new base or traveling to a duty station, members of the military have many obligations that could impact their tax situation. Here are 10 IRS tax tips military members can keep in mind this summer to help with filing a tax return next year.
1. Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.
2. Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.
3. Extension of Deadlines The time for taking care of certain tax matters can be postponed. The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.
4. Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.
5. Joint Returns Generally, joint returns must be signed by both spouses. However, when one spouse may not be available due to military duty, a power of attorney may be used to file a joint return.
6. Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.
7. ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
8. Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.
9. Tax Help Most military installations offer free tax filing and preparation assistance during the filing season.
10. Tax Information IRS Publication 3, Armed Forces’ Tax Guide, summarizes many important military-related tax topics. Publication 3 is available for download at IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).
Link:
IRS Publication 3, Armed Forces’ Tax Guide
December 1, 2009
The War May Be Ending, But Your Financial Battle Rages On
Originally published 11/9/09 at FPA's All Things Financial Planning Blog
By Robert Schmansky, CFP®
Franklin, MI
http://www.nfa1040.com/
Don’t allow short-term emotions to sidetrack what you learned from the panic of 2008.
Over the last several months, we’ve gone from the greatest economic downturn since the Great Depression, to a tentative declaration by pundits, including Federal Reserve Chairman Ben Bernanke, that the recession is likely behind us.
You fought your personal financial battles during the crisis — whether they involved changing spending and savings patterns, or reconsidering the appropriateness of your investment portfolio’s asset allocation.
The economy does appear to be recovering — or at least stabilizing — and you might be starting to feel comfortable about your finances and your plan. But just as you shouldn’t allow emotions to rule your financial decisions when times are scary, don’t let a new sense of relative calm undermine the progress you have made. If the recent economic crisis has any parallels to the 1930s — and I believe it does — there may be additional setbacks on the road to recovery where personal thrift and a conservative plan will be critical to your ultimate success.
Internalizing the practices you adopted, as well as relearning a few important rules of thumb, can help you maintain your progress and lock in the lessons you’ve learned.
As you move forward, keep the following key principles in mind:
By Robert Schmansky, CFP®
Franklin, MI
http://www.nfa1040.com/
Don’t allow short-term emotions to sidetrack what you learned from the panic of 2008.
Over the last several months, we’ve gone from the greatest economic downturn since the Great Depression, to a tentative declaration by pundits, including Federal Reserve Chairman Ben Bernanke, that the recession is likely behind us.
You fought your personal financial battles during the crisis — whether they involved changing spending and savings patterns, or reconsidering the appropriateness of your investment portfolio’s asset allocation.
The economy does appear to be recovering — or at least stabilizing — and you might be starting to feel comfortable about your finances and your plan. But just as you shouldn’t allow emotions to rule your financial decisions when times are scary, don’t let a new sense of relative calm undermine the progress you have made. If the recent economic crisis has any parallels to the 1930s — and I believe it does — there may be additional setbacks on the road to recovery where personal thrift and a conservative plan will be critical to your ultimate success.
Internalizing the practices you adopted, as well as relearning a few important rules of thumb, can help you maintain your progress and lock in the lessons you’ve learned.
As you move forward, keep the following key principles in mind:
- Cash is king. (And queen, prince and duke.) Your home equity line of credit is no substitute for cash reserves. Keep at least 30 percent of your income in emergency cash, and twice that amount if you are self-employed, and more still if you are retired or temporarily unemployed.
- Save for a rainy day & plug the leaks. Budgeting is one way to get a hold of where your cash disappears to every month. Online tools such as mint.com can help. Since the goal of a budget is to live within your means and make sure you are saving for future goals, another way for the ‘budgeting adverse’ to tackle this task is to follow Stephen Covey’s advice and start with the end in mind; save 15 to 20 percent of your income and make the rest of your budget work without taking on debt.
- Focus on asset allocation. A helpful asset allocation/diversification rule of thumb is to invest 100 less your age as a percentage of your portfolio in stocks. Thus, for example, if you are 55, 100 – 55 = 45 — i.e. suggested 45 percent stock allocation in your portfolio. However, a more customized target stock allocation will vary greatly based on your personal risk tolerance and goals. Parts of your portfolio should be invested in low- or no-risk assets, and your portfolio should be sufficiently diversified so that some assets will be going up in value when others go down. We’ll cover this topic in future FPA blog posts, however, for now know investing in high risk bonds and stocks that move together is not diversification.
- Don’t keep all your eggs in one basket. Your primary source of income is probably your salary from your employer. Therefore, unless you are a small business owner, for diversification purposes, you should limit your holdings of employer stock and bonds to 10 percent of your investment portfolio.
- Your home is for living in, not flipping. Its value should be 2-2.5x your income. Slightly more in some areas, but having a “right-sized” home is a crucial part of your financial picture. And remember, you will always need to live somewhere, so your primary residence should not be seen as the same kind of “investment” as something else that you can sell without replacing.
November 27, 2009
Once Burned, Twice Shy
By Bert Whitehead, MBA, JD
Franklin, MI
http://www.bertwhitehead.com/
Investors are feeling almost euphoric. While the market hasn’t rebounded to a Dow topping 14,000 (where it was in Oct, 2007), it is up 58% flirting with 10,000 from the 6,500 bottom we experienced on March 9th of this year. This sharp rebound is a relief but can be scary in its own right.
SELL NOW! Many investment gurus are predicting another round of market setbacks. P/E ratios (i.e. the relationship of earnings to the price of stocks) are high at about 20. (15 is considered normal.) Their observations focus on the negative realities we are still experiencing, such as unemployment, the housing collapse, and unprecedented government spending and impending inflation. The ‘smart money,’ they say, is going into hibernation or reinvesting in exotic currency and commodity offerings.
BUY, BUY, BUY! Other investment mavens are optimistic. On this side the ‘smart money’ notes that the steepest market drops are historically followed by higher and higher stock prices. The market is a leading indicator and is looking ahead 9-18 months. The stage is set for a global recovery and owning stocks is the place to be.
Who can you believe? Keep two things in mind: 1) the ‘smart money’ in both groups represents only 5% of the traders but accounts for 95% of the stock transactions every day, and 2) every day a ‘survey’ is taken, and 50% of the ‘smart money’ thinks the market is going up while the other half thinks it’s going down. It has to be that way, because for every buyer there must be a seller – and one of them is wrong!
It is enticing to try to forecast what will happen next, and the experts can be very convincing. Usually they focus on one or two factors that support their conclusion, and their position appeals to one of the two most dangerous emotions for investors: Fear and Greed.
Fear made some people jump out of the market at the end of last year or the start of this year. They panicked and sold all of their stocks. Perhaps they felt burned, yet satisfied knowing that they were ‘right’ as the market tumbled downward until March 9. Now many of them are kicking themselves for turning shy and not getting back in as they watched stock prices spiral upward. They wonder if they should buy back into the market now is it too late? Is the market due for a correction?
This is the market timer’s dilemma: they first have to decide when to sell. Then they have to decide when to get back in. So both decisions have to be right. Statistically, they will get both right 25% of the time; the other 75% of the time they will make an error.
If Greed wins out and they put everything back in the market now, they run a 50% chance of being ‘whipsawed.’ As soon as they buy back in, the market nosedives. So their Fear kicks into gear and they sell out again and take a large loss to avoid a huge loss. Then, of course, stocks skyrocket. I have experienced this myself. It is a very depressing experience.
Market timers can get so caught up in their timing schemes that the market takes over their whole lives. They constantly watch ‘the market’ and listen to talking heads expound while reading about the latest investment fad. In the end, they would be better off financially and emotionally if they had a clear plan and stuck to it.
We use Functional Asset Allocation, an investment strategy format that is designed for real people. It incorporates real estate as well as stocks and bonds/cash. We seek to balance the portfolio in relation to total net worth, rather than try to time the market. As we balance our clients’ investments, we want to lower their investment costs, reduce the overall volatility of the portfolio, and, especially, make their portfolio tax efficient. We make decisions about things we can control by understanding the difference between what is certain and what is speculation. We position clients to enjoy a ‘market rate of return.’
By using a 15 year bond ladder with Treasury bonds, we provide clients with a safety net so they don’t have to time their investing activity. They keep their real estate, even when the market tanks. They continue to dollar cost average into the stock market when it falls and rises. By maintaining a balanced portfolio, our clients are always positioned for any economic environment. They have investments to hedge against inflation, deflation and to participate when prosperity returns.
An investment advisor once commented to me that we could get a much higher rate of return by using municipal bonds and junk bonds instead of U.S. Treasuries. I acknowledged that, if an investor can time interest rates successfully over a long period of time, the gains might offset the extra taxes and transaction costs involved. But I explained that all our clients need to do is to get a market rate of return. We don’t take the extra risks that are required to try to ‘beat the market.’ We sell sleep.
You may be a bit shy about getting back into the stock market now because you got burned badly during the last downturn, which was the worst in the last 50 years. The key to not getting burned is to adjust your expectations and have a balanced portfolio that is geared for your particular situation. It’s the best way to experience the rewards of long-term investing and protect yourself against emotion-induced investment losses.
I appreciate the editorial review contributed by Chip Simon, CFP®, an ACA colleague in Poughkeepsie, NY.
Franklin, MI
http://www.bertwhitehead.com/
Investors are feeling almost euphoric. While the market hasn’t rebounded to a Dow topping 14,000 (where it was in Oct, 2007), it is up 58% flirting with 10,000 from the 6,500 bottom we experienced on March 9th of this year. This sharp rebound is a relief but can be scary in its own right.
SELL NOW! Many investment gurus are predicting another round of market setbacks. P/E ratios (i.e. the relationship of earnings to the price of stocks) are high at about 20. (15 is considered normal.) Their observations focus on the negative realities we are still experiencing, such as unemployment, the housing collapse, and unprecedented government spending and impending inflation. The ‘smart money,’ they say, is going into hibernation or reinvesting in exotic currency and commodity offerings.
BUY, BUY, BUY! Other investment mavens are optimistic. On this side the ‘smart money’ notes that the steepest market drops are historically followed by higher and higher stock prices. The market is a leading indicator and is looking ahead 9-18 months. The stage is set for a global recovery and owning stocks is the place to be.
Who can you believe? Keep two things in mind: 1) the ‘smart money’ in both groups represents only 5% of the traders but accounts for 95% of the stock transactions every day, and 2) every day a ‘survey’ is taken, and 50% of the ‘smart money’ thinks the market is going up while the other half thinks it’s going down. It has to be that way, because for every buyer there must be a seller – and one of them is wrong!
It is enticing to try to forecast what will happen next, and the experts can be very convincing. Usually they focus on one or two factors that support their conclusion, and their position appeals to one of the two most dangerous emotions for investors: Fear and Greed.
Fear made some people jump out of the market at the end of last year or the start of this year. They panicked and sold all of their stocks. Perhaps they felt burned, yet satisfied knowing that they were ‘right’ as the market tumbled downward until March 9. Now many of them are kicking themselves for turning shy and not getting back in as they watched stock prices spiral upward. They wonder if they should buy back into the market now is it too late? Is the market due for a correction?
This is the market timer’s dilemma: they first have to decide when to sell. Then they have to decide when to get back in. So both decisions have to be right. Statistically, they will get both right 25% of the time; the other 75% of the time they will make an error.
If Greed wins out and they put everything back in the market now, they run a 50% chance of being ‘whipsawed.’ As soon as they buy back in, the market nosedives. So their Fear kicks into gear and they sell out again and take a large loss to avoid a huge loss. Then, of course, stocks skyrocket. I have experienced this myself. It is a very depressing experience.
Market timers can get so caught up in their timing schemes that the market takes over their whole lives. They constantly watch ‘the market’ and listen to talking heads expound while reading about the latest investment fad. In the end, they would be better off financially and emotionally if they had a clear plan and stuck to it.
We use Functional Asset Allocation, an investment strategy format that is designed for real people. It incorporates real estate as well as stocks and bonds/cash. We seek to balance the portfolio in relation to total net worth, rather than try to time the market. As we balance our clients’ investments, we want to lower their investment costs, reduce the overall volatility of the portfolio, and, especially, make their portfolio tax efficient. We make decisions about things we can control by understanding the difference between what is certain and what is speculation. We position clients to enjoy a ‘market rate of return.’
By using a 15 year bond ladder with Treasury bonds, we provide clients with a safety net so they don’t have to time their investing activity. They keep their real estate, even when the market tanks. They continue to dollar cost average into the stock market when it falls and rises. By maintaining a balanced portfolio, our clients are always positioned for any economic environment. They have investments to hedge against inflation, deflation and to participate when prosperity returns.
An investment advisor once commented to me that we could get a much higher rate of return by using municipal bonds and junk bonds instead of U.S. Treasuries. I acknowledged that, if an investor can time interest rates successfully over a long period of time, the gains might offset the extra taxes and transaction costs involved. But I explained that all our clients need to do is to get a market rate of return. We don’t take the extra risks that are required to try to ‘beat the market.’ We sell sleep.
You may be a bit shy about getting back into the stock market now because you got burned badly during the last downturn, which was the worst in the last 50 years. The key to not getting burned is to adjust your expectations and have a balanced portfolio that is geared for your particular situation. It’s the best way to experience the rewards of long-term investing and protect yourself against emotion-induced investment losses.
I appreciate the editorial review contributed by Chip Simon, CFP®, an ACA colleague in Poughkeepsie, NY.
November 25, 2009
What Deflation Looks Like
Bert Whitehead, M.B.A., J.D.
Franklin, MI
http://www.bertwhitehead.com/
For years we have been told about the evils of inflation. But now we are witnessing deflation, which most people have never experienced since 1950. What does deflation mean for you today? How is the economy affected? How bad can it get?
Inflation is an economic phenomenon that has been described as too many dollars chasing too few goods. Deflation occurs when the opposite happens -- too few dollars are being used to buy the available goods.
For most of this decade credit has been abundant and too much money was lent, especially to people without a strong financial foundation. It was easy to buy houses, cars, take trips, etc. As borrowers defaulted en masse on mortgages, student loans, car loans, etc., the banks and other lending institutions curtailed lending to consumers and to businesses. This resulted in an alarming drop in sales of cars, houses, etc. Retail sales across the board have shrunk as people became very frugal.
