By Steve Martin, CFP®, RLP®
Fort Collins, CO
http://www.mwm3.com/
You may not be thinking about your tax return right now, but summer is a great time to start planning for next year and to make sure your records are organized. Maintaining good records now can make filing your return a lot easier and it will help you remember transactions you made during the year.
Here are a few things the IRS wants you to know about recordkeeping.
Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you receive an IRS notice. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.
Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:
•Bills
•Credit card and other receipts
•Invoices
•Mileage logs
•Canceled, imaged or substitute checks or any other proof of payment
•Any other records to support deductions or credits you claim on your return
You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
•A home purchase or improvement
•Stocks and other investments
•Individual Retirement Arrangement transactions
•Rental property records
If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:
•Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
•Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
•Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
•Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
For more information about recordkeeping, check out IRS Publications 552, Recordkeeping for Individuals, 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
September 29, 2010
September 25, 2010
Divorce - Recession Style: The House
By Linda Leitz, CFP®, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
Besides income and expenses, the house is another issue that sometimes has some aberrant circumstances in this recession. During a “normal” economy, it’s pretty common for divorcing families either sell the home or one of them continues to live in it. Seems pretty straightforward. If neither of the spouses wants to stay in the house or can afford it, the house is sold. Since the house is one of the biggest assets for the family, it can sometimes be tricky even in normal times.
But these are not normal times. Money stress seems to be bringing more people to seeking divorce as a solution. And for many of these families, their house is “underwater”, meaning they owe more than the house will currently sell for. Some people see their investment and retirement accounts worth less than they put in, but they don’t owe more than the account balance. So the house is treated more like a liability in the financial settlement.
I generally advise people going through divorce to make decisions they’ll be comfortable with going forward. It’s often difficult to see past the terrible pain (and sometimes anger) that drives what someone in the midst of a divorce thinks they want to do. So long term decisions are important.
In that vein, it’s difficult sometimes to avoid what is sometimes referred to as the “recency effect”. That’s acting as if everything will continue to be the way it has been recently. Even the doom sayers don’t assume the recession will go on forever. So it’s reasonable to expect that in the foreseeable future real estate markets will be better than they are now. Sometimes the answer is a temporary one that allows both spouses to move forward and offers as little disruption as possible to the children. One spouse stays in the house with the kids and pays the mortgage until the house has enough equity to make a sale at least a break even proposition.
Sometimes the spouse that doesn’t take the house feels like it’s a raw deal because the house will be worth so much more in the future. That’s true of any of the marital assets. An investment account may go up – or down – in value and the one who takes it has to have the patience (and in the case of the house, the funds) to wait and hope for better days.
In a worst case, the house might have to go into foreclosure or a short sale. This is an environment where some people will end up with this terrible situation that wouldn’t under normal circumstances. But that doesn’t mean it should be taken lightly. That is a negative impact that will be reflected on the credit of anyone on the mortgage for several years.
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
Besides income and expenses, the house is another issue that sometimes has some aberrant circumstances in this recession. During a “normal” economy, it’s pretty common for divorcing families either sell the home or one of them continues to live in it. Seems pretty straightforward. If neither of the spouses wants to stay in the house or can afford it, the house is sold. Since the house is one of the biggest assets for the family, it can sometimes be tricky even in normal times.
But these are not normal times. Money stress seems to be bringing more people to seeking divorce as a solution. And for many of these families, their house is “underwater”, meaning they owe more than the house will currently sell for. Some people see their investment and retirement accounts worth less than they put in, but they don’t owe more than the account balance. So the house is treated more like a liability in the financial settlement.
I generally advise people going through divorce to make decisions they’ll be comfortable with going forward. It’s often difficult to see past the terrible pain (and sometimes anger) that drives what someone in the midst of a divorce thinks they want to do. So long term decisions are important.
In that vein, it’s difficult sometimes to avoid what is sometimes referred to as the “recency effect”. That’s acting as if everything will continue to be the way it has been recently. Even the doom sayers don’t assume the recession will go on forever. So it’s reasonable to expect that in the foreseeable future real estate markets will be better than they are now. Sometimes the answer is a temporary one that allows both spouses to move forward and offers as little disruption as possible to the children. One spouse stays in the house with the kids and pays the mortgage until the house has enough equity to make a sale at least a break even proposition.
