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(funds with a purchase fee attached), but some of these advisors may not disclose to the client that the fee may be withdrawn from their investment account balance.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Most often hidden charges are withdrawn from the underlying investment.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.
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