The downturn is compounded by a significant increase in the average family savings rate from about 1% of household income a few years ago to 6%+ now. The stock market dropped to the lowest level in 50 years, which caused working people to be alarmed about their retirement prospects. Seeing your house drop in value along with your 401-k is gut wrenching. So people are improving their “balance sheets” by paying off debt and increasing their savings at a feverish pitch.
These developments are good in many ways because we are weaning ourselves off the spending binge that lasted until about 2007. The downside is that companies have trouble making a profit because they have to cut their prices so much to sell their goods and services. This impacts suppliers. New orders for their products drops. To survive, all businesses are cutting staff. Then unemployment rises, there are even fewer purchasers, and people refrain from buying things because they either don’t have the money or they expect prices to drop further. This cycle creates a vicious vortex which sucks the wind out of our economy and causes deflation.
The big danger is that this downward spiral can worsen over time. As more people lose their jobs they can’t buy goods and services, sales continue to drop, and employers lay off more people, etc. Economists call this a drop in ‘velocity of money’ and, if it continues, it could cause a severe depression. At that point, it is very difficult to regain economic momentum. The Great Depression of the 1930’s only ended when we went to war in 1941. War increases employment, and creates a strong demand for armaments (which keep getting blown up and have to be replaced).
Deflation also causes the value of our dollar to drop against other currencies. For American workers, this means that the price of imports and the cost of travel abroad increases. For non-U.S. residents this situation is a bonanza: for example, Europeans can not only buy more dollars with each Euro, but those dollars will buy more U.S. goods, and travel to the U.S. is a real bargain. As foreigners buy more U.S. goods and services and travel here to spend their money our balance of trade is favored.
Swings in economic activity are often self-correcting. As prices drop during deflation, the value of the dollar for U.S. residents actually increases and we can buy more for less money. For example, the price of real estate has plummeted in many areas, the negotiated price of cars has dropped, and most retail stores, restaurants, etc. are offering enticing specials.
The U.S. is not the only country facing this situation: the whole world is experiencing deflation. But a free market economy like ours is affected sooner because a higher degree of our spending is non-governmental compared to many other mature economies. To address the danger of deflation, the U.S. government had to inject money into the economy using stimulus spending. Most countries have a stronger social ‘safety-net’ like unemployment benefits and free health care. They have decided that, for now, additional government spending in the form of a stimulus is not necessary.
Most of the U.S. stimulus money, however, is being spent on government jobs that do not create additional employment. The ‘TARP’ money earmarked to shore up our banking system isn’t being lent out by banks to create economic activity, as was expected, but is rather being used by the banks to repair their own balance sheets and recapitalize. So the ‘law of unintended consequences’ has kicked in to further complicate the situation.
Investors are faced with very low interest rates on their savings. Series I Savings Bonds, which accrue interest on an inflation-adjusted basis, are now paying zero interest due to deflation. As you well know, it’s all but impossible to find bank savings accounts or money market accounts that even pay 1%!
What can you do to combat deflation? The best hedge is U.S. Treasury bonds, which have a fixed interest rate over the life of the bond and are non-callable (i.e. cannot be paid off earlier than the original maturity date). Including them in your portfolio preserves your purchasing power when equities in your portfolio decline.
Although infrequent, deflation has its particular perils and it is important that you build protection into your portfolio to shield you from its devastating effects. It is actually more important to protect a portfolio against deflation with fixed rate Treasuries than to try to sidestep inflation by filling a bond portfolio with TIP’s (inflation adjusted Treasuries) that leave no defense against deflation.
We are a resilient nation, and we will survive this economic cycle. Indeed there are simple, sensible approaches you can take to ready yourself for all economic environments - deflation, inflation, or prosperity. The key is to build and maintain a balanced approach that positions you for any economic scenario. You’ll be able to stop trying to predict what might happen because you’ll know that you are prepared to face whatever does happen. Isn’t that one of the best “returns” your portfolio could ever provide?
I appreciate the editorial review contributed by Chip Simon, CFP®, an ACA colleague in Poughkeepsie, NY.
Franklin, MI
http://www.bertwhitehead.com/
For years we have been told about the evils of inflation. But now we are witnessing deflation, which most people have never experienced since 1950. What does deflation mean for you today? How is the economy affected? How bad can it get?
Inflation is an economic phenomenon that has been described as too many dollars chasing too few goods. Deflation occurs when the opposite happens -- too few dollars are being used to buy the available goods.
For most of this decade credit has been abundant and too much money was lent, especially to people without a strong financial foundation. It was easy to buy houses, cars, take trips, etc. As borrowers defaulted en masse on mortgages, student loans, car loans, etc., the banks and other lending institutions curtailed lending to consumers and to businesses. This resulted in an alarming drop in sales of cars, houses, etc. Retail sales across the board have shrunk as people became very frugal.
The downturn is compounded by a significant increase in the average family savings rate from about 1% of household income a few years ago to 6%+ now. The stock market dropped to the lowest level in 50 years, which caused working people to be alarmed about their retirement prospects. Seeing your house drop in value along with your 401-k is gut wrenching. So people are improving their “balance sheets” by paying off debt and increasing their savings at a feverish pitch.
These developments are good in many ways because we are weaning ourselves off the spending binge that lasted until about 2007. The downside is that companies have trouble making a profit because they have to cut their prices so much to sell their goods and services. This impacts suppliers. New orders for their products drops. To survive, all businesses are cutting staff. Then unemployment rises, there are even fewer purchasers, and people refrain from buying things because they either don’t have the money or they expect prices to drop further. This cycle creates a vicious vortex which sucks the wind out of our economy and causes deflation.
The big danger is that this downward spiral can worsen over time. As more people lose their jobs they can’t buy goods and services, sales continue to drop, and employers lay off more people, etc. Economists call this a drop in ‘velocity of money’ and, if it continues, it could cause a severe depression. At that point, it is very difficult to regain economic momentum. The Great Depression of the 1930’s only ended when we went to war in 1941. War increases employment, and creates a strong demand for armaments (which keep getting blown up and have to be replaced).
Deflation also causes the value of our dollar to drop against other currencies. For American workers, this means that the price of imports and the cost of travel abroad increases. For non-U.S. residents this situation is a bonanza: for example, Europeans can not only buy more dollars with each Euro, but those dollars will buy more U.S. goods, and travel to the U.S. is a real bargain. As foreigners buy more U.S. goods and services and travel here to spend their money our balance of trade is favored.
Swings in economic activity are often self-correcting. As prices drop during deflation, the value of the dollar for U.S. residents actually increases and we can buy more for less money. For example, the price of real estate has plummeted in many areas, the negotiated price of cars has dropped, and most retail stores, restaurants, etc. are offering enticing specials.
The U.S. is not the only country facing this situation: the whole world is experiencing deflation. But a free market economy like ours is affected sooner because a higher degree of our spending is non-governmental compared to many other mature economies. To address the danger of deflation, the U.S. government had to inject money into the economy using stimulus spending. Most countries have a stronger social ‘safety-net’ like unemployment benefits and free health care. They have decided that, for now, additional government spending in the form of a stimulus is not necessary.
Most of the U.S. stimulus money, however, is being spent on government jobs that do not create additional employment. The ‘TARP’ money earmarked to shore up our banking system isn’t being lent out by banks to create economic activity, as was expected, but is rather being used by the banks to repair their own balance sheets and recapitalize. So the ‘law of unintended consequences’ has kicked in to further complicate the situation.
Investors are faced with very low interest rates on their savings. Series I Savings Bonds, which accrue interest on an inflation-adjusted basis, are now paying zero interest due to deflation. As you well know, it’s all but impossible to find bank savings accounts or money market accounts that even pay 1%!
What can you do to combat deflation? The best hedge is U.S. Treasury bonds, which have a fixed interest rate over the life of the bond and are non-callable (i.e. cannot be paid off earlier than the original maturity date). Including them in your portfolio preserves your purchasing power when equities in your portfolio decline.
Although infrequent, deflation has its particular perils and it is important that you build protection into your portfolio to shield you from its devastating effects. It is actually more important to protect a portfolio against deflation with fixed rate Treasuries than to try to sidestep inflation by filling a bond portfolio with TIP’s (inflation adjusted Treasuries) that leave no defense against deflation.
We are a resilient nation, and we will survive this economic cycle. Indeed there are simple, sensible approaches you can take to ready yourself for all economic environments - deflation, inflation, or prosperity. The key is to build and maintain a balanced approach that positions you for any economic scenario. You’ll be able to stop trying to predict what might happen because you’ll know that you are prepared to face whatever does happen. Isn’t that one of the best “returns” your portfolio could ever provide?
I appreciate the editorial review contributed by Chip Simon, CFP®, an ACA colleague in Poughkeepsie, NY.
November 23, 2009
Oh My, You Don't Have a Will?
By Troy Von Haefen, CFP®
Nashville, TN
www.vhfinancialmanagement.com/
Many folks that walk into my office for the first time don’t have a will in place. Maybe I should rephrase that….the folks that walk into my office without a will they have created have a will as prepared by their state. Dying intestate (without a will) will move into action the state’s plan, which more than likely will not coincide with your plans or wishes.
Let’s look at a few examples of what a state’s will may include (or not include)
Guardianship Provisions
Since most of my clients have minor children, let’s start with guardianship provisions. While the state will try to get the children where they belong, if the relatives cannot agree, the state can appoint someone. Guess what? That someone can be a stranger! Guardianship provisions should be the primary focus of young couples with children. It’s important that you designate a guardian and not leave that up to the state. Don’t let the care of your children become a bureaucratic decision.
Estate Tax Reduction
Your state will more than likely forgo any opportunity to lower estate taxes. There are estate planning techniques that may reduce estate taxes, but the state may not implement any options unless stated in a legal document (will). In essence, the state will say that your money is better off going into the state or federal coffers and not to your spouse, children, or charity.
Division of your assets
Here in TN, the state may give your spouse only one-third of your assets and your children the remaining two-thirds. The state can appoint your spouse as the legal guardian of your minor children but may require a performance bond to guarantee the proper handling of the children’s assets. The living spouse may also have to produce a yearly account to the probate court of the monies spent on the children. These details will only compound a difficult situation (death) by making a simple task (spending money on your children) complicated and burdensome.
These are a few of the issues that can arise out of intestate death. The over-riding theme here is that while the state will try to do what is right with your children and assets, the letter of the state’s law may not be your wishes. If you have a will, make sure it conveys your wishes. If you do not have a will, speak with an attorney and have one drafted.
Disclosure: Troy Von Haefen is not an attorney and the above information does not constitute legal advice or the practice of law but is written for informational purposes only.
Nashville, TN
www.vhfinancialmanagement.com/
Many folks that walk into my office for the first time don’t have a will in place. Maybe I should rephrase that….the folks that walk into my office without a will they have created have a will as prepared by their state. Dying intestate (without a will) will move into action the state’s plan, which more than likely will not coincide with your plans or wishes.
Let’s look at a few examples of what a state’s will may include (or not include)
Guardianship Provisions
Since most of my clients have minor children, let’s start with guardianship provisions. While the state will try to get the children where they belong, if the relatives cannot agree, the state can appoint someone. Guess what? That someone can be a stranger! Guardianship provisions should be the primary focus of young couples with children. It’s important that you designate a guardian and not leave that up to the state. Don’t let the care of your children become a bureaucratic decision.
Estate Tax Reduction
Your state will more than likely forgo any opportunity to lower estate taxes. There are estate planning techniques that may reduce estate taxes, but the state may not implement any options unless stated in a legal document (will). In essence, the state will say that your money is better off going into the state or federal coffers and not to your spouse, children, or charity.
Division of your assets
Here in TN, the state may give your spouse only one-third of your assets and your children the remaining two-thirds. The state can appoint your spouse as the legal guardian of your minor children but may require a performance bond to guarantee the proper handling of the children’s assets. The living spouse may also have to produce a yearly account to the probate court of the monies spent on the children. These details will only compound a difficult situation (death) by making a simple task (spending money on your children) complicated and burdensome.
These are a few of the issues that can arise out of intestate death. The over-riding theme here is that while the state will try to do what is right with your children and assets, the letter of the state’s law may not be your wishes. If you have a will, make sure it conveys your wishes. If you do not have a will, speak with an attorney and have one drafted.
Disclosure: Troy Von Haefen is not an attorney and the above information does not constitute legal advice or the practice of law but is written for informational purposes only.
November 19, 2009
The More Things Change...
By John Scherer, CFP, ChFC
Middleton, WI
http://www.trinfin.com/
If you read the Time magazine article reference in my last post you can skip this paragraph right now and move on to the next. For those that didn't get around to reading the full article, the punch line is that despite sounding very much like something written in September 2009 with its references to high unemployment, credit problems, and the economy in a profound, once-in-a-lifetime state of turmoil, the article was in fact written in September 1992.
I would venture to guess that not many readers really remember the disastrous recession of '91, just like the crash of '01-02 is becoming an ever distant memory. Rest assured that the great debacle of '08-09 will take on a similar hazy recollection down the road.
But as the Time article reminds, it is in fact scary when we are in the midst of the downward part of the cycle that regenerates growth. Much like a destructive fire ultimately regenerates the forest, we need to remember that market declines are a natural and necessary part of capitalism.
Currently many major publications are talking about the 'new normal' economy. Rest again assured that today is not any more a new paradigm than when Japan was going to take over the world in the 80's, or when technology signaled the new economy in the 90's, or when stocks were dead in the late 70's.
The more things change, the more they indeed do remain the same.
Middleton, WI
http://www.trinfin.com/
If you read the Time magazine article reference in my last post you can skip this paragraph right now and move on to the next. For those that didn't get around to reading the full article, the punch line is that despite sounding very much like something written in September 2009 with its references to high unemployment, credit problems, and the economy in a profound, once-in-a-lifetime state of turmoil, the article was in fact written in September 1992.
I would venture to guess that not many readers really remember the disastrous recession of '91, just like the crash of '01-02 is becoming an ever distant memory. Rest assured that the great debacle of '08-09 will take on a similar hazy recollection down the road.