Sometimes the spouse that doesn’t take the house feels like it’s a raw deal because the house will be worth so much more in the future. That’s true of any of the marital assets. An investment account may go up – or down – in value and the one who takes it has to have the patience (and in the case of the house, the funds) to wait and hope for better days.
In a worst case, the house might have to go into foreclosure or a short sale. This is an environment where some people will end up with this terrible situation that wouldn’t under normal circumstances. But that doesn’t mean it should be taken lightly. That is a negative impact that will be reflected on the credit of anyone on the mortgage for several years.
September 21, 2010
Take Control of Your Life with a Personal Strategic Plan
By Jane Young, CFP®, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
At least once a year we need to step back from our daily routine to look at our lives from a broader perspective. We get so bogged down with daily responsibilities we lose track of where we are, and where we want to go. Take the time to do some personal strategic planning. Start by looking at what you are actually spending and saving. How much do you spend in a typical month, how much is necessary spending and how much is discretionary? How do your expenses compare to your income? How do your expenses and your savings line up with your goals?
Maybe you haven’t thought about your long range goals for awhile. I challenge you to make a list of 30–50 goals that you would like to accomplish over the next five years. I know… that’s a lot! Think of this as a brainstorming exercise. Don’t evaluate the importance of a goal, just write down what comes to mind. If you are having difficulty thinking of 30–50 goals, try thinking of goals in the following categories: friends and family, health, career, social and entertainment, money and finance, spiritual, education, and community. Once you have created your list, prioritize your goals by importance and timeframe. Develop an action plan for your high priority goals.
Now go back and review your expenses. Are your spending and saving habits congruent with your long term goals? Use the information you have pulled together to develop a spending and savings plan that supports your personal strategic plan. Once you have a clear picture of where you are and where you want to go, you can take control of your life.
“The future belongs to those who believe in the beauty of their dreams.” - Eleanor Roosevelt
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
At least once a year we need to step back from our daily routine to look at our lives from a broader perspective. We get so bogged down with daily responsibilities we lose track of where we are, and where we want to go. Take the time to do some personal strategic planning. Start by looking at what you are actually spending and saving. How much do you spend in a typical month, how much is necessary spending and how much is discretionary? How do your expenses compare to your income? How do your expenses and your savings line up with your goals?
Maybe you haven’t thought about your long range goals for awhile. I challenge you to make a list of 30–50 goals that you would like to accomplish over the next five years. I know… that’s a lot! Think of this as a brainstorming exercise. Don’t evaluate the importance of a goal, just write down what comes to mind. If you are having difficulty thinking of 30–50 goals, try thinking of goals in the following categories: friends and family, health, career, social and entertainment, money and finance, spiritual, education, and community. Once you have created your list, prioritize your goals by importance and timeframe. Develop an action plan for your high priority goals.
Now go back and review your expenses. Are your spending and saving habits congruent with your long term goals? Use the information you have pulled together to develop a spending and savings plan that supports your personal strategic plan. Once you have a clear picture of where you are and where you want to go, you can take control of your life.
“The future belongs to those who believe in the beauty of their dreams.” - Eleanor Roosevelt
September 17, 2010
Caution: Simple Reminders Can Improve Finances
By Robert Schmansky, CFP®
Franklin, MI
http://www.nfa1040.com/
Originally published 8/23/2010 at the Financial Planning Assocation® All Things Financial Planning Blog
My post this week is inspired by the book Remove Child Before Folding: The 101 Stupidest, Silliest, and Wackiest Warning Labels Ever by Bob Dorigo Jones. In his book Mr. Jones makes light of the use of labels in our society. Labels, the book proclaims, are often overused, unhelpful, and outright bizarre.
The title refers for a folding baby stroller which sports a label making sure parents don’t pack away the baby with the stroller. Other crazy label examples include a go-cart with warning “this product moves when used” and a heavy-duty washing machine that advises “do not put any person in this washer.”