But as the Time article reminds, it is in fact scary when we are in the midst of the downward part of the cycle that regenerates growth. Much like a destructive fire ultimately regenerates the forest, we need to remember that market declines are a natural and necessary part of capitalism.
Currently many major publications are talking about the 'new normal' economy. Rest again assured that today is not any more a new paradigm than when Japan was going to take over the world in the 80's, or when technology signaled the new economy in the 90's, or when stocks were dead in the late 70's.
The more things change, the more they indeed do remain the same.
November 16, 2009
10 Investment Principals that Never Go Out of Style
By Jane Young, CFP®, EA
http://www.pinnaclefinancialconcepts.com/
Colorado Springs, CO
Frequently people talk about how everything is different and we should change the way we invest. Yes, we have just experienced a very difficult year with some major changes in our economic situation. However, every time we go through a major market adjustment if feels like “this time is different”. We could take numerous comments made at the end of the last bear market and insert them into today’s headlines without missing a beat. I call this the “recency effect”; bad times always feel more desperate while we are experiencing them. We need to step back and look at the big picture; don’t throw the baby out with the bathwater. Good, sound investment fundamentals are still valid. Some people may reassess their tolerance for risk, start saving more money or cut back on their discretionary spending - but the following investment principals are good, time tested guidelines that everyone should follow in any market.
1. Don’t time the market - The stock market is counter-intuitive. Generally, it may be better to invest when things seem most dire and sell when everything is rosy. It is impossible to predict the movement of the stock market and history shows that those who do frequently miss out on big upswings.
2. Dollar Cost Average - This enables you to invest a set dollar amount every month or every quarter regardless of what the market does. As a result you buy more shares when the price is low and fewer when the market is high. Dollar cost averaging helps you mitigate risk because we don’t know what the stock market is going to do tomorrow.
3. Maintain at least 3 to 6 months of expenses in an emergency fund - This is especially important in difficult financial times when stock market values are low and unemployment is high. Unless you have a very secure job I currently recommend a 6 month emergency fund.
4. Don’t invest in anything you don’t understand - If you just can’t get your head around something after it’s been explained or you have done a reasonable amount of research don’t invest in it. If an investment opportunity is overly complicated something may be rotten in Denmark.
5. Don’t Chase Hot Asset Classes - Today international funds may be skyrocketing and tomorrow it may be small cap domestic stock funds. Don’t forget what happened to the stock market after the dot.com bubble burst.
6. Diversify, Diversify, Diversify - Everyone needs to diversify with a mix of fixed income and equity investments that is consistent with their own unique investment goals and objectives. Although most stocks dropped in unison over the last year, I still think there is value in diversifying between different types of stock mutual funds. I believe we will see some categories of stocks outpace others as the market rebounds. Depending on your risk tolerance, a small allocation in commodities and real estate may be advisable.
7. Don’t Make Emotional Decisions - Many investment decisions are triggered by fear and greed and they are equally damaging. Don’t make rash decisions based on emotion. Remember the stock market is counter-intuitive.
8. Don’t put more than 5% of your assets in one security – Any given company can go bankrupt as we have seen with many financial and automobile firms over the last year. I encourage the use of mutual funds over individual stocks to help mitigate this type of risk. If you do invest in individual stocks don’t put too much faith in any one company. If you are investing in your own company and you have a strong understanding of the firm’s performance you could go up to 10%.
9. Be tax smart - Take advantage of tax advantaged retirement plans such as Roth IRAs and 401k plans. Consider tax consequences when re-balancing your portfolio. Use a bear market to harvest some tax losses and off-load some bad or inappropriate investments.
10. Be aware of fees and surrender charges - When selecting investments be aware of high fees and commissions. Tread cautiously with anything that contains a contingent deferred sales charge. Many clients have come to me with a desire to sell or transfer previously purchased investments, usually annuities, only to find they have a 5-10% surrender charge if they sell within ten years of purchase. A surrender charge can have a big impact on your flexibility. If you really want a variable annuity buy one with low fees and no surrender charges.
http://www.pinnaclefinancialconcepts.com/
Colorado Springs, CO
Frequently people talk about how everything is different and we should change the way we invest. Yes, we have just experienced a very difficult year with some major changes in our economic situation. However, every time we go through a major market adjustment if feels like “this time is different”. We could take numerous comments made at the end of the last bear market and insert them into today’s headlines without missing a beat. I call this the “recency effect”; bad times always feel more desperate while we are experiencing them. We need to step back and look at the big picture; don’t throw the baby out with the bathwater. Good, sound investment fundamentals are still valid. Some people may reassess their tolerance for risk, start saving more money or cut back on their discretionary spending - but the following investment principals are good, time tested guidelines that everyone should follow in any market.
1. Don’t time the market - The stock market is counter-intuitive. Generally, it may be better to invest when things seem most dire and sell when everything is rosy. It is impossible to predict the movement of the stock market and history shows that those who do frequently miss out on big upswings.
2. Dollar Cost Average - This enables you to invest a set dollar amount every month or every quarter regardless of what the market does. As a result you buy more shares when the price is low and fewer when the market is high. Dollar cost averaging helps you mitigate risk because we don’t know what the stock market is going to do tomorrow.
3. Maintain at least 3 to 6 months of expenses in an emergency fund - This is especially important in difficult financial times when stock market values are low and unemployment is high. Unless you have a very secure job I currently recommend a 6 month emergency fund.
4. Don’t invest in anything you don’t understand - If you just can’t get your head around something after it’s been explained or you have done a reasonable amount of research don’t invest in it. If an investment opportunity is overly complicated something may be rotten in Denmark.
5. Don’t Chase Hot Asset Classes - Today international funds may be skyrocketing and tomorrow it may be small cap domestic stock funds. Don’t forget what happened to the stock market after the dot.com bubble burst.
6. Diversify, Diversify, Diversify - Everyone needs to diversify with a mix of fixed income and equity investments that is consistent with their own unique investment goals and objectives. Although most stocks dropped in unison over the last year, I still think there is value in diversifying between different types of stock mutual funds. I believe we will see some categories of stocks outpace others as the market rebounds. Depending on your risk tolerance, a small allocation in commodities and real estate may be advisable.
7. Don’t Make Emotional Decisions - Many investment decisions are triggered by fear and greed and they are equally damaging. Don’t make rash decisions based on emotion. Remember the stock market is counter-intuitive.
8. Don’t put more than 5% of your assets in one security – Any given company can go bankrupt as we have seen with many financial and automobile firms over the last year. I encourage the use of mutual funds over individual stocks to help mitigate this type of risk. If you do invest in individual stocks don’t put too much faith in any one company. If you are investing in your own company and you have a strong understanding of the firm’s performance you could go up to 10%.
9. Be tax smart - Take advantage of tax advantaged retirement plans such as Roth IRAs and 401k plans. Consider tax consequences when re-balancing your portfolio. Use a bear market to harvest some tax losses and off-load some bad or inappropriate investments.
10. Be aware of fees and surrender charges - When selecting investments be aware of high fees and commissions. Tread cautiously with anything that contains a contingent deferred sales charge. Many clients have come to me with a desire to sell or transfer previously purchased investments, usually annuities, only to find they have a 5-10% surrender charge if they sell within ten years of purchase. A surrender charge can have a big impact on your flexibility. If you really want a variable annuity buy one with low fees and no surrender charges.
November 15, 2009
Holidays & Gifts
By W. Tedd Oyler, J.D.
Saugatuck, MI
http://www.teddoyler.com/
The American “holiday season” has ancient roots. We are carrying on a traditional custom of celebrating the winter solstice, the end of shortening days and the rebirth of lengthening days, and the hope for more sunlight. Several traditions have their own important observances that take place in the dark days of December.
It appears to be another human tradition to take simple celebrations and make them grander, more complicated. Christmas, for instance, has for some become a cacophony of Santas, reindeer, nutcrackers, tinsel, flashing lights, faux angels, office parties, holiday movies, and—above all else, it seems—a frenzy of gift buying and opening.
To be sure, each of us can choose how we celebrate our holidays. Our traditions dictate some of the experience. Beyond those teachings, we can choose how to observe important occasions. Just because the neighbors decorate their homes to a gaudy excess does not obligate us. Just because the neighbor children receive thousands of dollars worth of electronics does not mean our kids must as well.
You may be struggling to maintain treasured family traditions, such as a certain schedule for a holiday or a particular way of opening gifts. You may face new challenges if one sibling has moved away and another has married into another family, creating scheduling conflicts. Each of these issues adds stress to our lives and has the potential to compromise a pleasant holiday. If you think the season has become more material than spiritual, consider reinventing how you celebrate your holiday. And if you go into debt to buy gifts, maybe you should reinvent how you celebrate.
As we edge warily forward into 2010, absorbing one financial shock after another—to the point where we aren’t even shocked anymore, just frightened—we can reexamine our priorities, perhaps taking a fresh look at all those toys (for kids and adults) and all that debt that can enslave us.
It’s all about living in integrity with your own sense of values. If you don’t, you will be uneasy some part of every day—unhappy rather than happy, less useful to your family and friends. Failing to live in integrity will cause your life to dis-integrate—maybe slowly, maybe more quickly.
So how can you reengineer a holiday? Perhaps you can reduce the focus on material goods. For the children in your life, reduce the number of gifts you buy by one. Young ones won’t notice the difference, and older ones can be taught to choose what is most important to them. As kids become old enough to understand, offer them a gift for themselves with the provison that they’ll designate a charitable recipient to receive a gift of similar value. You may be surprised at how much they’ll appreciate this idea.
Instead of buying more “things” for adults who already have plenty, consider charitable donations in their name for as much as you would have spent on them. Choose a charity they support or where they volunteer.
Fewer material gifts means less wrapping, less mess, and less time spent in malls. This leaves more time and freedom to spend your holiday in your own way. Perhaps you and your family will prefer less in the way of material goods and cherish more meaningful time together.
Saugatuck, MI
http://www.teddoyler.com/
The American “holiday season” has ancient roots. We are carrying on a traditional custom of celebrating the winter solstice, the end of shortening days and the rebirth of lengthening days, and the hope for more sunlight. Several traditions have their own important observances that take place in the dark days of December.
It appears to be another human tradition to take simple celebrations and make them grander, more complicated. Christmas, for instance, has for some become a cacophony of Santas, reindeer, nutcrackers, tinsel, flashing lights, faux angels, office parties, holiday movies, and—above all else, it seems—a frenzy of gift buying and opening.
To be sure, each of us can choose how we celebrate our holidays. Our traditions dictate some of the experience. Beyond those teachings, we can choose how to observe important occasions. Just because the neighbors decorate their homes to a gaudy excess does not obligate us. Just because the neighbor children receive thousands of dollars worth of electronics does not mean our kids must as well.
You may be struggling to maintain treasured family traditions, such as a certain schedule for a holiday or a particular way of opening gifts. You may face new challenges if one sibling has moved away and another has married into another family, creating scheduling conflicts. Each of these issues adds stress to our lives and has the potential to compromise a pleasant holiday. If you think the season has become more material than spiritual, consider reinventing how you celebrate your holiday. And if you go into debt to buy gifts, maybe you should reinvent how you celebrate.
As we edge warily forward into 2010, absorbing one financial shock after another—to the point where we aren’t even shocked anymore, just frightened—we can reexamine our priorities, perhaps taking a fresh look at all those toys (for kids and adults) and all that debt that can enslave us.
It’s all about living in integrity with your own sense of values. If you don’t, you will be uneasy some part of every day—unhappy rather than happy, less useful to your family and friends. Failing to live in integrity will cause your life to dis-integrate—maybe slowly, maybe more quickly.
So how can you reengineer a holiday? Perhaps you can reduce the focus on material goods. For the children in your life, reduce the number of gifts you buy by one. Young ones won’t notice the difference, and older ones can be taught to choose what is most important to them. As kids become old enough to understand, offer them a gift for themselves with the provison that they’ll designate a charitable recipient to receive a gift of similar value. You may be surprised at how much they’ll appreciate this idea.
Instead of buying more “things” for adults who already have plenty, consider charitable donations in their name for as much as you would have spent on them. Choose a charity they support or where they volunteer.
Fewer material gifts means less wrapping, less mess, and less time spent in malls. This leaves more time and freedom to spend your holiday in your own way. Perhaps you and your family will prefer less in the way of material goods and cherish more meaningful time together.
November 13, 2009
Revised First-Time Homebuyer’s Credit
By Kevin Jacobs, CFP®
Broken Arrow, OK
http://www.stepbystepfinancialplanning.com/
Below you will find links explaining the extension of the first-time homebuyer’s credit. The bill was passed in the Senate today and will likely be voted upon in the House tomorrow or early next week. This bill extends the qualifying date from December 1st, 2009 to June 30th, 2010 (a purchase agreement must be signed by April 30th, 2010).
Also, this bill offers a home buying credit of $6,500 to those who have lived in their home for 5 years. You can find more details if you follow the web links below.
http://blogs.wsj.com/developments/2009/10/29/qa-the-home-buyer-tax-credit-extension/
http://news.yahoo.com/s/ap/us_homebuyers_tax_credit
http://www.opencongress.org/bill/111-h3548/show
Broken Arrow, OK
http://www.stepbystepfinancialplanning.com/
Below you will find links explaining the extension of the first-time homebuyer’s credit. The bill was passed in the Senate today and will likely be voted upon in the House tomorrow or early next week. This bill extends the qualifying date from December 1st, 2009 to June 30th, 2010 (a purchase agreement must be signed by April 30th, 2010).
Also, this bill offers a home buying credit of $6,500 to those who have lived in their home for 5 years. You can find more details if you follow the web links below.
http://blogs.wsj.com/developments/2009/10/29/qa-the-home-buyer-tax-credit-extension/
http://news.yahoo.com/s/ap/us_homebuyers_tax_credit
http://www.opencongress.org/bill/111-h3548/show
November 1, 2009
Saving Our Economy the Old Fashioned Way
By J. Marc Vorchheimer, CFP®
Spring Valley, NY
www.integratedfinancialconsulting.com
The economy may be the single most talked about topic today. Many people are out of work, and businesses are struggling to stay afloat. Even if the situation is stabilizing somewhat, most experts predict the economy will probably not recover quickly.