One has to agree with the author when reading the above examples that the amount of labeling is often excessive and silly (does a lacrosse helmet need to let the user know they are participating in a rough sport?).
As I often do, I thought about how the topic could relate to personal finance. In my world I wonder if we haven’t missed the boat on the best use for labels – pointing out the inefficient and ineffective ways we sometimes treat our finances and planning.
For example, would clearer labels (or, reminders really) help us avoid behaviors we know are harmful in times our will or nerves are a little less than sturdy?
As I am not above tricks to help improve our clients finances, I pondered – should financial products or planning come with labels?
What if all credit cards came in a carrying sleeve with the reminder, ‘Warning – Earn Money before Spending.’
Or for those with their savings all on the sidelines in the bank savings account because of fear of investing in today’s markets… ‘Caution – Savings Accounts Do Not Increase At the Same Pace as Your Living Costs!’ (Of course, most banks will courteously let you know when they feel your accounts have too much cash they could invest for you so this reminder isn’t altogether missed).
My dream label however would be a scrolling reminder on the business news channel that the opinions of the guests were just that – opinions – and their ideas may not be useful for your personal investment plan, or a good predictor of the future of the economy. Their stories for the ‘Top Mutual Fund You Need to Own Today’ in my world would have the disclaimer, “The top mutual funds you need to own may not be suitable for your asset allocation, risk tolerance, or financial plan. Owning these funds may not be necessary to meet your dreams and financial goals.”
While my dreams of labeling our investment statements and financial products may not be practical (or I admit we may become used to seeing them and lose their effectiveness), there are tricks you can use as reminders for whatever your personal financial issues are.
In the past I have used a photo of a 3¢ postage stamp from the 1930s to remind clients about the nature of inflation and why sitting in cash was not helpful to their long-term ability to grow enough to help them meet future spending needs.
A few ideas for making the easy act of charging your purchases I’ve come across in the past include wrapping your cards in paper that you must open at the register in order to use, or creating a sleeve for your cards with your own reminder label about how this purchase may not be necessary. An extreme measure some have used is to freeze their cards in ice, requiring time to consider a purchase while the ice melts (though this method may cause damage to the actual card).
Don’t feel below reminders or tricks to help yourself make more prudent financial decisions. Just like forgetting to remove the baby from the stroller, financial mistakes cause actual harm. The difference being the harm isn’t always obvious or noticeable immediately so it is easier to rationalize or minimize.
Are there any tips you have for helping your finances through reminders or trickery? Feel free to add them to the comments below.
Franklin, MI
http://www.nfa1040.com/
Originally published 8/23/2010 at the Financial Planning Assocation® All Things Financial Planning Blog
My post this week is inspired by the book Remove Child Before Folding: The 101 Stupidest, Silliest, and Wackiest Warning Labels Ever by Bob Dorigo Jones. In his book Mr. Jones makes light of the use of labels in our society. Labels, the book proclaims, are often overused, unhelpful, and outright bizarre.
The title refers for a folding baby stroller which sports a label making sure parents don’t pack away the baby with the stroller. Other crazy label examples include a go-cart with warning “this product moves when used” and a heavy-duty washing machine that advises “do not put any person in this washer.”
One has to agree with the author when reading the above examples that the amount of labeling is often excessive and silly (does a lacrosse helmet need to let the user know they are participating in a rough sport?).
As I often do, I thought about how the topic could relate to personal finance. In my world I wonder if we haven’t missed the boat on the best use for labels – pointing out the inefficient and ineffective ways we sometimes treat our finances and planning.
For example, would clearer labels (or, reminders really) help us avoid behaviors we know are harmful in times our will or nerves are a little less than sturdy?
As I am not above tricks to help improve our clients finances, I pondered – should financial products or planning come with labels?
What if all credit cards came in a carrying sleeve with the reminder, ‘Warning – Earn Money before Spending.’
Or for those with their savings all on the sidelines in the bank savings account because of fear of investing in today’s markets… ‘Caution – Savings Accounts Do Not Increase At the Same Pace as Your Living Costs!’ (Of course, most banks will courteously let you know when they feel your accounts have too much cash they could invest for you so this reminder isn’t altogether missed).
My dream label however would be a scrolling reminder on the business news channel that the opinions of the guests were just that – opinions – and their ideas may not be useful for your personal investment plan, or a good predictor of the future of the economy. Their stories for the ‘Top Mutual Fund You Need to Own Today’ in my world would have the disclaimer, “The top mutual funds you need to own may not be suitable for your asset allocation, risk tolerance, or financial plan. Owning these funds may not be necessary to meet your dreams and financial goals.”
While my dreams of labeling our investment statements and financial products may not be practical (or I admit we may become used to seeing them and lose their effectiveness), there are tricks you can use as reminders for whatever your personal financial issues are.
In the past I have used a photo of a 3¢ postage stamp from the 1930s to remind clients about the nature of inflation and why sitting in cash was not helpful to their long-term ability to grow enough to help them meet future spending needs.
A few ideas for making the easy act of charging your purchases I’ve come across in the past include wrapping your cards in paper that you must open at the register in order to use, or creating a sleeve for your cards with your own reminder label about how this purchase may not be necessary. An extreme measure some have used is to freeze their cards in ice, requiring time to consider a purchase while the ice melts (though this method may cause damage to the actual card).
Don’t feel below reminders or tricks to help yourself make more prudent financial decisions. Just like forgetting to remove the baby from the stroller, financial mistakes cause actual harm. The difference being the harm isn’t always obvious or noticeable immediately so it is easier to rationalize or minimize.
Are there any tips you have for helping your finances through reminders or trickery? Feel free to add them to the comments below.
September 14, 2010
Prioritizing & Eliminating Debt
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
One of the many questions I receive from new clients involves the elimination of debt. Should I pay off my credit card or my mortgage first? Should I make extra payments towards my student loans? What about that nagging car payment? The answer lies in understanding the question of how to prioritize debt.
Essentially, there are two types of debt: good debt and bad debt. Understanding the difference between good and bad debt will allow for prioritization and systematic elimination of debt.
Good Debt
Good debt is debt that utilizes some type of positive leverage. Good debt also has a component of longevity. For example, borrowing to pay for a college education is certainly good debt because there are tax benefits to the student loan interest, as well as, the education will outlast the debt. That pizza you put on the credit card six months ago is long gone, while the debt may linger. Another example of good debt would be mortgage debt. A mortgage (especially a 30 year fixed rate) will allow for leverage while utilizing the tax benefits of the mortgage interest deduction.
Bad Debt
Bad debt can be categorized as consumer debt. This would include credit cards, revolving debt (store debt, such as a furniture purchase), auto loans, personal loans…etc. These debts offer no tax benefits and usually lead to negative financial momentum. For example, a consumer purchases an expensive car and borrows the money to do so. The payments put a strain on monthly cash flow requiring the consumer to use credit cards to purchase needed items such as food and clothing. The spiraling downturn can become overwhelming and eventually lead to financial ruin.
Attacking Debt
Once the debt is categorized, the picture becomes much clearer and debt elimination can begin. Focusing on bad debt should be the priority. List the debt balances, as well as the interest rates associated with each debt. While some so called “experts” recommend eliminating the smallest debt first, as a comprehensive planner I feel everyone has a unique situation and the debt elimination plan should be individualized. A holistic CFP® (Certified Financial Planner) specializing in cash flow and debt elimination can be a big help when it comes to mounting a charge against debt.
Debt Reduction Tips
1. Understand Cash Flow!
Debt is a by-product of poor cash flow management. Most folks don’t truly know where their money goes every month. It’s important to see in black and white the spending choices that are made. Tracking income and expenses will allow one to see where their money goes. It will also show what is left over at month’s end. What’s left over can be applied to debt, so it’s imperative to keep a close eye on cash flow.
2. Make a Commitment!
If married or in a committed relationship, it is important that all parties are working together to eliminate debt. If one spouse is savings and paying off debt while the other is frivolously spending, little or no progress will be made. Debt reduction requires thought and action, so commitment is essential.