Our federal government has committed hundreds of billions of dollars to stimulate the economy. One of the rationales given for this unprecedented government largesse is to encourage consumers to spend, which, in turn, should help businesses increase their revenues, create more jobs, and so on.
Spending is certainly a vital part of any healthy economy. If people hoard their resources, commerce inevitably declines and businesses lose revenue, or even fail, leading to fewer jobs. The economy would suffer if people severely limit their spending for an extended time.
However, here’s another side of the coin (pun intended). A thriving economy also requires people to save money. According to a recent Wall Street Journal article, our country’s personal savings rate has increased, in just one year, from about 0% or less to about 7% of personal income. Other sources suggest the savings rate may be up to as much as 10%.
The unemployed naturally are not included in this increased savings rate. In fact, they often pay for personal expenses by dipping into savings or retirement accounts or by borrowing. Either way, they typically have a negative savings rate, spending more than their income. The exceptions are those living on pensions and Social Security, as well as those who saved consistently over time to accumulate enough income-producing assets.
Many in the media have decried the savings phenomenon as an obstacle to an economic recovery because it means consumers are cutting back on expenditures. I disagree. In fact, one reason we are in this economic mess is that we have been overspending for years. Now many finally have reached the point where there is no longer any money to spend. Saving has numerous benefits. Here are several reasons it is essential for our economy that we once again become a nation of savers.
Consumer Confidence
People feel secure knowing they have more resources than they need right now, a financial cushion they can use as an emergency fund. We are more comfortable knowing that if we incur an unexpected expense or lose our jobs, we have a source of spending money. And when consumers are more relaxed about money, they become more confident and more likely tospend enough to keep the economy going at a healthy pace.
Coping with Challenging Economic Cycles
Economic cycles of prosperity and adversity are inevitable. If consumers and businesses consistently spend all their resources (and more), an economic slowdown can be financially devastating. But if they consistently save a portion of their income, they will be better prepared to absorb periods of slower sales growth and reduced income, resulting in a quicker economic recovery.
Preparation for Retirement
Some experts predict that without drastic measures, the Social Security retirement system will run out of money by 2037. Even if the system survives, the income provided in retirement is insufficient for most Americans. People need to supplement their Social Security with income from other sources. If retirees save adequately in their working years, they should have enough during retirement. Working people who do not save will impose a huge economic burden on society when they retire, which will negatively influence the economy.
Affordable Prices
If people spend more than they make, they are buying items they cannot afford. Thus the true demand (demand from consumers who can afford to pay for the product) is lower than it seems. When demand increases for a product and supply is constant, the price of the product will rise. However, the price increase is artificial because the apparent demand is not sustainable. Many buyers cannot actually pay for the product. Alternatively, if people are saving and truly living within their means, prices will moderate to a level that reflects actual demand.
Fewer Loan Defaults
To spend money they don’t have, consumers must borrow. If they borrow too much, they cannot make their loan payments. If almost everyone can borrow money easily, the danger of borrowing and the risk of inability to repay increases. When borrowers cannot repay their loans , lenders (or sellers who financed purchases) take significant losses (the portion of the loan not paid back). This can be a draining trend on the overall economy as well.
Both spending and saving are vital for a robust economy. It is just a matter of knowing how much to spend and how much to save. As a general rule, saving at least 10% of your income is a good strategy. At that rate, you spend 90% of your income, which should be plenty to flow through to the economy and create prosperity. Of course, you may need to save or spend different amounts depending on your particular situation. Consult with your financial advisor, who can help you determine how much to spend and how much to save to meet your financial goals.
Spring Valley, NY
www.integratedfinancialconsulting.com
The economy may be the single most talked about topic today. Many people are out of work, and businesses are struggling to stay afloat. Even if the situation is stabilizing somewhat, most experts predict the economy will probably not recover quickly.
Our federal government has committed hundreds of billions of dollars to stimulate the economy. One of the rationales given for this unprecedented government largesse is to encourage consumers to spend, which, in turn, should help businesses increase their revenues, create more jobs, and so on.
Spending is certainly a vital part of any healthy economy. If people hoard their resources, commerce inevitably declines and businesses lose revenue, or even fail, leading to fewer jobs. The economy would suffer if people severely limit their spending for an extended time.
However, here’s another side of the coin (pun intended). A thriving economy also requires people to save money. According to a recent Wall Street Journal article, our country’s personal savings rate has increased, in just one year, from about 0% or less to about 7% of personal income. Other sources suggest the savings rate may be up to as much as 10%.
The unemployed naturally are not included in this increased savings rate. In fact, they often pay for personal expenses by dipping into savings or retirement accounts or by borrowing. Either way, they typically have a negative savings rate, spending more than their income. The exceptions are those living on pensions and Social Security, as well as those who saved consistently over time to accumulate enough income-producing assets.
Many in the media have decried the savings phenomenon as an obstacle to an economic recovery because it means consumers are cutting back on expenditures. I disagree. In fact, one reason we are in this economic mess is that we have been overspending for years. Now many finally have reached the point where there is no longer any money to spend. Saving has numerous benefits. Here are several reasons it is essential for our economy that we once again become a nation of savers.
Consumer Confidence
People feel secure knowing they have more resources than they need right now, a financial cushion they can use as an emergency fund. We are more comfortable knowing that if we incur an unexpected expense or lose our jobs, we have a source of spending money. And when consumers are more relaxed about money, they become more confident and more likely tospend enough to keep the economy going at a healthy pace.
Coping with Challenging Economic Cycles
Economic cycles of prosperity and adversity are inevitable. If consumers and businesses consistently spend all their resources (and more), an economic slowdown can be financially devastating. But if they consistently save a portion of their income, they will be better prepared to absorb periods of slower sales growth and reduced income, resulting in a quicker economic recovery.
Preparation for Retirement
Some experts predict that without drastic measures, the Social Security retirement system will run out of money by 2037. Even if the system survives, the income provided in retirement is insufficient for most Americans. People need to supplement their Social Security with income from other sources. If retirees save adequately in their working years, they should have enough during retirement. Working people who do not save will impose a huge economic burden on society when they retire, which will negatively influence the economy.
Affordable Prices
If people spend more than they make, they are buying items they cannot afford. Thus the true demand (demand from consumers who can afford to pay for the product) is lower than it seems. When demand increases for a product and supply is constant, the price of the product will rise. However, the price increase is artificial because the apparent demand is not sustainable. Many buyers cannot actually pay for the product. Alternatively, if people are saving and truly living within their means, prices will moderate to a level that reflects actual demand.
Fewer Loan Defaults
To spend money they don’t have, consumers must borrow. If they borrow too much, they cannot make their loan payments. If almost everyone can borrow money easily, the danger of borrowing and the risk of inability to repay increases. When borrowers cannot repay their loans , lenders (or sellers who financed purchases) take significant losses (the portion of the loan not paid back). This can be a draining trend on the overall economy as well.
Both spending and saving are vital for a robust economy. It is just a matter of knowing how much to spend and how much to save. As a general rule, saving at least 10% of your income is a good strategy. At that rate, you spend 90% of your income, which should be plenty to flow through to the economy and create prosperity. Of course, you may need to save or spend different amounts depending on your particular situation. Consult with your financial advisor, who can help you determine how much to spend and how much to save to meet your financial goals.
October 15, 2009
Read Any Good Ones Lately?
By Linda Leitz, CFP®, EA
Colorado Springs, CO
www.PinnacleFinancialConcepts.com
Do you like to read books about personal finance? Do you want to be better informed about finances? Here are some of the books I recommend to my clients, including my opinion on the strengths and weaknesses of each.
The Richest Man in Babylon by George S. Clason
This classic collection of short stories (originally circulated as pamphlets beginning in 1926) deals with basics of taking control of your money. The pillar of this book is that part of everything you earn is yours to keep. You should take that as seriously as you do paying your bills, so you can meet financial emergencies and save for your
future.
Strength: Good for motivation.
Weakness: It does not provide nuts-and-bolts specifics.
The Wealthy Barber by David Chilton
For people who are roughly 20 to 45 years old, this excellent book gives specifics on starting a very general financial plan. As with any book offering specific advice, not every financial planner will agree with each point.
Strength: Easy to read with specific steps you can follow.
Weakness: No book can know your situation, so the specific advice might not work for you.
Your Money or Your Life by Joe Dominguez and Vicki Robin
The authors say every dollar you spend has a corresponding cost: the time spent earning that money. Make each purchase—and decide how much you want to work—with this in mind. The book provides a very specific strategy: come up with a principal amount that you will use to generate interest income for living expenses.
Strength: Recommends balance in how much you work and how much you spend.
Weakness: The savings philosophy can be out of sync with reality if inflation rises and interest rates are low.
Why Smart People Do Stupid Things with Money: Overcoming Financial Dysfunction by Bert Whitehead
Bert’s philosophy (which I use in my practice) works for average people as well as wealthy ones. In my opinion, it’s the best approach because it incorporates all aspects of your financial life—your investments, retirement planning, your will, budgeting, your home, and your mortgage.
Strength: Practical, realistic strategies for real people.
Weakness: The title—lots of smart people don’t like to admit they’re dysfunctional.
Don’t Make a Budget: Why It’s So Hard to Save Money and What to Do About It by Kenneth F. Robinson
Too many people never save because they get bogged down developing a budget. This commonsense book shows that spending less than you make and saving money don’t have to be overwhelming. The book’s practical steps and real-life examples are workable for all income levels.
Strength: Relieves the reader’s guilt about not having a budget and makes saving achievable.
Weakness: None, if the reader implements the strategy and then takes the next step of enlisting professional help on more complex financial planning.
The Seven Stages of Money Maturity by George Kinder
Many people see money as a material necessity and don’t really feel they are in financial control. This book takes a more philosophical approach and, using stories from the author’s life and financial practice, expresses the relationship with money as an outgrowth of an individual’s spiritual outlook and values.
Strength: Takes a holistic approach to an individual’s financial outlook.
Weakness: Might seem too extreme for some or conflict with personal religious beliefs.
The Young Couple’s Guide to Growing Rich Together by Jill Gianola
Often young couples don’t need full-blown financial planning from an advisor, but do need to learn how to become financially responsible together. This book provides a fast start for couples who are willing to be serious about financial soundness before it becomes a big effort.
Strength: Easy read with practical advice.
Weakness: If combined with consultation with a financial advisor on the individual situation, there is no weakness.
The 9 Steps to Financial Freedom by Suze Orman
A step-by-step program to help you get control of your finances. The author discusses how we feel about money and how that affects our relationship with it. Most of her advice is sound, but the specifics might not fit your exact situation.
Strength: Specific steps for the do-it-yourselfer.
Weakness: Estate planning recommendations might be overkill for the average person.
Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money—That the Poor and Middle Class Do Not by Robert T. Kiyosaki and Sharon L. Lechter
The authors say real estate and self-employment are the way to strike it rich, and higher education does not make you financially secure. Unfortunately, you have to read the entire book, paying very close attention, to realize the authors admit their approach entails above-average risk and that you can be financially successfully with a more conservative approach if you stick with it.
Strength: Helpful explanations of assets, liabilities, income, and expenses.
Weakness: If something seems too good to be true . . .
Colorado Springs, CO
www.PinnacleFinancialConcepts.com
Do you like to read books about personal finance? Do you want to be better informed about finances? Here are some of the books I recommend to my clients, including my opinion on the strengths and weaknesses of each.
The Richest Man in Babylon by George S. Clason
This classic collection of short stories (originally circulated as pamphlets beginning in 1926) deals with basics of taking control of your money. The pillar of this book is that part of everything you earn is yours to keep. You should take that as seriously as you do paying your bills, so you can meet financial emergencies and save for your
future.
Strength: Good for motivation.
Weakness: It does not provide nuts-and-bolts specifics.
The Wealthy Barber by David Chilton
For people who are roughly 20 to 45 years old, this excellent book gives specifics on starting a very general financial plan. As with any book offering specific advice, not every financial planner will agree with each point.
Strength: Easy to read with specific steps you can follow.
Weakness: No book can know your situation, so the specific advice might not work for you.
Your Money or Your Life by Joe Dominguez and Vicki Robin
The authors say every dollar you spend has a corresponding cost: the time spent earning that money. Make each purchase—and decide how much you want to work—with this in mind. The book provides a very specific strategy: come up with a principal amount that you will use to generate interest income for living expenses.
Strength: Recommends balance in how much you work and how much you spend.
Weakness: The savings philosophy can be out of sync with reality if inflation rises and interest rates are low.
Why Smart People Do Stupid Things with Money: Overcoming Financial Dysfunction by Bert Whitehead
Bert’s philosophy (which I use in my practice) works for average people as well as wealthy ones. In my opinion, it’s the best approach because it incorporates all aspects of your financial life—your investments, retirement planning, your will, budgeting, your home, and your mortgage.
Strength: Practical, realistic strategies for real people.
Weakness: The title—lots of smart people don’t like to admit they’re dysfunctional.
Don’t Make a Budget: Why It’s So Hard to Save Money and What to Do About It by Kenneth F. Robinson
Too many people never save because they get bogged down developing a budget. This commonsense book shows that spending less than you make and saving money don’t have to be overwhelming. The book’s practical steps and real-life examples are workable for all income levels.
Strength: Relieves the reader’s guilt about not having a budget and makes saving achievable.
Weakness: None, if the reader implements the strategy and then takes the next step of enlisting professional help on more complex financial planning.
The Seven Stages of Money Maturity by George Kinder
Many people see money as a material necessity and don’t really feel they are in financial control. This book takes a more philosophical approach and, using stories from the author’s life and financial practice, expresses the relationship with money as an outgrowth of an individual’s spiritual outlook and values.
Strength: Takes a holistic approach to an individual’s financial outlook.
Weakness: Might seem too extreme for some or conflict with personal religious beliefs.
The Young Couple’s Guide to Growing Rich Together by Jill Gianola
Often young couples don’t need full-blown financial planning from an advisor, but do need to learn how to become financially responsible together. This book provides a fast start for couples who are willing to be serious about financial soundness before it becomes a big effort.
Strength: Easy read with practical advice.
Weakness: If combined with consultation with a financial advisor on the individual situation, there is no weakness.
The 9 Steps to Financial Freedom by Suze Orman
A step-by-step program to help you get control of your finances. The author discusses how we feel about money and how that affects our relationship with it. Most of her advice is sound, but the specifics might not fit your exact situation.
Strength: Specific steps for the do-it-yourselfer.
Weakness: Estate planning recommendations might be overkill for the average person.
Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money—That the Poor and Middle Class Do Not by Robert T. Kiyosaki and Sharon L. Lechter
The authors say real estate and self-employment are the way to strike it rich, and higher education does not make you financially secure. Unfortunately, you have to read the entire book, paying very close attention, to realize the authors admit their approach entails above-average risk and that you can be financially successfully with a more conservative approach if you stick with it.
Strength: Helpful explanations of assets, liabilities, income, and expenses.
Weakness: If something seems too good to be true . . .
October 1, 2009
A Lost Decade?
By Stewart Farnell, Ph.D., CFP®, EA
Boulder, CO
www.stewartfarnell.com
The investment research company Morningstar reported recently that the average return for the Vanguard Total Stock Market Index Fund Investor Shares for the last 10 years was −0.66%. In other words, the U.S. stock market has had negative, not positive,returns over that time. This isn’t the first time the stock market has shown negative returns over 10-year periods; it happened at least twice in the 20th century. So we should all be in bad shape, crying about our losses, bemoaning a lost decade—right?
Maybe not. As I look at client portfolios, I notice that almost all of them, despite their ups and downs, have done just fine over the last 10 years. But if the stock market has been negative, how can these portfolios have done well?
One possibility is that the portfolios have been swelled by new money going into them, through saving and investing. Undoubtedly such saving and investing has benefited some portfolios, but others have been growing as well. So new contributions into the portfolio can’t be the full explanation.
Another, more promising answer, is that the portfolios have been diversified. Perhaps 30%, 40%, 50%, or more of each portfolio has been invested in less exciting asset classes such as money market and Treasury securities. And these investments have been generating income, at the rate of 3%, 4%, or 5% per year.
Over 10 years, a $100 investment generating 4% a year will grow to $148. So even if the stock market has been negative, the interest earning portion of the portfolios has generated growth. Another part of the explanation involves rebalancing. To maintain a constant risk profile, I work with my clients each year to bring their portfolios back to the asset allocation targets specified in their investment plans. And because the value of different types of assets fluctuates in different ways over the years, plenty of rebalancing has been required. At most rebalancings, we take the excess money (the amount by which the value of a particular asset class, say international stocks, exceeds the target value) out of these appreciated assets and use it to buy assets whose value is below the target. This rebalancing often results in selling some types of assets when their price is high and buying others when their price is low.
The ups and downs of different types of assets over these 10 years have provided many opportunities to rebalance portfolios and often earn returns that may be better than those of the stock market. This compounding of interest over 10 years, and the buying low and selling high of a variety of asset classes, goes a long way in explaining why the last 10 years for most of us have been anything but a lost decade.
Boulder, CO
www.stewartfarnell.com
The investment research company Morningstar reported recently that the average return for the Vanguard Total Stock Market Index Fund Investor Shares for the last 10 years was −0.66%. In other words, the U.S. stock market has had negative, not positive,returns over that time. This isn’t the first time the stock market has shown negative returns over 10-year periods; it happened at least twice in the 20th century. So we should all be in bad shape, crying about our losses, bemoaning a lost decade—right?
Maybe not. As I look at client portfolios, I notice that almost all of them, despite their ups and downs, have done just fine over the last 10 years. But if the stock market has been negative, how can these portfolios have done well?
One possibility is that the portfolios have been swelled by new money going into them, through saving and investing. Undoubtedly such saving and investing has benefited some portfolios, but others have been growing as well. So new contributions into the portfolio can’t be the full explanation.
Another, more promising answer, is that the portfolios have been diversified. Perhaps 30%, 40%, 50%, or more of each portfolio has been invested in less exciting asset classes such as money market and Treasury securities. And these investments have been generating income, at the rate of 3%, 4%, or 5% per year.
Over 10 years, a $100 investment generating 4% a year will grow to $148. So even if the stock market has been negative, the interest earning portion of the portfolios has generated growth. Another part of the explanation involves rebalancing. To maintain a constant risk profile, I work with my clients each year to bring their portfolios back to the asset allocation targets specified in their investment plans. And because the value of different types of assets fluctuates in different ways over the years, plenty of rebalancing has been required. At most rebalancings, we take the excess money (the amount by which the value of a particular asset class, say international stocks, exceeds the target value) out of these appreciated assets and use it to buy assets whose value is below the target. This rebalancing often results in selling some types of assets when their price is high and buying others when their price is low.
The ups and downs of different types of assets over these 10 years have provided many opportunities to rebalance portfolios and often earn returns that may be better than those of the stock market. This compounding of interest over 10 years, and the buying low and selling high of a variety of asset classes, goes a long way in explaining why the last 10 years for most of us have been anything but a lost decade.
September 15, 2009
Maintaining Your Balance in Rocky Times
By J. Marc Vorchheimer, CFP®
Spring Valley, NY
www.integratedfinancialconsulting.com
In today’s economic environment, it’s easy to get discouraged. So much of what we believed with certainty just a few months ago is now up for debate or just plain false. Huge financial institutions have disappeared overnight, home values have plummeted, and some distressing financial scandals have been exposed. People are extremely cautious and apprehensive about what the future (and present) will bring.
Here are some strategies to help assure your peace of mind and maintain a balanced perspective during these turbulent times:
1. Appreciate what you have.
Take stock of all you have rather than what you are lacking or worried about. Focus on the fact that you have a functioning mind and body, clothing and shelter, and personal possessions that are important to you.
2. Rethink your personal and financial goals.
Review your personal goals and determine whether they are consistent with your perspective in the “new world” we live in. There may be matters that are more important to you now that your life may seem more uncertain. For example, perhaps you can make doing something selfless for someone else a higher priority than it was previously.
3. Develop and maintain a sound financial strategy.
If you do not have a sound strategy to reach your financial goals, now is the perfect time to create a financial plan. If you are fortunate enough to have a plan in place, stick to it. After all, a good plan is something designed to weather a wide variety of financial conditions. (Otherwise, it was never a sound plan in the first place.) In addition, your financial goals may also have changed. For example, you may want to reduce your immediate living expenses so you can still meet your current retirement goals or increase the size of your emergency reserves fund. If your goals have changed, then you probably need to adjust your strategy as well.
4. Tune out negative press as much as possible.
We are in control of what we listen to and read. Avoid exposure to negative and discouraging media reports. Don’t spend too much time browsing the Internet searching for economic predictions or the number of laid-off employees. Instead of trying to change what you cannot control, focus on what you can do about your situation. For instance, keep a log of your work-related accomplishments, which will help if you need to update your resume. Even better, use the information to create a report to your boss so he or she will know the contributions you’ve been making.
5. Spend time with family and friends.
Be grateful for family and friends and spend some extra time with them. Make it quality time by keeping the conversation focused on the positives in your life. Of course, it’s fine if you also need to discuss your concerns and fears. When we feel alone, whatever bothers us feels bigger than if we are together with loved ones with whom we can share our feelings. People who are close to you and care about you will usually listen to your worries, which in itself is a relief. Just be sure to turn the conversation back in a more positive direction as soon as you can.
6. Be creative and cheerful.
Try to think outside the box. Maybe it’s time to develop a new hobby or skill. It doesn’t have to be costly or very sophisticated. It should be fun and something you look forward to. Choose an activity that will give your mind a break from our stressful world. And support those around you with a bright and friendly demeanor. Your positive energy will likely put a smile on someone else’s face—which is the one you get to see anyway.
Spring Valley, NY
www.integratedfinancialconsulting.com
In today’s economic environment, it’s easy to get discouraged. So much of what we believed with certainty just a few months ago is now up for debate or just plain false. Huge financial institutions have disappeared overnight, home values have plummeted, and some distressing financial scandals have been exposed. People are extremely cautious and apprehensive about what the future (and present) will bring.
Here are some strategies to help assure your peace of mind and maintain a balanced perspective during these turbulent times:
1. Appreciate what you have.
Take stock of all you have rather than what you are lacking or worried about. Focus on the fact that you have a functioning mind and body, clothing and shelter, and personal possessions that are important to you.
2. Rethink your personal and financial goals.
Review your personal goals and determine whether they are consistent with your perspective in the “new world” we live in. There may be matters that are more important to you now that your life may seem more uncertain. For example, perhaps you can make doing something selfless for someone else a higher priority than it was previously.
3. Develop and maintain a sound financial strategy.
If you do not have a sound strategy to reach your financial goals, now is the perfect time to create a financial plan. If you are fortunate enough to have a plan in place, stick to it. After all, a good plan is something designed to weather a wide variety of financial conditions. (Otherwise, it was never a sound plan in the first place.) In addition, your financial goals may also have changed. For example, you may want to reduce your immediate living expenses so you can still meet your current retirement goals or increase the size of your emergency reserves fund. If your goals have changed, then you probably need to adjust your strategy as well.
4. Tune out negative press as much as possible.
We are in control of what we listen to and read. Avoid exposure to negative and discouraging media reports. Don’t spend too much time browsing the Internet searching for economic predictions or the number of laid-off employees. Instead of trying to change what you cannot control, focus on what you can do about your situation. For instance, keep a log of your work-related accomplishments, which will help if you need to update your resume. Even better, use the information to create a report to your boss so he or she will know the contributions you’ve been making.
5. Spend time with family and friends.
Be grateful for family and friends and spend some extra time with them. Make it quality time by keeping the conversation focused on the positives in your life. Of course, it’s fine if you also need to discuss your concerns and fears. When we feel alone, whatever bothers us feels bigger than if we are together with loved ones with whom we can share our feelings. People who are close to you and care about you will usually listen to your worries, which in itself is a relief. Just be sure to turn the conversation back in a more positive direction as soon as you can.
6. Be creative and cheerful.
Try to think outside the box. Maybe it’s time to develop a new hobby or skill. It doesn’t have to be costly or very sophisticated. It should be fun and something you look forward to. Choose an activity that will give your mind a break from our stressful world. And support those around you with a bright and friendly demeanor. Your positive energy will likely put a smile on someone else’s face—which is the one you get to see anyway.
September 1, 2009
Steps to Achieving Great Goals
By Kelly Adams, CFP®, EA
Novi, MI
www.harborlightplanning.com
Goal creation and documentation can have an air of fantasy. But however improbable or foreign your goals may seem, putting them on paper can be a very positive and fruitful experience. Writing down your goals will help you focus on exactly what you want to have or to do, which is more effective than a vague wish list in your head. A written record helps you stay on track, giving you a way to measure your future progress.
As you convert your goals from thoughts into words, you engage more of your brain and clarify the instructions you give to your unconscious mind. By merely committing your goals to a written list, you increase your chances of converting them from “hoped for” to “possible.” Once you’ve written out a goal, break down the end result you want to achieve into smaller and more manageable steps. This moves you even closer to making your goals a reality because instead of tackling one big mountain, you’ll be climbing a series of foothills.
If you’ve never written down your goals before, begin by relaxing and clearing your mind. Appreciate the value of setting a goal: something to strive for, to improve, or to change different areas of your life. Start with a lined piece of paper numbered 1 to 30, and list 30 goals. You may feel stuck after 7 or 8, but push through and keep on writing, really trying for 30. They don’t have to be complex. Consider short-term and long-term goals in a variety of categories: financial, family, personal, spiritual, and physical. Don’t worry about being realistic at this point; just keep writing.
How do you transform this simple wish list into actual positive changes in your life? Decide on at least one, and up to five goals from your list of 30 to actively pursue in the next year. Choose goals you are excited about. Write each one at the top of a blank piece of paper. Be sure to phrase it so you define the outcome clearly and state it positively (about what you want to do or to have), not negatively (about what you want to avoid).
Visualize attaining your goal, and give yourself a reality check. Ask yourself whether realizing your goal fits into your life and if the cost of achieving it is reasonable for the benefits you’ll receive. Next choose a reasonable date of completion, and identify your first step. You may have to work backward from the outcome you want to find that first step. Then ask yourself, “Is there anything I need to do before I can accomplish this step?” This will help you recognize and remove any roadblocks. List the remaining steps you’ll need to take to achieve your goals.
Set reasonable yet aggressive target dates to complete each step of the process. Most importantly, get started and have fun. Enjoy setting and achieving your goals and completing each step along the path of success. Reward yourself after achieving really large or meaningful steps. Keep the rewards simple and inexpensive—just marking your progress by putting smiley stickers on your goal sheet next to each completed step may be all the motivation you need to get started on the next one.
Novi, MI
www.harborlightplanning.com
Goal creation and documentation can have an air of fantasy. But however improbable or foreign your goals may seem, putting them on paper can be a very positive and fruitful experience. Writing down your goals will help you focus on exactly what you want to have or to do, which is more effective than a vague wish list in your head. A written record helps you stay on track, giving you a way to measure your future progress.
As you convert your goals from thoughts into words, you engage more of your brain and clarify the instructions you give to your unconscious mind. By merely committing your goals to a written list, you increase your chances of converting them from “hoped for” to “possible.” Once you’ve written out a goal, break down the end result you want to achieve into smaller and more manageable steps. This moves you even closer to making your goals a reality because instead of tackling one big mountain, you’ll be climbing a series of foothills.
If you’ve never written down your goals before, begin by relaxing and clearing your mind. Appreciate the value of setting a goal: something to strive for, to improve, or to change different areas of your life. Start with a lined piece of paper numbered 1 to 30, and list 30 goals. You may feel stuck after 7 or 8, but push through and keep on writing, really trying for 30. They don’t have to be complex. Consider short-term and long-term goals in a variety of categories: financial, family, personal, spiritual, and physical. Don’t worry about being realistic at this point; just keep writing.
How do you transform this simple wish list into actual positive changes in your life? Decide on at least one, and up to five goals from your list of 30 to actively pursue in the next year. Choose goals you are excited about. Write each one at the top of a blank piece of paper. Be sure to phrase it so you define the outcome clearly and state it positively (about what you want to do or to have), not negatively (about what you want to avoid).