3. Don’t Rush to Eliminate Good Debt!
The good debt discussed above can actually have financial benefits, so don’t rush to eliminate that debt, especially mortgage debt. For example, a 30 year fixed-rate mortgage is a debt I recommend to most of my clients. This mortgage creates a great inflationary hedge. A long term fixed debt will allow the homeowners to make tomorrow’s mortgage payments in today’s dollars, so don’t rush to eliminate this debt. There may be better use of your dollars.
4. Know How Much You Can Afford!
While good debt has benefits, it is important to utilize this debt properly and not overspend. This is especially true in purchasing a home. While I am an advocate of 30 year fixed rate mortgages, I am not an advocate of over-buying real estate. Knowing how much to buy is imperative. Creating an inflationary hedge and utilizing the tax breaks offered from a mortgage will do no good if the homeowner buys a house they cannot afford.
Debt usually stems from behavioral choices, so before any debt reduction can begin the behavioral issues need to be resolved. In essence, living within your means is the first step. Another key component to debt reduction is understanding personal finances from a big picture view. Financial planning is equivalent to a giant puzzle and all pieces should work together to meet the end result, so a synergistic approach should be taken. Taxes, cash flow, interest rates, type of debt, and other issues should all be considered before a debt reduction plan can be put to work. A qualified financial advisor may be needed to tackle debt reduction with a synergistic approach. The Alliance of Cambridge Advisors (ACA) is a great organization of comprehensive planners that can assist is debt reduction strategies. More information can be found at http://www.acaplanners.org/.
Nashville, TN
http://www.vhfinancialmanagement.com/
One of the many questions I receive from new clients involves the elimination of debt. Should I pay off my credit card or my mortgage first? Should I make extra payments towards my student loans? What about that nagging car payment? The answer lies in understanding the question of how to prioritize debt.
Essentially, there are two types of debt: good debt and bad debt. Understanding the difference between good and bad debt will allow for prioritization and systematic elimination of debt.
Good Debt
Good debt is debt that utilizes some type of positive leverage. Good debt also has a component of longevity. For example, borrowing to pay for a college education is certainly good debt because there are tax benefits to the student loan interest, as well as, the education will outlast the debt. That pizza you put on the credit card six months ago is long gone, while the debt may linger. Another example of good debt would be mortgage debt. A mortgage (especially a 30 year fixed rate) will allow for leverage while utilizing the tax benefits of the mortgage interest deduction.
Bad Debt
Bad debt can be categorized as consumer debt. This would include credit cards, revolving debt (store debt, such as a furniture purchase), auto loans, personal loans…etc. These debts offer no tax benefits and usually lead to negative financial momentum. For example, a consumer purchases an expensive car and borrows the money to do so. The payments put a strain on monthly cash flow requiring the consumer to use credit cards to purchase needed items such as food and clothing. The spiraling downturn can become overwhelming and eventually lead to financial ruin.
Attacking Debt
Once the debt is categorized, the picture becomes much clearer and debt elimination can begin. Focusing on bad debt should be the priority. List the debt balances, as well as the interest rates associated with each debt. While some so called “experts” recommend eliminating the smallest debt first, as a comprehensive planner I feel everyone has a unique situation and the debt elimination plan should be individualized. A holistic CFP® (Certified Financial Planner) specializing in cash flow and debt elimination can be a big help when it comes to mounting a charge against debt.
Debt Reduction Tips
1. Understand Cash Flow!
Debt is a by-product of poor cash flow management. Most folks don’t truly know where their money goes every month. It’s important to see in black and white the spending choices that are made. Tracking income and expenses will allow one to see where their money goes. It will also show what is left over at month’s end. What’s left over can be applied to debt, so it’s imperative to keep a close eye on cash flow.
2. Make a Commitment!
If married or in a committed relationship, it is important that all parties are working together to eliminate debt. If one spouse is savings and paying off debt while the other is frivolously spending, little or no progress will be made. Debt reduction requires thought and action, so commitment is essential.
3. Don’t Rush to Eliminate Good Debt!
The good debt discussed above can actually have financial benefits, so don’t rush to eliminate that debt, especially mortgage debt. For example, a 30 year fixed-rate mortgage is a debt I recommend to most of my clients. This mortgage creates a great inflationary hedge. A long term fixed debt will allow the homeowners to make tomorrow’s mortgage payments in today’s dollars, so don’t rush to eliminate this debt. There may be better use of your dollars.
4. Know How Much You Can Afford!
While good debt has benefits, it is important to utilize this debt properly and not overspend. This is especially true in purchasing a home. While I am an advocate of 30 year fixed rate mortgages, I am not an advocate of over-buying real estate. Knowing how much to buy is imperative. Creating an inflationary hedge and utilizing the tax breaks offered from a mortgage will do no good if the homeowner buys a house they cannot afford.
Debt usually stems from behavioral choices, so before any debt reduction can begin the behavioral issues need to be resolved. In essence, living within your means is the first step. Another key component to debt reduction is understanding personal finances from a big picture view. Financial planning is equivalent to a giant puzzle and all pieces should work together to meet the end result, so a synergistic approach should be taken. Taxes, cash flow, interest rates, type of debt, and other issues should all be considered before a debt reduction plan can be put to work. A qualified financial advisor may be needed to tackle debt reduction with a synergistic approach. The Alliance of Cambridge Advisors (ACA) is a great organization of comprehensive planners that can assist is debt reduction strategies. More information can be found at http://www.acaplanners.org/.
September 11, 2010
Thoughts from Atlanta
By Judy Stewart, CFP®, MBA, EA
Carlsbad, CA
http://www.stewart-financial.com/
I am blogging from Atlanta while attending the NAPFA (National Assn Personal Financial Advisors) Core Competency Conference. This morning we had an excellent speaker from the Atlanta Federal Reserve named Michael Hammill. I will share with you some of the key ideas that I gleaned from his presentation:
We are in a period of moderate economic growth (about 2.5%) since the first quarter of 2010. While this is not a great number, at least we are moving in the right direction
Consumer confidence is fairly pessimistic which translates to weak consumer spending. Since consumer spending is 70% of GDP growth, you can see how this translates to the slow growth numbers cited above. Wages drive consumer spending and when you consider the number of people unemployed or underemployed, it makes perfectly good sense that people are not spending because they cannot spend. And the savings rate is up sharply. When we went into this recesssion, the savings rate was negative. It is now hovering around 7%. As a financial planner who preaches a 10% savings rate for people, this makes me very happy. Although the paradox is that we need people to spend in order to grow our economy.
Unemployment is around 9%. However when you factor in the number of people who are underemployed (working part time instead of full time) and the folks who are so discouraged that they have actively stopped looking for work, this number should be doubled. So, the TRUE unemployment rate is more like 18%. Ouch! We are adding about 100,000 jobs a month but when you consider that we were shedding more than 800,000 jobs a month during the recession (depression?), it will take us 5 more years to get back to pre-recession job growth.
Business inventory levels are growing --a good thing!
Housing market is very poor. It was propped up with the generous tax credits but those have all expired. The forecast is that housing market will remain very weak for the next four years. It will take until 2012 to work thru the short sales and foreclosures clogging the market. And until 2014 before housing prices start to rise. Bad news for people trying to sell their home. Hardest hit areas are Florida, Calif, Nevada and Phoenix--the sunshine states where the biggest bubbles were. No surprise there.
Inflation not expected to be an issue for several years--good news
Financial markets adjusting to a new normal--stricter credit --weak loan demand. Loan defaults (except for real estate) have peaked and are now declining.
Europe is working through their debt issues and not as much effect on US markets as expected.
Well, now you have the good, the bad and the ugly. My bottom line take is that we are in for a long and slow recovery but we will recover. I am committed to helping you navigate the road ahead. One of my colleagues said that he feels like Moses--leading his clients to the promised land of prosperity and recognizing that it may take the next 5 years to get there. Great analogy. Let me be your Moses!