Visualize attaining your goal, and give yourself a reality check. Ask yourself whether realizing your goal fits into your life and if the cost of achieving it is reasonable for the benefits you’ll receive. Next choose a reasonable date of completion, and identify your first step. You may have to work backward from the outcome you want to find that first step. Then ask yourself, “Is there anything I need to do before I can accomplish this step?” This will help you recognize and remove any roadblocks. List the remaining steps you’ll need to take to achieve your goals.
Set reasonable yet aggressive target dates to complete each step of the process. Most importantly, get started and have fun. Enjoy setting and achieving your goals and completing each step along the path of success. Reward yourself after achieving really large or meaningful steps. Keep the rewards simple and inexpensive—just marking your progress by putting smiley stickers on your goal sheet next to each completed step may be all the motivation you need to get started on the next one.
August 18, 2009
Money Pitfalls to Avoid When Getting Divorced
By Chuck J. Rylant, CFP, MBA
Santa Maria, CA
www.cjrylantwealthmanagement.com
If you are going through a divorce, you may be feeling fear, anger, resentment, distrust, and a range of other emotions. These feelings can wreak havoc on your finances.
You will be making major financial decisions that will likely impact you for decades at a time when your emotions are clouding your judgment. Here are six common mistakes to watch out for during a divorce.
1. Choosing the wrong attorney
If you can end the relationship without a legal fight, you will begin your new life with far more money. Legal battles are very expensive. A good attorney can prevent you from making a major financial mistake, but be cautious because it’s easy to be taken advantage of during a divorce.
There are many ethical attorneys practicing family law, but there certainly are a few that take advantage of people when they are the most vulnerable. Because of the design of our legal system, attorneys may provoke fights between spouses, causing long drawn-out legal battles that can drain your assets. These stressful battles rack up fees that, if prevented, could have been used for retirement, education, or bills. Consult with several attorneys until you find one you are comfortable with and who is interested in resolving the divorce efficiently. More and more lawyers are gaining experience with collaborative divorce, where the spouses and all the professionals agree not to litigate. You do not want an attorney that will drag you and your spouse through an unnecessary battle.
2. Leaving debt in your spouse’s name
During your marriage you probably obtained credit that was also in your spouse’s name. It’s very important to pay off or refinance debt so it’s only in the name of the spouse who will be obligated to pay the debt. Often one partner takes responsibility for joint debt, which leaves the other at risk of negative credit ratings from late payments. Even if payments are made on time, the other spouse may be anxious about the situation, which can lead to unnecessary stress and arguments.
3. Staying in the house
Divorcing spouses often fight to the end to keep a house. Perhaps we want to maintain some stability in what feels otherwise like an out-of-control situation. The financial reality is that the income that formerly supported your family must now support two households. Keeping a home (especially one that was a stretch before the divorce) spreads the budget even thinner. More often than not, selling the home allows both parties to downsize until they are able to reestablish themselves. Sometimes we must take one step back to take two steps forward. Try not to go too far in loving the house. It can’t love you back.
4. Neglecting to consider the tax consequences
Divorce may force you to make the largest financial decisions of your life. You may need to sell or refinance your home. Your retirement accounts may be split or used for other expenses, and you may have alimony and child support obligations that last for years. These transactions can have huge tax ramifications that affect both of you. Don’t let taxes completely drive your decisions, but seek professional advice from an accountant or a fee-only financial advisor before you agree to a settlement.
Attorneys typically are not expected to analyze the tax aspects of your divorce decisions, so it is up to you to seek additional help. Most likely, the fee you pay these professionals will be more than offset by the savings their advice provides.
5. Ignoring insurance
An often overlooked but critical consideration in divorce is insurance. As soon as your divorce is final, notify all of your insurance providers that you are divorced and no longer living with your spouse. Changes in address can affect your coverage. You may also need to apply for individual health insurance or pay for costly COBRA coverage. Finally, do not forget to change beneficiaries on any life insurance policies and on annuity and retirement accounts like 401(k)s and IRAs. Very often people forget to make necessary changes and mistakenly leave the first spouse as the beneficiary even after a second marriage. But be cautious of making changes during the divorce proceedings because you can violate court orders, so it’s always best to seek advice from your attorney first.
6. Trying too hard to win
The final pitfall is the most dangerous and may be the most difficult for you to avoid. Although ending a relationship is tough emotionally, try to separate your feelings from the financial side of the divorce. Do not try to win because there are no winners in a divorce. The harsh reality is that the financial side of the divorce needs to be a business decision. Unfortunately, it doesn’t matter who was at fault in the divorce or who is to blame. The more you are able to look at the finances as a business transaction, the smoother it will go and the better off you, your former spouse, and your children will be in the long run.
Santa Maria, CA
www.cjrylantwealthmanagement.com
If you are going through a divorce, you may be feeling fear, anger, resentment, distrust, and a range of other emotions. These feelings can wreak havoc on your finances.
You will be making major financial decisions that will likely impact you for decades at a time when your emotions are clouding your judgment. Here are six common mistakes to watch out for during a divorce.
1. Choosing the wrong attorney
If you can end the relationship without a legal fight, you will begin your new life with far more money. Legal battles are very expensive. A good attorney can prevent you from making a major financial mistake, but be cautious because it’s easy to be taken advantage of during a divorce.
There are many ethical attorneys practicing family law, but there certainly are a few that take advantage of people when they are the most vulnerable. Because of the design of our legal system, attorneys may provoke fights between spouses, causing long drawn-out legal battles that can drain your assets. These stressful battles rack up fees that, if prevented, could have been used for retirement, education, or bills. Consult with several attorneys until you find one you are comfortable with and who is interested in resolving the divorce efficiently. More and more lawyers are gaining experience with collaborative divorce, where the spouses and all the professionals agree not to litigate. You do not want an attorney that will drag you and your spouse through an unnecessary battle.
2. Leaving debt in your spouse’s name
During your marriage you probably obtained credit that was also in your spouse’s name. It’s very important to pay off or refinance debt so it’s only in the name of the spouse who will be obligated to pay the debt. Often one partner takes responsibility for joint debt, which leaves the other at risk of negative credit ratings from late payments. Even if payments are made on time, the other spouse may be anxious about the situation, which can lead to unnecessary stress and arguments.
3. Staying in the house
Divorcing spouses often fight to the end to keep a house. Perhaps we want to maintain some stability in what feels otherwise like an out-of-control situation. The financial reality is that the income that formerly supported your family must now support two households. Keeping a home (especially one that was a stretch before the divorce) spreads the budget even thinner. More often than not, selling the home allows both parties to downsize until they are able to reestablish themselves. Sometimes we must take one step back to take two steps forward. Try not to go too far in loving the house. It can’t love you back.
4. Neglecting to consider the tax consequences
Divorce may force you to make the largest financial decisions of your life. You may need to sell or refinance your home. Your retirement accounts may be split or used for other expenses, and you may have alimony and child support obligations that last for years. These transactions can have huge tax ramifications that affect both of you. Don’t let taxes completely drive your decisions, but seek professional advice from an accountant or a fee-only financial advisor before you agree to a settlement.
Attorneys typically are not expected to analyze the tax aspects of your divorce decisions, so it is up to you to seek additional help. Most likely, the fee you pay these professionals will be more than offset by the savings their advice provides.
5. Ignoring insurance
An often overlooked but critical consideration in divorce is insurance. As soon as your divorce is final, notify all of your insurance providers that you are divorced and no longer living with your spouse. Changes in address can affect your coverage. You may also need to apply for individual health insurance or pay for costly COBRA coverage. Finally, do not forget to change beneficiaries on any life insurance policies and on annuity and retirement accounts like 401(k)s and IRAs. Very often people forget to make necessary changes and mistakenly leave the first spouse as the beneficiary even after a second marriage. But be cautious of making changes during the divorce proceedings because you can violate court orders, so it’s always best to seek advice from your attorney first.
6. Trying too hard to win
The final pitfall is the most dangerous and may be the most difficult for you to avoid. Although ending a relationship is tough emotionally, try to separate your feelings from the financial side of the divorce. Do not try to win because there are no winners in a divorce. The harsh reality is that the financial side of the divorce needs to be a business decision. Unfortunately, it doesn’t matter who was at fault in the divorce or who is to blame. The more you are able to look at the finances as a business transaction, the smoother it will go and the better off you, your former spouse, and your children will be in the long run.
August 7, 2009
Are We Turning the Corner Yet?
By Bert Whitehead, MBA, JD
Frankiln, MI
http://www.bertwhitehead.com/
We have finally seen some positive news on the financial front, and many optimists think the stock market has hit the bottom and bounced off its low point. It’s pleasant to be able to take a breather from the brutal onslaught of bad news over the past year.
Many ACA advisors have been citing the dangers of being out of the market, even when it is falling. Although it has been stressful psychologically to maintain equity positions over the past year, recent market activity shows the folly once again of trying to time the market.
For the eight bear markets that occurred in the last 50 years, the average gain for the S&P 500 in the year following the stock market low is +36.5%. We’re currently in the ninth bear market of the last half century. The S&P 500’s closeof-trading low point of this bear market (so far) was 677 on March 9, 2009. Through the end of April, the S&P 500 gained 29% (not counting the impact of reinvested dividends).
As our clients, you pay us to “watch your backs.” So without being an outright pessimist, I think we are still in a perilous financial situation. The future of the auto industry is teetering, and the economic reality goes even deeper than that. We are restructuring our national economy to be capable of truly participating in a global economy.
Our prosperity over the past 15 years was based on a worldwide spending spree, fueled by cheap credit and over-leveraged real estate. The current governmental nostrums are designed to spur more spending, but no meaningful programs have yet addressed the banking crisis and the collapse of the real estate market. We see the impact of these issues every day in the “For Sale” and “For Lease” signs in almost every neighborhood and commercial area.
Each of you has a unique situation, so as usual the approach best suited to you depends mostly on what is going on in your own life. If the breadwinner in your family is out of work, or you have kids in college, or you are faced with disability or are retired (or hope to be soon), these circumstances—not the state of the economy—are the key factors in selecting your investment allocation. Although the stock market may look great, don’t kick yourself for having missed out on the recent steep increase.
It is also foolhardy to conclude, based on a recent upturn in the markets, that you should now jump in with both feet. We may not hit bottom until 2010, and then it may take a couple of years to fully recover.
Market timing is a futile waste of energy. But there may be other wise financial moves available to you. For those of you in transitional or distressed situations, we typically advise you to maintain an extra cash cushion. If your life situation is stable and your future income stream is on track (such as through a bond ladder), dollar cost averaging into the stock market is very beneficial. If you haven’t done so recently, it’s probably time to review your portfolio and make adjustments as appropriate.
It may be advantageous to refinance your home mortgage at a lower rate (unless you owe more on your house than it’s worth). However, jumbo mortgages (more than $417,000) still carry very high rates, and it is seldom worthwhile to refinance those.
This experience of living through the worst economic period since the Great Depression of 80 years ago will have a lasting and positive impact on most of us. The losses will ultimately be recouped, and many people—probably more than have realized it—will be able to outlast even a continuing downturn. More importantly, it has made many of us aware that we had been frittering away money on things we didn’t really value. I believe this lesson has to be relearned by each generation as we discover that our investment statements aren’t the scorecard for our real wealth.
Frankiln, MI
http://www.bertwhitehead.com/
We have finally seen some positive news on the financial front, and many optimists think the stock market has hit the bottom and bounced off its low point. It’s pleasant to be able to take a breather from the brutal onslaught of bad news over the past year.
Many ACA advisors have been citing the dangers of being out of the market, even when it is falling. Although it has been stressful psychologically to maintain equity positions over the past year, recent market activity shows the folly once again of trying to time the market.
For the eight bear markets that occurred in the last 50 years, the average gain for the S&P 500 in the year following the stock market low is +36.5%. We’re currently in the ninth bear market of the last half century. The S&P 500’s closeof-trading low point of this bear market (so far) was 677 on March 9, 2009. Through the end of April, the S&P 500 gained 29% (not counting the impact of reinvested dividends).
As our clients, you pay us to “watch your backs.” So without being an outright pessimist, I think we are still in a perilous financial situation. The future of the auto industry is teetering, and the economic reality goes even deeper than that. We are restructuring our national economy to be capable of truly participating in a global economy.
Our prosperity over the past 15 years was based on a worldwide spending spree, fueled by cheap credit and over-leveraged real estate. The current governmental nostrums are designed to spur more spending, but no meaningful programs have yet addressed the banking crisis and the collapse of the real estate market. We see the impact of these issues every day in the “For Sale” and “For Lease” signs in almost every neighborhood and commercial area.
Each of you has a unique situation, so as usual the approach best suited to you depends mostly on what is going on in your own life. If the breadwinner in your family is out of work, or you have kids in college, or you are faced with disability or are retired (or hope to be soon), these circumstances—not the state of the economy—are the key factors in selecting your investment allocation. Although the stock market may look great, don’t kick yourself for having missed out on the recent steep increase.
It is also foolhardy to conclude, based on a recent upturn in the markets, that you should now jump in with both feet. We may not hit bottom until 2010, and then it may take a couple of years to fully recover.
Market timing is a futile waste of energy. But there may be other wise financial moves available to you. For those of you in transitional or distressed situations, we typically advise you to maintain an extra cash cushion. If your life situation is stable and your future income stream is on track (such as through a bond ladder), dollar cost averaging into the stock market is very beneficial. If you haven’t done so recently, it’s probably time to review your portfolio and make adjustments as appropriate.
It may be advantageous to refinance your home mortgage at a lower rate (unless you owe more on your house than it’s worth). However, jumbo mortgages (more than $417,000) still carry very high rates, and it is seldom worthwhile to refinance those.
This experience of living through the worst economic period since the Great Depression of 80 years ago will have a lasting and positive impact on most of us. The losses will ultimately be recouped, and many people—probably more than have realized it—will be able to outlast even a continuing downturn. More importantly, it has made many of us aware that we had been frittering away money on things we didn’t really value. I believe this lesson has to be relearned by each generation as we discover that our investment statements aren’t the scorecard for our real wealth.
July 13, 2009
Investment Choices Made Easier: The ACA Suggested Fund List
By Penny Marchand, CFP®, EA
Tucson, AZ
http://www.cambridgefinancialgroup.com/
With more than 9,000 mutual funds and almost 1,000 exchange-traded funds (ETFs) in the United States, wading through so many investment choices can be daunting. Do you ever wonder how your ACA advisor does it?
The Suggested Funds List helps many advisors streamline the investment decision process. The list (formerly called the Directed Portfolio) includes suggestions for both actively managed funds and passive index funds, ETFs, and Dimensional Fund Advisors (DFA) funds.
To improve the selection and ongoing evaluation of actively managed funds, the ACA investment team uses a patented process developed by Klein Decisions. This process evaluates mutual funds using an objective analysis that considers several different criteria:
Expense Ratio: Expresses the percentage of a fund’s assets used to pay for operating expenses. The lower the expense ratio, the better.
3-year Morningstar Rating and 3-year Morningstar Risk: Measures both the historical performance of a fund compared to its peers and the fund’s volatility. The higher the rating and the lower the risk, the better.
Fiduciary Score: Rates a mutual fund analytically with a pass/fail score based on acceptable fiduciary requirements, such as how long the fund has been in existence, manager tenure, fund assets, composition, style drift, expense ratio, alpha, Sharpe ratio, and performance relative to its peers. A fiduciary score of 0 is most favorable.
Rolling Return ± Category Index 1 in 5 years: Looks at each 1-year period within 5 years and averages the amount (in percentage points) by which the fund has outperformed or underperformed the category index. The higher the rolling return, the better.
Rolling Batting Average 3 in 5 years: Measures the fund’s consistency. For example, a fund that equals or outperforms the index each month in a given period would have a batting average of 100. A fund that beats the index 50% of the time would have a score of 50. The higher the rolling batting average, the better.
Rolling Information Ratio 3 in 5 years: Calculates risk-adjusted performance. It’s similar to a common measure of volatility called the Sharpe ratio, except it measures risk to a specific benchmark index most appropriate for the fund being evaluated. The higher the rolling information ratio, the better.
Duration (for bond funds only): Measures how much the fund’s value will be affected by changes in interest rates. The higher the duration, the more it will be affected by rising or falling rates.
Average Credit Quality (for bond funds only): Describes how likely the fund’s bond issuers are to
default on their payments. The higher the credit quality, the less likely it is that the fund will experience a default.
Klein’s software then assigns the funds points and ranks them. For instance, if a fund has a low expense ratio, it will get more points than a fund with a high expense ratio. If a fund has consistent returns over a 5-year period, it will score higher than a fund that has had one or two good years.
This is how the ACA investment team identifies the top 25 funds listed in each asset class. The team then screens for several other characteristics before making its final selections:
• Manager Tenure
• Brokerage availability
• Investment minimums
• Whether the fund is open or closed to new investors
• Overall suitability for clients of ACA members
The team also looks closely at funds that were previously selected but no longer appear on the top 25 list. They may choose to keep them on the Suggested Funds List with a note to ACA members, or remove them from the list altogether.
Considerable time was spent designing the final selection criteria. These characteristics help the investment team identify our top-ranked funds. The team uses a weighted scoring system, based on the selection criteria just described.
Many ACA members use their own criteria for selecting mutual funds, either as a completely separate process or in conjunction with the Selected Funds List. The list is a tool that preselects some of the best mutual funds available, leaving your advisor more time to focus on your unique
financial needs.
Tucson, AZ
http://www.cambridgefinancialgroup.com/
With more than 9,000 mutual funds and almost 1,000 exchange-traded funds (ETFs) in the United States, wading through so many investment choices can be daunting. Do you ever wonder how your ACA advisor does it?
The Suggested Funds List helps many advisors streamline the investment decision process. The list (formerly called the Directed Portfolio) includes suggestions for both actively managed funds and passive index funds, ETFs, and Dimensional Fund Advisors (DFA) funds.
To improve the selection and ongoing evaluation of actively managed funds, the ACA investment team uses a patented process developed by Klein Decisions. This process evaluates mutual funds using an objective analysis that considers several different criteria:
Expense Ratio: Expresses the percentage of a fund’s assets used to pay for operating expenses. The lower the expense ratio, the better.
3-year Morningstar Rating and 3-year Morningstar Risk: Measures both the historical performance of a fund compared to its peers and the fund’s volatility. The higher the rating and the lower the risk, the better.
Fiduciary Score: Rates a mutual fund analytically with a pass/fail score based on acceptable fiduciary requirements, such as how long the fund has been in existence, manager tenure, fund assets, composition, style drift, expense ratio, alpha, Sharpe ratio, and performance relative to its peers. A fiduciary score of 0 is most favorable.
Rolling Return ± Category Index 1 in 5 years: Looks at each 1-year period within 5 years and averages the amount (in percentage points) by which the fund has outperformed or underperformed the category index. The higher the rolling return, the better.
Rolling Batting Average 3 in 5 years: Measures the fund’s consistency. For example, a fund that equals or outperforms the index each month in a given period would have a batting average of 100. A fund that beats the index 50% of the time would have a score of 50. The higher the rolling batting average, the better.
Rolling Information Ratio 3 in 5 years: Calculates risk-adjusted performance. It’s similar to a common measure of volatility called the Sharpe ratio, except it measures risk to a specific benchmark index most appropriate for the fund being evaluated. The higher the rolling information ratio, the better.
Duration (for bond funds only): Measures how much the fund’s value will be affected by changes in interest rates. The higher the duration, the more it will be affected by rising or falling rates.
Average Credit Quality (for bond funds only): Describes how likely the fund’s bond issuers are to
default on their payments. The higher the credit quality, the less likely it is that the fund will experience a default.
Klein’s software then assigns the funds points and ranks them. For instance, if a fund has a low expense ratio, it will get more points than a fund with a high expense ratio. If a fund has consistent returns over a 5-year period, it will score higher than a fund that has had one or two good years.
This is how the ACA investment team identifies the top 25 funds listed in each asset class. The team then screens for several other characteristics before making its final selections:
• Manager Tenure
• Brokerage availability
• Investment minimums
• Whether the fund is open or closed to new investors
• Overall suitability for clients of ACA members
The team also looks closely at funds that were previously selected but no longer appear on the top 25 list. They may choose to keep them on the Suggested Funds List with a note to ACA members, or remove them from the list altogether.
Considerable time was spent designing the final selection criteria. These characteristics help the investment team identify our top-ranked funds. The team uses a weighted scoring system, based on the selection criteria just described.
Many ACA members use their own criteria for selecting mutual funds, either as a completely separate process or in conjunction with the Selected Funds List. The list is a tool that preselects some of the best mutual funds available, leaving your advisor more time to focus on your unique
financial needs.
June 25, 2009
Caring for Elderly Loved Ones from Afar
By Karen F. Folk, Ph.D., CFP®
Urbana, IL
At one time family members—grandparents, parents, and children—lived in close proximity, often in the same house. But that was then and this is now.
According to the MetLife Mature Market Institute’s Since You Care guide, some 34 million Americans are caring for older family members. And 15% of these caregivers, or 5.1 million, live one or more hours from the loved ones who need their help.
In many instances, long-distance caregivers not only care for a parent or older relative, but they also are employed and have dependent children. That’s no easy task. Longdistance caregivers juggle the demands of two households, unable to provide direct, everyday care for older family
members but responsible for arranging for and coordinating services from afar. They often have to rely on reports from others about daily events. Just as often, they have to arrange and then
rearrange work schedules, business trips, and doctors’ appointments.
Sometimes they must make unexpected long-distance trips to deal with crises. As the American Association of Retired Persons (AARP) has noted, the responsibility can be difficult, stressful, and time consuming. But here are some suggestions that can make caring for your aging relatives more manageable:
1. Gather information and assess the need.
First, determine with your parents (and other family members) what help is needed. Use in-person visits to socialize but also to assess health and safety issues (e.g., spoiled food in the fridge, unpaid bills, poor personal hygiene). Is there anything unusual or different that could signal a problem? In discussions with parents, stress the need to find solutions that will allow them to maintain their independence as long as possible.
In some cases, you might consider hiring a professional geriatric care manager to assess a family member’s needs. The National Association of Professional Geriatric Care Managers provides links to association members (www.caremanager.org). A professional geriatric care manager might charge $100 to $500 for an assessment and $60 to $90 an hour for ongoing care. If you choose this option, be sure to select a geriatric manager who is state licensed or certified. Many states and municipalities have benefits and resources to help cover the costs of some services for
qualifying individuals. Another resource, the Eldercare Locator (800-677-1116), can tell you which local agencies provide services and will refer you to the area agency on aging in your parents’ community.
2. Be prepared.
Before a crisis occurs, complete and distribute widely a caregiver emergency information kit. Include in the kit all necessary medical, financial, and legal information, including doctors, medications, insurance information, assets, Social Security numbers, wills, living wills, durable powers of attorney, and healthcare proxies.
Ask your parents to complete HIPAA compliant privacy release forms and file copies at the physician’s office. That way, your parent’s doctor can discuss the older family member’s health with you. A good resource with helpful checklists is www.familycaregiving101.org. AARP also has useful long-distance care-giving resources at www.aarp.org.
3. Develop an informal network.
Experts advise adult children to establish an informal support network composed of family, neighbors, friends, clergy, and others who might help. When you’re visiting your parents or older
family members, introduce yourself to neighbors and friends and keep their phone numbers and addresses handy. If you can’t reach a parent, calling someone in the area that you know may provide peace of mind. In addition, they may be able to help with some needed tasks.
4. Visit as often as you can.
Visit your older family members every few months to check for signs of trouble. Note, however, that professional care can be expensive. According to MetLife, caregivers spend an average of $193 per month on out-ofpocket purchases and services for the care recipient and another $199 per month in traveling and long-distance phone expenses. It may help to consult your ACA advisor early on, to ensure that your loved ones are cared for properly in the future.
This column, produced by the Financial Planning Association (FPA), the membership organization for the financial planning community, was modified by Karen Folk, CFP®, a member of the FPA and ACA.
Urbana, IL
At one time family members—grandparents, parents, and children—lived in close proximity, often in the same house. But that was then and this is now.
According to the MetLife Mature Market Institute’s Since You Care guide, some 34 million Americans are caring for older family members. And 15% of these caregivers, or 5.1 million, live one or more hours from the loved ones who need their help.
In many instances, long-distance caregivers not only care for a parent or older relative, but they also are employed and have dependent children. That’s no easy task. Longdistance caregivers juggle the demands of two households, unable to provide direct, everyday care for older family
members but responsible for arranging for and coordinating services from afar. They often have to rely on reports from others about daily events. Just as often, they have to arrange and then
rearrange work schedules, business trips, and doctors’ appointments.
Sometimes they must make unexpected long-distance trips to deal with crises. As the American Association of Retired Persons (AARP) has noted, the responsibility can be difficult, stressful, and time consuming. But here are some suggestions that can make caring for your aging relatives more manageable:
1. Gather information and assess the need.
First, determine with your parents (and other family members) what help is needed. Use in-person visits to socialize but also to assess health and safety issues (e.g., spoiled food in the fridge, unpaid bills, poor personal hygiene). Is there anything unusual or different that could signal a problem? In discussions with parents, stress the need to find solutions that will allow them to maintain their independence as long as possible.
In some cases, you might consider hiring a professional geriatric care manager to assess a family member’s needs. The National Association of Professional Geriatric Care Managers provides links to association members (www.caremanager.org). A professional geriatric care manager might charge $100 to $500 for an assessment and $60 to $90 an hour for ongoing care. If you choose this option, be sure to select a geriatric manager who is state licensed or certified. Many states and municipalities have benefits and resources to help cover the costs of some services for
qualifying individuals. Another resource, the Eldercare Locator (800-677-1116), can tell you which local agencies provide services and will refer you to the area agency on aging in your parents’ community.
2. Be prepared.
Before a crisis occurs, complete and distribute widely a caregiver emergency information kit. Include in the kit all necessary medical, financial, and legal information, including doctors, medications, insurance information, assets, Social Security numbers, wills, living wills, durable powers of attorney, and healthcare proxies.
Ask your parents to complete HIPAA compliant privacy release forms and file copies at the physician’s office. That way, your parent’s doctor can discuss the older family member’s health with you. A good resource with helpful checklists is www.familycaregiving101.org. AARP also has useful long-distance care-giving resources at www.aarp.org.
3. Develop an informal network.
Experts advise adult children to establish an informal support network composed of family, neighbors, friends, clergy, and others who might help. When you’re visiting your parents or older
family members, introduce yourself to neighbors and friends and keep their phone numbers and addresses handy. If you can’t reach a parent, calling someone in the area that you know may provide peace of mind. In addition, they may be able to help with some needed tasks.
4. Visit as often as you can.
Visit your older family members every few months to check for signs of trouble. Note, however, that professional care can be expensive. According to MetLife, caregivers spend an average of $193 per month on out-ofpocket purchases and services for the care recipient and another $199 per month in traveling and long-distance phone expenses. It may help to consult your ACA advisor early on, to ensure that your loved ones are cared for properly in the future.
This column, produced by the Financial Planning Association (FPA), the membership organization for the financial planning community, was modified by Karen Folk, CFP®, a member of the FPA and ACA.
June 11, 2009
Preparing for the Inevitable
by Kathleen M. Rehl, Ph.D., CFP®
Land O’Lakes, FL
http://www.rehlmoney.com/
My soulmate and husband, Tom, died in February 2007. Then my dear mother passed away a month later.
Although I miss their physical presence tremendously, their spirits and love will always be with me. I’m grateful for my faith, along with the friends, family, and clients who offered their loving support.
Yes, managing grief at the death of a loved one is difficult. You may have experienced a similar intense heartache yourself.
In my case, there were two estates to settle. That’s pretty straightforward work, although it is time consuming. Tom and my mother did almost everything right in terms of their end-of-life planning, thanks in part to their astute financial advisor.
Think of it this way. Having all in order is the last gift you can give those you leave behind. What a wonderful bequest for your loved ones! Think of it as tying up the loose ends of our lives. If left undone, incomplete estate plans may cause pain, guilt, sorrow, and regret for family members, on top of the grief they feel.