Carlsbad, CA
http://www.stewart-financial.com/
I am blogging from Atlanta while attending the NAPFA (National Assn Personal Financial Advisors) Core Competency Conference. This morning we had an excellent speaker from the Atlanta Federal Reserve named Michael Hammill. I will share with you some of the key ideas that I gleaned from his presentation:
We are in a period of moderate economic growth (about 2.5%) since the first quarter of 2010. While this is not a great number, at least we are moving in the right direction
Consumer confidence is fairly pessimistic which translates to weak consumer spending. Since consumer spending is 70% of GDP growth, you can see how this translates to the slow growth numbers cited above. Wages drive consumer spending and when you consider the number of people unemployed or underemployed, it makes perfectly good sense that people are not spending because they cannot spend. And the savings rate is up sharply. When we went into this recesssion, the savings rate was negative. It is now hovering around 7%. As a financial planner who preaches a 10% savings rate for people, this makes me very happy. Although the paradox is that we need people to spend in order to grow our economy.
Unemployment is around 9%. However when you factor in the number of people who are underemployed (working part time instead of full time) and the folks who are so discouraged that they have actively stopped looking for work, this number should be doubled. So, the TRUE unemployment rate is more like 18%. Ouch! We are adding about 100,000 jobs a month but when you consider that we were shedding more than 800,000 jobs a month during the recession (depression?), it will take us 5 more years to get back to pre-recession job growth.
Business inventory levels are growing --a good thing!
Housing market is very poor. It was propped up with the generous tax credits but those have all expired. The forecast is that housing market will remain very weak for the next four years. It will take until 2012 to work thru the short sales and foreclosures clogging the market. And until 2014 before housing prices start to rise. Bad news for people trying to sell their home. Hardest hit areas are Florida, Calif, Nevada and Phoenix--the sunshine states where the biggest bubbles were. No surprise there.
Inflation not expected to be an issue for several years--good news
Financial markets adjusting to a new normal--stricter credit --weak loan demand. Loan defaults (except for real estate) have peaked and are now declining.
Europe is working through their debt issues and not as much effect on US markets as expected.
Well, now you have the good, the bad and the ugly. My bottom line take is that we are in for a long and slow recovery but we will recover. I am committed to helping you navigate the road ahead. One of my colleagues said that he feels like Moses--leading his clients to the promised land of prosperity and recognizing that it may take the next 5 years to get there. Great analogy. Let me be your Moses!
September 8, 2010
Shopping Angst Revealed
By Bridget Sullivan Mermel, CFP®, CPA
Chicago, IL
http://www.sullivanmermel.com/
I've got a theory about stress: it's cumulative. In other words, stress isn't about the two big things that constantly worry you. You can handle the big problems if you're not constantly annoyed with the little ones.
One man who has studied the little stressors is Herb Sorensen, author of Inside the Mind of the Shopper: The Science of Retailing. This book instructs retailers how to get you to buy more. He describes two of the low-level shopping annoyances so retailers can avoid them.
That got me thinking; if we avoid retailers that strike up these annoyances, we'll reduce some of our low-level stress.
Here are the two:
Navigational angst: This is when you go to a store and can't find things. You have to search for an employee, interrupt what they're doing, and hope they'll be familiar with their workplace.
Stores design can help with this. Obviously clearly marked aisles help, but so does low shelving. If you can see the entire store, you'll have less navigational angst. This must be what CVS was thinking when they bought Osco and took down the high shelves.
Choice angst: This comes from having too many items to pick from. One study showed that shoppers bought ten times more when offered limited choice. People spend less time in the aisle scratching their heads and more time buying. This phenomenon can help explain the success of Trader Joes and Aldi. Less choice of one product = less stress.
Choice angst doesn't affect everyone, however. I have one client who loves researching major purchases. This was brought up by his wife, who reported that this tendency stressed her out. I have a friend who is such a thorough researcher that I want her to start her own newsletter. That way I can keep up on what she's buying and buy it too. (As Estelle Reiner said in When Harry Met Sally, "I'll have what she's having.")
Chicago, IL
http://www.sullivanmermel.com/
I've got a theory about stress: it's cumulative. In other words, stress isn't about the two big things that constantly worry you. You can handle the big problems if you're not constantly annoyed with the little ones.