My husband’s and my mother’s IRAs and other retirement plan beneficiaries were identified correctly. Tom’s and Mom’s wills were current. Annuity and life insurance beneficiaries were up
to date. And their nonretirement accounts were “payable on death” or “transferable on death” to avoid probate. They both had updated their living wills, so there was no question about their wishes when they were near the end of their lives.
It’s been said that half of all lawyers die without wills. That’s understandable. Preparing for your own death demands you confront a toxic mix of chaotic emotions and enervating details. I’m glad that Tom’s and Mom’s updated documents were in place well before their deaths.
Still, I had to make dozens of decisions, especially with Mom’s estate. She wanted everything split equally among her three children, but what does that really mean in terms of the family mementos that were in her apartment? My brothers and I amicably divided those sentimental items. We donated much of her household furnishings to help needy families through Lutheran Services of Florida. I ended up taking some things none of us really wanted but that I couldn’t bear to let leave the family (like the small well-worn green stool my greatgreat- grandfather made for Mom when she was a little girl).
So, as you think about your own end-of-life plans, what loose ends do you need to tie up?
1. Check your beneficiary statements.
Retirement accounts like IRAs, 403(b)s, 401(k)s, and pension plans, along with insurance policies and annuities, pass to your designated beneficiaries outside of the probate process. If you haven’t checked your beneficiary listings lately, request a current record to verify that your listings match your intentions. Don’t forget to identify any charities in your list of beneficiaries. Remember that in certain states, you can also transfer your residence with a Lady Bird Deed (which conveys an enhanced life estate). Keep a listing of all these beneficiaries where they can easily be found, probably close to where you keep your will.
2. Revisit your will.
Find your will and let other people know where it is—no hide and seek games, please. Read your will. Does it do what you want it to do? Do you understand what’s in it? If not, see your lawyer. (The same suggestion goes for your living trust if you also have one.)
3. Have your advance health care directives in place, including a living will.
If appropriate, you may also want your physician to prepare a DNR (do not resuscitate) order.
4. Identify who gets which special keepsakes.
If you want distinctive treasures to go to special people, put it in writing. It doesn’t have to be complicated, but it does have to be clear. This is sometimes referred to as a “separate letter of instruction” about your personal items. If you think there might be disagreement, include this in your will to make it enforceable by the probate court. The workbook Who Gets Grandma’s Yellow Pie Plate? (published by the University of Minnesota Extension Service) may be helpful.
5. Decide what you want for your funeral or memorial service and let your family know.
Tom actually wrote much of his memorial service (he was a pastor). You can simply let others know if you want to be cremated or buried. What favorite sacred verses or music would you like included? Who should be notified? Planning in advance will help your family during that difficult time.
6. Tell people you love them—TODAY.
Remember that you too will die someday. We’re all guaranteed to have that experience. Waiting until then will be too late to say you’re sorry and make up. Let the healing begin while you are still alive.
Yes, when your time comes to leave this earthly life behind, your loved ones will feel a greater sense of comfort because of your thoughtful actions before your death. Do what you can now to help those you care for in the time ahead when you, too, will pass on. It will give them—and you—greater peace of mind.
Land O’Lakes, FL
http://www.rehlmoney.com/
My soulmate and husband, Tom, died in February 2007. Then my dear mother passed away a month later.
Although I miss their physical presence tremendously, their spirits and love will always be with me. I’m grateful for my faith, along with the friends, family, and clients who offered their loving support.
Yes, managing grief at the death of a loved one is difficult. You may have experienced a similar intense heartache yourself.
In my case, there were two estates to settle. That’s pretty straightforward work, although it is time consuming. Tom and my mother did almost everything right in terms of their end-of-life planning, thanks in part to their astute financial advisor.
Think of it this way. Having all in order is the last gift you can give those you leave behind. What a wonderful bequest for your loved ones! Think of it as tying up the loose ends of our lives. If left undone, incomplete estate plans may cause pain, guilt, sorrow, and regret for family members, on top of the grief they feel.
My husband’s and my mother’s IRAs and other retirement plan beneficiaries were identified correctly. Tom’s and Mom’s wills were current. Annuity and life insurance beneficiaries were up
to date. And their nonretirement accounts were “payable on death” or “transferable on death” to avoid probate. They both had updated their living wills, so there was no question about their wishes when they were near the end of their lives.
It’s been said that half of all lawyers die without wills. That’s understandable. Preparing for your own death demands you confront a toxic mix of chaotic emotions and enervating details. I’m glad that Tom’s and Mom’s updated documents were in place well before their deaths.
Still, I had to make dozens of decisions, especially with Mom’s estate. She wanted everything split equally among her three children, but what does that really mean in terms of the family mementos that were in her apartment? My brothers and I amicably divided those sentimental items. We donated much of her household furnishings to help needy families through Lutheran Services of Florida. I ended up taking some things none of us really wanted but that I couldn’t bear to let leave the family (like the small well-worn green stool my greatgreat- grandfather made for Mom when she was a little girl).
So, as you think about your own end-of-life plans, what loose ends do you need to tie up?
1. Check your beneficiary statements.
Retirement accounts like IRAs, 403(b)s, 401(k)s, and pension plans, along with insurance policies and annuities, pass to your designated beneficiaries outside of the probate process. If you haven’t checked your beneficiary listings lately, request a current record to verify that your listings match your intentions. Don’t forget to identify any charities in your list of beneficiaries. Remember that in certain states, you can also transfer your residence with a Lady Bird Deed (which conveys an enhanced life estate). Keep a listing of all these beneficiaries where they can easily be found, probably close to where you keep your will.
2. Revisit your will.
Find your will and let other people know where it is—no hide and seek games, please. Read your will. Does it do what you want it to do? Do you understand what’s in it? If not, see your lawyer. (The same suggestion goes for your living trust if you also have one.)
3. Have your advance health care directives in place, including a living will.
If appropriate, you may also want your physician to prepare a DNR (do not resuscitate) order.
4. Identify who gets which special keepsakes.
If you want distinctive treasures to go to special people, put it in writing. It doesn’t have to be complicated, but it does have to be clear. This is sometimes referred to as a “separate letter of instruction” about your personal items. If you think there might be disagreement, include this in your will to make it enforceable by the probate court. The workbook Who Gets Grandma’s Yellow Pie Plate? (published by the University of Minnesota Extension Service) may be helpful.
5. Decide what you want for your funeral or memorial service and let your family know.
Tom actually wrote much of his memorial service (he was a pastor). You can simply let others know if you want to be cremated or buried. What favorite sacred verses or music would you like included? Who should be notified? Planning in advance will help your family during that difficult time.
6. Tell people you love them—TODAY.
Remember that you too will die someday. We’re all guaranteed to have that experience. Waiting until then will be too late to say you’re sorry and make up. Let the healing begin while you are still alive.
Yes, when your time comes to leave this earthly life behind, your loved ones will feel a greater sense of comfort because of your thoughtful actions before your death. Do what you can now to help those you care for in the time ahead when you, too, will pass on. It will give them—and you—greater peace of mind.
May 13, 2009
Enjoying Solid Benefits from Home Renovations
By Karen Folk, Ph.D., CFP®
Urbana, IL www.karenfolk.com
Home renovation has changed in the last ten years or so. Fueled by huge gains in the price of real estate, homeowners used to tap home equity with little care because prices were expected to keep climbing, more than covering the cost of improvements.
Today, with the slowdown in real estate and the widening damage in the subprime loan market, it’s common to see home prices falling, not rising. And lenders are often a lot choosier about who they do business with. So before considering a home renovation, make sure your financial house is in order.
Start with your credit report. If you’re considering borrowing, make sure your credit report and payment records are in the best possible shape. As in most economic crises, lenders go from being permissive to squeamish in an instant, so even people with good credit are going to be closely scrutinized.
Check your credit report—you can get all three of your credit reports (from Experian, TransUnion, and Equifax) once a year for free. You can order them at www.annualcreditreport.com. Some suggest ordering them at staggered times throughout the year so you can catch potential errors in your report as they happen. Others recommend getting all three at once, so reviewing credit reports becomes only a once-a-year task. Reviewing your report can help you clean up any negative credit behavior like late bills or heavy credit card debt.
See what kind of payoff your planned renovations will deliver. During the housing boom, many people believed almost any renovation would offer big returns. It wasn’t true then, and it’s especially untrue now. Take time to figure out what renovations now have the best chance for return on investment.
One good resource is Remodeling magazine’s annual Cost vs. Value report (http://www.remodeling.hw.net/2008/costvsvalue/national.aspx). Many people find they won’t recover their investment in a remodeling project. It’s still OK to go ahead. Just renovate because it’s going to bring you comfort or pleasure, not because you’re expecting immediate profits. If you’re not renovating for yourself, but for a potential buyer, remember that they may not share your taste. You may love those new custom kitchen cabinets, but they may offer you a lower bid for your home if they hate them and want to replace them.
Know how long you’ll need to stick around. When you sell, remember that most married couples can exclude from their taxable income up to $500,000 of gain, and most individuals filing single or married filing separately can exclude up to $250,000. You must have owned and used your home as your principal residence for two out of the five years before the sale. The exclusion is generally applicable once every two years. However, if you are unable to meet the two-year ownership and use requirements because of a change in employment, health reasons, or unforeseen circumstances, your exclusion may be prorated.
Beware the bump in property taxes. More valuable property often leads to higher tax assessments. Make sure you can afford not only the cost of renovation but what you’ll need to pay in higher property taxes.
Don’t forget applicable sales tax deductions. If sales tax was imposed on a major renovation or if your state or locality imposes a general sales tax on the sale of a home or the cost of a substantial addition or major renovation, you may be able to deduct it. This alternative is particularly valuable in low-income-tax states, and the sales tax paid on the purchase of some large items including the purchase of a home or major addition can be added to the taxable amounts.
Make sure your renovation leaves your home salable. A discussion with a real estate agent can tell you what will add or subtract value. For instance, a big addition can take away from the value of a home if it’s not aesthetically in line with the rest of the neighborhood. Obviously, any renovation that keeps your house on the market longer had better be worth it now because it may damage your sales prospects later.
The process of renovating your home is often disruptive. Many make the mistake of waiting until they’re about to sell the house before making the improvements they’ve dreamed about for years. But don’t forget, you’re living there now. The most important renovations are often those you’ll have the chance to enjoy.
Karen Folk, CFP®, a member of the FPA and ACA, adapted this column produced by the Financial Planning Association, the membership organization for the financial planning community.
Karen Folk, CFP®, a member of the FPA and ACA, adapted this column produced by the Financial Planning Association, the membership organization for the financial planning community.
Urbana, IL www.karenfolk.com
Home renovation has changed in the last ten years or so. Fueled by huge gains in the price of real estate, homeowners used to tap home equity with little care because prices were expected to keep climbing, more than covering the cost of improvements.
Today, with the slowdown in real estate and the widening damage in the subprime loan market, it’s common to see home prices falling, not rising. And lenders are often a lot choosier about who they do business with. So before considering a home renovation, make sure your financial house is in order.
Start with your credit report. If you’re considering borrowing, make sure your credit report and payment records are in the best possible shape. As in most economic crises, lenders go from being permissive to squeamish in an instant, so even people with good credit are going to be closely scrutinized.
Check your credit report—you can get all three of your credit reports (from Experian, TransUnion, and Equifax) once a year for free. You can order them at www.annualcreditreport.com. Some suggest ordering them at staggered times throughout the year so you can catch potential errors in your report as they happen. Others recommend getting all three at once, so reviewing credit reports becomes only a once-a-year task. Reviewing your report can help you clean up any negative credit behavior like late bills or heavy credit card debt.
See what kind of payoff your planned renovations will deliver. During the housing boom, many people believed almost any renovation would offer big returns. It wasn’t true then, and it’s especially untrue now. Take time to figure out what renovations now have the best chance for return on investment.
One good resource is Remodeling magazine’s annual Cost vs. Value report (http://www.remodeling.hw.net/2008/costvsvalue/national.aspx). Many people find they won’t recover their investment in a remodeling project. It’s still OK to go ahead. Just renovate because it’s going to bring you comfort or pleasure, not because you’re expecting immediate profits. If you’re not renovating for yourself, but for a potential buyer, remember that they may not share your taste. You may love those new custom kitchen cabinets, but they may offer you a lower bid for your home if they hate them and want to replace them.
Know how long you’ll need to stick around. When you sell, remember that most married couples can exclude from their taxable income up to $500,000 of gain, and most individuals filing single or married filing separately can exclude up to $250,000. You must have owned and used your home as your principal residence for two out of the five years before the sale. The exclusion is generally applicable once every two years. However, if you are unable to meet the two-year ownership and use requirements because of a change in employment, health reasons, or unforeseen circumstances, your exclusion may be prorated.
Beware the bump in property taxes. More valuable property often leads to higher tax assessments. Make sure you can afford not only the cost of renovation but what you’ll need to pay in higher property taxes.
Don’t forget applicable sales tax deductions. If sales tax was imposed on a major renovation or if your state or locality imposes a general sales tax on the sale of a home or the cost of a substantial addition or major renovation, you may be able to deduct it. This alternative is particularly valuable in low-income-tax states, and the sales tax paid on the purchase of some large items including the purchase of a home or major addition can be added to the taxable amounts.
Make sure your renovation leaves your home salable. A discussion with a real estate agent can tell you what will add or subtract value. For instance, a big addition can take away from the value of a home if it’s not aesthetically in line with the rest of the neighborhood. Obviously, any renovation that keeps your house on the market longer had better be worth it now because it may damage your sales prospects later.
The process of renovating your home is often disruptive. Many make the mistake of waiting until they’re about to sell the house before making the improvements they’ve dreamed about for years. But don’t forget, you’re living there now. The most important renovations are often those you’ll have the chance to enjoy.
Karen Folk, CFP®, a member of the FPA and ACA, adapted this column produced by the Financial Planning Association, the membership organization for the financial planning community.
Karen Folk, CFP®, a member of the FPA and ACA, adapted this column produced by the Financial Planning Association, the membership organization for the financial planning community.
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