One man who has studied the little stressors is Herb Sorensen, author of Inside the Mind of the Shopper: The Science of Retailing. This book instructs retailers how to get you to buy more. He describes two of the low-level shopping annoyances so retailers can avoid them.
That got me thinking; if we avoid retailers that strike up these annoyances, we'll reduce some of our low-level stress.
Here are the two:
Navigational angst: This is when you go to a store and can't find things. You have to search for an employee, interrupt what they're doing, and hope they'll be familiar with their workplace.
Stores design can help with this. Obviously clearly marked aisles help, but so does low shelving. If you can see the entire store, you'll have less navigational angst. This must be what CVS was thinking when they bought Osco and took down the high shelves.
Choice angst: This comes from having too many items to pick from. One study showed that shoppers bought ten times more when offered limited choice. People spend less time in the aisle scratching their heads and more time buying. This phenomenon can help explain the success of Trader Joes and Aldi. Less choice of one product = less stress.
Choice angst doesn't affect everyone, however. I have one client who loves researching major purchases. This was brought up by his wife, who reported that this tendency stressed her out. I have a friend who is such a thorough researcher that I want her to start her own newsletter. That way I can keep up on what she's buying and buy it too. (As Estelle Reiner said in When Harry Met Sally, "I'll have what she's having.")
September 1, 2010
The Really Important Things in Life
By Judy Stewart, CFP®, MBA, EA
Carlsbad, CA
http://www.stewart-financial.com/
Yesterday my daughter and I attended a wedding in our old neighborhood. We moved away from that home and our dear neighbors next door some 24 years ago. The sweet daughter of that family was the beautiful bride yesterday. Even though many years and "much life" has passed in those 24 years, we felt like we were with family all day and we were so honored to be part of their special day. We even got to tour the backyard of the house that we lived in for 12 years. The house where my daughter lived for the first 4 years of her life. Lots of good memories made in our home and the home next door. And the time and distance between us was like it never happened. We felt loved and part of their circle.
So...why is my personal finance blog reminiscing about the good old days? Shouldn't I be talking about investments, rate of returns etc....? Because yesterday helped me reflect on what is truly important in life. For me, it's spending time with my family and dear friends, gazing at the amazing milky way in Borrego Springs with my husband, walking my dog at the beach, brushing my kitty (she is deliriously happy when I brush her), getting lost in a book for hours, going to Padres baseball games, planning our upcoming missions trip to Haiti, shopping for a bridal dress with my niece and family, cooking and planning healthy dinners. I could go on and on.
For my clients, I strive to help them figure out "how much is enough." So that they can spend their time on the things that are really important in their lives. Oh...and working with my clients... is one of the truly important and fulfilling things in my life.
Carlsbad, CA
http://www.stewart-financial.com/
Yesterday my daughter and I attended a wedding in our old neighborhood. We moved away from that home and our dear neighbors next door some 24 years ago. The sweet daughter of that family was the beautiful bride yesterday. Even though many years and "much life" has passed in those 24 years, we felt like we were with family all day and we were so honored to be part of their special day. We even got to tour the backyard of the house that we lived in for 12 years. The house where my daughter lived for the first 4 years of her life. Lots of good memories made in our home and the home next door. And the time and distance between us was like it never happened. We felt loved and part of their circle.
So...why is my personal finance blog reminiscing about the good old days? Shouldn't I be talking about investments, rate of returns etc....? Because yesterday helped me reflect on what is truly important in life. For me, it's spending time with my family and dear friends, gazing at the amazing milky way in Borrego Springs with my husband, walking my dog at the beach, brushing my kitty (she is deliriously happy when I brush her), getting lost in a book for hours, going to Padres baseball games, planning our upcoming missions trip to Haiti, shopping for a bridal dress with my niece and family, cooking and planning healthy dinners. I could go on and on.
For my clients, I strive to help them figure out "how much is enough." So that they can spend their time on the things that are really important in their lives. Oh...and working with my clients... is one of the truly important and fulfilling things in my life.
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